Dairy power price shock to continue – advice to ACCC

Despite achieving dramatic on-farm energy savings during the past five years, milk producers now faced the prospect of a 20 per cent price hike totalling millions of dollars in the cost of electricity and gas to fuel their enterprises.

This is just one conclusion in a report prepared for the Australian Competition and Consumer Commission’s inquiry into retail electricity supply and pricing.

The independent economic analysis, prepared by the Sapere Research Group Limited, was commissioned by the National Irrigators’ Council for the Agriculture Industries Energy Taskforce.

Dairy Connect CEO Shaughn Morgan said today dairy producers would welcome the findings which shone a bright light on complex financial relationships between Australia’s privately-held energy producers.

“Sky-rocketing electricity costs mean that Australia was losing international competitiveness for agricultural products and this hit dairy and irrigation farmers hardest,” he said.

“The impact is particularly severe on irrigated agriculture that needed to pump water.

“This impact is analysed closely in a dairy farm energy cost case-study that forms part of the report to the ACCC.

“It clearly enumerates how dairy producers are paying twice for energy cost hikes. They pay once at the dairy shed and again at the farm gate in the form of price cuts for their produce.”

Electricity and gas accounted for a significant proportion of costs of dairy production, according to the report.

Dairy Australia has estimated that the total cost of energy for dairy processors was about $160 million a year.

This number was set to rise by tens of millions of dollars as long-term contracts were renegotiated.

Costs were passed back to dairy farmers through a lower farm gate milk price.

Electricity accounted for a significant proportion of a dairy farm’s shed cost, which varied from $17,000 to $40,000 on average per year with a national three-year rolling average $24,200 a year.

In 2012, Dairy Australia, in a response to concerns about the rising cost of electricity, obtained grant funding from the federal government to deliver the ‘Smarter energy use on Australian dairy farms’ program whose purpose was to help producers improve their energy efficiency.

The program enabled 1400 dairy farmers, or 21 per cent of the industry, to access to personalised on-farm energy assessments, workshops and information resources.

During its five years, the energy efficiency program, average dairy farm electricity costs had risen between 26 and 65 per cent across Australia, with increases averaging 48 per cent nationally.

Around two thirds of the farmers who had had energy efficiency were obtaining the benefits of having identified areas for improvement and were investing in changes.

As a result of this energy efficiency investment, more than half of participating dairies identified significant energy savings that translated into cost savings of up to $2,000 per year, 40 per cent savings of $2,000–$10,000 and five per cent savings up to $29,000 annually.

A copy of the covering letter to the ACCC and report may be found at: http://www.irrigators.org.au/assets/uploads/2017 Submissions/Agricultural Industries Energy Task Force submission to ACCC Inquiry into electricity.pdf