Sugar Marketing Wars MMXVI

The Productivity Commission has released a report critical of the changes last year to sugar marketing arrangements in Queensland. Reported at the AFR: Queensland sugar re-regulation costs outweigh benefits, says PC.

The Queensland Parliament’s partial re-regulation of the state’s sugar industry has been slammed by the Productivity Commission, which says the move is likely to worsen profitability and curb investment.

Highlighting that a considerable number of Queensland sugar farms are still too small to be profitable, the independent federal government think-tank said legislation passed late last year to let sugar cane growers direct how millers market internationally is likely to restrict competition and deter new spending on mills or more innovative marketing.

“Re-regulating the Queensland sugar industry will limit the competitive forces driving innovation and productivity growth in sugarcane farming,” the commission said in its draft report into agricultural red tape.

“It is also likely to constrain innovation in marketing and continue to limit the premiums available to sugar cane growers. The commission’s view is that costs of the Sugar Industry (Real Choice in Marketing) Amendment Act outweigh the benefits.”

The legislation was passed in December by the Queensland Liberal-National Party opposition with the support of independents. It has since become a sensitive issue within the Turnbull government, which is eager to signal to foreign investors that Australia is open for business while also keeping federal Queensland LNP members on side.

Former trade minister Andrew Robb was warned during a trade mission to Singapore earlier this year that the Queensland Parliament’s move had damaged the nation’s reputation as an investment destination.

“The re-regulation of sugar marketing in Queensland has the stated objective of allowing sugar cane growers to choose their marketing arrangements,” the commission said in the report. “However, the evidence suggests that the preferred choice of marketing arrangements is likely to reduce the productivity and profitability of the industry by constraining investment and structural adjustment.”

The commission’s report reiterated that the industry continues to fail to take advantage of economies of scale. The average size of sugar cane farms has increased from 80 hectares in 1997-98 to 110 hectares in 2015-16, but is still well below the US average of 495 hectares.

Research cited in the report suggests farms smaller than 125 hectares generate a negative rate of return on capital, while those larger than 250 hectares generate similar rates of return to grain growers with similar capital investment.

If my recollection is correct the legislation was passed in our unicameral Queensland legislature by the LNP and KAP despite being opposed by the ALP government. In the current political circumstances it is unlikely any challenge will go far.

In recent times there have been some spurious claims of adverse sovereign policy risk which have successfully managed to confuse the term. In this case they are valid. Grower owners of the Mills sold their interest on quite nice terms thank you (Mulgrave) trousered the cash then lobbied for the legislation to return marketing power to themselves.

Previous comment on this at Queensland Economy Watch: Premier should definitely call an early election; Guest post by Rod Bogards.

Industry nformation and links at Sugar. PC  here: Regulation of Agriculture Draft Report.

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