‘Basic gaps’ in energy price impacts on ag

Power price pain for farmers exacerbated by lack of research


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Lack of basic knowledge around how power prices impact ag industries and supply chains is holding back producers and public policy. Photo AAP / Brendan Esposito.

Lack of basic knowledge around how power prices impact ag industries and supply chains is holding back producers and public policy. Photo AAP / Brendan Esposito.

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Producers, policy poorer for lack on fundamental research

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WHEN it comes to energy prices our knowledge of industry impacts is alarmingly thin.

It is a particularly worrying predicament for the farm sector, where producers are wedged between soaring input costs of production, transport and processing on one side and on the other the price pressures of cut-throat consumer markets.

The Australian Farm Institute is working on a project that promises to shed some much needed light on power price impacts along the supply chain.

AFI research officer Lucy Darragh said the think tank is developing an energy database and benchmarking tool to show how a change in energy prices would impact the cost of inputs, on-farm production, transport and processing.

The tool will show how the energy market impacts on power prices, how changes to power prices impact on consumer and commodity costs – broken down into units of input and sale

“At the farm level, there’s not much producers can do to offset energy costs, but we don’t know how transferable energy costs are throughout the supply chain” Ms Darragh said.

“If processors pay more, what's their ability to pass that price on to farmers, or consumers?

“The implications are a lot broader than just an impact on a unit of energy price increase at the farm level.”

The information will be collated for 12 major industries, including red meat (beef and sheepmeat), wool, horticulture (irrigated and rainfed), grains (irrigated and rainfed), dairy, poultry (chicken meat and eggs), industrial crops (sugar and cotton), pork as well as wine and grapes.

The tool will calculate how the energy market impacts energy costs (for diesel, electricity, gas), and how these power price changes impact the price of commodities and consumer products. 

In other words, how the energy market impacts on power prices, how changes to power prices impact on consumer and commodity costs – broken down into units of input and sale.

For example, a cotton grower could see how an increase to the price of energy or fuel impacts their costs, per bale, depending on the production costs associated with fuel or energy use in harvest or irrigation.

Livestock producers could see how fuel prices impact costs in the production cycle – relating to its use machinery, heating, ventilation and so on.

AFI’s work would require painstaking number-crunching in the ramshackle realm of energy market data - which is often incompatible across various databases.

Ms Darragh said in building the database, AFI’s project addressed big gaps in “even our basic understanding” of agricultural energy use.

Research has focused on life cycle assessment to demonstrate the environmental performance of the industry, or on initiatives to support uptake of energy efficiencies and the feasibility of renewable alternatives.

“There is a real lack of fundamental, industry-specific information, no predictions of energy costs for various scenarios in diesel, gas or electricity markets,” Ms Darragh said.

This lack of fundamental energy use information puts agriculture at a major disadvantage, particular in development of effective policy to tackle the problem and help industries become more productive.

The AFI has noted that discussions on the issue of energy are largely ill-informed and lack substance, due to the absence of industry-specific evidence.

Retail energy costs have doubled or even tripled in the past seven years and in the high-powered irrigation industry, the impact is particularly acute.

One pump station in South Australia’s Riverland saw its costs rise from $800,000 to $1.8 million in that period 

The importance of policy is exemplified in by the regulations governing network operators.

Transmission network charges comprise half the cost in retail bills and are the dominate factor behind soaring power bills. Networks have been accused of gaming the system to  profit from goldplated, or over capitalised, infrastructure.

Transmission network charges comprise half the cost in retail bills and are the dominate factor behind soaring power bills. Networks have been accused of gaming the system to profit from goldplated, or over capitalised, infrastructure.

Network charges make up about 50 per cent of an energy users bill and Australians pay about twice as much for network charges as consumers in the U.K and, two-and-half times the charges in the U.S.  

There are worthy policy options worth considering, including solar power as capital costs continue to fall.

Others include grid transformation, which daws on new technology to enable industry and farms can co-generate and store energy to limit reliance on the grid and drive down costs.

And the ACCC is promoting the benefits of collective bargaining for gas and electricity by agribusiness, highlighting the benefits of forming a consortium of companies to jointly tender for supply contracts.

AFI’s energy cost project was commissioned by Energy Consumers Australia, which is an independent public body established by the Commonwealth to promote community interests.

Energy Consumers Australia’s Foresighting Forum will be held in Sydney on Wednesday and Thursday this week. AFI general manager research Richard Heath will speak on energy costs and changing business practice in agriculture.

The story ‘Basic gaps’ in energy price impacts on ag first appeared on Farm Online.

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