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Sugar Code of Conduct

5 September 2018

The National Farmers’ Federation (NFF) welcomes the opportunity to make a submission to the Department of Agriculture and Water Resources’ review of the Sugar Code of Conduct (the Code). The NFF supports continued operation of the Code without amendment to enable management of the imbalance in market power between cane growers, mill owners and sugar marketers created by the physical limitations of sugar production.

The NFF is the peak national body representing farmers and, more broadly, agriculture across Australia. Operating under a federated structure, individual farmers join their respective state farm organisation and/or national commodity council. These organisations form the NFF. The NFF is committed to advancing Australian agriculture by developing and advocating for policies that support the profitability and productivity of Australian farmers.

While the NFF considers markets to be the primary arbiter of agricultural supply and demand, government regulation is needed to enable competition in parts of the agricultural supply chain where competition did not previously exist.

Balancing market power between mills and grower:
The Code addresses the imbalance in market power between cane growers and mill owners, acknowledging the weak bargaining position cane growers have and ensuring that mill owners link the price paid to cane farmers to the price of sugar.

Sugar cane needs to be crushed within 24 hours of harvest due to sucrose deteriorating rapidly in heat. Because of this time constraint, cane farmers are unable to sell their cane to the mill offering the highest price for their cane – they need to sell to mills that are physically close to their farm. In many cane growing areas of Australia, only one mill is close enough to enable farmers to crush their cane within 24 hours.

Ensuring transactional transparency and accountability in marketing:
The Code was established because voluntary arrangements had failed to provide competitive market conditions. The Code aimed to support grower choice in marketing and improve the efficiency of the sugar industry without imposing a substantial regulatory burden on mill-marketers of raw sugar.

While sugar milling is not competitive, sugar marketing is and, in the absence of the Code, milling companies’ involvement in sugar marketing creates a misalignment of incentives between milling companies and growers, leading to adverse industry outcomes. Under the Code, growers can choose between sugar marketing services once the cane is crushed, and it contains dispute resolution mechanisms should there be a stalemate in negotiations between growers, mill owners and marketers.

Recommendation:
In its first year of operation, the Code has proven to be beneficial to cane growers. Consequently, the NFF supports a continuation of the current Code for the following reasons:

- The Code enables competition in the provision of raw sugar marketing services by guaranteeing a grower’s choice of marketing entity for the grower economic interest sugar manufactured from the cane the grower supplied.
- The Code places an obligation on all parties to an existing or prospective cane supply or an existing or prospective on-supply agreement to act in good faith.
- The Code provides arbitration as a process to resolve any deadlocks that may emerge in the negotiations of cane supply and on-supply arrangements.

Media Enquiries: Prudence Gordon
General Manager for Trade and Economics
Ph: 02 6269 5666
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