long term sustainability of the Australian Sugar Industry Mark Day Executive General Manager Sugar M

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long term sustainability of the Australian Sugar
IndustryMark DayExecutive General Manager
Sugar MillsCSR SugarMarch 2008
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A long term sustainable sugar industry will

• Manage its sugar price risk to suit individual
  requirements
• Continue to find ways to lower cost of production
• Take up new opportunities as they arise
• Be a responsible and valued industry

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The regulated industry of the past significantly
constrained individuals flexibility
Prices available gt 500/t sugar
Pool price achieved 370/t sugar

• The regulated industry exposed all participants
  to the same set of price risks via a single
  pricing pool
• Used averaging pricing mechanisms
• 20/t sugar 80M industry EBIT

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Millers and growers are now managing their own
price risk, taking opportunities to lock in
higher prices in future seasons

• Marketing and sales are conducted independently
  of pricing
• Growers and some grower organisations are pricing
  part of their future crops
• Millers are also pricing part of their future
  production
• The residual production is priced in season
• The current forward prices are favourable, partly
  supported by factors other than the current
  global supply/demand situation

ICE Futures No. 11 as at 15 Feb 08
QSL and ICE 11
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A long-term sustainable sugar industry will

• Manage its sugar price risk to suit individual
  requirements
• Continue to find ways to lower cost of production
• Take up new opportunities as they arise
• Be a responsible and valued industry

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In the sugar business, being cost competitive
with Brazil, the largest exporter, is an
imperative.

• Brazil is the largest supplier to the 50mt
  globally traded sugar market

USDA data

• Flex fuel vehicle sales are increasingly
  dominating the market, increasing the demand for
  ethanol and shifting more of the new cane to
  ethanol than sugar

ANFAVEA Brazil data

• The stronger parts of the Australian industry are
  competitive with Brazil

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Small and low-performing farms will continue to
be amalgamated, increasing viability
Small low yield farms will be sold
Individual farms Size vs Yield
CSR analysis

• Industry has many small farms
• Amalgamation continues, driven by profitability
  and farmer age
• The high-performing farms with adequate scale
  will continue to grow
• Increase in large investment fund owned farms
• RDE providers will need to provide increases in
  yield

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Mills have a high percentage of fixed costs.
Throughput is paramount.

• Very small mills will find it difficult to
  replace large items of plant (eg steam boilers)
• Closures will enable neighbouring mills to grow
• Improvements in labour efficiency will continue
• New systems will be implemented to ensure
  retention and development of industry knowledge
• More of the basic equipment will be manufactured
  off shore and assembled locally

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A long-term sustainable sugar industry will

• Manage its sugar price risk to suit individual
  requirements
• Continue to find ways to lower cost of production
• Take up new opportunities as they arise
• Be a responsible and valued industry

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Renewable electricity opportunities would exist
if adequate green premiums were established
CSR analysis

• If the market conditions are sufficiently
  attractive, most sugar mills in the industry can
  install plant to export renewable electricity
• Opportunities exist to move to high-fibre cane
  varieties
• The structure of the Emissions Trading scheme
  will be crucial for these projects

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Green renewable fuel Ethanol

• From molasses
• existing process supplying E10 market
• Less than 50 of the CO2 emissions of petrol
• From sugar
• Currently the best CO2 footprint for ethanol
  production.
• Can provide up to 90 reduction in CO2 emissions
  of compared with petrol
• From fibre
• Several processes are being developed
• May provide the step change in cost of production

• National use of e10 from sugar based ethanol
  could reduce GHG emissions by over 3 million
  tonnes of CO2 per annum

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A long term sustainable sugar industry will

• Manage its sugar price risk to suit individual
  requirements
• Continue to find ways to lower cost of production
• Take up new opportunities as they arise
• Be a responsible and valued industry

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The environmental footprint, climate impact and
regional communities will remain a key focus of
the industry

• Environment
• Located close to the reef
• Environmentally sound farming systems will
  continue to be implemented. RDE support is
  currently good.
• Climate
• Sugar mills are energy self sufficient
• Energy efficiency programs are under way in all
  sectors
• Net energy exports via cogen and ethanol
• Community support
• Continue as a significant employer in regional
  communities
• Provide a training ground for trades,
  engineering, accounting and science

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The Australian industry has earned the right to
be in the global sugar industry
Czarnikow data

• We remain competitive with the best in the world
  while having the highest percentage of export
  (75) without any tariff protection for domestic
  production
• Our sugar is preferred by customers because of
  its consistent high quality
• Industry-owned, efficient sugar logistics system,
  able to supply year round from a seasonal industry

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In summary, the industry has sustained it self
for over 100 years and is still well positioned.

• Some externalities will continue to challenge us
• The AUD and BRL exchange rates and sugar price
• The price of oil
• Deregulation of some other domestic sugar
  industries (US, EU, China)
• Significant weather events
• The new opportunities added to our base, will
  assist in continuing our sustainability
• Investments in significant renewable energy
  projects
• Individuals making their own pricing decisions on
  future crops
• Continuing to capture economies of scale in all
  sectors and driving down costs
• Protecting the environment and valuing our people

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