We gamble on the weather, commodity prices, the stability of the market for what we consume, right down to gambling on whether the machinery we take to the field in the morning will perform without malfunction for the day.
In the sugar cane industry, where I am a local farmer, we are able to hedge our bets by being able to forward sell our sugar for up to three years by way of the International Commodities Exchange Number 11 at the New York Stock Exchange.
Things went horribly wrong
The problem is then, that having forward sold, you then need to deliver on your contract – that is, actually produce the sugar in the year you have sold it for, again gambling on things going according to plan. It’s usually a reasonably safe bet, until things go horribly wrong.
Like they have this year.
The diesel fuel shortage and the coming fertiliser crisis have our industry extremely exposed.
The sugar industry is a large consumer of both fuel and fertiliser.
When Australia was mostly self-sufficient in both commodities, there was real security for the industry knowing that the cane would be harvested and next year’s crop would be appropriately fertilised to guarantee an income.
Because sugar cane is an annual crop (harvested once a year), input investment to grow the crop happens in the 12 months before the return post-harvest occurs. A major gamble in itself.
Huge cost of harvesting
The cost of harvesting the crop can consume between 20-50% of the total value of the crop, dependant on yield (which is mostly determined by the weather during the nine-12 months growing period) and the price of sugar on the NYSE ICE 11.
The value of each tonne of cane produced by the farmer is determined by a mathematical formula which addresses the variables of sugar content (ccs) and world sugar price.
For example, a tonne of cane with a relative ccs of 13.0 sold at $500/tonne on the NYSE ICE 11 in Mulgrave would return to the grower just over $41.
Under the current fuel/fertiliser pricing outlook, this is a long way under the cost of production.
Serious situation
Add to this the possibility that enough fuel and fertiliser may not be available to harvest this crop (starts June) and grow the 2027 crop, then we are in a very serious situation.
I feel (and I’m not alone) that we have been let down by governments over a period of years, where sovereign risk has been neglected to the point that we are almost totally reliant on what happens outside our sphere of influence for fuel, fertiliser, energy (the costs of which are staggering when you consider what is available to us as a nation) and security of markets (note sugar was “forgotten” in the latest EU free trade agreement).
We mine our natural resources, sell them overseas and buy back a refined product.
Bloated governments
Governments have become bloated on the royalties thus obtained.
The balance of trade is what does the heavy lifting in any nation’s economy.
What we sell as a nation is “new money” in our economy and should be the platform for government spending.
Total annual spend in Australia today is more than 50% government spend, a large portion of which is borrowed from overseas and leaves private sector spending in the minority.
Sugar exports (predominantly from Queensland) can amount to $6 billion annually for Australia.
In our region, the sugar industry supports 16,000 jobs and contributes around $900 million annually.
The devastating effect of the industry loss is clearly demonstrated next door in the Mossman area.
Perhaps the current situation in the world will be the trigger for a national reset and see an investment in the industries that diminish our sovereign risk. We have had a history of closing fertiliser plants, halting oil/gas and coal production and a seemingly unhealthy focus on renewable energy. A great irony in this current state of affairs is that sugar cane can be a vital component of energy supply by way of several tried and true methods – co-generation, ethanol production and sustainable aviation fuel, to name just a few.
Become independent
We should see this as an opportunity for our nation to re-focus on becoming more independent in these vital commodities.
We weren’t called the lucky country for nothing. We are blessed with abundant natural resources but unfortunately we seem to have become the distracted country, chasing rainbows and unicorns on the whim of ideology-driven politicians.
It’s more than time to change course and look after all Australians … farmers included.
