The Australian sugar industry produces raw and refined sugar from sugarcane. Around 95 per cent of sugar produced in Australia is grown in Queensland and about five per cent in northern New South Wales, along 2,100 km of coastline between Mossman in far north Queensland and Grafton in northern New South Wales. A sugar industry was established in Western Australia in the Ord River Irrigation Area in the mid 1990s but ceased operations in 2007.
More that 80% of all sugar produced in Australia is exported as bulk raw sugar, making Australia the second largest raw sugar exporter in the world. In recent years, Asia has become a major focus with key export markets including South Korea, Indonesia, Japan and Malaysia which are our most important markets.
The Queensland sugar industry was deregulated on 1 January 2006. Since then, Queensland Sugar Limited (QSL) has entered into voluntary agreements with the majority of Queensland mills to market their export raw sugar. This makes it responsible for more than 90% of all of raw sugar exported from Australia. Mills not contracted to QSL independently market their own sugar.
QSL undertakes export sales direct to raw sugar refiners in a number of countries. Proceeds are pooled for payment purposes and distributed back to mills and growers after being adjusted for marketing costs incurred by QSL. With the pooling of sales proceeds, producers receive an average of prices received from sales during the course of the year.
In New South Wales, white and raw sugar is largely sold directly onto the domestic market by the New South Wales Sugar Milling Co-operative.
Returns to producers are determined primarily by the world futures price for sugar but are also influenced by the level of the Australian dollar, regional sugar premiums and the costs of marketing and transporting the product.
Daily updates of information on world sugar prices and a daily sugar market report is published by Queensland Sugar Limited.
International sugar market information, reports and statistics can also be obtained from the International Sugar Organisation.
Sugar industry assistance and reform
The Sugar Industry Reform Program (SIRP) 2004 was established to support and promote comprehensive reform and restructure of the Australian sugar industry.
It followed an industry commitment to actively pursue long term economic, social and environmental sustainability by undertaking structural change, rationalisation and restructuring, and to investigate diversification, value adding and alternative use of sugar cane land. This commitment was captured by a Statement of Intent signed by industry leaders.
An Industry Oversight Group was appointed by the Australian Government to oversee progress on the implementation of sugar industry reform, including refinement of reform priorities, developing a strategic industry vision and aligning regional plans with the industry vision.
The strategic industry vision can be found at:
The Australian Government also established Regional Advisory Groups comprising local sugar industry and community representatives, supported by Sugar Executive Officers, to help drive local reforms.
The Advisory Groups were responsible for identifying the industry’s key challenges and the most appropriate solutions, which reflected each region’s unique circumstances within an overall industry strategic framework.
SIRP 2004 has been completed, with almost $335 million provided for a range of measures including:
- Regional and Community Projects;
- Sustainability Grants;
- Income Support (including business planning for income support recipients);
- Business Planning (growers and harvesters);
- Business Planning (mills);
- Re-establishment Grants (growers and harvesters);
- Grower Restructuring Grants;
- Crisis Counseling; and
- Intergenerational Transfer.
ABARES has completed an evaluation of the program which reports on the impacts of the various elements and includes details on take-up and expenditure for each.
Senate inquiry into sugar marketing arrangements
On 4 September 2014, the Senate asked the Senate Rural and Regional Affairs and Transport Reference Committee to investigate current and future arrangements for the marketing of Australian sugar.
The committee finalised its report in June 2015. The report, which had one recommendation, is available at the Parliament of Australia website.
The Australian Government provided the following response to the report:
The Australian sugar industry produces both raw and refined sugar from sugarcane. Approximately 95 per cent of the sugar produced in Australia is grown in Queensland. Around 85 per cent of the raw sugar produced in Queensland is exported and generates over $2 billion in export earnings. The majority of Australia's domestic market is supplied by sugar cane grown in New South Wales.
In 1995, as a result of a review of the sugar industry, the Queensland Government repealed the Regulation of Sugarcane Prices Act 1915 and the Sugar Acquisition Act 1915 and replaced them with a new regulatory framework under the Sugar Industry Act 1999 (the Act). The Act continued the 'single desk policy', under which all raw sugar produced for export was vested in Queensland Sugar Corporation, which then arranged export marketing.
On 1 January 2006, following implementation of the Australian Government’s $334 million Sugar Industry Reform Program in 2004, the Queensland Government amended the Act to deregulate the sugar industry. The new legislation included two significant deregulation measures:
- the removal of restrictions on the marketing of raw sugar for export
- the ability of participants to negotiate contractual terms, including price.
At this time Queensland Sugar Corporation transitioned into the industry owned Queensland Sugar Ltd (QSL). QSL continued to operate a single desk export marketing function on a voluntary basis.
In 2014, three of Queensland’s biggest sugar milling companies announced that, from July 2017, they would no longer participate in the voluntary arrangements through QSL.
Growers in cane production areas linked to the exiting mills and their representative organisations, raised concerns that these new arrangements would remove the benefits of centralised marketing and result in milling companies retaining any marketing premiums achieved. In response to these concerns, the following actions were taken:
- on 4 September 2014, the Senate referred the matter to the Rural and Regional Affairs and Transport References Committee
- on 10 December 2014, the Federal Minister for Agriculture announced the formation of the Sugar Marketing Code of Conduct Taskforce.
On 25 June 2015, the Sugar Marketing Code of Conduct Taskforce finalised its report on the promotion of competition in sugar marketing. The Taskforce released a draft mandatory code of conduct under the Competition and Consumer Act 2010, the Competition and Consumer (Cane Sugar Processing Industry Code) Regulation 2015.
On 24 June 2015, the Senate Rural and Regional Affairs and Transport References Committee Report on ‘Current and Future Arrangements for the Marketing of Australian Sugar’ made a single recommendation:
The committee recommends the development and implementation of a mandatory sugar industry Code of Conduct, acknowledging that, provided appropriate stakeholder consultation is undertaken, the work of the Sugar Marketing Code of Conduct Taskforce may provide a foundation upon which a Code of Conduct may be established.
On 19 May 2015, a Private Member’s Bill was introduced into the Parliament of Queensland. The amendments made by the Sugar Industry (Real Choice in Marketing) Amendment Bill 2015 took effect on 17 December 2015. These amendments gave cane growers the right to require sugar milling companies to direct the sugar, for which the growers have price exposure, to third party marketers such as QSL. Typically, this is two-thirds of the sugar produced and is known as grower economic interest (GEI) sugar.
Following protracted negotiations over supply agreements, the Australian Government introduced a mandatory code of conduct for the sugar industry Competition and Consumer (Industry Code—Sugar) Regulations 2017. The code came into effect on 5 April 2017 and provides for pre-contract arbitration between mill owners and marketers, and between cane growers and mill owners. It also mirrors Queensland’s Sugar Industry Act 1999 provisions that allow growers to elect a marketing company for GEI sugar.
The Australian Government has considered the committee’s recommendation and provides the following response.
Response to Recommendation 1
The Australian Government introduced a mandatory code of conduct for the sugar industry which came into effect on 5 April 2017. The code supports the development of mutually beneficial and timely cane supply and on-supply agreements.
Review of the Sugar Code of Conduct
A review of the Sugar Code of Conduct was required to begin within 18 months of the code commencing. The Department of Agriculture and Water Resources, with the Department of the Treasury, conducted the review between 4 July 2018 and 12 November 2018.
60 written submissions were received, and public consultations took place in Gordonvale, Innisfail, Ingham, Ayr, Mackay, Bundaberg and Broadwater. Face-to-face consultations with key industry bodies were also held.
The review found that the industry is working together on a number of challenges. However, the relationships between some parties remain tense, which impacts their ability to reach commercial terms of contracts without regulatory support. The review recommends the code should be retained to continue to provide certainty for growers and millers regarding their arbitration options while they conclude their adjustment to commercially negotiated cane supply contracts.
The report made six recommendations for consideration and response by government.
The Australian Government provides the following response to the review:
The Australian Government has an interest in maintaining the sustainability and effective operation of Australia’s raw sugar export industry, which contributes $2 billion to Queensland’s economy each year, and supports rural and regional communities.
On 5 April 2017, the Australian Government introduced a mandatory code of conduct for the sugar industry (Competition and Consumer (Industry Code—Sugar) Regulations 2017 (the code).
The code was introduced to regulate the conduct of growers, mill owners and marketers (of grower economic interest sugar) in relation to contracts or agreements for the supply of cane or the on-supply of sugar, including establishing a process for pre-contractual arbitration where the parties fail to agree to terms of contracts or agreements.
In November 2018, the Department of Agriculture and Water Resources, with the Department of the Treasury, finalised its review of the code.
The Australian Government has considered the review and supports the following recommendations:
1. The code should be retained to continue to provide certainty for growers and millers regarding their arbitration options while they conclude their adjustment to commercially negotiated cane supply contracts.
2. The code should be amended to make clear that pre-contractual arbitration applies to raw sugar only and not to any other product obtained from sugar cane. This will provide millers with regulatory certainty and facilitate investment in milling assets and development of innovative products.
5. The Australian sugar industry representative bodies should work collaboratively to develop a long-term strategy to address shared future challenges.
6. All industry parties should focus on the longer term and fundamental issues jeopardising the industry’s future.
The Australian Government supports the following recommendation in principle and will review the code in four years:
4. The code should be reviewed in two years to assess whether commercial relationships between the parties have matured and whether the code is still needed.
The Australian Government does not support the following recommendation:
3. The provision that allows growers to choose their marketer should be repealed from the code. It is inconsistent with the objectives and benefits of the recent evolution of the industry’s regulatory arrangements, and duplicates obligations already contained in the Sugar Industry Act 1999.
The Australian Government will consider the recommendations by the Australian Competition and Consumer Commission (ACCC) in relation to penalties and investigative powers at the next review to determine if further ACCC involvement is needed.