Australian carbon costs to hurt food exports: farmers

SYDNEY (Reuters) - Australian food production and exports could be cut when carbon trading starts from mid-2010, Australia's biggest farmers' group said on Tuesday, with the price of carbon to add to already hefty price rises for fuel.

The farmers' disquiet follows fears expressed by big business this month that Australian firms, particularly large energy companies, could lose out to global competitors or be forced to shelve projects due to the country's cap-and-trade carbon plan.

"Any more cost imposed on the industry could have enormous impact, especially if you've got to reduce production at the same time," said Jock Laurie, president of the New South Wales Farmers Association.

With Australia one of the biggest food traders and the second biggest wheat exporter, lower production could spur a fresh rally in global food commodity markets.

"It's potentially going to be a very big challenge for the government to introduce a (carbon trading) scheme into Australia that maintains production," he told reporters at the group's annual conference on Tuesday.

"That's a critical thing that we maintain food production, that we don't have to reduce food production to meet the criteria of the program."

Agriculture Minister Tony Burke sought to allay those fears.

"We don't want to see a situation where any producer is faced with the question that the way to reduce carbon pollution is to reduce overall production," he told reporters at the conference.

Prices of energy-intensive fertilizers, chemicals and fuel have soared in the past year, raising overall agricultural costs by 15 percent compared with 4 percent for the consumer price index. Australia's mining boom is also raising the cost of labor, the conference was told.

Now the agricultural industry faces carbon costs through an emissions trading scheme which the Australian government of Prime Minister Kevin Rudd has said it will introduce in 2010.

The Business Council of Australia warned this month that businesses, particularly export-oriented and carbon-intensive ones, could cease to exist if they were not allowed to pass on the costs of carbon emission trading to consumers.

Agriculture accounts for 15.6 percent of Australia's emissions, and will become part of the carbon trading system from 2015, according to a government blueprint of the scheme, which is due to go before parliament early next year.

The government is presently negotiating details of the system with key industrial players and has said it will delay deciding on the details of an emissions scheme for agriculture until 2013.

Australian farm production had already decreased because of the country's worst drought in 100 years, which first struck in 2002, Laurie pointed out on Tuesday.

A halving of the main winter wheat crop in the past two years contributed significantly to a surge in global wheat prices of around 130 percent early this year, before prices settled back to a lesser extent.

Burke announced further funding of A$26.5 million ($24.7 million) over four years in a "FarmReady" fund, to prepare farmers for climate change through specialized training.

The Australian government would also negotiate internationally to recognize the sequestration of carbon by Australian farmers, to match the Australian and international carbon trading systems, he said.

"It's in the front row of our negotiations to get the international rules to catch up with that," Burke said.

"Carbon storage is common sense. When you shear a sheep or when you fell a tree, the carbon does not disappear. It does get stored. We need to find ways of accurately counting that."

($1=A$1.05)