best practice in the sugar industry · "best practice in the sugar industry" 8.00am...

BEST PRACTICE IN THE SUGAR INDUSTRY Tuesday 23rd May 1995 Mackay Entertainment Centre

Proudly Sponsored by:

Austoft

Brown & Bird

IAMA

JI Case (Australia) Pty Ltd

Mackay Sugar Co-operative Association Limited

Queensland Industry Development Corporation

C O M M U N I C A T I O N S

Sugar Conference at Mackay Tuesday 23rd May 1995

"BEST PRACTICE IN THE SUGAR INDUSTRY"

8.00am Registration.

8.30 Conference Opening: Neil Inall, Presenter of the rural television program "Cross Country", Director of Cox Inall Communications

'&40 Sugar Comparative Analysis The definitive analysis of the 1994 sugar growing costs - How efficient were you? Don Graham, Partner, Brown & Bird, Mackay.

9*20, Challenges, opportunities and risks in the international market * The impact of de-regulated world markets on Australian growers * Future trends in the world market Farideh Bromfield, Head of Sugar Research, E D & F Man Sugar

10.05 Structural changes in the Australian market and the implications of de-regulation * De-regulation and its impact on Australian markets * What determines sugar prices? Ian Ballantyne, General Manager, Canegrowers Tom Fenwick, Director-General, Queensland Department of Primary Industries

10.45 Morning Tea

11.15 John Noble, Chairman of the Ord Sugar Industry Board

1135 Panel Discussion

12.00pm Taking control of your finances and future * Better Financial Planning and Risk Management * Interest Rate Risk Management and Investment Diversification * Succession Planning - How can we ensure the next generation gets the farm? Gavin Emery, Senior Manager Agribusiness Finance, Queensland Industry Development Corporation Ray Armitage, Managing Director, Lonsdale Group Pty Ltd

12.30 Lunch

COX-WALL COMMUNICATIONS • PTY • I LEVEL 1 7 WEST STREET NORTH SYDNEY NSW 2060 • PO E

PHONE (02) 956 7755 FAX (02)

1.30

2.00

Farm business management projects * Linking technical advice with the business decision making process * Expansions - What are your options to increase productivity? * Best use of harvesting equipment Peter Twine, Group Manager - Extension, Bureau of Sugar Experiment Stations, Brisbane Mark Schuurs, Administrative Grower Services, Canegrowers Tony Ross, Mackay sugar grower

Discussion

2.15

2.45

Developments in cane growing in the Ord River region John Noble, Chairman of the Ord Sugar Industry Board Past President of the Australian Sugar Milling Council

Best Practice in the Burdekin River irrigation area * New Farm Layout - irrigation and growing systems * New Farm Management Practices * Farm Distribution and Input * Farm Layout and machinery for large scale farms Vin Sorbello, Burdekin Grower Gavin McMahon, Senior Extension Officer, Bureau of Sugar Experiment Stations (Ayr) David Cox, Burdekin Grower

3.15 Discussion

3.30

4.00

420

4.45

Afternoon Tea

industry * The impact of an environmental audit in sugar Maree McCaskill, Executive-Director, Australian Cotton Foundation

Profitable yet sustainable sugar growing practices * Managing soil acidity and soil compaction * Improved management of nutrients * Better production and harvesting systems * Controlling pests and disease Dr. Graham Kingston, Principal Research Officer, Bureau of Sugar Experiment Stations, Bundaberg Ross Digman, Tully Grower

Panel discussion

Summing Up - Neil Inall

5.30 Close

How cotton cleaned up its act and how this can work for your

SUGAR COMPARATIVE ANALYSI FOR THE 1993-1994 FINANCIAL YEAR

(1993 CROP)

CERTIFIED PRACTISIiW; ACCOV1V1AKTS

Paper presented by D.C. Graham Brown & Bird,

Accountants of Mackay

INDEX

1. Definition of Terms

2. Comparative Analysis for 1993-94 Financial Year

3. Average Income and Expenditure Per Hectare

4. Average Income and Expenditure Per Tonne

5. Comparison of Contract and Own Harvesting

6. Comparison of Irrigated and Non Irrigated Farms

7. Comparison of Farms by Size of Peak

8. Graph of Tonnes Produced by Hectare

9. Graph of Average CCS.

•

10. Graph of Gross Proceeds Per Hectare

11. Graph of Cost of Production Per Hectare

12. Graph of Cost of Production Per Tonne

13. Comparison of "Top" and "Bottom" Farms by Area i

14. Comparison of "Top" and "Bottom" Farms by Tonnes

15. Comparison of Your Farm with Averages i

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2

DEFINITION OF TERMS

Crop Proceeds Gross Proceeds for each year represents proceeds paid in each financial year and does not exactly agree with proceeds for a particular crop due to final pays made in July each year. Allowances and bonuses are included.

EXPENSES

Administration Includes Bank Charges, Accounting, Legal Fees, Telephone, Postage and Stationery.

Electricity Includes all power charges including irrigation and shed power. Private usage of electricity has been excluded from the analysis.

Fertilizer Includes all fertilizers such as commercial preparations, green crops, filterpress and dunda.

Fuel and Oil Includes fuel and oil for all farm vehicles net of diesel fuel rebate and allowances for private usage.

Harvesting Includes subcontract harvesting and carting. All costs of own harvesting are shown as fuel, repairs, wages, etc as appropriate.

Insurances Includes all insurances deemed necessary by farmers including personal accident and workers compensation.

Mill Deductions Includes all compulsory or voluntary deductions made by mills to sugar industry organisations but does not include charitable donations or personal purchases.

Other Includes all other expenses claimed by growers and not specifically referred to e.g. road and other leasehold rents and licences, safety gear, work clothing, contract planting.

Chemicals Includes chemicals applied for pest control at time of planting, weed control during the growing period or during the slack and baits for rat control.

Rates Includes local government charges only.

Registration Includes registration charges for all farm and road vehicles less any allowance for private use.

3

Repairs and Maintenance Includes repairs to all farm vehicles, implements, tools, sheds and quarters and laser levelling and drainage.

Wages Includes gross wages paid to employees plus staff superannuation. Owners salaries have been excluded from the analysis.

Water Charges Includes payments to the Water Resources Commission for water volume used or for guarantee.

Finance Costs Includes interest and leasing charges where applicable.

Top 20 Growers/ Bottom 20 Growers These figures represent the average results of those farmers who achieved the highest and lowest operating profit per hectare harvested.

Irrigated/Non Irrigated Farms have been considered irrigated if more than 50% of the area harvested had been irrigated during the growing of the 1993 crop.

SUGAR COMPARATIVE ANALYSIS FOR THE 1993-94 FINANCIAL YEAR

REPORT ON THE 1994 FINANCIAL YEAR (1993 CROP)

The figures used in this report are extracted from the financial records of 83 canefarmers in the Mackay region. It covers approximately 570,000 tonnes of cane from an area harvested of 6,675 hectares. This represents 80% of the assigned area for the farms used in the survey. The average farm size was 6,870 tonnes.

To confirm the accuracy of the results, production and CCS figures were compared with the overall averages for Mackay sugar and compares as follows.

SURVEY MACKAY SUGAR AVERAGE AVERAGE

Production per hectare 85.42 85.6 CCS 13.89 13.90

We believe these figures indicate a more than satisfactory correlation with industry averages in the Mackay region and gives added confidence in the results.

Because growing cost fall in a separate financial year from revenue for a sugar crop, some comparisons may be questioned. As well as this, the overriding influence of weather on results may make interpretation difficult. Despite these obvious diflficulties, we have every confidence that the results of our comparative analysis are a worthwhile template against which growers in the Mackay region may measure their performance. We trust that growers in the wider sugar community may also find value in the results.

It is emphasised that the purpose of the analysis is to provide a management tool for grower, and in no way attempts to represent industry averages for other than the Mackay region. Capital costs have been excluded as have salaries for owners.

The following observations are made particularly from the results of the 1994 financial year with trends indicated from the past five years and beyond where applicable.

Gross Proceeds Proceeds are made up of (A) Price of Sugar, (B) Production and (C) Sugar Content. Of these variables farmers are mainly only able to have an influence on production and to a small extent on CCS.

A. Price of Sugar For record purposes the most recent world sugar prices are listed below.

1987 Crop 1988 Crop 1989 Crop 1990 Crop 1991 Crop 1992 Crop 1993 Crop 1994 Crop (estimated)

No. 1 $289.12 $334.27 $363.40 $344.02 $303.37 $308.53 $352.50 $392.00 (estimated)

No. 2 $251.10 $327.40 $408.00 $307.16 $270.87 $275.47 $320.45 $363.00

: >

B. Production The various supporting schedules show the range of production achieved over the past five years. It is obvious that the most important effect on gross proceeds is the size of the crop, and although we spend a lot of our time worrying over the world price of sugar, nothing is as devastating as drought on an unirrigated farm.

Obvious from all the charts is the fact that water is the main key to production, Mackay's lack of normal wet seasons in recent years shows clearly in the results and it is obvious that more serious attention must be given to water storage on a scale commensurate with the size of our sugar growing area.

While CCS is obviously an important ingredient in producing optimum returns, it is obvious that it varied little between the "top" and "bottom" growers. Management techniques recommended by the BSES surely help and this is particularly important with fertilizer application, but generally growers are advised to maximise sugar production and "tonnes of cane" is the most important part of the equation.

Operating Costs - General Average operating costs per hectare harvested rose by $201 on the 1993 figures. This increase is contributed to by harvesting (increased crop size) 50%, CPI 25% and other reasons 25%. Other reasons would include catch up maintenance, development of additional area and employment of additional labour.

In the 1994 year none of the irrational "tax driven" expenditure was evident that became the norm in the last peak of the early eighties and is starting to become so much part of conversations in 1995. I trust that the industry does not go down that track and that surplus profits are committed to only truly productive expenditure and that profits surplus to immediate needs are invested for future production and capital growth.

Once again the results show that the only true "variable" expenses are harvesting costs and levies (mill deductions). All other expenses can be considered "fixed". This highlights the importance even more of crop size. If one excludes harvesting and levy costs from the results for formers using contract harvesting, the following are all other costs per hectare for the past five years.

1990 1044 1991 1081 1992 947 1993 1063 1994 1218

On a cost per tonne basis there was a small reduction reflecting the increased crop size.

6

Specific Operating Costs

Administration These expenses showed a reduction consistent with increased area.

Electricity Costs dropped as the water available for irrigation was reduced and rainfall improved.

Fertilizer A 10% increase in costs could not be fully attributed to price increases and some increase in application was evident to capitalise on the improved growing conditions. Higher prices are expected to reflect on future results.

Fuel and Oil Despite the increased crop size the reduction in fuel usage would result from the reduction in irrigation during 1994 and the continuing trend to minimum till farming.

Harvesting Harvesting costs are looked at in more detail separately but closely reflect the production per hectare.

Insurance Typical of such fixed costs very little movement is reflected in insurance costs.

Mill Deductions These expenses reflect crop size with no change on a per tonne basis.

Other Little change.

Chemicals Reflects the heavier plantings and continuation of trend to minimum till farming.

Rates Reflects a small reduction in rural rates in most Shires.

Registration A fixed cost.

Repairs and Maintenance Probably all of the increase results from the increased crop size and the availability of funds to catch up on delayed expenditure.

Wages The chart comparing contracted farms with own harvesting shows that most of the increase in wages was associated with harvesting, but there was still some farmers who engaged labour for the first time for some years.

Finance Costs There appears to be a fairly constant debt load and interest charges over the past two years reflects the reduced interest rates over that period.

The average debt load represented $14.60, per tonne of production, to the banking system and $20.90 when family debt was included.

Other Observations

Harvesting - Own v Contract It is important to read this chart with the knowledge that no capital costs are included for farmers harvesting equipment but is obviously included in contract charges. Every situation is different but I believe there is no panacea in harvesting ones own crop.

A close look at production rates shows that in times of higher crops farmers cutting their own cane sacrifice production. It is obviously important to ensure that sufficient labour is available to attend to growing the crop.

Irrigation v Dry Farming For the past two years the Mackay crop has been grown on a minimum of rainfall but timed almost to perfection for sugar cane growing. Results for 1994 show a reduced, yet significant advantage for irrigated crops. Only 48% of the farms in the survey were classed as irrigated (ie greater than 50% of the area harvested had been irrigated), although many other farms had access to irrigation and did not use it or did not have access to sufficient water.

Provision of sufficient above ground water storage to supply the entire district must remain our prime goal as it is possible that no underground supplies will be assessable in the future.

Comparison by Size The chart comparing farms by size confirms my contention elsewhere that most costs are fixed and the economies of scale are evident. It is surprising that the differences are so great on a pre hectare basis.

Location and soil quality, access to irrigation and economies of scale from harvesting are major contributors to improved profits from larger farms.

Top 20% v Bottom 20% Despite a difference of only $30 per hectare in costs the operating profit before finance costs for the top producers was a massive $ 1164 per hectare. Costs have a bearing but are not the main difference between the best and worst producers. Production is the name of the game.

Despite the better growing season irrigation was still the key and provision of capacity for the entire region must be paramount.

COMPARISON OF AVERAGE INCOME AND EXPENSES PER HECTARE HARVESTED FOR ALL GROWERS

$

1990

2736 0 0

2736

39 24

375 105 289

25 40 30 50 44 11

276 151

6 1465

1271 222

1049

13.63

78.10

$

1991

2116 0 0

2116

52 26

361 125 263 25 44 29 37 46 14

249 155

7 1433

683 198

485

13.45

66.10

$

1992

1625 0 0

1625

49 40

318 111 182 26 26 38 27 47 14

202 122 13

1215

410 197

213

15.10

$

1993

2093 31 45

2169

48 37

388 181 280 28 42 38 41 47 15

242 123

4 1514

655 158

497

14.81

46.90 68.20

Crop Proceeds Interest Subsidy Diesel Rebate Total Income

Admin Elect Fertilizer Fuel Harvest Insurance Mill Deductions Other Chemicals Rates Registration Repairs Wages Water Charges TOTAL EXPENSES

OPERATING PROFIT/(LOSS) Less: Finance Costs

NET PROFIT

CCS

PRODUCTION / HA

$

1994

2744 3

49 2796

42 29

427 165 382

31 52 40 51 40 14

281 154

7 1715

1081 157

924

13.89

85.40

COMPARISON OF AVERAGE INCOME AND EXPENSES PER TONNE HARVESTED FOR ALL GROWERS

$

1990 35.02

0 0

35.02

0.5 0.31 4.8

1.34 3.7

0.32 0.51 0.39 0.64 0.58 0.15 3.54 1.93 0.07

18.76

16.26 2.84

13.42

13.63

$

1991 32.02

0 0

32.02

0.78 0.39 5.47 1.89 3.98 0.38 0.67 0.45 0.56 0.7 0.2

3.77 2.34 0.1

21.68

10.34 3

7.34

13.45

78.1 66.1

$

1992 34.61

0 0

34.61

1.03 0.86 6.77 2.36 3.87 0.54

$

1993 30.7 0.46 0.66

31.82


0.71 Admin 0.55 5.69 2.66 4.1

0.41 0.56 0.61 0.82 0.57 1.01 0.31 4.3 2.6

0.28 25.88

8.73 4.21

0.55 0.6

Elect Fertiliser Fuel Harvest Insurance Mill Deductions Other Chemicals

0.69 Rates 0.22 3.55

1.8 0.05

22.19

9.63 2.31

4.52 7.32

15.1

46.9

14.81 •

68.2

Registration Repairs Wages Water Charges TOTAL EXPENSES

OPERATING PROFIT/(LOSS) Less: Finance Costs

NET PROFIT

CCS

PRODUCTION / HA

$

1994 32.12 0.04 0.57

32.73

0.49 0.33 4.99 1.93 4.47 0.37 0.61 0.47 0.59 0.47 0.16 3.29

1.8 0.08

20.05

12.68 1.84

10.84

13.89

85.4

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ANALYSIS OF INCOME AND EXPENSES PER HECTARE HARVESTED FOR ALL GROWERS

USING CONTRACT HARVESTING $

1990

2771 0 0

2771

39 23

367 94

398 23 41 36 50 44 11

237 112

7 1482

1289 189

1100

13.60

78.30

$

1991

2145 0 0

2145

54 24

364 113 356 24 45 34 37 45 13

232 132

8 1481

664 179

485

13.40

67.40

$

1992

1573 0 0

1573

51 35

308 100 258 25 25 40 27 46 14

180 106 16

1231

342 198

144

15.10

44.90

$

1993

1997 0 0

1997

45 36

390 117 379 27 40 37 44 44 14

209 97 5

1484

513 155

358

14.80

66.00

$

1994

2736 5

43 2784

42 30

422 148 505 31 53 41 52 39 14

264 125

9 1775

1009 151

858

13.80

86.10



OPERATING PROFIT/(LOSS Less: Finance Costs

NET PROFIT

CCS

PRODUCTION / HA

DOING OWN HARVESTING $

1994

2767 0

67 2834

42 25

441 216

6 32 50 36 47 41 13

333 244

2 1528

1306 174

1132

14.00

83.70

$

1993

2307 0 0

2307

56 39

385 184

0 30 44 29 33 54 16

328 189

1 1388

919 155

764

14.90

74.20

$

1992

1745 0 0

1745

42 51

341 136

4 27 28 36 27 51 17

251 159

6 1176

569 197

372

15.00

51.60

$

1991

2037 0 0

2037

44 31

354 157

6 26 43 18 38 48 16

295 217

4 1297

740 250

490

13.50

62.60

$

1990

2643 0 0

2643

38 27

396 134

8 29 38 14 50 44 13

380 251

1 1423

1220 306

914

13.60

77.50

ANALYSIS OF INCOME AND EXPENSES COMPARING IRRIGATED AND NON IRRIGATED FARMS FOR THE 1994 YEAR

BASED ON $ PER HECTARE HARVESTED

$

NON IRRIGATED 2568

3 51

2622

37 14

446 161 332 24 50 38 55 36 13

238 161

1 1606

1016 158

858

13.74

75.08

$

IRRIGATED 2947

4 47

2998

48 45

404 170 439 40 55 42 46 44 15

330 146 14

1838

1160 155

1005

14.03

89.82



OPERATING PROFIT/(LOSS) Finance Costs

NET PROFIT

CCS

PRODUCTION / HA

BASED ON $ PER TONNE HARVESTED

$

NON IRRIGATED 32.44 0.04 0.64

33.12

0.47 0.18 5.64 2.03 4.20 0.30 0.63 0.48 0.69 0.46 0.16 3.01 2.03 0.01

20.29

12.83 2.00

10.83

13.74

75.08

$

IRRIGATED 31.81 0.05 0.50

32.36

0.51 0.49 4.36 1.83 4.74 0.43 0.59 0.45 0.50 0.48 0.16 3.57 1.58 0.15

19.84

12.52 1.67

10.85

14.03

89.82

COMPARISON OF INCOME AND EXPENSES PER HECTARE HARVESTED BASED ON RANGES OF CANE HARVESTED FOR THE 1994 YEAR

<4000 Tonnes

Crop Proceeds Interest Subsidy Diesel Rebate Total income


OPERATING PROFITZ(LOSS) Finance Costs

NET PROFIT

Number of Growers

Percentage of Sample

$

2198 5

39 2242

52 26

346 128 412

34 42 66 65 50 19

235 78 7

1560

682 120

562

24

28.9%

4000-8000 Tonnes

$

2753 7

54 2814

44 31

406 182 439 37 53 41 57 38 14

304 114 11

1771

1043 117

>8000 Tonnes

$

2915 0

48 2963

37 27

471 162 322 25 55 30 41 38 11

275 215

3 1712

1251 205

926 1046

39

47.0%

20

24.1 %

-

Total 83

100%

COMPARISON OF INCOME AND EXPENSES PER HECTARE HARVESTED

BOTTOM 20 GROWERS $

1990

2268 0 0

2268

39 17

418 87

297 25 36 31 51 40 12

287 198

1 1539

729 127

602

$

1991

1689 0 0

1689

41 20

414 109 251

22 37 42 27 44 12

306 194

4 1523

166 213

(47)

i'3.52T 13.37

65.90 59.66

$

1992

1208 0 0

1208

44 26

331 110 184 28 18 62 26 48 15

210 187

17 1306

(98) 186

(284)

$

1993

1400 5

33 1438

40 14

378 130 268

26 27 36 39 39 13

164 197

2 1373

65 144

(79)

15.66! 14.55

34.30 46.32

$

1994

2103 7

42 2152

36 17

398 128 386

25 41 32 47 45 13

233 269

5 1675

477 118

359




NET PROFITZ(LOSS)

13.31! CCS

66.68 PRODUCTION / HA

TOP 20 GROWERS $

1994

3290 3

53 3346

44 37

449 184 287

37 60 29 54 41 15

303 161

4 1705

1641 164

1477

$

1993

2803 16 45

2864

54 53

388 188 271

34 58 35 42 51 18

267 122

4 1585

1279 130

1149

$

1992

2023 0 0

2023

51 52

293 126 174 27 34 17 27 53 17

208 64 14

1157

866 153

713

$

1991

2459 0 0

2459

60 26

355 111 202

26 48 20 34 50 15

212 135

5 1299

1160 247

913

$

1990

3428 0 0

3428

41 21

359 110 409

24 51 27 56 51 11

233 76

8 1477

1951 165

1786

14.22 15.02 15.18; 13.32 13.72

98.86 90.02 59.66 74.23 92.90

COMPARISON OF INCOME AND EXPENSES PER TONNE OF CANE HARVESTED

BOTTOM 20 GROWERS $

1990

34.41 0.00 0.00

34.41

0.60 0.26 6.35 1.33 4.50 0.38 0.54 0.46 0.77 0.61 0.19 4.36 3.00 0.01

23.36

11.05 1.93

9.12

13.52

65.90

$

1991

28.31 0.00 0.00

28.31

0.69 0.34 6.94 1.83 4.20 0.37 0.62 0.71 0.44 0.74 0.20 5.12 3.25 0.07

25.52

2.79 3.58

(0.79)

13.37

59.66

$

1992

35.21 0.00 0.00

35.21

1.28 0.77 9.65 3.21 5.37 0.81 0.54 1.81 0.76 1.39 0.44 6.12 5.46 0.49

38.10

(2.89) 5.41

(8.30)

15.00

34.30

$

1993

30.23 0.11 0.72

31.06

0.87 0.31 8.16 2.81 5.78 0.57 0.59 0.78 0.84 0.83 0.29 3.54 4.26 0.03

29.66

1.40 3.10

(1.70)

14.55

46.32

$

1994

31.54 0.11 0.63

32.28

0.54 0.26 5.97 1.93 5.79 0.37 0.62 0.48 0.70 0.67 0.20 3.50 4.04 0.08

25.15

7.13 1.77

5.36

13.31

66.68




NET PROFIT/(LOSS)

CCS

PRODUCTION / HA

TOP 20 GROWERS $

1994

33.27 0.03 0.53

33.83

0.44 0.37 4.55 1.86 2.91 0.37 0.61 0.29 0.55 0.42 0.15 3.07 1.63 0.05

17.27

16.56 1.66

14.90

14.22

98.86

$

1993

31.14 0.18 0.50

31.82

0.60 0.59 4.31 2.09 3.00 0.38 0.64 0.39 0.46 0.57 0.20 2.96 1.36 0.04

17.59

14.23 1.44

12.79

15.02

90.02

$

1992

33.91 0.00 0.00

33.91

0.85 0.86 4.92 2.11 2.91 0.46 0.57 0.28 0.45 0.88 0.28 3.49 1.08 0.24

19.38

14.53 2.57

11.96

15.18

59.66

$

1991

33.13 0.00 0.00

33.13

0.81 0.35 4.79 1.50 2.72 0.35 0.64 0.27 0.45 0.67 0.21 2.85 1.82 0.07

17.50

15.63 3.33

12.30

13.32

74.23

$

1990

36.90 0.00 0.00

36.90

0.45 0.22 3.86 1.19 4.40 0.26 0.55 0.29 0.60 0.54 0.12 2.50 0.82 0.09

15.89

21.01 1.78

19.23

13.72

92.90

Analysis of Cost of Production Per Hectare Harvested For The Year Ended 30th June 1994

Your Farm $ All Farms $ Top 20 $ Bottom 20 $

Crop Proceeds: 2,744 3,290 2,103 Interest Subsidy: 3 3 7

Diesel Rebate: 49 53 42

Total income: 2,796 3,346 2,152

Administration: 42 44 36

Electricity: 29 37 17

Fertilizer: 427 449 398

Fuel: 165 184 128

Harvesting: 382 287 386

Insurance: 31 37 25

Mill Deductions: 52 60 41

Other: 40 29 32

Chemicals: 51 54 47

Rates: 40 41 45

Registration: 14 15 13

Repairs: 281 303 233

Wages: 154 161 269

Water Charges: 7 4 5

Total Expenses: 1,715 1,705 1,675

Operating Profit/(Loss): 1,081 1,641 477

Finance Costs: 157 164 118

Net Profit: 924 1,477 359

Average CCS: 13.89 14.22 13.31

Cane Production Per Hectare: 85.42 98.86 66.68

E D & F M A N S U G A R L T D

Challenges, Opportunities and Risks in the International Market

1- Introduction

The market today is in a state of transition arising from structural changes and fundamental developments. These changes are building a more economic and interactive market place which bring with them a myriad of challenges, opportunities and risks. The key features of the prevailing structural developments emanate from a combination of domestic sugar policy changes and the evolution of global sugar trade. The resulting impact on the international market has been revolutionary at times as traditional marketing arrangements have unfolded. The break down of the Comecon trade arrangement and the collapse of the Berlin Wall have sparked the most visual images of change but the process of revolutionary change in the international market has been more widespread, stretching from the deregulation influences that have gathered momentum throughout the world from Australasia to south America.

Structural Changes: challenges /opportunities

Key Features

Deregulation Moves towards freer trade

Demise of central marketing agencies/rise of private trade

Rise in developing countries' importance

Concentration of exports

Popularity of customs unions

GATTAVTO

Competition from alternative sweeteners

The underlying dynamics of the market listed above are turning the world sugar market into a more interactive place whilst the fundamental changes taking place and the ones that are anticipated for the future are shifting the balance of trade and in some cases re-defining traditional trade as well as international trade flows. Emanating from this transitionary phase of the market is the growing importance of developing countries and the rise in private trade following the demise of the central marketing bodies. As a result, the international market has become more sensitive to price changes. The trend towards trade liberalisation and the rise in private trade have additionally resulted in declining stocks. Because it is now private trade and not government bodies that are dominant forces in sourcing sugar for local markets, the appetite for large stock holdings has dissipated. And with developing countries accounting for over three quarters of the total volume of world trade and given their financial restraints there is less demand to keep surplus stocks.

Nevertheless the stock to consumption ratio is still a useful indicator of supply tightness but perhaps today with the demand for money and cost of borrowing, it is less representative of this tightness. This season's rising stocks point to the possibility of declining prices; much of which we have been experiencing already in the past month.

Sugar Quav Lower Thames Street London EC5R 6DU Tel 071-285 3700 Telex 885451 KDKMAN « Fax 071-558 0625 1

AppotnuKl Repn^f tuuvv of RD& F Man hurrrutian-il Ltd which ia regulated by the rilB {Registered tn England No +83204)

A mtrmber ol th* K D & F Man Group

Stock/Consumption Ratio vs. Price

Minimum Ending Stocks vs. NY No. H Spot October-September basis

c/lb

An examination of the salient features of the structural and fundamental developments summarised above will unveil the risks, opportunities and challenges awaiting us in the international sugar market. The impact of these developments on international prices and the overall supply and demand situation are examined in the final section of this review which provide an overview of the fundamental developments with special reference to the prospects in the Asia Pacific region.

2- Structural Changes: challenges and opportunities

2-i- Deregualtion

Deregulation has invariably implied one of the following: free trade, ending of central marketing bodies, rise in private trade and ending of rigid sugar policy structures.

Although the process of deregulation has been a familiar theme in Australia for some time, elsewhere deregulation of sugar industries did not gather momentum until the late 1980's when the whole process was stepped up following the demise of central planning in east and central Europe.

Deregulated Markets

x Argentina • Australia • Baltic Republics xBangladesh x Brazil • Bulgaria • Canada • Chile x Colombia x Czech Rep x Slovak Rep

Man local operation -• yes x no

• Egypt x Hungary x India x Indonesia x Iran • Israel • Kenya • Mexico • New Zealand • Poland • Romania

• Russia • Singapore • Slovenia • Sri Lanka • Ukraine • Uruguay • Venezuela

2

De-regulated Markets & World Sugar Trade

Whilst deregulation does not necessarily mean free trade any combination of the above features lead to an increase in trading opportunities. The ending of state control and rigid policy arrangements however will bring with them increasing risks as well as opportunities. The uncertainty and the performance risk attached to trading with the gamut of disparate private traders has added to the risks as well as the uncertainty of international trade. In the absence of central buying agencies directly buying large tonnages from the trade, it has become particularly hard to trace the volume of sugar traded internationally or indeed to anticipate potential demand. Today in the international market we have to grapple with the dislocation of the demand and supply expectations. Whilst in most cases (in particular given the concentration of exports) the world market prices are still influenced by expectations of supply it has become very hard to build expectations on demand. This is a challenge that world market participants have to encounter.

Another opportunity arising from deregulation of markets is the ability to move further along the supply chain and secure customer loyalty. Deregulation has also opened up investment opportunities and security of long term presence in the domestic markets.

2-ii- The growing importance of developing countries

Share of Total World Sugar Imports in 1994/95

(in 000 mtrv)

Free Market White Sugar Imports Free Market Total Sugar Imports

Today developing countries account for almost three quarters of the total free market trade. This implies that: first, as these countries by and large have a low per head consumption base they offer a significant propensity for consumption growth. Secondly, the international market is faced with increasing counterparty and price risk arising from the developing countries' low income levels and their import price sensitivity. Already the impact of the rising significance of developing countries on international sugar market has been witnessed by the difficulty to maintain the upward price momentum. We have noticed in the past decade that as prices approach 16 cents that we seem to lose consumption.

2.iii- Rise in regional trade

Today there are over 100 regional trade arrangements; whilst they enhance trading opportunities for those located within the customs unions they may discriminate against those outside the union. The evidence available so far suggests that although trade in all goods and services has not been appreciably affected by the emergence of these customs unions, the flow of trade in some commodities has been affected. The flow of sugar from Colombia to Venezuela is a good example. As the Andean customs union arrangements have come into force, Colombia and Guatemala have looked to Venezuela's import demand as their obvious captive market. In 1993 over 60% of Colombia's exports went to the other Andean countries. And in future as more of the customs unions approach maturity, they should lead to further opening up of regional trade. Of particular importance to the international market is how the central European customs unions pan out; how Mercosur, Nafta, APEC and other transatlantic pacts develop.

In many cases there has been a reluctance to open up agricultural trade and negotiations for customs unions have reflected this resistance. However, by the end of the transition period many of these customs unions are expected to open up trade within the region. Customs unions may thus be regarded as an indirect way of liberalising trade, though these will be concentrated within regional zones.

The Regulatory Environment

Customs Union

Andean Pact

Asean

Cefta

Mercosur

Nafta

By the year 2000

Reduced t a r i f f s ) in place since 1/1/1993. Exception (20%) for Peru lifted.

Slowly moving towards free trade by 2020. Tariffs on agricultural products 0-5% until 2003.

Duties on agricultural products abolished by 1997.

All goods duty-free within Mercosur. Common external tariff on sugar by 2001.

4

7 of 15 years of transition. Mexico duty-free access up to 150,000 mtrv. Free trade between US and Canada

-.•!

ki s.;

'rf

SADC Regional trade duty-free from 1996-

By the year 2000, many of these customs unions are expected to open up meaningful trading opportunities. But the important challenge is how the domestic policies will develop and whether they will accommodate the needs of the local sugar industry. It is expected that some sugar industries will suffer from the resulting competition. For instance the challenge for the producers in Argentina is daunting given their proximity to Brazilian exporters. And the sugar industry of Uruguay has already been set on a programmed shut down, in response to the availability of sugar in its neighbouring Mercosur producers.

2.iv-GATT/WTO

GATT: Summary of the Basic Elements

Reduction Implementation

DC LDC DC LDC

Base

Domestic support AMS Market access simple avg tariff min tariff

Min access

Export subsidy Volume Budget

20% 13.3% 6vrs lOvrs

36% 24% 6vrs lOvrs 15% 3% rising 5% of dom cons current access to be kept

21% 36%

14% 6vrs lOvrs 24% 6vrs lOvrs

86-88

86-88 86-88

86-88

86-90 86-90

4

Over the next decade a myriad of domestic regulatory changes instigated either independently by governments or as a result of international pressure such as the requirements under GATT or other regional arrangments are expected to open up trading opportunities. Although in some cases these requirements may result in serious competition in domestic markets damaging for the longer term prospects of the sugar industries whilst in other cases they will open up new marketing possibilities.

The implementing legislation needed under GATT may result in fairly meaningful changes in the domestic policy arrangements of some countries as the authorities try to adapt their domestic policy arrangements to the GATT requirements.

2.v- Concentration of Exports: what does it mean for the sugar market

Concentration of world exports on the international market appears to have gone almost unnoticed by most market commentators although this concentration which is pushing the international sugar market to resemble the cocoa and coffee markets has a two fold implication. First given this level of concentration, today the 5 exporters account for nearly 70% of the total volume of trade, suggests that if crops in any one of these countries are badly affected, the impact on the world market will be far more significant than before when the top five exporters accounted for less than 50% of the total free market exports. This suggests that the market may become more volatile and the challenge comes from finding a way of coping with this increasing concentration of trade. In particular, if by the time the Cuban crop recovers the existing export tonnages are maintained, the market will face a serious risk of declining prices for a number of years until demand reaches the limits of this new and expanded production levels.

Top 5 Exporters' Share of Free Market Exports in 1994/95

Total share- 71% of tonnage of 27.6m tonnes

5

2.vi- Alternative Sweeteners

Competition from alternative sweeteners has so for been heralded as the biggest challenge to the international sugar market. Although sugar continues to be by far the most dominant sweetener, it is no longer in a monopoly position. In some countries alternatives have been institutionalised. In the US for instance roughly half the total sweetener demand is satisfied by HFCS, in China where the total sugar consumption is around 7.5 million saccharin consumption represents some 4 million tonnes sugar sweetener equivalent (SES).

General Issues

1994/95 Total World Demand for Sweeteners

Total Sweeteners = 133.995 (ses m mtwv)

The planned expansion of HFCS capacity in the US signals another wave of substitution. In the past few months a number of US corn wet millers have announced their plans to increase their processing capacity. This capacity expansion amounts to a 50% increase over the present capacity. In a number of other countries HFS is also being promoted as a sweetener source, especially where the beverage sector fears domestic supply shortages.

General Issues

Forecast for 2000 Total World Demand for Sweeteners

Total Sweeteners = 151.301 (ses m mtwv)

Expansion plans already underway in a number of countries but particularly in the US suggest that the supply/demand of HFS should increase by some 4 million tonnes over the next 4 to 6 years from some 9.5 million tonnes to 13.4 million tonnes SES. Although we feel that at the same time demand for centrigual sugar is likely to grow in a number of countries with their growing income displacing non-centrifagal sugar demand, if this substitution does not happen then the relative decline in the international sugar demand will be greater than that indicated here. Sugar demand will then account for around 70% of the total sweetener market against 78% without this substitution.

3- Fundamental Developments

3.i- The world market supply/demand outlook

World Market Supply-Demand Balance

Consumption Production

Since January, the 1994/95 supply/demand estimates have moved from a deficit of some 2.5 million tonnes to a surplus of over 1.5 million tonnes. This turnaround in the figures has been promoted by the realisation of an enormous Brazilian centre/south production, a record Thai crop and upgrading of the Indian centrifugal sugar production to 15 million tonnes after 9.8 million tonnes in 1993/94 and initial estimates of some 12.5 million tonnes. Additional downgrading of sugar consumption in central and east Europe has added to the resulting supply surplus.

There has been much re-stocking this season: most notably in India and China. Looking ahead to the 1995/96 season our initial impression is one of surplus of over 1 million tonnes, although some market commentators have suggested that this surplus could be as high 3 to 4 million tonnes. As far as the trade balance is concerned, we are showing a tight trade balance for both raws and whites this year. This is reflected by the premium in spot sugar values. Next season however with the stock re-building behind us, the world trade balance is expected to be in surplus. In particular, the assumption of a return to a normal crop in the EU and the prospect of another good year in Brazil and export of 2.7 million tonnes of whites and crystals could result in a whites as well as a raws surplus.

Net Raw/White Sugar Balance

B Raw W White

The impact of these fundament expectations is already partly reflected in world market prices

Raw & White Monthly Average Prices

LDPW vs NY No 11 Spot

3-ii Key Players in the market

Brazil- The increase in Brazilian sugar production is largely attributed to the growth in the area under cane and the expansion of sugar production in the centre/south region; although the diversion of cane away from alcohol has played its part. At the height of the alcohol programme only some 27% of the cane was used for sugar production, today this ratio is estimated at some 33 to 34%, with the number of new alcohol cars reported at 30,000 compared with some 150,000 that are reportedly scrapped each year and 600,000 that were produced at the peak of the alcohol programme.

Key Players

Brazil

Production Consumption

Key Developments

Brazilian Cane Production Uses

Colombia and Guatemala have increased their sugar production fairly dramatically attracted by their regional preferential markets offered by the Andean Pact.

Key Players

Colombia Guatemala

The increase in the Thai and Australian sugar production has been equally as dramatic. The Thai sugar production has increased by over 200% since 1980/81 season and over 100 % since 1984/85. The expansion in the Thai sugar production has come about together with the migration of a number of mills from the centre to the north / north east region. Today, there is substantial spare capacity in Thailand with the total white sugar production capacity put at some 5 million tonnes. In the longer term, the difficulty of improving yields, given the existing farm size, shortage of labour and the difficulty of mechanisation limit the possibility of continued expansion of sugar production in Thailand.

In contrast to Thailand, Australia has highly mechanised farms with only some 6000 farmers producing in excess of 5 million tonnes of sugar. This compares with some 45.000 farmers in South Africa producing less than 2 million tonnes of sugar and nearly 35 million people associated with the sugar industry in India.

8

Key Players

Thailand Australia 000 m trv

6,000 5,000 :

4,000 -3,000 :

2,000 '-1,000 :

+32%

1984/85 1988/89 1992/93 1986/87 1990/91 1994/95

Production Consumption Exports

1984/85 1988/89 1992/93 1986/87 1990/91 1994/95

Production Consumption Exports

In contrast to the above list of countries sugar production in Cuba has fallen with the demise of the Comecon trade arrangement and the end of preferential trade arrangements with Moscow. Most commentators, however, feel that the Cuban sugar industry should gradually recover from next season as the country has allowed in a measure of foreign investment that is bringing to the country much needed agricultural inputs.

Key Players

Mexico Cuba OOOmtrv OOOintrv

-Y——-r* • • ----••-**• •—•»-— ' H I M *"-*•• * « • • , • * •

The plight of the former Soviet republics and the east and central European countries has been much discussed in the press. With the break up of central planning structures agriculture has suffered significantly as growers have found themselves without official protection.

Key Players

Russia


Ukraine


If we were to choose two countries that are likely to have the most significant impact on the future course of world market prices it would have to be India and China. India like Brazil grows over 220 million tonnes of cane each year and small diversion away from the cottage industries, gur and Khandsari could easily lead to marked changes in the country's su*gar production. This season is a clear example of what the diversion can mean for the country's sugar production. After producing 9.8 million tonnes in 1993/94 season India is now heading for a sugar production figure of around 15 million tonnes white value.

9

China with a population of over 1.1 billion is a large and significant market both in terms of its production and its sugar consumption. A large portion of the potential Chinese import demand has been satisfied by its use of low calorie sweeteners, and saccharin in particular.

Key Players

The Asia Pacific region overall offers substantial room for expansion of sugar consumption. In this region lies some of the world's fastest growing economies; the combination of income growth and the development of trade pacts will enhance trading opportunities. Tentative analysis of these markets shows a potential consumption increase of some 9.4 million tonnes over the next five years.

country

Bangladesh Burma China Hong kong Indonesia S. Korea Malaysia Philippines Singapore Sri Lanka Taiwan

5yravg GDP growth

2% 31% 6% 15% 9% 10% 12% 4% 15% 11% 9%

per head income 1994 uss

217 1000 460 22000 760 7500 3500 940 20000 690 11700

per head income yr 2000 fcst USS

240 6700 700 34000 1400 14300 7500 1100 40000 1300 20000

pop 1994 millions

117 44 1200 6 193 44 19 67 2.9 18 21

pop yr 2000 fcst millions

132 50 1290 6.3 217 47 22 76 3.2 19.1 22

per head sugar cons 1994 kg

3 2 6 25 13 18 38 24 41 25 22

per head sugar cons yr 2000 fcst, kg

10 14 10 35 15 25 38 25 38 25 30

potential cons increase yr 2000 (000 mtwv) 969 612 5700 70.5 746 383 114 292 2.7 27.5 198

Total 9430.7

3.ii Price Outlook

The upshot of the above structural developments is the emergence of an international market that is susceptible to appreciable short term price volatility but this increased volatility will be restrained within more subdued longer term price cycles. As for the actual price developments, based on our existing assumptions about world supply and demand balance we are expecting prices to trade in a lower price range especially as much of the needed stock rebuilding has already taken place and next season we may even see some of the countries that have been actively buying this year, becoming net exporters.

10

Vietnam 18% 200 600 72 82 7 10 316

Price Outlook

London Daily Spot Price 1980 to date

Summary of the opportunities, risks and challenges in the international market

Today the international market is a price sensitive environment where the accelerating deregulation of the market and the rise in private trade are leading to a myriad of trading opportunities as well as price and counterparty risks. The competition from alternative sweeteners and the expansion of HFS capacity is a challenge for the western hemisphere producers and the US sugar industry in particular. In contrast, the potential expansion of demand in Asia and in the Asia Pacific region in particular provide an untapped potential that should open up export opportunities as these countries' demand expands and as they are integrated within the regional customs unions.

Farideh Bromfield May 1995

Disclaimer: Any comments or opinions in this report are not intended to be an otter to buy or sell commodities or futures and options thereon as commercial purposes. thev merely state our views and carry no guarantee as to their accuracy. © 1995 E D & F Man Sugar Ltd. Reproduction' is "authorised, provided the source is acknowledged."

11

Structural Changes in the Australian Market and the Implications of

Deregulation

Paper presented by Ian Ballantyne General Manager, Canegrowers

INTRODUCTION The Raw Sugar Industry will shortly be the subject of yet another examination of its structures, institutions, practices and regulations. A review of this much reviewed industry follows a five year period which has seen :

• growers undertake over of a 30% expansion in acreage,

• recovery from debilitating combination of drought and low prices to register successive record crops in 1993 and 1994,

• record levels for the pool price of raw sugar and for total industry revenues,

• the raw sugar industry capture new, potentially secure, long term markets for the increasing levels of production,

• predictions of continuing growth in production under the present regulatory regime, well through the 5 million tonne barrier,

• the attraction of significant foreign investment in both the raw sugar milling and refining sectors,

• resolution of the long term , divisive Division of Proceeds issue and an agreement to seek out and to share future joint productivity gains,

• heightened levels of competition in the domestic refined sugar market

Clearly this is an industry that is in desperate need of review and of significant restructuring!

THE ENVIRONMENT There are a number influences contributing to the current imperative to again examine and to potentially institute changes to the current raw sugar industry structures . These include :

• Queensland State Government policy requiring all legislation to be reviewed on a five yearly basis - The current Sugar Industry Legislation was enacted in 1991.

• Queensland State and Federal Governments agreement to revisit tariff and a range of industry structures including the Pooling Differential following the 1993 Federal Government Sugar Industry Task Force and Package.

• State and Federal Governments agreement to adopt and implement a National Competition Policy flowing from the Hilmer Report. This policy mandates that 'uncompetitive' business activity can only be undertaken where it is in the 'public interest' to do so.

• Strong lobbying by some industry sectors to vary current access arrangements to the domestic raw sugar market. It is argued that because of single desk selling and the

2

consequent pricing policies of the Queensland Sugar Corporation, Queensland operates at a disadvantage to New South Wales on the domestic market.

• Lobbying by representatives of some user industries and interest groups that believe that further 'deregulation' of raw sugar production and marketing arrangements will result in a fall in the end price of refined sugar.

• A political and economic environment which inclines to the view that less regulation will always result in greater efficiencies, greater competitiveness and expansion of the production base.

There are naturally a number of commentators who point to the current position of the industry and argue that the outcome is largely due to the 'deregulation' arising from the legislative liberalisation of the industry under the Sugar Industry Act 1991 and therefor the process should be continued, accelerated or even completed. Others will equally argue that the industry has attained its current position because of, not in spite of, the key structures that underpin the it - the security and risk sharing that is provided by acquisition and single desk marketing arrangements.

I represent the growing sector of the raw sugar industry. A sector that is increasingly concerned that significant changes to the fundamental structures of the industry - particularly those that recognise and underpin the principles of co-ownership, interdependence, risk sharing and security - would not be in the interests of the growing sector, the raw sugar industry and the community at large.

HISTORY The current structures may have been born with the Sugar Acquisition Act 1915 and the Regulation of Sugar Cane Prices Act 1915, but it would be more relevant to recognise that conception occurred some years earlier with the 1912 Royal Commission . The Royal Commission, in general terms, concluded that there were an absence of competitive forces operating to permit an equitable distribution of profits in the sugar industry.

The Royal commission found that the price for both refined and raw sugar was set by domestic refiners. The price for sugar cane, in turn, was set by the mill owners. The Royal Commission concluded that:

...the growers as a class do not in our oppinion receive their fair share of the profits of the industry as a whole.. (QSC-Distribution of Proceeds of Vested Sugar Vol 1, 1993)

It could be argued that, from that point, the need for legislated regulatory structure was recognised. While interdependence between miller and grower is clearly evident, the absence of balance in the marketplace (for cane), necessitates that some control exist to ensure that arrangements between the two partners are equitable, to ensure the industry some measure of stability and to recognise that risk sharing/co-ownership of the raw product is a necessity.

3

CURRENT STRUCTURES The Sugar Industry Act 1991 provides growers and the industry with a number of explicit and implicit capabilities. These include the following fundamentals:

• The implicit co-ownership of raw sugar through the pooling of revenues and the consequent ability to base cane price on the price of sugar, ie sharing of risk and reward.

• The ability to rely on the independent audit and oversight of production and pricing arrangements that would otherwise not be available ie. when, to whom, haw much what price - all questions of significance to partners.

• The ability to modify risk as an industry by permitting more extensive forward pricing, commitment to long term supply contracts, oversight of shipping and the ability to commit to long term market development, ie capacities that gain greatly from increased economies of scale

• The joint oversight of quality matters between sectors and throughout the industry including quality of service to customers, ie protection of the market and differentiation of the product.

While it can be argued that all of the capabilities may be available to individual milling companies, they would not be available on the same scale nor able to provide the same degree of security nor, most importantly, would growers be able to participate and benefit.

Has the structure of the market altered sufficiently to make these interventions by government unnecessary Commencing with those earliest interventions, a large range of production and market related regulations have evolved to meet the particular needs of particular environments. When changes have occurred in the market - be it cane, raw sugar or refined - secondary or supporting regulatory structures that have gradually diminished in importance, or in more recent years, have been completely repealed.

The fundamentals however remain and are as necessary now as they were eighty years ago. Without acquisition and the transparency of single desk marketing arrangements , growers would again be at the very bottom of the food chain - open to all predators. The industry would find itself on the international market , competing against other Australian based companies with proportionately less resources.

CHANGES IN THE MARKET AND INDUSTRY ENVIRONMENT The following issues will influence future structural change:

• The raw sugar industry has in recent years become fully internationally focussed. All domestic pricing is carried our with direct reference to the prevailing international market - albeit moderated by a small tariff and import parity premium.

4

Tariff policies of both major political parties would see the tariff continue to decline. Pressure will also come from Queensland industry customers- some of whom are raw sugar millers and from government endeavours to reduce imput costs for potential value adding manufacures.

The international market remains a residual market, highly volatile and influenced by domestic production and price intervention. While the volatility and intervention may decline these will be at best marginal reductions.

There will be increased levels of competition from other international sugar producers and alternate sweeteners as technology and efficiencies improve.

Increasing production and static domestic consumption will see greater proportion

of raw and refined production being placed for export sale-

Increased domestic competition will increase calls to deregulate the domestic market and perhaps seek a voluntary basis for single desk international sales. Domestic refining margins are likely to remain very tight.

Grower and miller relations have matured however the fundamental market imbalance continues with single mills or single milling companies operating regional monopolies with a number also operating refinieries.

Production controls are now minimal, with the assignment system no longer the limiting factor. Land availability and suitability and commercial return decisions now place the most significant restriction on expansion. Environmental considerations also play a role in constraining production increases. It is however clear that some form of commitment to supply and to crush will continue to be critical to ensure best utilisation of capital, harvesting and transport infrastructure and contractual conditions - call it assignment or some other term, it will remain significant.

Storage may become a problem necessitating that further facilities be constructed. Pressure on the pooling differential and on single desk selling would make payment for these facilities an issue.

IMPLICATIONS Unconstrained moves to fully deregulate the raw sugar industry will have significant implications, especially for the cane grower. There is no doubt that changed circumstances warrant a review of the industry, its regulatory structures, institutions and procedures, however many of the reasons that necessitated third party intervention continue to exist.

Some scenarios for structural changes could include:

• Retention of single desk selling for export sales but deregulation of the domestic market. - The principle of co-ownership of all sugar would be

5

terminated. Growers would lose the capability to establish the quantity of sugar placed and the price received for domestic sales. It would also be difficult to ascertain whether the sale price maximised opportunities or was subject to some price transferring arrangement between mill and refinery. Separate price pools would need to be established for domestic and export sales if mill continued to accept transparency of domestic arrangements. It is unlikely that there would be a beneficial flow through to the consumer as any price premium still available would be captured at the refinery or at the point of manufacture. Monopoly control of production would continue in most regions.

* Voluntary single desk marketing, either for export, domestic or both. - Again unless subject to some mandatory arrangement, growers would lose the co-ownership of sugar and transparency of decision making. It is unlikely that voluntary arrangements would provide equal or balanced input by growers to participate in a voluntary arrangement - Would Tate and Lyle or CSR allow growers to 'vote' on the method, price and contractual arrangements for the disposal of raw sugar produced in a particular area. Wider issues including quality conformity, terminal access, price pooling and advance arrangements would also prove difficult. Voluntary arrangements may still contravene national Competition Policy and be interpreted as collusive. It is unlikely that a particular benefit not available otherwise would be available to the domestic user, however international customers would benefit from increased intra-Ausrtralian competition. Monopoly control of production would continue in most regions and may be questioned under Trade Practices legislation.

• No change to the fundamentals of single desk marketing for export and domestic production hut a review of some aspects of pricing and production control. - this scenario will come under greatest scrutiny from users and National competition policy, it could be argued that transparency of operations, maximisation of returns on the international market, effective management of risk , security of contractual commitments, coordination of quality, production, infrastructure utilisation and price competitive domestic sales all contribute to the 'public interest' -a healthy, competitive international sugar industry.

CONCLUSION The raw sugar industry has been characterised by a far reaching regulatory structure, which in recent years has come under close scutiny. Some aspects of the structure have been dispensed with, others are becoming less critical to the good management of the industry.

There are however a number of fundamentals that have been the cornerstone of the industry's development in better times and survival in difficult times. Key to these remains Acquisition and mandatory Single Desk Marketing arrangements. The fundamentals provide the basis of the partnership arrangements with the sugar miller, ensure that both parties have ongoing interest in the entire industry - from planting through to delivery of raw sugar to the customer. The independent auditor of price and of contractual arrangements provides the balance not otherwise present within the industry.

6

Irrespective of the arrangements for raw sugar production which may arise as a result of the review, the raw sugar industry will be subject to intense scrutiny - either in order to provide justification for the continuation of essential 'public interest' legislation or to permit the alternative - a market power imbalance which would arise from the monopoly control of milling operations in almost all sugar producing areas.

7

Sugar Industry - Implications Of Deregulation

Paper Presented by Tom Fenwick, Director-General,

Queensland Department of Primary Industry

Thank you for the invitation to speak at this conference. Conferences such as this show that the sugar industry has the initiative to pose questions and consider issues which will have a bearing on its future. This reflects the Industry's determination to take control of it's future.

The title of this session is 'Structural Changes and the Impacts of Deregulation'. I will focus on the second half of this topic and will leave the market and structural issues to my colleagues who are able to provide a more commercial perspective.

Let me take you back briefly to the 1980's. The sugar industry was then - and still is - one of our major export earners. But production was virtually static, the outlook was pessimistic, the industry was over-regulated and marred by confrontation between growers and millers. The area of assignment remained static for 10 years, a concept amazing in hindsight.

Let me highlight the major achievements of the industry since 1989 when the first deregulatoiy steps were made:

- a 30% increase in assignment area

- record production of 4.8 million tonnes in 1994 compared to 3-3.5 million tonnes through the 1980s

- value of production reaching $1.8 billion in 1994

- a 17% increase in the number of farmers

- expanded crushing capacity and investment in transport infrastructure

- increased farm and mill cost efficiency due to greater throughput

- expansion into new cane areas such as the Atherton Tablelands

- improved dialogue between growers and millers

The industry's gains have been crucial in maintaining our place in the world market, particularly against expanding exporters such as Thailand. I believe deregulation has been crucial in getting the message across that the Queensland sugar industry means business.

The process of rapid deregulation and rapid growth did highlight one problem - ensuring infrastructure is available to cope with change. This is why the government contributed funds towards dams and cane railways to assist the industry in developing its infrastructure. This model has been adopted in other industries.

2

Another implication of deregulation is the effect on the small family farm, particularly those that are land-locked. Such farms are less competitive in the context of deregulated industry and have lost some of the benefit of farm peak and the pool price differential. Their assignment has lost its scarcity value and the benefit of the tariff has been reduced. Despite these effects, I am confident that the family farms will survive and remain the basis of the sugar industry. It is encouraging that the number of cane farmers has actually increased since 1988 and now stands at about 6300 growers.

Much of the hard work in deregulation has been done, but the process of change is continuing.

This year and 1996 for example, will see growers and millers determining cane payments using a system of negotiation which has less reliance on legislation. It marks a major step towards a more commercial relationship between the grower and the miller. The industry should be congratulated for the initiative it has taken in this area.

Although the new system represents a significant reform with a more commercial emphasis, it still involves growers negotiating as one body. The challenge to the industry is to take this reform further to identify potential benefits from negotiating supply contracts at the individual level To ignore those potential benefits will be doing an injustice to the industry, particularly to those highly efficient growers whose enterprises represent best practice on a world scale. I have no doubt there will be increasing pressure for individual negotiations - how the industry deals with that will be a test of maturity.

I have provided an overview of what deregulation has occurred so far and the implications thereof. I will now turn to the future.

As you will be aware, the industry is gearing up for another review of its regulatory structure, including the tariff arrangements. There is little doubt that the legislation - based controls will be further reduced over the remainder of this decade as a result of this review.

The tariff is a Commonwealth matter and the decision on it will be made at Commonwealth level. However, it is quite likely that the tariff will be phased out. The implications of this change for the industry are not great, as the tariff has shrunk to only 1.5 to 2 percent of the industry's gross value. In fact in this regard it was disappointing to see the editorial in the Australian Financial Review a few weeks ago, that suggested the Australian consumer was being plundered by a protected industry. The reality is far from the truth. It is attitudes like this that die hard and will be perpetuated while ever there is any tariff protection.

There should be some benefit to the economy as the removal of the tariff will make raw sugar cheaper for domestic users and this may encourage new industries and new value added exports, I again stress that because the tariff is so small, these benefits will also be small

The pool differential is now at six percent and will be six percent for the 1996 season, having been phased down from 12% progressively over three years. I believe the industry has already formed expectations, and I believe correctly, that the differential will be phased out following the review. Removal of the differential will certainly simplify the pool payment system.

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The assignment system has largely ceased to be a production control mechanism and is likely to be phased out by the end of the decade, in favour of more commercially oriented, less legislatively backed arrangements. Already the separate value of assignment is now zero or very low as a result of structured expansion provided for in the Sugar Industry Act and supported by the Industry Policy Council. There shouldn't be any major implications associated with such a change. Growers and mills will need to take a more commercial approach, but they will be doing this anyway with the new negotiation procedure currently being put in place.

The industry will also need to monitor closely the need for additional port/terminal infrastructure and the location and form this may take. As the industry expands, the pressure on infrastructure will increase. Significantly, if infrastructure constraints limit the choice of export markets and affect returns accordingly, serious consideration will need to be given to terminal expansion. This decision will be one for industry to make - not sections of industry or Government.

Port infrastructure needs are also inextricably linked to the current acquisition and single desk selling arrangements. While uncertainty remains about the regulatory future, decisions about port infrastructure will understandably remain on hold. This leads me to one of the most interesting questions in the forthcoming debate on the review of the industry - that is, what will become of the Queensland Sugar Corporation monopoly marketing powers for raw sugar.

If you consider trends in other primary industries then, at the very least, it would seem that compulsory acquisition for the domestic market may be difficult to sustain. Indeed, there is a view at the Commonwealth level that statutory arrangements are not necessary for the industry to compete in world markets. Against that, there are many who would argue that the single desk seller arrangements have been one of the industry strengths and should be retained - not because of tradition - but because of marketing strengths which it delivers to an industry dealing with multiple world buyers.

In view of the national competition guidelines, the industry will need to argue strongly its case for retaining single desk selling for export markets.

Of course this issue will be further blurred as a growing trade in white sugar eventuates, and as downstream processing for the export market emerges as a significant element of the industry. Whatever arrangements exist for marketing of raw sugar - these must not be allowed to impede these evolutionary changes in marketing opportunities.

Most importantly, the benefits of single desk selling will need to be quantified. The industry will need to provide evidence, in hard dollar terms, of the benefits of single desk selling to the state and to the community and not just to industry.

Specifically you will need to estimate the benefits of:

- cost savings in coordinating terminal operations, shipping times and the like

- economies of scale in handling and marketing raw sugar

- advantages in promotion and market development programs

- advantages in competitive price negotiations with export customers

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- the capacity to blend sugars to meet quality targets

- the industry's reputation in its long-term markets as a quality supplier.

If there are any price premiums achievable through single-desk selling, these will need to be quantified. I would strongly urge the industry to identify and quantify these benefits so that the issue of single desk selling in the longer term can be resolved in a rational and universally accepted manner.

It is difficult to predict the implications of a freed up domestic market for raw sugar. However, it is likely that some regions and refiners will have a competitive advantage in terms of cost and these will succeed in the domestic market. The remaining sugar could be exported.

It is too early yet to say what changes will occur as a result of the review, or what their impacts will be. However, it is certain that further changes will occur to make the industry larger, more competitive and less reliant on legislation. Continued gains in productivity are crucial to maintain our place as a leading exporter of quality sugar.

Many of these gains have derived from the high level of commitment by industry to Research, Development and Extension. Critical to that commitment has been the Bureau of Sugar Experiment Stations' role. The Bureau and its funding base will be part of the review of the sugar industry legislation. Industry will need to consider whether it wants to continue with a Statutory Board, or develop a private company model. This has implications - for both funding arrangements and relations between Government and industry.

Related to that issue also will be the Cane Pest and Productivity Boards. I believe there are improvements which can be made to these important elements so critical to the industry's long term productivity and competitiveness - but those changes will challenge some of industry's views and need to be worked through within industry.

I will now conclude by highlighting one of the great benefits that deregulation has brought.

More than ever, millers and growers have worked together to take advantage of the opportunities presented by deregulation. Over the last five years, one of the great benefits of deregulation has been the greater co-operation it has fostered between growers and millers. Further deregulation will make it necessary for you to continue to work together to achieve greater productivity and competitiveness.

If the sugar business is to grow and prosper, and the industry is to take control of its destiny, all elements of the sugar industry will need to regard the industry as just that - the sugar business. No longer can millers can growers stand apart, they must work together to grow the business. This will be an ongoing challenge, but I believe great strides have been made so far in the nineties - to the extent that I believe all can be confident that the sugar business will remain one of the strongest economic fares in Queensland's economy.

I thank you for the invitation to speak to you today. I look forward to working with you to ensure the ongoing strength of your business.

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Structural changes in the Australian market and the implications of

de-regulation

Paper presented by John Noble Chairman,

Ord Sugar Industry Board

Its an exciting time in the Sugar Industry-Let me briefly put a view about the second question first and dispose of it as quickly as I can. "What determines sugar prices" is a massive subject on its own. You will all have your own views. For what its worth my view is that the price we get in Australia is mainly determined by the world's residual sugar market. That price is driven by what genuine buyers and sellers think about the fundamental supply/demand situation over the next year or two and by speculators who dabble in the same futures trading hoping to make lots of money. Its also very easy for these gentlemen to lose lots!

While the world markets fix the base level of prices in this residual market Australia can usually do a little bit better or a little bit worse depending on the supply/demand situation in our own region of the world - the Pacific Basin and in particular South East Asia. We have been enjoying a premium above the world price because supply in this region has been short.

Of course Australia's foreign exchange rate is another driver. Most of the world trade is in US dollars so the US/Australia rate is the one to watch. We get better Australian sugar prices when our dollar weakens against the US dollar. To many businesses and politicians in Australia this is called a calamity. For us it is great!

We know our price comes from the residual world market but what brings about supply and demand shifts in it? The obvious, and often spectacular, cause of shift is the world weather pattern. Weather calamities in major sugar producing countries is good for us provided Australia is not having a weather calamity too. Wars or the threat of wars can have a similar impact.

But the most insidious impact comes from the sugar policies of countries which set internal sugar prices above the world market and encourage production way above the level which would be sustained if sugar producers in those countries were receiving the world market price. Take these artificial incentives away and not only would there be less sugar dumped into the world market but the demand for sugar would go up as theses countries sought to buy sugar from this market. A beautiful result for a low cost, efficient producer such as Australia!

This is why it is so important for us to assist GATT type initiatives. We need to do all we can to discourage artificial trade restraints even though its like hitting your head against a brick wall or a Frenchman's thick head.

Enough of this. We study all of this to try and work out what prices we will get. Again for what its worth I think the world market will trade in the range of 10 to 15 US cents per pound. A pretty wide range I know and not very attractive at the lower end. But I would not plan on anything different to this. The exchange rate? I leave that to you and Mr Keating or, maybe Mr Howard.

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For me the first question is much more interesting and exciting. "Deregulation and its impact on Australian markets" - this needs to be exercising the minds of everybody in this industry.

There is lots of talk not only about more sugar industry deregulation but about a more comprehensive restructuring of the way the Australian economy operates. Uppermost in our minds will be the review of the sugar legislation in 1996 but we ignore at our peril all the other general changes that are in the wind. I refer to Hillmer's "Competition Policy", to GATT, to privatisation, to tariff reform, to "user pays", and such like. Most of the thrust is towards getting Australia to be externally focused and more internationally competitive. Most of the change is designed to enhance the performance of export industries and is therefore in the interest of this industry. How often do we boast about how efficient and how internationally competitive we are9 We need to support this change and ensure that it does, in fact, accomplish what it was planned to do.

To me its not a case of whether its going to happen. Its a matter of what is it going to happen, how will it happen and how quickly.

My personal position is that I greatly favour less regulation. I take the view that what has happened so far has generally been good for the sugar industry, good for the State of Queensland and good for the economy of Australia. Today we have a much more internationally aware sugar industry than we had only a decade ago. I like to think that we also have a much more internationally competitive industry than we had a decade ago. I am sure that some parts are highly competitive - maybe the best in the world.

This is largely due to the removal, or maybe relaxation, of some of the controls that were imposed on this industry way back in 1915. They may, or they may not have been, good for this industry at the time but I think they staggered on for just too long. When I see the new lease of life the industry has had in the last five years it gives me a lot of hope for the future. Looking back the Central Board system encouraged conservatism because it made it so hard to change anything. Some of you will think "but that was good". Others will think "that was bad'. But the reality is that since the end of the Board and with good will between growers and millers many changes have been made. Production has grown enormously. We are forging ahead and I am sure we are the envy of many of our serious competitors. This is more fun than being wrapped up in a comfortable cocoon.

But I am also convinced that this is a time for growers and millers to find ways to work together better than we have done before. We have to if we want to make the best out of what will come.

The problem is that we have had working together bred out of us. I blame the regulation for this. Acquisition of our product is one reason we do not work well together. The responsibility for marketing and selling was effectively taken out of our hands. We now rely entirely on two grower and two miller representatives to look out for our interests. As individuals we are far removed from the hurly burly of the market place. Our distance from the market used to be very obvious to me in my previous job with CSR where I used to meet, from time to time, with the building material groups. Those fellows were

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preoccupied with their market. It dominated everything. But there was nothing I could do about my market. My preoccupation had to be with costs - the costs of maintenance, the cost of labour and the cost of cane. Another recent exposure to the dominance of the market was with Ord River farmers. To them the market is everything. I could not help but contrast their outlook with that of my farmer friends in Queensland. The Queenslanders are certainly interested in the daily price movement but that is about it. They know there is little they can do to influence anything.

It was perhaps natural that if growers and millers could not control the market that they would turn to things they could. How could they get a better cane price deal? Could they shift delivery points and so on? Millers were able to improve their position at the grower's expense and vice versa. The focus was far from win/win. Win/lose was the way the game was played. And it was all made a whole lot worse by the existence of the Central Board which seemed to be provided free of charge to oversee these win/lose games. I can not recollect an occasion where a Central Board decision left both parties happy.

This is where we have come from. I often wonder what this sugar industry would have looked like if the sugar in a mill area had not been forcibly taken from growers and millers and they had to make their own arrangements for its sale. Would we see a much more cooperative and entrepreneurial focus than we do now?

Grower/ miller relationships are probably not as bad as I have painted. Certainly in recent years there has been a willingness to sit down at mill area or district level to look at some of the larger issues. Continuous crushing negotiations are a case in point. The recent cane price/productivity package may well be a scene setting break through which leads to rational local negotiations with win/win outcomes. I hope the win/lose mentality is buried along with some of our other old baggage.

Queensland growers and millers must find ways to work together over the next two years to participate in the building of the future structure of our industry. There is too much at stake and this is too great an industry for us to allow others to set the agenda while we squabble amongst ourselves. We will achieve much more if we can agree what we want and go after it together.

I would like to see at the end of all the argy-bargy that will go on over the next two years that we have an industry structure that allows, even encourages, growers and millers to become more economically efficient. This gives us our best chance of taking on and beating the very serious competition from other suppliers to the world market.

I would also like to see an industry completely in control of its own affairs, including marketing. Somehow the predisposition of Governments to intervene has to cease. I know that there is a strong body of industry thought that believes legislated"acquisition" is the only option. I do not believe this. There are other ways of managing single seller arrangements in the export market and sensible business people can make them work.

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To provoke some thought I suggest that we will see the following changes - no domestic tariff, multiple sellers of raw sugar to the domestic refining market, a single seller to the export market but by commercial agreement rather than legislated compulsion, local board awards and assignments replaced by a longish term cane purchase contract system, and dispute resolution by commercial processes.

Now there must be someone who does not agree with me.

Taking Control of Your Finances

Paper presented by Gavin Emery Senior Manager - Agribusiness Finance

Queensland Industry Development Corporation

In keeping with the title of this conference session I will cover some key aspects of financial planning and risk management as are applicable to the business of primary production -particularly sugar cane production - in this address.

Whilst I have high regard for farming as an occupation and normally find derogatory comment about those who operate in the sector offensive, the story of the farmer who won $2m on gold lotto who, when asked what he was going to spend it on, replied "oh just keep fanning until it is all gone" may have some basis of truth unless we are careful to take control of our business strategies and related financial decisions.

DEFINING FINANCES Normally, when we think of financing agribusiness enterprises, such as most of you here today own and manage, we restrict out thoughts to borrowings. If however we are to consider how to take control of all of the financial implications of structuring and managing a typical family sugar farming enterprise we must consider the definition of finances. This embodies both the owners equity in the form of capital, which has already been or is about to be injected into the business, and any borrowings in the form of debt acquired from a source such as a bank.

During the next few minutes I will touch briefly on the degree of control which you may exercise on each of these components. Well managed businesses should have the correct balance of each.

THE ROLE OF CAPITAL IN PRIMARY PRODUCTION Most of you will have begun growing sugar because of historical family factors. Farming is a business suited to family style owner/manager structures and the combination of a relatively unstructured lifestyle and the ability to involve children in meaningful activity at a young age results in most farm youth being eager to continue the occupation. Unfortunately the financial returns from farming Australia have been unable to fulfil the desires of many potential farmers in each new generation. Thus expanded families sought more land. This resulted in strong competition for farm land offered for sale, and a price setting mechanism which has more to do with emotion and tradition than return on capital. To be in control you must recognise this phenomena. It may not necessarily result in poor business decisions but it should be understood.

TAKE CONTROL BY PLANNING Business structures around the world, of all types, have focused on better planning their futures in the past decade. Much of this activity was driven by an increasingly complex, and competitive, business environment in which large corporate entities could not survive without clear objectives, strategies and tactics. Whole planning departments are now involved in developing "controlled futures" for most of the worlds large companies. Note however that those which end up in front usually also have an intuitive chief executive. Your cane growing business and other investments are really no different. Your business plans can be much simpler - in fact the simpler they are the more effective they are likely to be - and your "chief executives" intuition will also play a major part in success.

•

MAKE YOUR CAPITAL WORK Your own plan should concentrate firstly on what your business is now. This includes your farm management strategies and opportunities for utilising the capital you now have invested in sugar farming more effectively. Often, investments in irrigation systems, headland layout, new varieties etc. can have a more positive effect on your long term net cash value than a "new" investment-Opportunities to acquire easily managed, (both financially and physically), additional areas may be good business decisions provided the price paid is not at such a premium that the investment results in the projected return on capital from the new total farm being below that expected without the purchase. Also look for "lazy" capital tied up in farm plant which is only used seasonally and could better be replaced by contractors.

USING DEBT Now turning to debt. There are few businesses which can be run on debt finance alone. Farming, not even sugar growing, is certainly not one of these.

Debt can be used effectively to meet operating costs for which it would be "expensive" to apply owners equity in the form of cash because of the fluctuating, and short term nature, of these expenses. Debt can also be used as a "lever" to get more out of the amount of capital available. Unfortunately levers can, and often do, work both ways.

Both debt and capital have in common, the fact that if either are lost they stay lost, as it is a fact that lenders are minimal risk takers. It is therefore important that the correct balance of debt and equity, is calculated in your business plan considerations.

MANAGING RISKS Long term operating returns on total capital invested in your core businesses are likely to be relatively low compared to many other industries. It is therefore most important to understand and manage the major risks which could adversely impact on your bottom line. Production tonnages of cane and the Input costs required are to some extent controllable by management strategy. For instance you can develop management systems to both improve the consistency of, and increase, average per hectare tonnages. Whilst working to improve the ratio of costs to tonnages is critical to improving the performance of the business it is also important to realistically project these factors when considering any business decision involving your finances.

SUGAR PRICES The need to consider Sugar Price risk is clearly evidenced by this chart. Whilst the current marketing structure in the industry involves centralised and highly competent techniques your business responsibility involves considerations of a longer term nature. You should have a view on what is a reasonable long term price for sugar on an average year to year basis. History can be a guide but the unlikely impact of current and developing influences must be factored in, ;

l! [

You do not have to be an expert commodity economist. Rely on experts to do the research and | make a balanced judgement based on their views.

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INTEREST RATES Interest is the cost of debt in your financial equation. Even if you have leveraged your own capital conservatively and taken a low risk position in respect of the debt/equity mix interest is likely to be the single larges item in your Profit and Loss Statement. On the basis of this chart we can see that the total interest cost of $500,000 of debt would have varied from a low of $37,500 in 1994 to a high of $100,000 in 1986. When compounded with the effect of price movements on the gross value of 10,000 tonnes of cane using price movements from the previous slide the net bottom line influence of these two factors varies from $265,600 in 1994 to $118,900 in 1986. Tax implications are excluded. Clearly interest rate risk management strategies should be reviewed regularly as part of your business planning exercise.

MANAGING INTEREST RATE RISK What are your options for managing interest rate risk? First, there is little point in paying for interest rate protection when rates are at relatively high levels such as applied in 1982, 1986 and 1989. Your long term view of what average rate may apply to your borrowings is just as important as your view on average sugar prices. Again you should make your decisions after considering the views of a range of expert opinion but no commentator has got it right every time yet. When rates are at historically reasonable levels, such as in they are at present, options to fix or use other mechanisms should be considered. It is better to be sorry you fixed than sorry you didn't but, fixed rate options limit flexibility. Also consider that the longer you delay taking a position the longer the ultimate benefit, but be ready to move quickly.

CAPS BUT NO TIES An option to taking a fixed interest rate position is through the use of alternative risk management products now offered by most of the major financiers of your industry. A "Cap" as the industry jargon has named it is a mechanism whereby you pay a premium either in an up front lump sum or as additional margin built into your rate to guarantee you will not pay above a set rate for the term of your facility. You do not lose the potential benefit from any interest rate reductions. "Collars" are a combination of a cap and a floor rate which sets limits to both the maximum and minimum rates you are prepared to accept. These products are complex and require specialised documentation. You should ensure you are fully aware of you and your bankers responsibilities in any transaction.

CHOOSING YOUR BANKER In taking control of your finances you will need to involve your professional service providers. Your accountant, solicitor and banker and all have a lot to offer. As for your banker, your relationship will be more critical if debt is involved.

Like spouses, bankers should be "partners", prepared to accept two way responsibilities, and should be chosen carefully. As depicted in this slide some bankers can say "no" too quickly whilst others see too many proposals through rose coloured glasses. Choose one that is prepared to be critical and hones but also open minded. Choose one you can talk to about your businesses financial future.

Perhaps too often we choose the one that just gives us the best price on the day.

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Succession Planning How to ensure the next generation gets the

farm

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Paper presented by Ray Armitage Managing Director

Lonsdale Group Pty Ltd

A large percentage of farmers I meet today are concerned that they cannot afford to gift all or part of their equity in their business and its property to their children. Neither can their children afford to buy all or part of their equity out.

The other realisation is that Capital Gains Tax Legislation is working similar to the death duties of old, and where there is insufficient planning to address this problem, the recipients of a farming estate could inherit a debt which necessitates the sale of the farm instead of an asset they can build on.

Today I propose to discuss two of the main solutions to the above problems that I am aware of

The first solution is to put in place a strategy to develop off farm assets. Taxation legislation, today, provides effective tax deductions for profitable farmers to develop off farm assets by use of superannuation and negative gearing. Whether we would use superannuation or negative gearing on their own or combined would depend on the age and circumstances of the farmer in discussion. For the purpose of this presentation, I will focus on the use of superannuation.

Lets assume we are looking at the position of the following farmer and wife operating in a partnership which this year may earn $80,000. Mr. and Mrs. Farmer are 52 and 51 respectively and have a 27-year old son who works part time on the farm and a 25-year old daughter who is married and lives in town. Their total asset is the farm which is worth approximately $1,050,000 debt free and is operating on a working overdraft. They also have $80,000 in term deposits. Both have a small super policy with an insurance company with say $30,000 each. They would love to give their son the opportunity to join them more on a full time basis in the hope that he will one day take over the running of the place. Their problem is he has no real asset base, the farm normally doesn't earn enough to support two families and they must remember the daughter.

These clients could adopt the following strategy.

The maximum deductible contribution to superannuation is $62,000 each for both Mr. and Mrs. Farmer as they are both over 50 years of age. They could keep $60,000 of the $80,000 cash as short term working capital for the business and make the following contributions.

Current Balance of Super Funds

Cash Contribution from IBD Contribution from Business Profits

Less: Contributions Tax of 15%

New Balance of Super Funds

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Tax Deductions are as follows:

Mr. Farmer Mrs. Farmer

NOTE: This does not take into account the ability to average your income.

Actual Income

Partnership Income Less: Contribution from Business Profits Less: Tax Payable on $8,000

Assessable Income

Net Usable Income

This is surely one of the most powerful tools at your disposal for tax planning purposes in the better years as well as succession planning.

Let us assume we are able to build the super fund up to our maximum limits of $400,000 each by the time we reach 58 and 57 respectively. The son is now married with 2 young children and living nearby. He now works full time on the farm for a modest wage. If the clients wanted to they could "retire" with the following scenario.

The clients sell the farm to their son for fair value. The parents provide interest free vendor finance secured by a first mortgage. This allows transfer of the property into the son's name whilst maintaining some degree of control for the parents whilst they are still alive. The parents can forgive the "loan" in full upon their death.

The parents then withdraw say $200,000 from their super funds to build their retirement home leaving $600,000 in assets in the super fund. They start drawing an income stream from the super fund. At this point the super fund changes status and is commonly called an Allocated Pension. The tax on the earnings of the Allocated Pension drops from 15% p.a. (as a super fund) to Nil and the bulk of the pension they are drawing has no tax payable on it. Therefore, effectively we have been able to hand the farm to the son without a crippling debt and transfer the bulk of the parents remaining assets into a tax exempt environment with tax effective income. Also their son can pay them wages for any part time work they complete on the farm without affecting the Allocated Pension.

Therefore, their position could be as follows:

Tax Position

Mr. Farmer Mrs. Farmer

Starting Balance

Less: Withdrawal for House

Fund earns say 9% which is tax exempt

Less: Pension Paid

End of Year One

Gross Pension

Plus: Farm Income

Total Gross Income

Tax Payable

Less: Rebate of 15% of Pension

Net Tax Payable

Net Income

Therefore, Combined Net Income of $44,596 p.a. or $857 p.w.

The parents can provide some part time assistance on the farm if they wish and be paid for their work, the farm is viable for the son as he doesn't need to fund a large payout to support his parents in retirement.

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Superannuation is not a product as some believe, merely a vehicle, created by Government legislation, through which you can build an asset base which will wholly or partially support you in retirement. It is important to remember the performance of your super fund is merely a reflection of the performance of the various asset classes you have chosen to invest in. How you set up a superannuation fund will depend upon your own ideas. If you do not want to be involved in the investment of the super fund's assets or to administration you will give the fund to a professional manager to run on your behalf.

Some of you however may want to retain control of the investment decisions and administration and opt to talk to your accountant about setting up your own self-managed fund. It is important to remember the fees to run a self-managed super fond are fixed whilst the commercially run funds are based on a % of the value of the fund. It is our experience that super funds require balances of over $80,000 to become a viable proposition as a self-managed fond. Therefore, we usually recommend clients to use a commercially run fund up to this figure with a view to roll the balance into a self-managed fund at this point. However, there is nothing to stop you from starting with a self-managed fund or leaving it in a commercially operated fund as long as you have made your decision after consultation with your advisor.

To complete the above scenario, we need to consider how to ensure the daughter can be paid her rightful share of the estate (hopefully a long way into the future) without a need for the son to borrow to pay her. Most rural people I meet would want to be fair and leave the children equal shares however also want to ensure the son gets to keep the farm as it is likely he has worked it for a reduced income understanding that his reward will be to get it in the end. I believe that all farmers need to review their insurance to

Son -$725,000 Daughter - $725,000

For the son to keep the farm in this situation he will need to borrow $325,000 to pay his sister out and suddenly finds himself with a 31% debt ratio at around 50 years of age. This will probably make it difficult for him to give his son the same opportunity as he had.

All of the above figures would look a lot worse if there were other investment assets such as rental property or shares which had accrued a Capital Gains Tax liability. Capital Gains Tax can become a liability on farms as well as investments upon change of ownership through death.

Estate Equalisation and Capital Gains Tax issues need to be addressed by those of us who have illiquid assets such as farms and desire that they not be sold upon our death. The most obvious solution to these issues is the prudent use of life insurance, reviewed regularly to ensure it meets the current requirements.

The aim of this presentation has been to address an issue which is being looked at more and more by an ageing rural community - farm succession planning, and to illustrate one of the solutions to this problem -superannuation. Canberra is focused now more than ever on enticing Australians to save for their own retirement funding.

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ensure there is sufficient cash to allow this to happen

Mortgage over Farm House Allocated Pension (Value reduced due to capital

withdrawn for holidays, cars, higher living/health costs

The biggest incentives they provide to us are as follows:-

• Tax Deductibility of contributions to certain levels

* Reduced tax rates of 15% on earnings of our savings.

• Tax Exemption of the earnings of our pension funds (Allocated Pensions) upon commencement of payment of an income in retirement.

• Generous tax rebates and concessions on the income we are paid from our Allocated Pensions.

These incentives make superannuation one of the most powerful strategies to be used in tax planning during the better years on the farms as well as giving us an effective environment in which we can save for the future. However, it is most important for us to realise that the sooner we start to save for the future the easier the task will be. It is less painful to save with many small contributions rather than a small number of large ones. Therefore I believe it is in the interest of all farmers to consult with their advisor/accountant in the near future to discuss all of the above issues and put in place a strategy to prepare for the future.

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Farm Business Management Projects The issues of technical and financial advice

Paper presented by Peter Twine General Manager - Extension

Bureau of Sugar Experiment Stations, Brisbane

1. Farm Business Management Peter Twine BSES, Indooroopilly

2. Definitions Manangement - Decisions and actions to achieve an objective Farm Management - Management as it applies to a farm Farm Business Management - decision making as it applies to achieving a business objective on the farm

3. Why the interest in Farm Business Management? Complexity of the farm business environment eg price, costs, environment, available technology Secure the future viability Will to succeed

4. Requirements for Farm Business Management Improve the management skills of farmers Provide better/more information to growers Provide better advice to growers Provide better management tools to growers

5. Benefits of improved Farm Business Management Redistribution of inputs to farm Increased production per cost of input Faster adoption of relevant technology More inquisitive and challenged grower

6. How to address Farm Business Management skills Motivation to set high goals strength and ability in management performance

7. Farm Business Management partnership options Supply or demand driven? Amalgamation of technical and financial information Examples

8. Current Farm Business Management projects Financial advice alone Technical advice alone Financial and technical advice partnership FBM training

9. ? Future Farming environment more complex FBM capability will be demand driven Future is positive

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The challenges facing canegrowers today are many and varied. Simple production matters such as cultivation strategies, varietal choice, fertiliser recommendations, pest and weed control options, harvesting strategies appear to becoming much more complicated than before. The choices associated with each of these operations are becoming far more extensive and they often require detailed information and understanding. On top of all this, growers have to face the unpredictability of the elements, the impact of changes in global affairs on the price of the product and other uncontrollable issues. Further still, the sensitivities of environmental issues are becoming more noticeable and the concerns of local communities clearly appear to becoming louder. On top of all this, the financial circumstances of the farm dominate.

It is amidst this diversity of inputs and the complexity of the environment that the issue of Farm Business Management emerges.

What is "Farm Business Management"?

Volumes have been written on the definition of the word Management Typically, however, the word is considered to refer to the decisions and actions that are necessary to maximise the achievement of an objective. In this context, management includes the definition of the objectives, consideration of the various options that might be involved in the objective, a decision about which option to take (sometimes referred to as the Action Plan), the arrangement and deployment of the resources needed to undertake the plan, and the overseeing of the action itself. Inferred within this chain of events is the evaluation of previous experiences with similar challenges or objectives, and a continual evaluation of the processes undertaken during the action plan. Ant, its all in a days work!

The term farm management is simply the application of these statements to the operation of a farm. Farm Business Management is the term which applies to the operation of these decision making processes on farms where the objectives simply relate to the business operation of the farm. Farm Business Management can be defined then as the integration of the technical and financial parameters involved in both the decision making and action taking process on the farm with a view of achieving a business outcome.

But why try to discuss Farm Business Management as something distinctly different to the traditional visions of Business management? Well, we aren't. The steps involved in the process probably are very similar. They have simply been enunciated in a step by step way. In fact, The time span for many of these activities can be extremely short - from milliseconds to months or longer. The environment of a farm however is certainly very different to that of some other businesses. The organisational structure and personnel relations of the farm would normally require a lot less input. However, the environment in which the farm operates as a business is probably the subject of far more variables than other small business operations. The farm manager also requires a greater array of skills to operate effectively and often the farm business is an integral part of a family life and management decision making has to take place within the circumstances of the family farm. All these issues simply relate to the complexity of the business environment on the farm.

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The act of management is usually a very informal process. As part of the management process a farmer may first seek information on the problem. This technical advice can come from a wide array of sources. The information available is discrete and accurate. Unfortunately, in some situations, the information about a particular farming problem may be limited and very uncertain. In this case a grower may seek out several sources of information and develop a scenario that seems credible and convincing. In other cases a grower may employ or engage a source of information to assist in the management decision making process. In some primary producer operations, this approach is becoming more common and acceptable.

Having sought and understood the various data, farmers then face a complexity of considerations to utilise their information in a way that will maximise the opportunity of achieving the goal they have set. Not only is the process of management by farmers often very informal, the data set available to them is also informal. In many cases, the information required simply does not exist and the management decision has to be based on very incomplete data, further exemplifying the complexity of Farm Business Management process.

What is the interest in Farm Business Management?

The complexity of the farming environment and the nature and the context of the data available and required to make good management decisions has led to many growers seeking ways to handle such an array of issues. Canegrowers traditionally have utilised many industry organisations such as BSES, their accountants and other growers to supplement their own management skills and their knowledge base. However, as in all businesses, the business owner (canegrower) must remain the Farm Business Management decision maker and every endeavour is required to ensure that the canegrower has available to him the skills and data necessary for good farm business management decision making.

Ferguson (1993) in a report to SRDC suggested that, while the trend in the sugar industry is to increase, rather than reduce the level of self-reliance required by the canegrower, the strengthening of a position on Farm Business Management will require:

improving the management skills of farmers; providing better/more relevant information to farmers; providing better advice to farmers; and providing better management tools and techniques.

Through the provision of an environment in which the strengthening of the financial and business management skills of the grower can occur, there will be an overall improvement in the industry production and profitability. This assumption however, is untested - even in the wider business community. Ferguson (1993) reports the literature as suggesting that there is little data to support the proposal that an individual's business management skills can be improved. What is often suggested is that business managers who perform well are more likely to have undergone some form of training in the area of business skills. In this case then the opportunity exists to provide interested growers in training courses in the general area of farm business management skills. Such opportunities may lead to improved management capability amongst growers.

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What are the benefits of improved FBM skills?

It is virtually impossible to define the benefits of an increased level of Farm Business Management skills within the sugar industry. However, there is a number of indicators which point to the suggestion that the potential for improvement in on-farm decision making can lead to a successful outcome.

Despite the diversity of environment within which farmers operate Webb (1992) documented significant differentials between high and low yielding farms within geographical areas where the physical conditions could be regarded as similar. The three fold difference between the average of the bottom 20% of producers (in terms of sugar per hectare) and the average of the top 20% of producers relates to some 8 tonne of sugar per hectare.

Information gathered in a number of industry surveys would indicate that some growers are thought to apply higher levels of inputs such as water and fertiliser than might be regarded as "normal" for the circumstances. This situation is also reflected in some publications on variability of the costs of inputs within local areas as well as the variability that might normally occur between districts and regions. These variations in input costs lead to the assumption that there is scope of improving the decision making and management operations on farms in many situations.

The benefits of improving the business management skills of the growers is likely to result in:

a redistribution in the inputs to the farming operation; an increase in the production per unit of input; faster adoption of available technology and opportunity; and a more inquisitive and challenged grower.

How to address Farm Business Management skills

This topic has been the subject of significant discussion within some sectors of the sugar industry over the last few years. It stems from the recognition that the normal technical skills associated with production are not the only issues involved in the development of a successful farm. Furthermore, the advice and aims of financial deliberations alone also often fail to recognise the biological constraints within which the farming business operates.

The Sugar Research and Development Corporation (SRDC) has supported a number of initiatives in this general area to understand the options for the industry in addressing these matters.

There is a general suggestion that there are two issues involved in the activity of improving the Farm Business Management skills of growers. Ferguson (1993) suggests that these include:

the motivation of the growers to set (high) management goals; and the strength and ability of their management performance to achieve these goals.

As in all business operations, the major constraint to the development of a good business is the motivation to succeed. Conservative production goals are regarded in all businesses as limiting the need of the business to achieve. Clearly there is a reason for this stance and this can often be

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associated with the philosophy of managing the farm operation in a risk-aversion environment.

In terms of the basic management skills of a decision maker it has been suggested that there is a need to provide an opportunity to engender a better understanding of Farm Business Management and develop a system where technical and financial advice can be effectively integrated.

Farm Business Management is not simply an involvement of the financial affairs of the farm. As has been mentioned previously, the environment in which the management decisions of the farm have to be made involve far more than simply the economic considerations and circumstances of the farm. More importantly, it involves both the physical and technical resources (inputs) and the determination of the most appropriate level of these for the situation under deliberation. For example, Farm Business Management is not simply about the amount of nitrogen to apply to the crop and the sourcing of the finance to cover this, but the decision about which mix of fertiliser will give the best return on investment fot the dollars spent and that, for the entire farming operation, the next dollar to be spent will maximise the return on investment (for the level of risk acceptable) if it is spent on fertilisers.

Is there a demand for Farm Business Management?

Many claims have been made that Australian small business is renowned for little or poor use of management techniques, including the use of external consultancy advice regarding the operation of the business. It has been suggested that canegrowers appear to be little different to this trend in small business.

Ferguson(1993) suggests that there are large but potentially under-utilised source of financial advice available to canegrowers. In his survey of growers and accountants in the sugar industry it was reported that most accountants indicated a willingness to provide information and expertise to growers but, with few exceptions, growers did not have a tendency to request not demand such information. Some attempts have been made to provide Farm Business Management advice to the industry but the response has not been as positive as might have been anticipated.

In terms of supply and demand for Farm Business Management skills and advice it is clearly the demand rather than the supply for Farm Business Management skills which limits the development in this area. Any intention to address Farm Business Management skills in the area must clearly concentrate on developing a demand for the service rather than simply provide the service.

The partnership for Farm Business Management delivery

Unfortunately, up until now, technical and financial data have often been dealt with quite separately. However, as information improves it is clear that management of the farming enterprise is in fact, a unique combination of considerations of both financial and agronomic data. The union of these two aspects is not a complicated issue and can be handled through either expanding the technical information delivery system to encompass the financial aspects, expanding the financial information base to include the agronomic or technical considerations, or creating a partnership between:

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the manager and his environment, financial advice; and technical advice.

Such a trilogy goes a long way in terms of encompassing the wider context of the operation of a farm and the financial and biological constraints and influences which govern its operation and ultimate success.

Current activities in Farm Business Management

The current Farm Business Management delivery systems for canegrowers fall into a number of categories:

financial advice alone; technical advice alone; partnership of financial and technical advice; and development of Farm Business Management skills.

In the delivery of financial advice there is a range of services provided by the traditional accountant market. These services range from the provision of taxation returns and investment advice through to the development of financial management strategies for the farming enterprise. In some areas benchmarking of performance indicators associated with the farming operation is provided to clients using the entire database available. This has led to considerable interest amongst growers of their performance compared to that of their peers.

In support of the delivery of appropriate financial advice to growers a number of financial record keeping packages have also been developed and promoted within the industry. These vary from a standardised paper-oriented system such as the BSES system and those provided to clients by some Accountants, to the computer-based systems available from Accountants, CANEGROWERS (Cash Magic*), or BSES (Quicken*).

A number of benchmarking systems have also been set up in recent years covering simply agronomic or production data. The performance indicators commonly used in theses systems have centred on outputs such as yield and related this to cane varieties, soil types of geographical locations. Such indicators are intended to identify the potential performance capability for specific situations and are used in an extension role to provide a description of opportunity for a grower should the desire be there. Supporting these systems there is a number of computer based packages developed, primarily associated with the use of mill productivity data (CAPA, PRODIV and other in-house packages). BSES is now releasing a CANEMAN, a block recording package to assist in the keeping of accurate and appropriate agronomic data relevant to the performance and operation of the farming business.

Both the financial and technical delivery systems alone are limited by their failure to recognise the extent of the management decision making environment within the farming business. In some cases, the decision to undertake financially motivated actions on the farm may not be in the long term agronomic interest of the business, or vice versa. To address this problem a number of projects have been undertaken to investigate the marriage of both the technical and financial

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advice functions. These include (amongst others) a pilot scheme between BSES and Bennett Partners in Mackay and a partnership between SRDC, BSES and RCS Hassall Pty Ltd in four canegrowing districts (Maryborough, Bundaberg, Burdekin and Ingham). Both of these cases involves the development of a number of relevant business indicators, the benchmarking of these against appropriate standards, and the involvement of technical support staff in the interpretation and use of the comparison figures.

Finally, in terms of the issue of developing Farm Business Management skills in the industry, SRDC has recently sponsored a program of work to engender a wider understanding of the Farm Business Management in the industry. This program will commence in the next few months and will be centred here in the Central Queensland district. An officer is to be appointed shortly to drive the program which will centre on the development of a scheme to provide growers with an opportunity to learn and understand the issues involved in Farm Business Management and to challenge them in applying these skills to their farming enterprise.

What is the future for Farm Business Management in the sugar industry?

As canefarming enterprises turn to the challenges of the future, the problems associated with price fluctuations, increasing costs of the major inputs, technical opportunities to increase production becoming more complex and the influence of the wider community on the way in which the farm can operate, the need for a higher or more stringent level of management of the farm and its operation becomes critical. Unfortunately the experience of many other business enterprises is that the complexity of the environment in which the manager is to operate is not going to become simpler. In this situation larger businesses have found that an awareness of, and the provision of data to describe the complexity of the environment is of significant help in making the most appropriate management decision. The data involved may include a clearly enunciated business goal of the farming operation and understanding of the problem requiring a management decision and of any possible options to solve the challenge (including the costs, advantages and disadvantages of each option). From that point on the resources, skills and motivation of the manager will drive the operation.

The future for Farm Business Management in the industry is a function of the interest within the industry to seek out these skills and of the industry and its supporting infrastructure to supply the skills and expertise required. A number of Farm Business Management activities involving BSES indicate that there is a significant level of interest within the industry in the general area. There will be a demand for better management skills, more detailed and easily accessible information regarding options for the various farming operations and the interpretation of these details. The challenge to the industry and its support groups is to ensure that they are strategically positioned to provide such data.

References

Ferguson, G. (1993) - Farm Business Management. A report to SRDC

Webb, Bill (1992) » Role of Management in canefarm productivity. BSES Bulletin No 40

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Increasing Cane Production What Are Your Options?

Paper presented by Mark Schuurs Administrative Grower Services

Canegrowers

Introduction

Queensland farmers' terms of trade have been trending downwards over the last two decades. Costs have increased on average, much more quickly than commodity prices. This trend is not expected to abate although recent strength in commodity prices has seen some increases in recent months.

Farmers' Terms of Trade

1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994

Year

The Queensland sugar industry has survived to date by staying ahead of the competition with productivity growth and developing and implementing new technologies on the farm, in mills and in marketing. As the cost-price-squeeze continues, growers need to identify strategies to "neutralise" the potential effect this will have on their profits and disposable income. For many growers increased scale or production has been identified as a likely component in securing their longer term viability. Queensland Sugar industry statistics illustrate the general increase in average assigned area and production over the last six years.

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Queensland Sugar Industry

Deregulation of the assignment system under the Sugar Industry Act 1991 has provided growers with the opportunity to increase their flexibility, productivity and profitability in response to the changing world sugar market.

Queensland Sugar Industry

r growers have a long tenn goal to remain in the cane growing business then increasing production should be a primary objective. Growers have also been targeting reduced input costs and improved reliability of production. Nowhere would this be more evident than the Mackay area where recent dry conditions have highlighted the need for growers to seriously consider sources of irrigation to help underpin production.

Growers need to continue to explore all the options for increasing their production but I believe the initial and most effective method for existing growers is to adopt best practice.

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What are the options?

What are the options for growers? There are basically six options available to growers to increase their cane production although the last option relates more to increased profits than increased cane production.

1. Buy an existing developed farm

Now is not the ideal time to purchase more land. Growers need to be cautious that in considering buying land now, the price is not too high, and most importantly that they will be able to service their debt when sugar prices fall and/or interest rates rise. In this regard, growers need to evaluate what a farm is worth to them and how much they can afford to pay.

Considerations under this option include:

- location - size of your own farm in relation to the farm to be purchased - equipment and buildings included in the sale - the farms production record - soil types - potential for irrigation - farm layout - labour requirement - apportionment of sale price

Remember, don't pay too much. Increased area equals more labour which may mean more costs. Ensure that an expansion in this direction makes efficient use of labour since labour is an expensive, lumpy input.

2. Develop new land

This option is perhaps one of the most complicated. Again, if growers are purchasing undeveloped land, they should be careful not to pay too much in the current environment. In this case growers generally wouldn't be required to spend capital on gear they dont require.


- location -soil type - potential for irrigation and good farm layout - production potential Is less certain - development costs can be difficult to estimate - management problems may occur - income lag can be significant although growers should attempt to develop and plant land as quickly as financially and physically possible

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- sale of existing farm - tax benefits

Just because land has not yet been brought into production does not automatically imply that the land is marginal. In some cases it has been a lack of appropriate infrastructure which has hindered its development - for example the Jardine and Mulgrave areas of the Burdekin River Irrigation Area. Management plays an important role in the productivity of new land.

3. Lease or share farming

This option is not common in the sugar industry. Those lease arrangements that do exist however, tend to work on the basis that the lessor and the lessee share the sugar price and production risk by basing the lease payment on a percentage of gross cane income. Depending on the terms of the lease this percentage generally ranges between 10% and 25%.


- reduced capital outlay - less security -location - soil type - potential for irrigation

Leasing is a legitimate way for two parties to share the capital cost of purchasing and developing cane land particularly if only one party has management expertise.

Although uncommon, sharefarming involves the sharing of input costs and income and generally allows the lessor to maintain greater management control

4. Co-operative ownership of land and/or machinery

Co-operative ownership of land has been considered by growers on a number of occasions but is rarely implemented. Management and the risk of personality clashes is the biggest impediment to co-operative ownership.


- reduced capital requirement - costs to employ labour/management - location - soil type - potential for irrigation - farm layout

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If capital is limiting for any reason, co-operative ownership of machinery is an effective method of aquiring machinery requirements particularly to adopt new technology or management techniques such as green cane trash blanketing. Co-operative ownership of machinery is most effective when the timeliness of the operation is less critical or the equipment is not used very often.

Co-operative ownership of irrigation equipment is possibly an area that should be given more consideration. Co-operative ownership of harvesting equipment is already being considered more seriously in some areas to minimise production costs and hence improve profits. However, there can be a danger that farm management will be sacrificed in order to manage the harvesting operation.

5. Adopt best practice

Adopt best practice in the sense that growers maximise their economic yield and hence their profits, and the reliability of their production on the existing farmed area through the use of efficient irrigation, suitable varieties, good management practices and timely operations. Growers can establish best practice using some form of comparative analysis or benchmarking, on farm trials and discussion groups. Best practice is very much a moving target and growers should not rest on their laurels even if they are performing well.

Inherent in agriculture is business risk associated with uncertainties in commodity prices, weather, input costs and production losses. Not only does the adoption of best practice reduce the growers exposure to these risks more than any of the previous four options, but there are a number of other benefits associated with this option.


- research bodies in the sugar industry are constantly looking at ways to improve productivity or reduce costs on the farm. A few areas that growers should look at are irrigation infrastructure, irrigation efficiency, green cane harvesting, trash blanketing, minimum tillage, cover cropping, effective farm record keeping, soil testing, accurate fertiliser application, harvesting losses and varieties.

- income lag less significant than developing new land - sustainability - flexibility - significant tax benefits

By maximising the level and reliability of production on the existing area the farmer has a greater ability to expand area through the purchase of additional land. This grower's ability to borrow is significantly improved by removing a certain amount of production uncertainty. They would have the ability to comfortably support a larger debtequity ratio and there is no doubt the value of the farm will be more stable due to higher, more reliable production, and in the case of irrigation, the improved flexibility of the property.

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6. Diversification

SLIDE - POLSTONE FARMS

I refer here specifically to on-farm diversification into alternative crops or enterprises, additional cash crops in the fallow window or things such as farm tourism which may well provide a better return per hectare or per labour unit. With these alternatives growers need to ensure their primary source of income is not neglected. Growers should also bear in mind the new venture may require different skills or knowledge.

Growers should first consider diversification inside their own farm gate as opposed to diversifying elsewhere. Diversification elsewhere is good, but often means it is outside the farmer's area of expertise and leads to a reliance on other parties. A grower may have a particular outside interest which could provide an avenue for outside diversification.

Conclusions

When setting long term goals, growers need to establish if they can satisfy these goals under their present circumstances. Often they will identify changes which need to be made.

If growers identify increased production as a means of satisfying some of these goals they should:

- evaluate (in a formal sense) the various options they have available to them - utilise the professional resources available to improve the quality of decisions - consider maximising economic yield and reliability of production first, although

a combination of strategies may provide the best outcome.

In addition, growers should consider investing time and money in improving their business management skills through training, workshops, seminars and field days.

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What are the options?

1. Buy an existing developed farm

2. Develop new land

3. Lease or share farm cane land

4. Co-operative ownership

5. Adopt best practice

6. Diversification

Best use of harvesting equipment

Paper presented by Tony Ross

INTRODUCTION There have been joint workshops conducted between CANEGROWERS elected members and Mackay Sugar regarding harvesting and transport rationalisation. The principal goal is to have a system which is capable of handling 7 million tonnes of cane per year at the least cost to millers and growers.

Producing sugar takes two distinct operations. There is the growing and harvesting of cane, and the transportation and milling of the cane in the factory to produce sugar. The harvesting and transport is interdependent if the best quality sugar is to be produced. It may become evident that greater efficiencies and profitability in one area may reduce profitability in the other.

THE GROUP There are 4 distinct categories of growers in relation to harvesting : Those employing independent contractors Those who own machines for their own use and also contract outside Those who own harvesters used solely on their own farms. Those who have formed co-operative groups.

There have been doubts expressed whether the present system of harvesting can last much longer. Smaller groups cutting between 10,000 and 15,000 tonnes cannot be justified as an economically viable operation. That type of operation will face high replacement costs for harvesting and haul-out equipment, the need to achieve maximum productivity from labour, which necessitates larger machinery, and the amount of capital tied up in rapidly depreciating machinery. Smaller groups also face continuous crushing and grouping arrangements that are a cause of conflict between miller and grower.

Harvesting is a major cost in farming. The effective use of harvesting and transport equipment has an important influence on harvesting costs. Yet, the actual throughput of harvesters falls well short of their potential. It can be assumed that if fewer machines are in operation then harvesting costs would be substantially reduced. Why are so many harvesters in use? No clear answers have yet been produced. For example, the Racecourse area had 71 machines in action last year. Proserpine, with a greater assigned area, had only 39. The ability to roam throughout the mill area has reduced the need for any more machines. Nevertheless, ownership of harvesters is still concentrated in the hands of growers, but throughput is higher on contractor owned machines.

Growers harvest their own cane for many reasons, for example independence, having the job done the way they like it done. They may not wish to join a larger group with their neighbours. There may be sons returning to the farm, and buying a harvester is a way of providing employment for everyone. If these people join a larger group, instead of working on their own farm, they could move to work off farm

In 1994 the average Racecourse group size was 22,297 tonnes.In Proserpine ,it was 49,675, much closer to the potential of the machine. Last year there were 18 groups in Racecourse which cut less than 10,000 tonnes.

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doing basically the same job.

Smaller growers who cut their own cane will eventually be freed of the worry of replacing expensive machines. They will also be freed of the problem of finding and retaining reliable and competent labour. The cost of retaining this labour, by providing year round employment makes this exercise questionable.

The disadvantage of harvesting your own cane is that other farm work may be neglected. Attention to growing cane, the principal objective, will suffer. Chemicals, fertilizer and water may not be applied at the best times. Increasing the yield by say five tonnes/ha will outweigh savings offered by harvesting your own crop.

The miller benefits in some respects by having small groups. This can act as a form of insurance against harvester breakdowns which can impede the flow of cane to the mill. On the other hand larger groups will result in more efficient, well maintained machines which are less likely to break down than obsolete ones.

Harvesting is scheduled as frequently and as evenly as practicable across all groups and throughout the season to reduce and equalise among growers the risk of weather and quality.If separate arrangements are made between particular growers and millers this could interfere with grower equity. Individual negotiations are restrained by this as it would breach the award.

TRANSPORT The efficient use of harvesters is also dependent upon the transport system provided by the miller. A mill cannot operate efficiently without a consistent supply of cane. But, the miller will not improve his investment in this area other than to ensure a steady supply of fresh cane throughout the season. Savings to the mill from bigger groups can come from improved loco scheduling due to group rationalisation. Bigger sidings would therefore have to be built.

The majority of Racecourse cane (65%) is supplied in the morning. But, it often happens that a group must wait until a further delivery of bins to recommence harvesting. Thus, even allowing for wet weather and mechanical problems, there is considerable unused harvester capacity. Delays also occur because of sidings which are too small for the daily allotment. Even if growers themselves invested in bigger sidings they still need the cooperation of the mill to ensure larger bin deliveries. Thus, the efficient use of harvesters is restricted by the transport system provided by the miller.

A favourable system is one with the following cut to crush delay: 60% within 12 hours, 90% within 16 hours, and the balance within 20 hours. What is necessary to realise this, is a guaranteed bin supply. This will eventually give savings in numbers of bins, with the resultant benefit to sugar quality.

Points which are significant: 1 Reduction in cut to crush delay 2 Reliability of service. 3 Better use of daylight hours gives savings in bin numbers, plus the resultant benefit to sugar

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quality. 4 Continuous harvesting will only work well if there is a constant supply of bins and the cut to crush delay kept under 16 hours.

CUTTING GREEN What are the problems with cutting green? Risk of dextran Lower bin weight Propensity for floc formation Riskier ratooning in cooler, July and August weather.

Some of the benefits: Productivity increase under right conditions Harvesting flexibility Minimum tillage Big groups are necessary to provide the cashflow to purchase machines which can cut green either a Cameco or Austoft 7000. Dextran is formed in sugar when the leuconostoc bacteria multiplies in the billet. Dextran makes the sugar syrups more difficult to boil out and produces an irregular grain. Refining costs therefore increase and the quality of the product is affected. Formation of dextran begins 12 hours after harvesting. Hot, humid weather may cause dextran to form in less time than that. It follows that the problem is more serious in green than burnt cane.

CHANGES AND INCENTIVES It is to the benefit of all parties concerned that the amount of sugar produced is maximised, and the crop is harvested in good time. Is there a commitment to develop efficient and effective practices? What are the problems and how can they be corrected? Will these gains remain untapped or will the potential be realised? Incentives for change: Rosters, what is appropriate for the area 5/7, 8/10, 13/15 days? Spreading harvesting hours to make better use of daylight hours that is 4am to 6 pm. Move to a common bin fleet to assist transfer between mills. The savings to mills would be in the areas of more efficient use of the common bin fleet and larger locomotives eg 40 tonne and fewer and larger sidings. These savings would not be realised immediately. A six tonne is the most economical from the mill capital investment point of view. However ten tonne would be suitable if infield transporters are more widely used. This would not take place until transport equipment needed to be replaced and rationalisation of harvesting and scheduling took place.

Financial assistance to change. Should there be financial assistance to merge groups? If so where does the money come from? How is it divided up, that is how much is paid out to individuals providing the benefits and incurring extra costs.

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Impediments to change Disposal of harvesting equipment. Mackay is already a graveyard for old machines. Older machines still in good order, such as Toft 6000's are often sent to the wrecker. Demand has fallen away as they can not cut green cane competitively. Different planning is required for bigger groups , rather than small deliveries to a large number each day.

Growers still resist moving to larger groups for the reason that more of their crop is being cut at any one time. They worry about the potential loss of burnt cane if there is rain or a strike at the mill. The larger the burn, the greater the potential loss of income. But, larger groups also now have the ability to harvest green, which negates the concern about weather.

Growers harvesting their own and perhaps a neighbours cane may not be able to realise potential labour cost savings, unless they are able to use the saved time or labour in an alternative production activity such as expanding their cane production. Until then, growers may be better of using their own labour to harvest their own cane.

Potentially the advent of mechanical harvesting could have released growers from their involvement and allowed them to concentrate on producing larger crops. Harvesting could have been left to the contractors.

In the past regulations regarding expansion forced the value or opportunity cost, of growers labour downwards. For many growers then, the next best use of their time and labour was to harvest their own cane. This practice has continued until now. The introduction of continuous crushing is now demonstrating that the adoption of the economies of bigger groups and broad acre techniques can work. Weekend harvesting has improved utilisation of equipment, some savings have been offset by labour overtime costs.

There must be incentives for all parties to seek organisational change to achieve a common benefit. Gains from larger groups can be reflected in say price, quantity, delivery and so on. Naturally, moves toward negotiation will depend on each groups relative bargaining power. It is undesirable that one group should acquire excessive power over the others. Some high cost contractors may not be able to compete in providing harvesting services. They could well be forced out of business.

Sugar industry controls are interrelated, so all affect the harvesting sector in some way. But, those which apply to the delivery, transport, and scheduling of harvesting and milling have a direct and profound effect. As you know these controls are set out in the various local board awards. These awards vary from area to area, but all contain clauses covering grouping, harvesting equity, allotments, supply of bins, cane payment and so on.

Local boards will need to become involved in amending awards to increase the scope of gains which can be achieved. Discounts and premiums could be introduced to reward adherence to the conditions of delivery. Conversely, if bins are late and harvesting disrupted, the miller would have to pay the opportunity cost of lost time and hance would be encouraged to ensure a constant and reliable supply of bins. Reduced harvester idle time and growing more cane would have the effect of better use of harvesting resources. Contractors may chose not to charge by the tonne, but by

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the time spent harvesting a particular paddock. This would encourage growers to ensure that their cane was cut in the least possible time. As delays impose an opportunity cost on contactors, they would charge more for delays and growers therefore would do all in their power to ensure idle time was as low as possible. The final price would be a combination of group size, quality of equipment used, harvesting conditions and quality of work performed.

The present harvesting arrangements create a pattern of incentives which affect growers millers and contractors very differently. Millers benefit from continuous crushing as it enables them to reduce the season length and increase sugar production. The gradual reduction in the difference between no1 and no2 pool gives them the incentive to crush on the week end.

Contractors are now staring to charge different rates to take into account specific conditions on each farm in their group. those growers with well laid out, easily harvested farms can rightly expect to pay less than those whose farms are a nightmare to harvest. Contractors will become less inclined therefore to harvest in remote and awkward conditions. Contractors must have the ability to roam to enhance their business and as their growers buy other farms to be able to continue to provide them with that service. Roaming confers flexibility, and the opportunity to move between wet and dry areas. Liberal policies enable flexibility, and therefore profit. Innovators will always lead this process. Security of getting the crop off, regardless of conditions is a big benefit. Very little data is available to substantiate the rate of change in district, restricted to hearsay.

CONCLUSION A sugar cooperative is established to turn a farmers product into a saleable commodity. The effectiveness of a cooperative is not measured only by the profit figures in its annual report. A true yard stick is the profitability and effectiveness of each of its members. Directors must realise that this is of equal importance and status to that of the mill itself. Large numbers of people are employed to asses the effect on the mill of the growers and contractors performance. Yet, who is employed to assess the effect on the growers of the mill performance and decisions??

The problem is diverse and complex, will it take less than 5 years to resolve? Unlikely unless all participants have a genuine commitment to improve and develop efficient and effective practices. Entrenched attitudes need to be changed and this will be a bigger challenge than changing machinery. Growers need to realise that they will not be losing control of their business. Relatively prosperous times at the moment may make this more difficult.

6

AVERAGE GROUP SIZES FOR EACH HARVESTING CATEGORY

PERCENTAGE CROP HARVESTED BY EACH HARVESTING CATEGORY

Developments in cane growing in the Ord River region

Paper presented by John Noble, Chairman,

Ord Sugar Industry Board

THE ORD SUGAR INDUSTRY

"The newest, bestest little sugar industry in the world"

THE ORD RESOURCE

THE SHAPE OF AN INDUSTRY

GROWERS AND MILLER TOGETHER

SUGAR MARKETS

2

THE ORD RESOURCE

LOCATION

THE DAM

THE LAND

THE CLIMATE

THE PEOPLE

THE SHAPE OF A SUGAR INDUSTRY

PROJECTED PRODUCTION 1995 80,000 tonnes cane

1996 560,000 "

THE FARMS (1996) 22 in number

25,000 tonnes cane on average

Will still produce other crops

HARVESTING 3 harvesters plus 1 spare

24 hour roster

CANE TRANSPORT By road

4 prime movers

7 B double trailers (38 tonnes)

2 Double road trains (50 tonnes)

THE MILL Novel, fascinating technology

Rate: 120 tonnes cane per hour

30 week operation (May to Nov)

SUGAR TRANSPORT 100 Km to Port of Wyndham

2 Triple road trains (75 tonnes)

7000 tonne terminal

Local ships to Perth

3

GROWERS AND MILLER TOGETHER

INDIVIDUAL CONTRACTS

FOCUS IS ON COOPERATION

NOVEL REVENUE SHARING

OVERSIGHT BY ORD INDUSTRY BOARD

5

REVENUE SHARING

TOTAL REVENUE (includes sugar and molasses proceeds and any other mill derived proceeds)

LESS

HARVESTING COSTS

LESS

CANE & SUGAR TRANSPORT COSTS

LESS

MARKETING COSTS AND ANY OTHER MUTUAL COSTS

LEAVES

REVENUE FOR SHARING

GROWERS RECEIVE MILLER RECEIVES

BEST PRACTICE GROWING COSTS ACTUAL MILL COSTS (Deteirnined by agreed consultant) (Financially &technically

audited)

LEAVES

PROFIT FOR SHARING IN PROPORTION TO ASSET VALUES

MARKETING

EARLY YEARS TO CSR'S W.A. REFINERY

LATER YEAR SURPLUSES TO S. E. ASIA

MARKETING FUNCTION BY ORD SUGAR

CLOSE CONSULTATION WITH QSC

No surprises Minimise market conflict

Best cane farming practices in the Burdekin River Irrigation Area

Paper presented by Vin Sorbello

Working and managing sugar cane lands in the Burdekin River Irrigation Area in many regards is the same as growing sugar cane in any area. Certain principles have to be adhered to. However, we do have some distinguishing characteristics which have led to our having to adopt different management and work practices to achieve the desired result.

As a new cane grower in the Burdekin River Irrigation Area the two most prominent features I have had to contend with are the combination of soil types and method of water delivery to the farm boundary.

SOILS

With the two predominant soil types ie the sonic duplex and cracking clays the greatest difficulty is that very often they have to be worked in unison and yet they have very different behavioural characteristics. The cracking clays retain moisture longer than do the duplex soils so invariably one part of a drill is ready to work and the rest is still too wet. Logically the general response to this has been to try cultivating at the inbetween stage ie when the duplex soils are drier than usual and the clays are still slightly wet.

One characteristic both these soils share that aids this cultivation method is that since they both have clay sub layers, only the top 75mm to 100mm will dry out enough to work up. Below this is still mud so shallow working is the order of the day and lends itself to cultivation at the previously mentioned inbetween stage.

The awkward cultivating nature of this soil combination also lends itself to the minimum tillage regime which fits in well with the larger than average size of these farms. It is also my belief that there will be a growing trend toward stool splitting as a fertiliser application technique. This is a technique whereby fertilizer is applied to the centre of the stool but more significantly it can be done immediately after harvesting prior to irrigation and therefore prior to when the above mentioned cultivation difficulties arise.

The B.R.I.A. soils are low in all of the major applicable elements N P K S but the costs of their application is comparable with most other areas in the state. I do think however we have some way to go to discover the right nutritional mix that applies to our area.

IRRIGATION

Perhaps the greatest adjustment that has to be made, (certainly by those of us who are used to irrigating from natural sources within our own properties ie streams or underground supplies), is to the different circumstances that apply when irrigating from a man made scheme which stores water in a dam and supplies it to the farm boundary through a channel system which has to be shared with other farmers. When irrigating from an unregulated natural system nature is the scheme manager. In other words, you can generally please yourself about how, when, where or why with regard only to the natural constraints that apply and to nobody else. But water from a man made scheme suddenly becomes a resource which has to be managed to ensure, that everyone gets their share, that they get it when it's needed, that it is to be used efficiently and managed so that it does not become an environmental hazard which will jeopardise the economic sustainability of the operation.

2

The Burdekm River Irrigation Scheme is still in its infancy with by far the majority of the scheme being applied to sugar cane which is exclusively irrigated by the furrow method. The scheme managers and irrigators are still coming to terms with just how much co-operation it takes to ensure that everyone gets their entitlement. It has become obvious the scheme managers ie the DPI Water Resources have underestimated just how much and how often a cane crop needs water for optimum results. On the other hand the irrigators have experienced problems coming to terms with water ordering and scheduling. While there is some way to go to solve these problems, I am happy to say that all parties are endeavouring to work together to ensure that everyone does get their share and it is delivered when it is needed.

Once the water is at the farm boundary ready for use I believe the greatest feature of a B.R.I.A. farm becomes apparent. Because of the generally superior farm design, the average row length of these farms is about 700m therefore it takes substantially less furrow irrigation equipment to water a hectare than it does anywhere else. Row lengths of lOOOmt are common with some row lengths reaching up to 2000mt. This also means of course substantially less labour is required to irrigate that hectare. I would even go so far as to say there is less to total equipment and labour required to irrigate an average lOOha B.R.I. A. farm than any average 45ha fully irrigated cane farm anywhere else.

As previously mentioned, with a finite amount of water available from a dam efficient use of the water that is available becomes a very important management issue. One factor that becomes important is to ensure that the water requirements of the crop are known so that only the required amount is applied at the right time. In conjunction with the B.S.E.S. neutron probes have been utilised to determine in various soil types just what a cane crops water requirements are. These results have then been correlated to an evaporation plan whereby a farmer can schedule his irrigation times to correspond to a crops water needs. This ensures water is not wasted by watering too often or the crop does not suffer by watering too late. With the B.S.E.S. we have also been able to establish that on these soils the plant water use is about 75% to 85% of the water that is applied. Be assured however, research will continue to try to raise this figure as high as possible.

Water wastage through runoff also becomes an important issue. Because of the clay nature of these soils good drainage is crucial, however runoff water is too valuable and can be a danger to the local ecology if allowed to go off farm. Water recycling, whereby all runoff water is collected and pumped back on to the farm is becoming more widely used. The advantages here are several. It ensures any nutrients or diseases are kept on farm and not released into the environment so the local ecology remains unaffected. Runoff water doesn't have to be paid for again. A recycling system will also allow for some water harvesting to occur from natural rainfall which is also free of charge. This takes some pressure off the supply from the system in the first place. At this point in time some 30% of farms have recycling systems with the number growing rapidly. Perhaps the reason why this figure is not higher at this time is because the scheme is not yet fully developed and since it began a few years ago the annual announced allocation has not been below 125%. I think some have been lulled into a false sense of security but as the scheme develops and more pressure is put on the supply of water it will become obvious that a recycling system for individual farms will be a useful management tool. It is my belief that we should be aiming for very little if any water to find its way out of the entire irrigation area.

3

Perhaps the most feared words in any irrigation system are "underground water table". In this regard the Gods were smiling on the Burdekin by giving us the ability to pump from the underground and hence have some influence over the water table. Much has yet to be learned on just how to manage this aspect of the scheme but one advantage that can be used on farm is mixing saltier ground water with very pure river water to improve water quality for cropping. Underground water table management will in time become probably the single biggest ongoing management issue after the development phase has been completed.

In summary the features of size and layout, soil types and availability of water from the Burdekin dam plus bang situated in an ideal sugar growing location make these farms equal to anything in the state.

4

Best Practice in the Burdekin Irrigation Area New Farm Development

Paper presented by Gavin McMahon Senior Extension Officer

Bureau of Sugar Experiment Stations

This paper will give an insight into development of new farms in the Burdekin River Irrigation Area. Many factors influence the decisions on farm development and layout but the major influences are:

1) soil types, 2) topography, 3) capital costs and, 4) farm practice.

This talk will concentrate on soil types and topography and their interaction with farm development, capital costs and farm practice.

SOIL TYPES

Due to forward planning by DPI in the development phase of the Burdekin River Irrigation Area (BRIA) there is excellent information available on soil types of each farm sold in the BRIA. DPI soil surveyors mapped the area at a scale of 1:25 000 and farm soil maps for individual farms are scaled down to 1:5 000.

Although approximately 140 soil types were identified by DPI there are four main soil groups used for management purposes. These soil groups are 1) cracking clays, 2) sodic duplex soils, 3) non-sodic duplex soils and 4) gradational and uniform non-cracking clay soils.

Cracking clav soils

The cracking clay soils are locally known as Barratta clays and are similar to what are described as "gluepot" soils in other areas. These soils are generally good cane growing soils but are difficult to manage. They comprise 43 % of the BRIA, have gilgais and are found on low slopes (1:1000-1:3 000). Cracking clays have the capacity to hold large amounts of water, 2 ML from wet to dry, and are waterlogged for extended periods after irrigation or rainfall. Therefore good drainage is important on these soils. Most fields should be laser levelled to ensure precise levelling and drainage from the blocks to drainage outlets must also be sufficient

Flood irrigation on these soils is generally quite efficient (70-80%). Initially in cracking clay soils water infiltrates rapidly (40-50 mm per hour) and then is extremely slow after the cracks close (0.3-1 mm per hour). This means that irrigation on these soils can involve high volumes (2-3 1/sec per row) and that row lengths can be (1 000-2000 m) extended provided than waterlogging does not become a problem.

Cracking day soils also hold relatively large amounts of readily available water (80-90 mm) and have a longer irrigation cycle than the less permeable sodic duplex soils.

Cultivation of oacking clay soils is very difficult as they have a narrow moisture range over which they can be cultivated. If cultivated early they are too moist and large clods are produced. If

2

allowed to dry they set too hard to cultivate successfully. Management of these soils is very difficult and tilth is very seldom fine. This has implications when planting as a cloddy tilth will not give good soil-sett contact and research and experience has shown that irrigation of these soils must occur within four days of planting for successful establishment. Growers have also used "ridge planting" and minimum tillage in ratoons to overcome problems with tilth and waterlogging on these soils.

Best production occurs on these soils when

1) Good surface drainage is installed and waterlogged conditions are minimised. 2) High volume irrigation is applied where row lengths may be longer than 1000 m. 3) Correct amounts of irrigation (80-90 mm) are applied. 4) Plant cane is irrigated within 4 days of planting and 5) Reduced tillage is used at planting and ratooning.

Sodic duplex soils

A duplex soils has a texture contrast in the profile. Generally they have silty topsoils overlaying clay subsoils. Sodic soils comprise 35 % of the BRIA. Sodic duplex soils are duplex soils that have high levels of sodium (ESP > 15%) in the soil profile. There are three subgroups of sodic soils: 1) where sodium levels are high by 30 cm deep, 2) by 60 cm and, 3) by 90 cm. Sodium is not toxic to the plant but it affects soil structure thereby reducing water infiltration and makes plant extraction of soil water more difficult. In the highly sodic soils, research has shown that the crop's root system only extends as far as the sodic layer. In non-sodic soils of the BRIA sugarcane roots extend to 1 metre from the soil surface and these roots extract water and nutrients to this depths. Yield potential on these soils is below district average.

Sodic soils are generally found on ridges and steeper slopes. Thus when establishing a farm these are generally high areas that need to be lowered during the levelling operations. However any removal of soil during levelling reduces the depth of soil that crop roots can use to extract water and nutrients.

Research and practical experience on sodic soils has shown that best production occurs where:

1) Cuts of less than 10 cm occur during levelling or if larger cuts do occur the topsoil is stockpiled, the subsoil is removed and the topsoil replaced (locally known as "boxing out"). The subsoil removed must also be buried at depth and not spread over good topsoil.

2) The slope of blocks is kept to a minimum (less than 1:1000).

3) Gypsum is applied at a rate of 10 tonnes per hectare. The calcium in gypsum replaces sodium on the soil particles. The sodium then leaches down the soil profile,

4) Deep ripping these soils during Mow. This allows water to penetrate into the soil profile as deep as the cultivation.

Non-sodic duplex soils

3

These soils are generally duplex soils that have a very fine topsoil with non sodic clay subsoils. They are good cane growing soils and production will be similar to district average.

The major limitation on these non-sodic duplexes is their high permeability and subsequent water use efficiency. (However to reduce capital installation costs and management on the BRIA farms growers have increased drill length with the longest drills being 2.2 km). With long row lengths, irrigation water use efficiency will drop dramatically on these soils. Another problem that may occur over time is surface sealing on some of these soils with the use of low salinity irrigation water. Most profitable crops will be grown on theses soils if;

1) Shorter row lengths are adopted (500m or less), 2) The correct amount of water is applied to these soils. 3) Topsoil is replaced on any areas cut during laser levelling. 4) Soil conditioners are applied when surface sealing occurs.

Gradational and uniform non cracking clays

These soils are similar to the delta alluvial soils that have grown cane for 100 years but they represent only 10 % of the BRIA. The majority of these soils are found close to rivers and creeks. The soils are very fertile and sandy in nature. Some of the soils have extremely sandy soil profiles which are permeable and this can lead to very inefficient flood irrigation. However, some of these soils may also suffer surface sealing if low salinity irrigation waters are used. Also these soils suffer much greater pressure from grass weeds than the other soils and many have nutgrass present. These soils can also be very hard setting and are best cultivated when moist.

Best production will occur on these soils when

1) Row lengths and slopes are suitable for the soil types, 2) Weed control is effective, 3) Irrigation requirements match crop needs, and 4) Soil conditioners are applied when surface sealing occurs.

TOPOGRAPHY

Prior planning by DPI has provided a topographic map for each block sold. Survey levels were done on a 250m by 100 m grid to enable the derivation of height contours for each farm. These contours are not accurate enough for detailed planning but are suitable for initial farm planning. From the contour map the direction in which the block slopes can be gained as well as identifying any ridges and depressions in the farm. This information can be overlayed over the soil map.

Some general guidelines developed for the ideal situation are:

1) Try to keep soil types together when planning the farm. This means running the drill direction with the soil types rather than across them.

2) If the cane rows run across the soil types then sodic soils are best at top of the rows. 3) Drill lengths should be 800m to 1000m on cracking clays and sodic soils or approximately

500 m on non-sodic or gradational soils if permeability is a problem.

4

4) Slopes should be approximately 1:1000 although they maybe steeper; 1:500 on the more permeable soils.

5) Levelling a block does not have to involve one continuous grade but can be sectioned into a number of grades to reduce the area cut during levelling or to avoid cutting sodic soils.

CONCLUSION

Purchasers of new farms in the BRIA have a good base of information on which to make development decisions. From the soil information the different soil types can be identified and limitations noted. For the cracking clays the most important limitation is waterlogging and it is important that precision surface levelling occurs to minimise the problem. Sodic duplex soils have the limitation of soil depth and levelling decisions must take this into account. The non-sodic soils

b,

and gradational soils have the limitation of excess permeability or surface sealing and the correct row length and cultivation practice or soil conditioner must be employed.

Many factors influence the farm planning decision and the one vital requirement is for flexibility and good advice in the planning process.

5

Broadacre canegrowing in the Burdekin River Irrigation Area

Paper presented by David Cox Davco Fannin

In this paper, I endeavour to highlight the most significant areas of potential cost saving in the operation of a broadacre canefarm. These cost savings are available with good planning and management of the following key areas -

(1) farm layout (2) farm practices (3) machinery selection (with emphasis on minimisation)

FARM LAYOUT Initial farm design is a compromise between the ultimate square block with even length rows , and the capital costs of achieving that ideal layout. The particular compromise a farmer will choose will depend on three major considerations -

(1) The availability of start-up capital.

(2) The INTEREST costs of borrowed capital over the anticipated repayment period.

(3) The anticipated ultimate size of the farm.

The features to aim for in the optimum farm layout will include-

(1) SQUARE, RECTANGULAR, OR VERY SLIGHT PARALLELOGRAM SHAPE

Square or rectangular are ideal; parallelogram, with angular drills to the headland, result in limitations of use of multi-row equipment, or alternatively, reduces the productive area of crop and increases the non-income producing area which will require additional costly maintenance. Without continual spraying, this unproductive area will become a major source of weed and grass seeds that are then carried by irrigation water down the entire length of the drill. Rows at right angle to the headland provide for the most efficient machinery operation reducing the proportion of unproductive headland time for all operations including planting, irrigating, cultivating and harvesting.

(2) EVEN LENGTH ROWS

This feature reduces irrigation management dramatically. All drills started at the same time generally should reach the end within +-5% of the average. Irrigation sets which are through in 20 - 22 hours allow for a most convenient 24 hour change frequency.

Fertilizer application can be constantly monitored by farm employees. The cause of variations in fertilizer dispensed per row cannot be confused between less applied on tapering rows or a slowly clogging auger. Daily tasks including fertilizer ordering, spray contractor instructions and employee instructions are all calculated more easily, and explained more simply for a farm with even length rows.

(3) EVEN SOIL TYPES WITHIN ROWS

2

While this goal is desirable, it is seldom achieved on the extremely variable soil types found on the Burdekin - Haughton flood plain. It is in this area of farm design that there are two very distinct and different trains of thought. One believes that farm layout should be designed around the goal of even soil types within the one drill. It is acknowledged that this is most desirable, but when attempting to achieve it results in widely varying drill lengths and drills at an acute angle to the headland, I lean more to designing around topography and rely on using earthmoving machinery to shift soil where necessary to achieve acceptable soil consistency. Soil swapping to achieve consistency is expensive but does not have to be performed at the initial development stage. This "fine tuning" of your farming operation can be done after the first or even second crop cycles and paid for with profits rather than increased borrowings in your initial start-up years. With regard to farm layout, I favour designing to achieve optimum efficiency for the very long term. Anything less, in a rapidly advancing technological world will most certainly cause us to face competitive cost pressures from other current and possibly completely new world sugar producers sooner than we may have needed to.

(4) TAILWATER RETURN SYSTEM FOR IRRIGATION RUNOFF

This is an absolutely essential part of any large scale irrigated canefarming operation. While this system does reduce the normal loss of water that flows out the end of each drill while irrigating, the major benefit is the flexibility it allows in the management of irrigation. No longer do farmers have to spend many hours each day counting drills, turning a few on, closing a few off throughout the day. With a tailwater return system in place, drills 800 -1,000 metre long are ideally irrigated on a 24 hour change interval. Enough drills are operated in one setting, so as to achieve the irrigation water reaching the end in 20 -22 hours with an extra 2 hours allowing for a more even infiltration on the lower end of the drills and also to ensure that the slowest drills do reach the end. With the trend to longer drills, one of the undesirable consequences has been the increased variation in times required for irrigation water to reach the end. A tailwater return system eliminates the loss of resultant runoff without the need for monitoring and adjustment of drills on an individual basis.

FARM PRACTICES

PLANTING (1) Soil is ripped using parabolic shaped tynes in November - December preceding the wet

season.

(2) Heavy application of ROUNDUP (6L/ha) during fallow to eliminate problem weeds (eg paragrass, passionfruit vine, nutgrass).

(3) MARCH - APRIL, weather permitting, soil is prepared conventionally using a combination of offset disc, and Yoemans chisel plough. No cross working is performed as that requires too much land to be prepared ahead of the planters.

(4) Planting is carried out by contractors using trash planters. The shape of the furrow

3

MUST be a VEE, with soil cover following irrigation aimed to be between 35 - 55mm. Drill spacing is 1.6m (5'3").

Various forms of ridge planting are emerging and will in time become accepted practice on large scale farming operations. Rougher than optimum and more variable ground conditions may limit this planting technique on newly developed land.

(5) Grass and week control is done using a combination of pre and post emergents applied immediately following the second irrigation. (GESAPAX COMBI + 24D + DIUGRANZ). This is applied by aircraft.

(6) No cultivation until the cane is big enough for the centres to be knocked down and hilled up. Fertilizer is applied conventionally beside the stool.

(7) Irrigation should then be scheduled using an evaporative pan. Advice on how to implement an irrigation scheduling system is readily available from your local BSES officer.

There are two excellent publications I would strongly recommend every farmer growing cane in the BRIA should read. They are comprehensive, yet easy to read and are most helpful in gaining the necessary understanding of soils and water qualities to manage an efficient irrigation program. They are -

• Understanding and Managing Burdekin Soils by QDPI. • Irrigation of Sugarcane by BSES and SRDC.

RATOONING (1) Following harvest, ratoons are irrigated as soon as possible.

(2) When the field has dried out sufficiently, fertilizer is applied deep 140 - 180mm (514" -T) into the centre of the stool It is important in a furrow irrigated situation, to ensure the fertilizer placement is below the level of water in the irrigation furrow to ensure that subsequent water movement through the "hill" does not bring fertilizer to the surface. This is in contrast with acceptable practice in raingrown, or overhead irrigation areas. No problems have been observed with application rates up to 250kg/ha of N and 70kg/ha of

Advantages of stool splitting fertilizer application:-

• Does not require cultivation of normally compacted interspace to ensure over fertilizer is covered with soil.

• Low horsepower requirement as the "hill" is generally soft and uncompacted, with a covering of loose soil left by the harvester,

4

• Fertilizer is less accessible to grass and weeds.

• Eliminates losses from volatilization of fertilizer into the water while irrigating long rows of rubbly soil with fertilizer placed in the interspace.

• Stool splitting is environmentally friendly as it virtually eliminates fertilizer leaving the field and being carried into creeks and ultimately into the ocean.

Sodic duplex soils may require some cultivation to improve water infiltration in ratoons. Ripping of the centres together with the application of gypsum is generally required to achieve acceptable yields from these problem soil areas.

MACHINERY REQUIREMENTS Machinery requirements can be minimised with good planning and management of the broadacre canefarm. The first task is to determine the farming practices you -will employ in growing the cane. Most farmers start off in the BRIA basically performing the same procedures they use on their home farm. Some of these will suit the conditions found on the new farm but many will not. Once deciding on your preferred farming system, I find it very helpful to do a matrix of all the implements and tractors you anticipate requiring. The schedule on page 7 lists the Davco Farming machinery inventory for 1995. Once deciding on a particular farming system, there is little scope to reduce the range of implements needed, but there is significant scope to minimise the number of tractors required which are in effect the big cost items. In my matrix, I leave a column spare to use whenever I feel there may be a cost effective benefit of another tractor in the system.

5

LINKAGE

IMPLEMENT

AUSTQUIP 11 TYNE RIPPER

YOEMAN 17 TYNE CHISEL PLOUGH

IH 770 OFFSET 56 PLATE

BONEL ROTARY HOE 4.8M BEDFORMER

BONEL 4 ROW FERTILIZER STOOL SPLITTER

HODGE TRASH INCORPORATOR

AGROW 7 TYNE + CRUMBLE ROLLER

AUSTQUIP 2 TYNE + 2 YOEMAN + ROLLER

NUTTALL COTTON KING

DAVCO 3 ROW 15 SPRING TYNE

DAVCO 10 SPRING TYNE >

DAVCO 10 SPRING TYNE <

DAVCO HJXL-UP 2 ROW

SUPERIOR MOWER 4.6M

TATU CANE RAKE

FLUMTNG ROLLER

BONEL OFFSET 3PL 20 PLATE

HEADLAND SPRAY BOOM

FORKLJET

CHAMBERLAIN 3 TONNE CRANE

CAT 4

ST 525

•

•

•

CAT 3N

JD 4755 4WD

N » W

• W

N «

N »

N »

N «

• W

•

CAT 3N

JD 4250 H/C

•

•

•

#

•

•

•

CAT 3N

JD 6400 4WD

•

•

•

•

•

•

•

•

CAT 2

JD 2140

-

•

•

•

#

CAT 2

JD 2250

•

#

*

6

NEW MACHINERY DEVELOPMENT There has not been a lot of success with the development of 3 and 4 row implements suitable for handling the heavy hard clay soils found in the BRIA. I attribute much of the problem to the inability to achieve sufficiently accurate row spacing while planting into the variable soil conditions found on most BRIA farms. In an attempt to overcome this problem I have imported a computer controlled steering system from the U.S. and this year will be trialing it in combination with a 180" rotaiyhoe-bedformer. If successful, this operation will be substituted for the final discing prior to planting, and will eliminate the extra operation of manually marking out. This system will almost certainly be an interim method of row guidance until the inevitable development of a system based on G.P.S. technology (Global Positioning System).

Profitable yet sustainable sugar growing practices

Paper presented by Dr Graham Kingston Principal Research Officer

Bureau of Sugar Experiment Stations, Bundaberg

INTRODUCTION

Many of you may be concerned at the strong emphasis and varied interpretations placed on that over-used word 'sustainable', in relation to agricultural industries. The most generally accepted definition embraces the need for balance between ecological and economic aspects of sustainability. This is consistent with the goal of the sugar industry to be profitable in the short term, while managing and protecting our base resources to ensure profitability for future generations. This industry goal must also be achieved within the larger community and neighbourhood relations. The challenge for good managers is to adopt best available practices, where integration and good timing of inputs adds value to the whole operation by ensuring productivity and maximising profit by minimising loss of soil, water, nutrients or pesticides from the paddock or root zone.

My topics today include tactical issues, which are critical to short term profitability, as well as more strategic issues which under-pin future productivity and profitability, by maintaining quality of key on and off- farm resources.

MANAGING SOIL ACIDITY

Approximately 90% of soils used for growing cane in Australia are acidic, because of climate and soil forming processes. Acidity is enhanced by long term use of nitrogen fertilisers and annual removal from soil of calcium and magnesium (on average 25kg/ha of each) in cane sent to the mill. Sugarcane is much more tolerant of low pH and associated higher levels of aluminium than are legumes, maize and horticultural species. Significant and regular responses of sugarcane to liming products were not obtained in Queensland until after the mid-1970's. These responses appear largely related to deficiency of calcium as a nutrient. Prior to the early 1970's maintenance levels of calcium were supplied from fertiliser mixtures based on superphosphate, these were replaced by mixtures based on di-ammonium phosphate, which contains no calcium.

Canegrowers have been major users of liming products since 1975. However recent surveys in several southern districts show that some 30% of fields surveyed are still in urgent need of liming. Analysis of commercial soil test results in north Queensland shows 60% of samples need liming; the latter samples may be biased because growers would presumably have sampled a higher proportion of fields where they had productivity concerns.

Soil analysis is a reliable indicator of need to apply calcium and/or magnesium based liming products for correction of calcium deficiencies in sugarcane. If rotational crops are grown, more emphasis should be placed on pH. Calcium is not very mobile in plants, but is an essential part of plant cell walls; calcium deficient plants have poor root systems and restricted top growth. Magnesium is required for chlorophyll used in photosynthesis and for movement of phosphorus in plants. Application of more nitrogen is an often used tactical response to stunted yellowing plants. If the problem is a calcium or magnesium deficiency more nitrogen will do nothing until the main problem is corrected.

Application of 5t/ha of lime is recommended to correct deficiency of calcium in the first instance. Plant cane responses often cover application costs. Responses may last several crop cycles, but lower rates of It/ha are indicated every five to seven years to maintain soil calcium levels and high

2

productivity. Necessity to retreat should be judged from a soil test, as should be the need for a product which also contains magnesium. Calcium and magnesium deficiency often occur together, but deficiency of magnesium only is rare. Use of a magnesic product alone when calcium is marginal causes major nutritional imbalance.

Amelioration of these aspects of soil acidity is the first of the integrated issues which benefit profit and sustainability. Production responses of 10 to 20 tonnes cane/ha often occur after liming. Improved soil and plant calcium levels mean more extensive and stronger root systems, hence improved crop water use efficiency. Availability of other nutrients such as nitrogen and phosphorus is improved, while potential toxicity from manganese is reduced. Soil structure and tilth improvements benefit infiltration of water and ease of cultivation.

IMPROVED MANAGEMENT OF NUTRIENTS

The benefits to crop nutrition of improved management of acid soils were outlined above. Additional benefits could accrue from development of better management strategies for nitrogen and wider adoption of current recommendations for phosphorus nutrition.

Nitrogen: Sugarcane is inefficient at recovering applied nitrogen fertiliser, with only 30% of fertiliser N being used by the crop in the year of application; the remaining 70% comes from mineralisation of reserves in the soil organic pool and previous fertiliser N which has joined the soil pool. Fortunately sugarcane makes very efficient use of acquired nitrogen by producing more plant material per unit of nitrogen than many other crops. The two major issues for improved management of nitrogen are: (a) ability to recognise soil, climate and previous management situations where there is sufficient mineral nitrogen in the potential root zone to grow the target yield without applying nitrogen fertiliser; this is primarily a plant crop after fallow or in rich-land situations, and (b) ability to customise nitrogen fertiliser applications to take account of nitrogen which is recycled in the GCTB system.

Research by BSES agronomist Les Chapman completed in 1976 showed that soil tests for nitrogen were not a reliable predictor of sugarcane responses to fertiliser nitrogen. There still are no other tools which allow reliable refinement of nitrogen fertiliser strategies. CSIRO staff are currently incorporating knowledge of soil nitrogen processes into computer models which will take account of soil types, cropping history, previous nitrogen regimes and climate. This approach will allow assessment of the historic risk of different approaches to fertiliser nitrogen management. Growers have stated that they are most averse to risks of reducing nitrogen rates because of the potential for impact on yield. Thus any new strategies must have high probability of success, as potential $ savings for individual farmers are quite small in relation to production risks. This is tempered however by the environmentally sensitive nature of nitrogen as a nutrient. Therefore it is important that the sugar industry is seen to adopt efficient nitrogen management practice, which minimise potential for off-site effects.

Our nutrient uptake studies show that 50% of the nitrogen acquired by the crop is contained in tops and trash residues left on the soil after green cane harvests. Is it available to succeeding crops? Studies by Les Chapman and his colleagues showed that the green cane mulch contained 104kg N/ha as ratooning. Approximately 9kg/ha of the nitrogen in residues appeared in the next crop, and a further 49kg N/ha was present in old trash and the surface 92cm of soil. Does this

3

value increase with time under the GCTB system? The quantitive answer to this question will be provided by research to be conducted within the new Co-operative Research Centre for Sustainable Sugar Production. Anecdotal evidence suggests opportunity for reduced nitrogen rates after several years under trash, but recommendations cannot be issued at this stage.

Phosphorus: Most of the soils used for growing sugarcane in Australia have medium to high levels of phosphorus, either from natural fertility, such as the Burdekin delta and other alluvia, or from historic use of phosphorus fertilisers at rates higher than those required to balance crop uptake. The probability of response to phosphorus fertiliser decreases for soil test results between 10 and 20 mg P/kg soil; there is no value in maintaining high soil phosphorus levels (>40 mg P/kg soil). Crop uptake will reduce the soil test by approximately 2.5 mg P/kg soil for each year phosphorus fertiliser is not used. Thus soils with phosphorus values of 60 mg P/kg soil could produce for at 8 to 10 years before a maintenance phosphorus fertiliser regime is instituted. Savings of around $60 /ha/yr are indicated if application rates of 25 kg P/ha are avoided. An application of 20 kg P/ha is still recommended at planting to ensure ready access for the developing root system to a source of phosphorus, so as not to prejudice establishment of the plant crop.

The approach of with-holding phosphorus for ratoons on non-responsive soils is another component of a profitable yet sustainable production system. Phosphorus is one of the environmentally sensitive nutrients. The sugar industry has made a major contribution to reducing potential for environmental impact and increased profitability by adopting the GCTB system which reduces potential for loss of phosphorus with soil erosion; with-holding un-economic levels of phosphorus is another major contribution.

MANAGING SOIL COMPACTION

Soil compaction during harvest and in-field transport of cane is a basic concern to growers, and is the prime reason for cultivation, other than weed control and seed bed preparation. Questions which arise from this issue for managers are: under what conditions does significant compaction occur, what level of compaction and change in soil properties affects production and what conditions and techniques are required to relieve compaction. These issues are of increasing relevance with wider adoption of green cane trash blanket (GCTB) and other minimum tillage systems. Non-tillage of ratoon fields is the norm in southern Afiica and increasing areas of Queensland and New South Wales. Can we manage these systems to give desired productivity and length of ratoon cycles?

While growers readily recognise compaction events and scientists can measure its effects on soil properties, effects on productivity have been variable in experiments in Australia and elsewhere in the world. Compaction increases soils bulk density which effectively makes the soil stronger and harder for roots to penetrate. Reduced soil porosity makes water less available when it is held in a higher proportion of finer pores. Thus we might expect comapction to affect productivity in drier years when a smaller root system will severely restrict access of the crop to water and nutrients. A wet harvest followed by a dry growing season would be a classic set of circumstances for ramfed areas and reduced water penetration would increase problems for irrigators. I am classifying stool damage by harvesters and transporters as a separate but related issue to compaction.

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BSES soil physicist Dr Mike Braunack has measured effects of compaction on soil properties and yield. Yield was reduced by first ratoon at Ingham, where conventional haulouts were used; while at Tully use of high flotation transporters was instrumental in delaying productivity impacts until second ratoon. Mike's experiments are in rows spaced at 1.5m and involves traffic on the stool, near the stool and in the centre of the interspace. Yield effects for conventional haulouts at Ingham were of increasing severity for inter-row, near row and row impact. Row impact was also most severe for high flotation gear at Tully where differences between near-row and inter-row were small. Yield effects mirror the changes in soil properties under the row from traffic in the different positions.

The take home message is that adverse yield effects will be minimised by keeping traffic as far away from the stool as possible. This means that row spacing should be not less than 1.5m and should preferably approach 1.8m. Such wide row spacings have adverse production impacts themselves and innovative dual row planting with controlled traffic paths may be required. Shorter term measures will include high flotation transporters, restricting weight of in-field loads and, where possible, delaying harvest until fields are less susceptible to compaction. The longer-term benefits of organic matter and earth worms in the GCTB system on minimising or restoring effects of compaction are under evaluation.

BETTER PRODUCTION AND HARVESTING SYSTEMS

Better production systems A better production system should improve productivity, profitability and life-style, while reducing risks associated with production and its off-farm impact. The GCTB system has fulfilled these criteria on most farms north of Townsville, where adoption at district level ranges from 58 to 98%. Lower adoption in the Burdekin (1 to 10%) the central and southern districts (5 to 35%) and in New South Wales (0 to 12%) hinges on real and perceived problems with components of the above performance criteria.

The GCTB system has benefited the industry by: • Many cases of improved yield; up to 9 to 12 TC/ha in rainfed systems; • Improved conservation of soil moisture; up to 200 mm prior to canopy closure in the

Burdekin region; • Reduced cultivation and herbicide inputs; but the weed population is changing and vines

need special attention; • Marked improvements in control of soil erosion and cleaner streams; • Avoiding deterioration of burnt cane after rainfall; • Improving life-style of farmers and urban people when cane is not burnt; • Unqualified improvements in soil structure; • Improved profitability.

In areas of lower adoption the following points are seen as significant issues: • A high risk of poorer yield and ratoon failures associated with cooler and wet soil

conditions, especially for cane harvested before September; • Adverse effects of trash blankets on efficiency of furrow irrigation systems; • Impact of, and management required for pests such as army worms and weevil borer; • Fertiliser placement and fertiliser rates; • Capability of available older harvesters to successfully cut un-burnt cane;

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• Slower harvest rates, especially for heavy crops and where contracts exceed 50,000 tonnes per season.

Major research projects are in place to address most of the above concerns. Research findings and industry experience has shown the importance of good surface drainage in the success of the GCTB system. Full benefits of the system are not realised until three to four years into the system; therefore it is important to plan for its adoption by laser grading of fields, and in wetter areas adopting a form of mounded or bedded culture. Formation of mounds at ploughout, prior to the wet season, is preferable to formation just prior to planting. Where this is not possible, such as in ploughout re-plant fields, in-adequate soil moisture in the spring can prejudice crop establishment. In such situations a significant mound can be built after crop establishment.

A GCTB experiment at Rocky Point has shown small responses to trash over the last two growing seasons, which were drier than usual. An experiment has been planted at Bundaberg to determine whether trash has a negative impact on ratoon yields under cool and wet conditions, if best management practice is employed.

Nutrient management should not be a constraint to adoption of GCTB. Many growers still prefer to broadcast urea onto trash blankets. Recent research from the Cairns area by David Calcino and Drew Burgess has shown that best yields are consistently obtained when urea is placed subsurface beside the trash. This placement was also better than delaying the broadcasting of urea until cane was 50cm high.

While GCTB experiments under scheduled flood irrigation in the Burdekin area show responses to trash retention, most of the results for irrigated trash blankets in overseas studies are either negative or neutral for yields in relation to burnt cane. A yield neutral result would be acceptable if irrigation requirements are reduced. However water conservation benefits of trash blankest will not be realised unless irrigation frequency is adjusted. It is also possible that failure to reduce water applications during the pre-canopy closure phase of ratoon crops could lead to overwatering and attendant risks of loss of nitrogen through denitrification.

Problems associated with rate harvest of large un-burnt crops of cane are issues for the Burdekin and two year crops in New South Wales, These issues and ameliorative opportunities will be addressed this year by Gavin McMahon in a project supported by the Sugar Research and Development Corporation.

Better harvesting systems The profitability and sustainability of more efficient and productive management systems is jeopardised if there is significant loss of cane during harvest. Extensive field surveys confirmed that harvesting losses were widespread, and supported earlier findings by Ross Ridge and colleagues of around 6% loss in burnt cane and 8 to 10% in un-burnt cane. These figures represented loss of $76m per year in 1993. It was also estimated that losses from dirt in cane added another $15m to industry losses. A major extension program was commenced in 1992 to address these as high priority issues.

Cane harvesting losses can be summarised into four main categories: • Pick-up loss - includes loss from knock-down assemblies, brittle varieties and poor or high

base cutter operation. Field conditions have a major impact for pick-up losses and dirt

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entering harvesters. Narrow rows (<1.5m), poor filling in of furrows, incorrect hilling up and inter-row furrow contribute to adverse results.

Chop and extractor loss-includes cane lost by incorrectly adjusted chop mechanisms and cane thrown out during cleaning. Correct chopper adjustment avoids small wedges being chipped from each billet cut, while modifications to deflector plates and fan speed of primary extractors have had major impact on cane losses, as shown in Table 1. There was little change in extraneous matter in most cases. The electronic cane loss monitor facilities adjustment of fan speed.

Boot and elevator loss - is caused by billets falling from the machine. Loss is minimised by awareness, response and co-ordination between harvester and handout drivers.

Spillage loss - occurs during transfer of cane from harvester to haulout and transfers at sidings or to road transport.

Table 1 Case studies illustrating major reductions to harvesting losses in 1993 (from Tony Linedale).

Harvester modification

Fan speed reduction in primary extractor: 13

cases (mainly green cane)

Deflector plate modification: 9 cases

Cane loss (t/ha)

Before

11.1

12.8

After

3.6

3.8

% reduction in loss

Average

68

70

Range

19-90

41-90

Many of the modifications can be effected for low to medium cost. Because of the magnitude of expected reductions to losses, most modification are very cost effective and provide improved yields to benefit all sectors of the industry. Reducing dirt in the cane supply will be the focus of activity for the 1995 season.

CONTROLLING PESTS AND DISEASE

Productivity and profitability are adversely affected by the impact of pests and disease on sugarcane, while heavy reliance on a narrow range of chemicals for control of certain pests has major implications for sustainability of current farming techniques in some areas.

Controlling pests The nineteen species of canegrubs which attack sugarcane represent the most significant insect pest problem for the sugar industry. In 1993 yield losses of approximately $3m were recorded in addition to the $5m spent on canegrub insecticides. We currently rely heavily on suSConBlue and to a lesser extent on Mocap and Rugby for control of canegrubs. Need for alternative control methods and products is highlighted by the recent apparent failures of suSCon and Mocap to control Childers canegrub and of suSCon against greyback grub in the Burdekin.

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Failure to control canegrubs could cause losses equivalent to 12% of the value of sugar production in Australia. Accordingly Dr Peter Allsopp and his colleagues have proposed a program of integrated pest management (EPM) for canegrubs.

There are six components to the potential IPM strategy: • Improved efficiency of current insecticides This strategy relies on definition of the

optimum depth of placement of products such as suSCon for each grub species; suSCon must also be covered by at least 50mm of compacted soil immediately after application to avoid volatilisation of chlorpyrifos; techniques are being developed for application of suSCon to ratoon crops.

• New controlled release insecticides A screening program is continuing to identify candidate products to supplement or replace suSCon, Controlled release products offer more flexibility in timing of application; non-organophosphate products would be desirable to reduce the probability of development of resistance to chlorpyrifos in suSCon.

• Development of new knockdown insecticides Short-term or knockdown insecticides, used only when grubs are present, have potential advantages over more persistent controlled release products. They are less disruptive to non-target species, and both off-site environmental effects ad chances of development of resistance are reduced. Knock-down products require a higher level of management to monitor critical grub populations and may be difficult to apply in standing cane during summer.

• Plant resistance Preliminary studies have shown sugar cane varieties differ in reaction to impact of canegrubs. This phenomenon of resistance to damage may involve antibiosis (where fewer grubs survive by feeding on certain varieties), structural or physiological changes (such as ability to re-grow roots) or tolerance (where a larger root systems can tolerate more injury than smaller systems). These characters could be incorporated into varieties by plant breeding. Incorporation of non-sugarcane genes, which are unfavourable to cane grubs, into root systems by genetic engineering is also being undertaken.

• Cultural controls and farm management Populations of two year canegrubs are amenable to management by heavy cultivation of fallows during spring and summer when third instar grubs come up into the plough layer, and during autumn when second instars are in this zone. A detailed analysis is required of the benefits of fallowing to IPM strategies. The GCTB system is under investigation to determine its role in increasing populations of natural fungal and faunal enemies of canegrubs.

• Natural enemies (bio-control) Disease caused by fungi, bacteria, viruses, and nematodes have been recognised in canegrubs. Current projects are examining potential for one of the species of MetarMzium fungus for use as a biological insecticide. Bio-control is most likely to supplement rather than replace other control methods.

The IPM strategy will play an important role in profitable and sustainable sugar growing practices because of the losses associated with soil insect pests, the need for reliable controls to justify investment in sub-surface trickle irrigation, the increasing cost of product registration and need to minimise environmental impact of pesticides.

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Disease control Major gains in productivity and profitability can be made by improved management and control of ratoon stunting disease (RSD). For example, Barry Croft and colleagues have shown that 11% of fields and 28.4% of 658 surveyed farms, between 1990 and 1993, in the Herbert district were diseased. Losses from RSD in that district alone amounted to over $3m per annum. There are differences in varietal susceptibility to RSD, but control by use of un-diseased planting material and basic farm hygiene is more cost effective. Use of clean planting material through a sterilised planter are the two most important steps. While spread of RSD by harvesters has been demonstrated, this is now thought to be of lesser significance in the rate of spread of RSD than planting disease.

CONCLUSION

This paper has been prepared to highlight opportunities for improved management strategies to allow profitable yet sustainable sugar growing practices. There are clear links between several of the soil management strategies which add synergy to profitability and sustainability of the production system. For example successful management of acid soil improves root growth, access to and availability of nutrients, which in turn will improve crop water use efficiency. Management of compaction and adoption of the GCTB system also improves access to nutrients and water, while improved management of pest and disease and the harvesting systems ensures that maximum return is acheived from inputs.

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Profitable yet sustainable sugar growing practices

Paper presented by Ross Digman

The Canegrowers' booklet "Caring for the Environment" shows that at least some of our industry representatives realize the importance of the sugar industry appearing to be environmentally sensitive. However it is one thing to put out a booklet such as this, another thing entirely, to be able to defend the industry should its environmental record come under scrutiny.

An attack could come from any quarter. Some of you may have seen the April edition of Fishing World. A copy of page 15 of that issue has been included in your handout. This article details legal action taken by a group of fishermen in northern NSW, to prevent adverse effects on the Richmond River from canefarm drainage of acid sulphate soils. The group, known as Fishwatch, has 3500 members who were fed up with the lack of appreciation by the farming community of the damage they were doing to fish habitat. Its founder and president, a solicitor by the name of Elton Stone, is more than confident of success in the courts, and under existing legislation, canegrowers and developers could be obliged to undertake substantial works to prevent polluted waters from draining from their properties into adjacent waterways.

Instead of government legislation requiring that certain environmental standards be achieved, industries obviously prefer some form of self-regulation, or Voluntary Code of Practice. However, to avoid government legislation, a VCP requires much more than the QCGC just saying our industry is environmentally responsible.

Should we come under attack, how are our representatives going to defend an industry which is currently in an indefensible position.

To have any credibility when attempting to defend our industry, we must first acknowledge that expansion over the years has had major adverse environmental effects. Denying the obvious is pointless. We must then be able to point to positive action by our industry, and that involves a lot more than simply publishing booklets.

Pointing to green cane harvesting as evidence of our environmental sensitivity will not be sufficient. While certainly a beneficial practice, relying solely on this as a defence will simply demonstrate how little we do know of the environment.

We must recognize that we have done, and some are still doing, significant environmental damage. The destruction of forest for growing cane is readily apparent, but damage has occurred in many other areas.

Apart from the acid sulphate drainage problem I've already mentioned, farm drainage lowers the water table and results in the drying up and loss of shallow wetlands. It is not environmentally sensitive to convert a rich wetland into a depression full of nothing but grass and weeds. The Million Hole lagoon was so named because of the huge number of waterfowl which were once found there. Like so many others, it's now a dry depression, with a drain running right through the middle.

In many cases, forming on the low-lying land surrounding these wetlands has proven to be futile. So for little economic benefit, we're leaving ourselves wideopen to public condemnation.

What can we do?

As some of you may be aware, I had an artificial lagoon excavated on my farm to compensate in a small

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way for the adverse effects of my drains. The excavation took place four and a half years ago, and the lagoon is now a little oasis among the canefields.

20 local conservationists assisted with the planting of about 500 trees around the perimeter. That alone demonstrates the public relations value of such an undertaking.

Since run-off from farmland will be most concentrated in these lagoons, if fish start dying there, corrective action can perhaps be taken before major adverse effects become apparent further afield. Farm lagoons can therefore be good biological indicators of the impacts of farming operations.

Although this lagoon was constructed primarily for environmental purposes, it has actually paid for itself through increased production of cane on surrounding land, over only three seasons.

The dark area on this overhead is my lagoon. The red and green shaded sections indicate the area of previously unproductive land on which soil excavated from the lagoon was deposited. Those shaded sections are of equal area, and similar increases in production were experienced on both blocks.

Production figures on the red shaded area alone show an increase of roughly 300 tonnes each season. In only three seasons, a total of roughly 1800 tonnes has been grown on previously unusable land. Although such economic benefit will not be achieved in all cases, this does demonstrate that with a little thought, farmers can undertake environmentally beneficial works at little or no cost. To me, such immediate economic benefit was simply icing on the cake, since the lagoon itself has been a source of continuing pleasure and satisfaction.

Although perhaps a nuisance from a fanning point of view, the meandering nature of creeks results in features such as eddies and deeper holes which are vital for fish survival, particularly during drier periods.

For ease of farming operations, creeks have been straightened and lost most of their habitat value to become no more than drains.

Once the banks of watercourses are cleared of trees, those watercourses rapidly become choked with the likes of paragrass or other exotic weeds. The capacity of these channels to carry away floodwaters is severely reduced, and they become major harbourages for cane-rats.

Replanting of trees along such watercourses obviously does lead to the need for greater concentration on the part of machinery operators, to avoid damage to both trees and machinery. However a corridor of trees adjacent to a watercourse does reduce the possibility of a fatal tractor roll-over. My father was lucky to survive being trapped under an old Farmall after a roll-over along this particular creek about 40 years ago. All the profit derived over the years, from growing cane in close proximity to the watercourse could have been lost in just that one incident.

Rehabilitation efforts such as this soften the landscape, and reduce the monotony and starkness of endless fields of cane. It's very satisfying, and makes the farm a much more pleasant place on which to work. An additional benefit is the privacy afforded by a tree corridor. Farming operations can be undertaken without such close scrutiny by farmers driving by. If others can't see your drills, it doesrft matter if they are crooked!

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A rehabilitation resource now available to landholders from Mackay north is the Community Rainforest Reafforestation Program. Under this program, over a thousand cabinet timber trees were planted on a 2 hectare river flat on my property in March 1993. If the intention is to harvest the timber, this could be seen as a form of superannuation. To avoid the devastation of a clear felling operation when timber cutting commences, it is a good idea to plant a wide selection of species which mature at different ages. There are 8 species in this plot.

I mentioned at the beginning, the action undertaken by Fishwatch in NSW. Fishing is acknowledged as one of the most popular recreational activities. A day out on a beautiful river is a wonderful experience. However development has resulted in major degradation of our river systems, and this is naturally of major concern to fishermen.. This degradation can be reversed. Once the base or toe of the river bank has been rock stabilized, trees can be established.

Revegetation should not just be limited to the very edge of the bank. In north Queensland, continuity of a 20 metre wide riparian tree corridor is believed to be essential to the survival of the endangered cassowary, enabling it to access presently isolated remnant forest areas. Remember, cassowaries and other wildlife can!t run down to the nearest supermarket to stockup when supplies are low. They must have a wide variety of fruits and berries which ripen throughout the year.

If timber trees are intermixed with other food species, this will eventually offset on-farm losses from sugar production. Whether that return will be realised in the lifetime of many farmers is debatable, but timber tree plots could be seen as a farm asset steadily increasing in value.

Tree corridors also reduce the rate of outflow of floodwaters from rivers, and consequently reduce erosion of adjacent fallow paddocks.

There is some concern by mills at the loss of assigned land from the establishment of riparian tree corridors. A study of the Tully River shows that a 20 metre wide tree corridor along both banks of the river from its mouth to the mountains, a distance of 70 kilometres, would represent an area of only 280 hectares, much of which is not presently growing cane anyway. In 1994, the Tully Mill's assigned area increased by 1200 hectares alone, to a total of 23,806 hectares. It can be seen from those figures, that the loss is really insignificant. Tree corridors along tributaries will obviously increase the area lost to agriculture, but the total area involved is still only minor.

There are some in the industry who maintain that the riparian tree corridor concept is too idealistic. I have no doubt that the ideal from a radical greenie perspective would be to reinstate all canegrowing land to its original condition. That may be unrealistic. However, the expectation that all available land be utilized and converted to the sole purpose of canegrowing, could also be said to be too idealistic. It is certainly becoming increasingly unacceptable.

An environmentally responsible industry would see the loss of a small portion of its assigned land as a satisfactory compromise. Since river frontages vary considerably from farm to farm, the establishment of riparian tree corridor will be of concern to some landholders. Since rate relief alone for such areas may not be sufficient, I believe our representatives should really be devoting their efforts to ensuring that such landholders receive adequate compensation.

4

It was mentioned in my introduction that I'm on the Steering Committee overseeing the implementation of the Sugar Industry Infrastructure Package in the Tully area. That committee is increasingly recognizing that the SUP offers a low cost opportunity to rectify at least a little of the damage done. As a precondition of the state and federal governments contributing two-thirds of the $5.6 million cost of a Water Management Scheme proposed under the SUP, an Environmental Assessment Study of the Tully-Murray floodplain was required to be undertaken .

I've produced a video which details some the work done for that EAS by DPI Fisheries Research staff into the state of wetlands and other fish habitat on the floodplain. The results of their research are likely to have ramifications for many sugargrowing regions.

One of the subjects dealt with in some detail in the video is farm drainage and its adverse environmental effects, one of which appears to be a reduction in oxygen levels in remaining lagoons. Barramundi seem to require a minimum oxygen level above 3 mg/litre. Some of the largest natural lagoons were found to have zero and close to zero levels of oxygen. Yet studies by Fisheries Research staff a decade or more ago showed that these same lagoons were once full of barramundi.

It should be obvious by now, that there is ample evidence out there of our industry's adverse environmental impact.

I'm aware that the Australian Conservation Foundation is working on a position paper on the sugar industry.

Our local Landcare group, and a number of Tully farmers, including Angelo Crema and Ron Zamora, Eric Hassall, Dick Camilleri, Scotchy McLeod, and Mori Johnson have either excavated lagoons on their properties, or have told me they intend to do so in the not too distant future. Provided excavated soil is not used to fill still viable surrounding wetlands, thereby doing further damage, and other possible adverse environmental effects are addressed, widespread adoption by canefarmers of this and other concepts I briefly outlined today will ensure we are not totally crucified in an environmental debate.

5

Alex

Going to court

Julius For what I understand to be the first time in Australia, a fishing organisation had addressed its concerns about major water degradation by taking legal action. The organisation is Fishwatch, a non-profit group based on the north coast of New South Wales. It has 3500 members and was established late in 1992 with the primary objective of looking after the interests of recreational fishermen in northern NSW. Its founder and president is Elton Stone, a mad-keen angler who operates the legal firm Stone and Partners in Lismore.

On January 25, the Land and Environment Court in Sydney ordered the urgent hearing of proceedings instituted by Fishwatch Inc against a cane fanning group at Tuckean near Lismore. Amongst other things, Fishwatch sought an injunction to restrain the release of acid-polluted waters from recently dug drains into the Richmond River and its tributaries. Also named as respondents were the Lismore City Council (as the local government authority). What's more, Fishwatch obtained approval from the court to bring action against two NSW ministers: the Minister for Lands and the Minister for Planning and Environment.

The Fishwatch action is all clout. No effort was spared to research all the possible acts of parliament that were contravened by the farming group. Evidence filed in the proceedings indicated that large tracts of land had been cleared and levelled, and wide and deep drains were dug through the property. The result has been to alter the natural flow of warn, to lower the water table, to expose large quantities of acid sulphate soils and to materially alter the whole ecosystem.

This drastic action taken by Fishwatch follows numerous appeals over a long period

which have invariably fallen on deaf ears. According to Lindsay Doust, spokesperson for Fishwatch, public authorities charged with the management of our marine environment have neglected to take any action other than to create more and more committees.

The injunction application is only a small part of the overall orders being claimed by Fishwatch. They include:

a) A declaration that the digging of the drains is illegal as the farmer did not obtain the approval of the Lismore City Council. The excavation of approximately 42,000 cubic metres of soil is not an "agricultural pursuit" and amounts to the carrying on of an "extractive industry" which requires an Environmental Impact Statement, and Development Approval from the Council.

b) An order that the farming group obtain the consent of the Richmond River County

e) An order under the Environmental Offences & Penalties Act restraining the further pollution of the local drains, waterways and the Richmond River and the southern Pacific Ocean by the releasing and seepage of acid materials into waterways.

As Fishwatch rightly claims, "It's the whole question of polluting our waterways that's at stake. A total of 42,000 cubic metres of soil was removed for drains. At 10 cubic metres per truck, that's 4200 truck loads." Mr Doust said Fishwatch has no desire to affect the profit of the farming community at all. "Our concern is that property owners have due concern for the environment in the same way that foresters, miners and industrialists have been forced to adjust to the environmental concerns of the last 10 years. Now the farming community must show the same concern. In the long term, it's to their own benefit."

UlA) It's the whole question of polluting our waterways that's at stake."

Council before they are allowed to connect their drains to the Main Public Drains.

c) An order that the Minister for Lands not give his consent to the digging of drains in Crown Road reserves until the Minister has considered the impact which this will have on the environment.

d) A declaration that the works have contravened the provisions of the Clean Waters Act and that the farming group rehabilitate the land in such a manner that the acid sulphate soils not cause harm to the environment including the Main Drain, the Richmond River and the Pacific Ocean in the vicinity of the Richmond River.

The Fishwatch action in respect of the north coast has wide implications for the rest of NSW and probably Australia. Especially worried should be all those cotton farmers whom many believe have been responsible for the pollution and destruction of aquatic life in several major waterways.

Thanks to Fishwatch, at least one issue is being brought to a head. Ministers and political power brokers can squeal all they like, but at the end of the day, the courts will decide the outcome based on the facts.

^

FISHING WORLD APRIL 1995 15

Red & green shaded areas were previously unproductive land. Red area is now block 14. Blue area is lagoon.

Tonnes harvested from block 14

Year Hectares Ratoon Production 1990 0.5 1R 61.60 1991 0.5 2R 37.47

After lagoon construction 1992 2.77 RP 366.57 1993 2.77 1R 360.85 1994 2.77 2R 349.44

Depth increases rapidly from 1.2 to 2.4m

Bank adjoining water is approx. .6 metres above the water level.

Depths shown in circles in metres.

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