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PRIMARY INDUSTRIES (EXCISE) LEVIES AMENDMENT REGULATIONS 2002 (NO. 10) 2002 NO. 294
EXPLANATORY STATEMENTSTATUTORY RULES 2002 No. 294
Issued by the Authority of the Minister for Agriculture, Fisheries and Forestry
Primary Industries (Excise) Levies Act 1999
Primary Industries (Customs) Charges Act 1999
Primary Industries Levies and Charges Collection Act 1991
Primary Industries (Excise) Levies Amendment Regulations 2002 (No. 10)
Primary Industries (Customs) Charges Amendment Regulations 2002 (No. 6)
Primary Industries Levies and Charges Collection Amendment Regulations 2002 (No. 7)
Section 8 of both the Primary Industries (Excise) Levies Act 1999 (the Excise Levies Act) and the Primary Industries (Customs) Charges Act 1999 (the Customs Charges Act) and Section 30 of the Primary Industries Levies and Charges Collection Act 1991 (the Collection Act) provide that the Governor-General may make regulations prescribing matters required or permitted by those Acts to be prescribed or necessary or convenient to be prescribed for carrying out or giving effect to those Acts.
The purpose of the regulations is to implement a scheme for funding of the Sugar Industry Reform Programme.
The levy will be imposed on leviable sugar. Leviable sugar is defined in the proposed regulations as (a) retail-packaged sugar produced in Australia and (b) sugar that is used as an ingredient in goods that are produced in Australia for human consumption; based on the presumed production of leviable sugar from refined sugar.
The levy will be payable by the producer, who is defined in the regulations as the person who purchases or uses the refined sugar to produce the retail-packaged sugar and the manufacturer of the goods containing sugar as an ingredient. However, for ease of administration, the levy will be collected by the seller, or the user where no sale occurs, of the refined sugar who would in turn, pay these moneys to the Commonwealth.
The customs charge will be imposed upon retail-packaged sugar imported into Australia, and will be payable by the importer of the packaged sugar who will remit the levy directly to the Commonwealth.
The Sugar Industry Reform Programme announced by the Minister on 10 September 2002 will provide support for the industry to ensure .its long-term viability and sustainability. This support consists of immediate assistance, in the form of income support, replanting interest rate subsidies and exit grants. The programme also contains long-term reform initiatives in the form of an Industry Guidance Group, Regional Guidance Groups and Regional Project Assistance. The programme will be administered by the Commonwealth Department of Agriculture, Fisheries and Forestry. (AFFA) and levy will be paid by Levies Revenue Service into the Consolidated Revenue Fund arid appropriated by the AFFA programme managers in accordance with the demands of the programme. Payments of income support and interest relief have commenced, with exit grants to be available from 1 February 2003. Funding under the Regional Projects component will be available commencing in 2003-04.
Clause 2 of Schedule 27 of the Excise Levies Act provides that regulations may impose a levy and Clause 2 of Schedule 14 of the Customs Charges Act provides that regulations may impose a charge. Using data provided from industry, it has been determined that the rate set for leviable sugar and the rate set for chargeable sugar does not contravene the restricting provisions of Schedule 27 of the Excise Levies Act or Schedule 14 of the Customs Charges Act.
The Regulations will:
• impose a statutory levy on sugar packaged for retail sale or used as an ingredient in goods that are produced in Australia for human consumption, based on the presumed production of leviable sugar from refined sugar;
• impose a charge on retail-packaged sugar imported into Australia;
• set an operative levy rate of 3 cents per kg ($30.00/tonne) of refined sugar, purchased or used for packaging for retail sale or for use as an ingredient in goods that are produced in Australia for human consumption;
• provide that refined sugar exported from Australia is not subject to levy;
• provide an exemption from levy for exported retail-packaged sugar and sugar that is used as an ingredient in goods for human consumption that are produced in Australia but exported;
• provide for a refund upon application to the Secretary of AFFA in relation to an amount of levy paid in respect of non leviable sugar i.e. exported retail packaged sugar or sugar that is used as an ingredient in goods for human consumption that are produced in Australia but exported; and
• provide for the manner of payment of levy, the provision of returns by persons who must lodge returns for sugar levy and the keeping of records.
Details of the Regulations are set out in the Attachment.
The Regulations will commence on 1 January 2003, which is the date the Minister for AFFA publicly announced as being the commencement date of the levy. This is also in line with a Government request to commence the levy as soon as possible.
0210665A
0210665B
0210701A
ATTACHMENT
PRIMARY INDUSTRIES (EXCISE) LEVIES AMENDMENT REGULATIONS 2002 (No. 10)
Regulation 1 provides for the name of the regulations to be the Primary Industries (Excise) Levies Amendment Regulations 2002 (No. 10).
Regulation 2 provides for the commencement date to be 1 January 2003.
Regulation 3 provides that Schedule 1 amends the Primary Industries (Excise) Levies Regulations 1999 (the Excise Levies Regulations).
SCHEDULE 1 AMENDMENT
Item 1 inserts a new Part 6 about Sugar into Schedule 27 of the Excise Levies Regulations.
Part 6 Sugar
Clause 6.1 defines retail packaged sugar as sugar that has been prepared and packaged so as to be able to be sold by retail sale without any further preparation or packaging.
Clause 6.2 provides that levy is imposed on:
(a) retail-packaged produced in Australia; and
(b) sugar that is an ingredient in goods for human consumption that are produced in Australia.
Clause 6.3 provides that the rate of levy is 3 cents per kilogram of leviable sugar.
Clause 6.4 provides that the levy is payable by the producer of leviable sugar.
Clause 6.5 provides exemptions from levy for:
(a) retail-packaged sugar if it is exported from Australia; and
(b) sugar that is an ingredient in goods for human consumption that are produced in Australia and exported from Australia.
PRIMARY INDUSTRIES (CUSTOMS) CHARGES AMENDMENT REGULATIONS 2002 (No. 6)
Regulation 1 provides for the name of the regulations to be the Primary Industries (Customs) Charges Amendment Regulations 2002 (No. 6)
Regulation 2 provides for the commencement date to be 1 January 2003.
Regulation 3 provides that Schedule 1 amends the Primary Industries (Customs) Charges Regulations 1999 (the Customs Charges Regulations).
SCHEDULE 1 AMENDMENT
Item 1 inserts a new Part 4 about Sugar into Schedule 14 of the Customs Charges Regulations.
Part 4 Sugar
Clause 4.1 defines retail packaged sugar as sugar that has been prepared and packaged so as to be able to be sold by retail sale without any further preparation or packaging.
Clause 4.2 provides that charge is imposed on retail-packaged sugar imported into Australia.
Clause 4.3 provides that the rate of charge is 3 cents per kilogram of retail-packaged sugar.
Clause 4.4 provides that the charge is payable by the importer of retail-packaged sugar.
PRIMARY INDUSTRIES LEVIES AND CHARGES COLLECTION AMENDMENT REGULATIONS 2002 (No. 7)
Regulation 1 provides for the name of the regulations to be the Primary Industries Levies and Charges Collection Amendment Regulations 2002 (No. 7).
Regulation 2 provides for the commencement date to be 1 January 2003.
Regulation 3 provides that Schedule 1 amends the Primary Industries Levies and Charges Collection Regulations 1991 (the Collection Regulations).
SCHEDULE 1 AMENDMENT
Item 1 inserts a new Part 6 about Sugar into Schedule 37 of the Collection Regulations.
Part 6 Sugar
Clause 6.1 provides that the part applies to leviable sugar and chargeable sugar.
Clause 6.2 provides definitions for use in the part:
• buyer means a person who buys refined sugar from a seller;
• chargeable sugar means sugar on which charge is imposed by Part 4 of Schedule 14 of the Customs Charges Regulations;
• leviable sugar means sugar on which levy is imposed by Part 6 of Schedule 27 of the Excise Levies Regulations
• personal details has the same meaning as in Clause 1.1 of Schedule 22 (the person's full name; the person's business or residential address; the person's post office box address or post office bag address; the person's ABN, if any; and the person's ACN if the person is a company and does not have an ABN.
• refined sugar means sugar in a form that is suitable for being prepared and packaged for retail sale; or being used as an ingredient in the production of goods for human consumption.
• retail-packaged-sugar has the meaning given by Clause 6.1 of Schedule 27 to the Excise Levies Regulations (sugar that has been prepared and packaged so as to be able to be sold by retail sale without any further preparation or packaging).
• seller means a person (including an importer) who sells refined sugar.
Clause 6.3 defines a levy year for leviable sugar and chargeable sugar as a financial year.
Clause 6.4 specifies that refined sugar that is produced in or imported into Australia is identified as goods used in subjecting leviable sugar to a process in the course of: (a) its production or preparation for sale; or (b) its use in the production of other goods. This means that refined sugar is identified as goods used to produce leviable sugar.
Clause 6.5 specifies who is a producer.
Subclause 6.5(1) specifies that the producer of leviable sugar is taken to be:
(a) for retail-packaged sugar, the person who purchases or uses the refined sugar that was used to produce the retail-packaged sugar; and
(b) for sugar that is an ingredient in goods for human consumption that are produced in Australia, the manufacturer of the goods.
Subclause 6.5(2) specifies that the producer of chargeable sugar is taken to be the person who imports the retail-packaged sugar.
Clause 6.6 provides that sellers must pay levy or penalty within 28 days after the end of the month in which the seller receives the levy or penalty. This is the period within which a refined sugar seller, who receives amounts on account of levy or penalty from buyers of refined sugar, must pay those amounts to the Commonwealth.
Clause 6.7 provides details of the due time for amounts on account of levy for buyers. Subsection 9(2) of the Collection Act provides that a person to whom prescribed goods or services (in this case refined sugar) are sold must pay to the seller, within a prescribed period after the purchase of those goods, an amount on account of levy and any penalties for late payment. The levy must be paid on the earlier of the following:
(a) when the first payment for the refined sugar, whether the payment represents the whole, or part only, of the purchase price for the refined sugar, is made; or
(b) the end of the twenty-first day after that first payment is due.
Clause 6.8 provides for the due date for payment of levy by producers of leviable sugar, other than a buyer who is required to pay a seller an amount on account of levy on the leviable sugar and a producer of chargeable sugar. Payment is due by the end of the last day on which the return for the month must be lodged (ie. 28 days after the end of the month to which the return relates).
Clause 6.9 provides that a seller must inform (before levy becomes due to be paid) the buyer of the refined sugar that the buyer must pay the seller an amount on account of levy and the amount payable. This can be on the invoice or in some other way.
Clause 6.10 provides that a seller of refined sugar or a producer to whom Clause 6.8 applies, who become liable to pay levy or charge for a month, must lodge a monthly return for that month.
Clause 6.11 provides for that a return must be lodged within 28 days after the end of the month to which it relates.
Clause 6.12 stipulates what must be included in a return by sellers.
Clause 6.13 stipulates what must be included in a return by producers.
Clause 6.14 stipulates what sellers must keep as records. A penalty of 10 penalty units is provided for breaches of this regulation. One penalty unit equals $110.
Clause 6.15 stipulates what buyers must keep as records. A penalty of 10 penalty units is provided for breaches of this regulation. One penalty unit equals $110.
Clause 6.16 stipulates what producers must keep as records. A penalty of 10 penalty units is provided for breaches of this regulation. One penalty unit equals $110.
Clause 6.17 provides for a refund of levy. A refund may be payable under Section 18 of the Collection Act if levy is paid on sugar that is not used to produce leviable sugar or is exempt from levy under Clause 6.5 of Schedule 27 to the Excise Levies Regulations. The clause provides that an application for a refund must be in writing, in a form approved by the Secretary, and states what must be in the application. Applications may be lodged for a month, or any longer period that the Secretary considers appropriate. The decisions of the Secretary within this clause are decisions that may be delegated by the provisions of Section 29 of the Collection Act.
REGULATION IMPACT STATEMENT
(RIS)
Table of Contents
1. Background
2. Nature and Extent of the Problem
3. Objectives
4. Options
5. Impact analysis
6. Consultation
7. Conclusions
8. Implementation and Review
1. Background
The sugar industry is a significant contributor to the regional economies and communities of Queensland and Australia. The sugar industry is Australia's fourth largest agricultural exporter valued at $1.35 billion (2001/02). The industry had an annual Gross Value of Production (GVP), ex factory, of around $965 million 2001/02 and employed over 15,500 people at the time of the 1996 Census, principally in rural and regional Australia.
Queensland is the largest sugar producing state in Australia, accounting for 94 per cent of Australian sugar output. New South Wales (5 per cent) and Western Australia (almost 1 per cent) are also minor sugar producers.
Sugar export arrangements are underpinned by Queensland State legislation. Approximately 85 per cent of domestic production of refined sugar is sold into export markets. Of the 15 per cent that is used domestically approximately 20 per cent is used in the retail sector with the remainder going into the manufacturing sector, for the production of food products.
This Statement addresses both the Government's response to the current situation facing Australia's sugar industry - primarily the Sugar Industry Reform Programme, and the mechanism for funding the programme now in place, namely a levy on sugar sales. The former is addressed primarily as context to the imposition of the sugar levy on which details of options and potential impacts are provided.
2. Nature and Extent of the Problem
The Australian sugar industry is facing critical times due to a combination of factors. These include the low world price of sugar, largely as a result of an oversupply from the subsidised Brazilian industry, and protectionist policies, particularly those in the US and EU. The World price for raw sugar averaged over US 10 cents per pound from 1990-98 but only US 7.32 cents from 1999 to June 2002. In addition the industry was impacted upon by adverse seasonal conditions; low sugar content level, disease and plagues.
Percentage Producer Support Equivalents (PSE) provide a measure of the level of protection afforded to industries as the proportion of farm gate receipts arising from Government support policies. In the USA the sugar PSE was 48 per cent in 2001 ie, virtually half of farmers' gross income was the result of government support and protection. The European Union PSE for sugar was 46 per cent in 2001.
The US sugar program relies on a system of import restrictions and price supports to control supplies of less expensive sugar from other countries and keep domestic sugar prices at roughly double the world price. The US Government's sugar price support loan program provides a floor (set at 18 cents per pound raw sugar) below which domestic sugar prices will not fall.
Support to EU sugar is provided through a combination of import restrictions, an intervention price and export subsidies. Support is also applied to refined sugar.
Brazil is the world's largest sugar producer and it exports around 55 per cent of its production. Exports increased from around 1 million tonnes in 1995 to around 6 million tonnes in 2001, having reached almost 7 million tonnes in 1998 and it is expected to increase its production further in the coming years.
The development of the Brazilian sugar industry is closely interconnected with that nation's ethanol industry and government support measures in the 1970s and 1980s to promote production of ethanol. Reforms in the ethanol industry in 1998 resulted in significant volumes of sugar cane being diverted to refined sugar production. The scale of operations in the Brazilian industry, combined with government support measures has allowed that industry to expand rapidly as a low cost exporter.
The Australian Government is actively pursuing agricultural trade reform through a number of approaches, at both a bilateral and multilateral level, including as a key member of the Cairns Group. The Australian sugar industry is a member of the Global Alliance for Sugar Trade Reform and Liberalisation which has been successful in raising the profile of sugar in international trade negotiations.
According to the Australian Bureau of Agricultural and Resource Economics (ABARE) (Sugar: International Policies Affecting Market Expansion, Research Report 99:14) reform of world sugar markets would benefit producers and consumers alike. The removal of market distorting policies would result in an increase in the world market price for sugar of 5-41 per cent depending on the extent of market liberalisation. Increased world prices for sugar would benefit producers in lower cost producing countries, including developing countries that currently sell much of their output at artificially low prices because of market distortions. Removal of government support measures that maintain domestic sugar prices above world market levels would result in lower prices being paid by many consumers. In the three major markets - the US, EU and Japan - savings to consumers would amount to around US$4.8 billion a year.
Notwithstanding trade reform efforts, there is unlikely to be any significant improvement in the short to medium term to world prices. A study commissioned as part of the Independent Assessment of the Sugar Industry, released in June 2002 ("the Hildebrand Report"), suggested "world prices are likely to sustain a period of uncertainty where they might remain below average prices experienced in the past few decades. It is therefore recognised that the cost of production of sugar in Australia and its potential to be lowered are key factors in responding to such a low price period". (Appendix E: Australian Production Costs of Sugar as Background to Policy Development, Dr Peter Chudleigh, Agtrans Research).
Australia was categorised by the International Sugar Organisation in 2002 as among the lowest cost producers, along with Centre/ South of Brazil, Zambia, Zimbabwe and Guatemala. However, various estimates place Brazil as appreciably below Australia's costs.
The economic viability of Australian production is sensitive to both domestic costs of production and the exchange rate. Various estimates suggest this may fall in the range of 7 US cents per pound at an exchange rate of 0.52 US$/ $A and the Australian Sugar Milling Council estimates it to be 7.6 US cents per pound (at US$ 0.50/$A). Clearly there are variations in the costs of individual cane farms and mills across, and within, regions of Australia, and costs of production vary from season to season. Chudleigh indicated "there is some opinion circulating that Brazilian production (at least that in the central/ southern region) is economically viable at 6 cents per pound or even less".
The Australian sugar industry's capacity to respond to world price pressures is constrained by the complex set of market, institutional and regulatory arrangements that have been developed over many decades covering cane farming through to milling, refining and marketing. The unique characteristics of sugar cane (including rapid deterioration of quality post harvesting) having dictated some of those arrangements.
Since the late 1980s, in particular, a series of studies and enquiries, accompanied by legislative changes and market reforms have been directed at enhancing the sustainability of the industry in an international market context. The Australian industry has undergone significant reform in the past decade with the removal of tariff protection in 1997, following a short phase down period, and institutional changes being key components of those reforms.
The industry's regulatory arrangements were reviewed under the processes and principles of National Competition Policy (NCP) in 1995 and 1996. The report by the Sugar Industry Review Working Party (SIRWP) commissioned to conduct that review concluded that the fundamental regulatory arrangements in the industry were of public benefit within the meaning of the NCP framework. Both the Federal and Queensland governments accepted the recommendation to retain the single desk for marketing and new legislation based on the SIRWP recommendations came into effect on 1 January 2000.
Despite the reforms the Queensland Sugar Industry Act 1999 (The Act) is still considered by some to impede the efficient operation of the Queensland industry and its rationalisation. That legislation provides the framework for the supply of cane by farmers to a mill and the vesting and marketing of raw sugar by Queensland Sugar Limited on behalf of all farmers and millers in that state.
As part of the Sugar Industry Reform Programme, the Federal and Queensland Governments signed a Memorandum of Understanding committing to a joint approach on changes to the Act. The MoU identifies three areas of the Act which seem to impede change:
• the cane production area system;
• the compulsory bargaining system (between farmers and millers for cane supply and processing) and
• the compulsory acquisition (vesting) of raw sugar for marketing and selling within the domestic market through "the single desk".
A National Competition Policy review of the single export desk is scheduled to commence by no later than the end of 2006.
There is little published information providing current statistics at the cane farm level. This extends to a lack of recent data on costs of production, farm incomes and age profiles. The Queensland Sugar Industry Social Profile within the Hildebrand Report provides the most up to date socio-economic assessment of the sugar industry. This study highlighted the relative dependence of various sugar growing regions on the sugar industry as well as highlighted which sugar growing regions are the most socio-economically disadvantaged.
Chudleigh used data from the ABARE comparing costs of production for the four Queensland regions averaged over 1994-96 and other studies to conclude there is some evidence that economies of size in cane farming exist and can be exploited in any market led or assisted structural reform and that to be effective any initiatives to rationalise farm size with regard to lowering industry costs should include changes to organisational arrangements such as for harvesting.
There has been a recent history of assistance to the sugar industry in Australia. In September 2000 the Minister for Agriculture, Fisheries and Forestry, the Hon Warren Truss MP, announced the $60 million Sugar Industry Assistance Package (SLAP). The SIAP was implemented due to a combination of adverse seasonal and growing conditions, low world sugar prices and sugar content levels, over the previous three years that had resulted in a significant downturn in the sugar industry.
The primary focus of the SLAP was to provide emergency assistance to farmers in the face of those adverse conditions, through a range of income support and interest rate subsidies measures. In essence these measures were designed to assist farmers to ride out an immediate, short term downturn in the industry. However, the package also provided funding for the Independent Assessment of the Sugar Industry (subsequently known as "the Ilildebrand report") and for a study into the possible viability of ethanol production.
The Hildebrand Report recommended a range of restructuring options to assist the Australian industry regain its international competitiveness in the current low cost environment. The report also addressed funding mechanisms proposed in submissions to the Assessment but it was beyond the Assessment's Terms of Reference to make recommendations for funding options.
Following the Governrnent's consideration of the Hildebrand Report, in September 2002 the Minister for Agriculture, Fisheries and Forestry announced a $150 million package of measures called the Sugar Industry Reform Programme (SIRP), which will be delivered through a partnership with the Queensland Government.
The Government has recognised a need to provide cane producers with immediate assistance, and under SIRP will therefore provide income support payments to eligible growers and harvesters for 12 months. Interest rate subsidies on new loans for replanting purposes will also be made available. Both measures will help stabilise the industry in the short term, and ensure it is better positioned to take advantage of improved circumstances in the future. The Commonwealth will also provide funding for regional adjustment, industry aggregation activities and for a range of initiatives aimed at medium and longer term restructuring. The regional initiatives will involve a number of projects designed to boost revenue raising, improve cost efficiencies and ensure all sectors of the industry are environmentally and socially sustainable. Growers wishing to leave the industry will be offered a payment of up to $45,000, subject to income and asset tests. The Government will also establish an Industry Guidance Group to develop an industry-wide reform plan to focus upon the sugar industry's long-term competitiveness and be responsible for driving the reform process. Regional Guidance Groups will also be established to help shift industry focus from a 'one size fits all' approach towards a response to issues of specific, regional concern.
3. Objectives
The broad objective of the SIRP is to facilitate coordinated and orderly structural adjustment in the sugar industry to ensure a viable and sustainable future for the industry with minimal Government involvement. This could include minimising the exit of farmers from the industry who would otherwise be efficient producers in the longer term. The Government recognises the importance of the sugar industry to rural and regional Australia and has agreed to provide a comprehensive range of measures to assist the industry and individual cane farmers in need. The industry is a significant exporter and is a major focus of the economies of many regional towns. The Government has determined that there is a need for significant reform in a number of areas and that as a priority, the industry must develop and implement genuine, detailed plans to help achieve the necessary changes to ensure its long term economic, social and environmental sustainability.
Accordingly, the SIRP entails firm obligations on the part of the Commonwealth, the Queensland Government and the sugar industry. (Assistance measures will also apply to the West Australian and New South Wales sugar industries.) Importantly, all industry stakeholders, including the cane harvesting sector, will be given the opportunity to fully participate in the reform process.
The Commonwealth's commitment of up to $120 million to the SIRP will be funded via a 3 cents per kilogram levy on sales of sugar from the refinery where the sugar will be used in the retail and manufacturing sectors. Exemptions from the levy will apply to exports of sugar and exports of products containing sugar. This levy will be consistent with Australia's obligations under the World Trade Organisation and comply with the existing legislative framework. It is intended that the levy will be in place as long as necessary to fund the SIRP. This is anticipated to be for five years.
4. Options
Two options considered in determining the introduction of the sugar levy were:
• imposition on retail sales of sugar
• imposition on total domestic consumption of sugar (excluding sugar contained in imported processed food products)
The objective of raising sufficient revenue to fund the Commonwealth's contribution to SIRP was common to both options.
An alternative to the imposition of the levy would be to fund SIRP through Consolidated Revenue.
In September 2002 the Federal Government announced its willingness to provide a major structural adjustment package for the sugar industry. The SIRP, estimated to cost up to $150 million of which the Commonwealth contribution is estimated to be up to $120 million, provides eligible cane farmers and industry with income support, interest rate subsidies and funding for regional projects over four years, and the option of up to a $45,000 exit payment for eligible growers wishing to leaving cane farming.
It is envisaged that assistance to producers under the program will be dependent on canefarmers developing business plans and undergoing viability tests, to ensure that growers fully assess their current situation and can better position their families for the future. As a result of the program, it is anticipated that a greater number of farmers will be able to reestablish themselves as viable enterprises. Alternatively, where farmers believe exit to be the best option, the payments will provide the farmer with the means to exit the industry with dignity to undertake more viable economic (on or off-farm) activities. A pre-requisite for receiving any payments is that farmers must prepare comprehensive business plans.
A key feature of the SIRP is that it is to be funded from a Commonwealth levy on sales of sugar at the first point of sale i.e. the sugar refiner. This will minimise collection costs and compliance costs and maximise the efficient assistance to the sugar industry over a target period of up to five years. The imposition of a statutory levy to fund the package removes the need for the package to be funded from other sources of Commonwealth revenue.
5. Impact Analysis
Over the longer term, there are likely to be significant benefits from structural assistance in the sugar industry as those operators remaining in the industry are able to benefit through increased economies of scale, improved profitability and subsequent re-investment. The consequent improved production efficiencies (at both the producer and processor levels) are also expected to improve the competitiveness of the industry in both domestic and international markets.
Without assistance the current difficulties in cane farming and sugar production are likely to have a negative effect on some regional (mostly small to medium) businesses and ancillary industries. Cane farming and downstream processing involves the daily use of many and varied business inputs. This activity has significant multiplier effects throughout local regional economies. The loss of farm income may translate into a reduction in economic activity in sugar-producing regions. The impact on rural economies would be exacerbated if manufacturing and processing plants located in regional centres cease their operations because they are no longer viable. Further, the cost efficiencies associated with such large-scale operations may be lost if adequate cane supplies are not available due to farmer dislocation. In essence, there is the possibility that significant proportions of long-term benefits of restructuring may be lost if short-term adjustment costs are unduly high.
Sugar Levy
The SIRP is to be financed through a levy of 3 cents per kilogram on sales of cane-sourced sugar sold as retail-packaged refined sugar produced in Australia or imported (to which an equivalent customs charge will apply) and to refined sugar used as an ingredient in goods that are produced in Australia for human consumption.
The levy will be payable by the entity that purchases or uses the refined sugar to produce retail-packaged sugar and by manufacturers of the goods containing sugar as an ingredient. However, for ease of administration, the levy will be collected by the seller, or the user where no sale occurs, of the refined sugar for payment to the Commonwealth.
These arrangements take into consideration that collection at the refinery level would afford convenience, efficiency and security. As there are far fewer refiners than retailers and manufacturers of products containing sugar, collecting the levy from the refiners minimises the number of collection points. As a result, the administrative burden and costs of levy imposition are reduced and there is greater scope for ensuring compliance. Customs charges are payable directly by importers to the Commonwealth.
The key stakeholders likely to be affected by the package and levy are:
(a) Cane Farmers
In 1996 there were 9,262 people employed in sugar cane farming in Australia (ABS Census). Industry estimates there were approximately 6,350 sugar cane farmers in Queensland in 2001/02.
The majority of these farmers have experienced a fall in income, as a result of problems with prices, weather and crop disease. CANEGROWERS, the peak industry body, claims Queensland sugar farm incomes were reduced between 1997 and 2000 by 45 per cent. This estimate is derived from the return on sales of raw sugar, net of marketing and shipping costs, at the industry level.
In the absence of comprehensive data on farmers' incomes, an indication of the continuing impact of the fall in sugar prices on farmers is demand for assistance under the Commonwealth's Farm Help Programme following the conclusion of the previous sugar assistance package. Since November 2001, when Centrelink, the delivery agency, commenced collecting statistics to end September 2002, 551 applications had been submitted by the sugar industry. This represents 34 per cent of all applications to Farm Help during that period. (Farm Help provides assistance to farmers with financial assistance, including income support, based on financial hardship. Part of the eligibility criteria is that the applicant must not be able to borrow further against their assets.)
The SIRP is designed to assist farmers adjust to the fall in income and, in so doing, secure the long-term benefits of structural adjustment. At the farm level this will be achieved by providing assistance, where sought, that will allow farmers to improve the efficiency of their farm or, alternatively, leave the industry.
To encourage effective use of the assistance, each farmer will be required to undertake a farm business assessment prior to receiving any payments. It is intended that, through an assessment of the farm enterprise, the amount of information available to farmers for making appropriate investment decisions is maximised. Furthermore, an exit component is being incorporated into the package to better target those farmers who arrive at the conclusion they are or will be non-viable and should leave the industry. The broad thrust of the exit component is to provide these farmers with sufficient funds to facilitate their exit from the industry with dignity.
Longer term changes will be brought about by regional projects developed to promote the adoption of whole-of-system solutions, to enhance revenue and cost efficiency, and to facilitate environmental and social sustainability across the industry chain. In addition, funding will be available under SIRP for projects to pursue options for diversification and also for alternative uses for cane, such as ethanol and biofuels, co-generation, and bio-plastics.
The Government will also establish an Industry Guidance Group to devise an overarching, long term industry reform plan. The Industry Guidance Group will drive the reform process, oversee the adoption of a regional business approach to industry activities, maintain appropriate communications with the government, and develop a cohesive policy direction for the industry's long term sustainability. Regional Guidance Groups will also be established, consisting of local sugar industry and community representatives, to be responsible for identifying the key challenges facing the sugar industry and the most appropriate solutions which reflect the unique circumstances of each region. Regional Guidance Groups will be required to determine the industry's long term future within their region - whether that future is in cane growing for raw sugar production, diversification into alternative crops or uses for cane, or other income streams.
Impact of the Levy
The imposition of the levy is expected to have a limited negative impact on cane farms through a slight reduction in demand for domestic sugar, as discussed in the following sections.
(b) Millers, Refiners, and Exporters
There are a number of organisations involved in the milling and refining of sugar. Most of the sugar mills are farmer-owned co-operatives although there are also a number of publicly owned companies. Australia also has six sugar refineries, three of which are in Queensland and one each in NSW, Victoria and Western Australia. Structural adjustment offers significant benefits for canegrowers, millers and refiners. Sugar cane represents an input cost for millers and refiners. Consequently, this sector of the sugar industry is expected to benefit directly from more efficient production.
It is also anticipated that structural adjustment will encourage acquisitions, mergers and strategic alliances within the growing and milling sectors. This would be due to farmers and firms seeking to secure sufficient equity capital to improve the efficiency of their operations through the establishment and operation of larger scale, cost-efficient farms and mills with improved supply networks and successful marketing strategies.
At the same time, deregulation may create problems if the short-term dislocation of the cane industry causes disruptions in cane supply. This may precipitate further restructuring and rationalisation within the milling and/or refining sectors as firms relocate from marginal cane producing areas to more suitable regions or merge with other farms or mills in the search for increased scale and production efficiencies. Accordingly, the SIRP has been designed as an integrated set of measures to facilitate a managed rationalisation process.
Sugar exports have dropped considerably over the past half-decade (both in value and volume) with up to 88 per cent of Australia's sugar production sold in international markets, at a value of over $1.35 billion in 2001-02. Having expended significant resources to establish these markets, it is crucial that Australian exporters consolidate existing markets by ensuring a reliable, high quality supply of Australian sugar at internationally competitive prices.
Impact of the Levy
The sugar levy will impact directly on the refineries, and only indirectly on the mills. Refineries will be required to take on an increased administrative role, as the refineries will be the point in the production line where the levy will be collected.
The export of bulk raw and refined sugar will be exempt from the levy and manufacturers who use in the manufacture of products for export will be entitled to a rebate for any levy paid. There may be an increase in administrative costs for exporters to complete and lodge their request, as the process will involve informing AFFA on a monthly basis the volume of sugar in exported products. Whilst the actual administrative costs of the levy rebate to industry has not been determined, with the process still in development, every effort will be made to ensure these costs are minimised. Once administration arrangements are in place costs will vary between enterprises.
(c) Sugar Users in Down-Stream Manufacturing
Impact of the Levy
The increased cost of sugar, due to the imposition of a sugar levy, will be felt by down stream industries, such as brewing, confectionery and soft-drink manufacturers. However, the additional cost of $30 per tonne represents a relatively small price increase (estimated to be of the order of 6 per cent, depending on commercially negotiated base prices) on the price of refined sugar to manufacturers. This increase is not considered to be a significant new cost relative to the overall cost of inputs within the manufacturing, distribution and marketing of processed foods and beverages, particularly for those products where sugar is just one of a number of ingredients and not the major ingredient. Also, the price of sugar fluctuates markedly in line with the world price. However, the impact will clearly vary between the different enterprises in this sector and may affect production decisions on marginal product lines.
Given the significant number of processed foods containing sugar, and the lack of detailed data, it is not possible to quantify the likely impact of the levy on down-stream manufacturing at other than a broad level. ABARE advises that available studies indicate that demand response by sugar consumers to a change in sugar prices is quite low at -0.1 to -0.2 for sugar used in manufacturing and around -0.1 for retail sugar. That is, the 3 cents per kilogram levy is estimated to result in around 0.3% fall in demand for sugar.
In some cases other sweeteners (artificial and natural) can substitute for cane sugar. There is insufficient data to forecast the degree to which substitution may occur. However substitution could have a side effect of distorting the price competiveness of non-cane sugar sweeteners both at the time of levy imposition and upon its removal.
As any levy paid on sugar used in the manufacture of products for export will be refunded, there will be no undue impact on exporters, with the main impact being additional administration costs in applying for refunds. Again, every effort will be made to ensure that any administration costs are as low as possible.
(d) Wholesalers and Retailers
Impact of the Levy
There is likely to be minimal impact on wholesalers and retailers. Neither group will be involved in collection and therefore will not have any additional administrative costs. Similarly, there will be minimal financial impact on wholesalers and retailers as the increased costs are relatively small and, based on ABARE advice in relation to consumer demand impacts, are likely to have minimal impact on turnover.
In the case of retail-packaged refined sugar, there may be some substitution of higher priced, branded products by cheaper "home brands". Retail sugar is, however, a low margin product for which there has been a long term fall in demand, largely attributable to health considerations.
At the retail level the price of soft drinks, for example, varies significantly, commonly from less than 50 cents per can to over $1.50. The cost of sugar is only one of a number of cost inputs and the increase in input cost attributable to the levy is considered relatively small.
(f) Consumers
Impact of the Levy
The size of the consumer transfer over five years, based on a levy of 3 cents per kilogram, to fund the Commonwealth's contribution to the SIRP is estimated to be $120 million, or, on average, around $25 million over a full year.
There has been a long term trend of falling demand for sugar in Australia, most notably in retail sales of refined sugar. This decline in retail sales has been offset in part by a large increase in sugar consumed in manufactured products. However total sugar consumption per capita in 1998-99 is still approximately 25 per cent below 1948-49 levels.,
Australian Food Statistics 2002 (AFFA 2002) indicates that on average Australians consume 48 kilograms of refined cane sugar each year either directly or as an ingredient in manufactured products. The imposition of a 3 cents per kilogram levy on sugar equates to approximately $1.40 per person per year (the actual average could be less given the consumption of sugar contained in imported products, not subject to the levy).
Approximately 80 per cent of this cost will be through the consumption of sugar in manufactured products, which accounts for the majority of sugar consumption in Australia. It should be noted that many of the products that will be levied, such as soft drinks/ other beverages and confectionery (together accounting for 50 per cent of Australian sugar consumption) are non-essential food items.
It is noted low-income consumers generally consume a proportionately greater amount of sugar (associated with higher relative expenditure on take-away and convenience foods).
The alternative option of imposing the levy on retail sales of refined sugar would have entailed a higher rate of levy being imposed on a smaller base (approximately 3 per cent of total sugar production or 15 per cent of domestic sales). It was concluded this would be a disproportionate impost.
(g) Commonwealth and State Governments
Impact of the Levy
The sugar levy is intended to obviate the need for direct Commonwealth budgetary support for the sugar industry under the SIRP.
The Levies Revenue Service within Agriculture, Fisheries and Forestry- Australia (AFFA) and the Australian Customs Service will be the primary agencies engaged in administering the levy and customs charges. The Levies Revenue Service will also administer refunds of levy for exempt products and oversee compliance with the regulations.
The proposed levy is considered to be consistent with Australia's World Trade Organisation obligations. The alternative option of imposing the levy on retail sales of refined sugar would have entailed a rate of levy that exceeded the bound tariff rate for sugar of 7 cents per kilogram.
While the Queensland Government has committed to jointly address reform of the sugar industry through the SIRP any impact of the sugar levy is likely to be indirect as reflected in marginal changes in state taxation collections associated with any changes in turnover, employment etc attributable to the levy. Given the scale of the industry in NSW and WA negligible impacts are envisaged in those states associated with direct industry impacts. The impact on retail activity related taxation would be higher in the more populous states.
7. Consultation
AFFA has consulted with key stakeholders over the implementation of the levy including the Australian Food and Grocery Council (AFGC), Sugar Australia, Bundaberg Sugar, Queensland Sugar, Golden Circle and the Australian Chamber of Commerce and Industry (ACCI). Also consulted were officers from AFFA's Levies Revenue Service, Departments of Prime Minister and Cabinet; Finance and Administration; and Treasury.
These consultations have included face-to-face meetings with industry stakeholder groups, like the AFGC, and ACCI, who represent large sugar consumers including soft drink and confectionery manufacturers, amongst others. In general these groups are opposed to the levy which they believe (notwithstanding their appreciation of the plight of the Australian sugar industry) will be an unwarranted additional cost burden on business and that the added administrative costs are also problematic.
The concerns of these stakeholders have been taken into account in developing the details of the levy through the drafting of the regulations. It should be noted that during consultations with industry groups, requests were made for substantiation of claimed impacts such as potential job losses in the food-manufacturing sector. This information was generally not forthcoming.
It is intended to liaise further with these groups when the administrative detail of the levy, including processes for the export refund, is formalised. By doing so AFFA will minimise, as far as possible, any administrative costs to business.
AFFA has also liaised with industry bodies like Sugar Australia and Queensland Sugar Limited. Discussions with these groups provided AFFA with a greater understanding of the dynamics of the sugar industry in terms of product flows and commercial trading arrangements. This information was invaluable when designing the levy system.
In addition there has also been close consultation with the Queensland Government on the development of the SIRP culminating in the development of the MoU entailing a commitment to jointly address issues.
6. Conclusions
Not providing structural adjustment and regional assistance to the Australian sugar industry at this time would result in even greater dislocation of the sugar industry and more severe impacts at a regional level. Economic losses would otherwise arise due to the unplanned exit of some cane farmers and, just as importantly, result in the loss of some viable caneproducing land. The exit and subsequent re-entry of cane farmers is not costless due to the associated transaction costs and impediments to the mobility of capital and labour throughout the economy. In cases where existing canefarmers would otherwise have been viable in the medium term, these costs translate to overall loss to the community, its social fabric and economic viability.
The implementation of the SIRP is, in the Government's view, necessary to ensure the benefits result in an economically sustainable sugar industry into the medium to longer term.
The introduction of a special purpose levy to fund the SIRP enables the Commonwealth to fund these measures without placing extra pressure on the budget. The levy also reflects the Government's intent that the costs of restructuring should be met by those who will benefit in the long term. In the case of the Dairy Industry Adjustment Ixvy consumers are benefiting from a deregulated dairy industry and as a result are paying the levy to fund the Dairy Industry Adjustment Package, in the sugar industry the retailers and manufacturers will benefit from being able to continue to access sugar domestically at world competitive prices, and as such are being asked to pay this industry specific levy.
8. Implementation and Review
It is anticipated that the levy will be implemented through regulations under the existing levies legislation.
The Levies Revenue Service within AFFA will manage the collection of the levy on sugar sales. They have the procedures in place for determining levy liability, ensuring compliance and collecting levies. They also have mechanism for reviewing all aspects of levy collection.
Many of the SIRP initiatives are in place and some cane farmers are already receiving benefits, such as income support payments. It is intended that the levy will be implemented from 1 January 2003.