AUSTRALIA-Meat processors face $63m carbon costs.
While the rest of the agricultural supply chain will not see Carbon Pollution Reduction Scheme impacts until 2015, red meat processors face annual charges estimated at $63 million from July 1 next year - just 16 months away.
Under its current plan, the Commonwealth Government excludes the processing sector from the broader agriculture sector, which has a five-year CPRS moratorium.
Nor is the meat processing sector recognised as ’export dependent’, which would make it eligible for free CPRS permits.
A detailed independent research study initiated by industry has calculated the direct costs to beef processors from next year to be about $45m annually, and for sheepmeat processors, $18m. Both will rise further as permit costs increase.
Individual plant costs are expected to be between $1m and $3m, representing a cost per head of as much as $8 for cattle, and $1.13 for sheep.
That spells bad news for the production sector, as processors will inevitably build those costs back into their livestock pricing formulas. There is little prospect of costs being embedded in meat prices in a globalised market.
"The 2015 CPRS implementation for agriculture has given many stakeholders the false impression that they do not have to worry until then. The fact is that under the current proposal regarding processing, it will affect them from day one," one senior processing official said this week.
A parallel issue of concern to some processors is that based on its criteria for qualification which excludes smaller players, the Government CPRS proposal on processing will cover only the nation’s largest five or six red meat processors, representing about 15 abattoirs in total.
However because of their size, those plants represent about 70-80 percent of Australia’s entire export beef turnoff, potentially damaging Australia’s export beef and lamb competitiveness.
Under the plan, larger export plants would be drawn into purchasing permits, while smaller plants would not, creating significant market distortions - all for the sake of 0.4pc of Australia’s total carbon emissions.
The Australian Meat Industry Council argues that this represents a tax on economies of scale and processing efficiency, which could promote downsizing in some plants or outright retraction from export in others.
It also argues that treating processing as a separate case from agriculture is inappropriate.
"The Government has not understood the impact of decoupling the processing sector from agriculture. Processing is not a stand-alone industry: there is no product until the end of the supply chain, hence disaggregating processors from their supply chain for the sale purpose of allocating permits is flawed policy," it argues.
Teys Brothers chief executive officer, Brad Teys, who sits on AMIC’s CPRS committee, said in his company’s case, it was facing an annual cost of $4.1m to buy CPRS permits for its two largest plants at Rockhampton and Beenleigh, that fell under the guidelines.
"Unless the broader meat and livestock industry works together to urgently address the issues with Government, there will be an immediate and significant impact on cattle and sheepmeat producers - whether or not agriculture is covered," he warned.
The situation was now becoming quite desperate, because processors themselves had had little success in arguing their case with Climate Change Minister Penny Wong, and legislation was due to be passed by July 1 this year. The last ’roll of the dice’ could be a Senate Inquiry into CPRS being talked about by Opposition leader Malcolm Turnbull.
Mr Teys sees the only solution being for meat processing to stay out of the CPRS, at very least until agriculture is included. But a whole lot more thought needed to go into the broader scheme before it was implemented, he said.