Farmers facing hip-pocket hit

Farmers are likely to bear the brunt of some big emitters' cost increases as a result of the Federal Government's carbon tax, industry experts warn.

While agriculture is excluded from the tax, introduced last Sunday, modelling has shown the tax will cost the nation's farmers about $3.2 billion a year.

According to economic analysts IBIS World, these costs are linked to electricity and farm inputs - including pesticides and fertiliser - as well as downstream costs from processors.

Several of Australia's biggest food processors exceed the Federal Government's carbon emissions of 25,000 tonnes per annum and thus have to pay $23 for every tonne they emit.

Australian Farm Institute director Mick Keogh said these companies, such as NSW milk processor Murray Goulburn, could have no choice but to pass these costs onto farmers.

"Murray Goulburn has said its costs would go up somewhere between $3 and $5 million each year to start with," he said.

"Depending on where the price of electricity or the price of carbon goes, that number will change in the future.

"Their biggest product line is exporting dried milk powder. There's no special branding or niche market available for something like that because it is just an industrial product that goes into ice-cream or yoghurt manufacturing, so they can't really pass the cost on to their purchasers.

"The only choice they've got is to get it out of their supply chain, which could mean referring back some of the cost to their growers."

Under the current carbon price, Murray Goulburn faces $10 million a year in extra costs.

The company recently calculated that the carbon tax would add $5000 per year to its dairy producers in electricity costs alone.

Of the close to 300 emitters liable for the carbon tax, more than 20 are related to agriculture - mainly in food processing. These include Fonterra, which will have to account for more than 175,000 tonnes of carbon each year, and Nippon Meat Packers, which will have to fork out about $1.3 million in carbon emissions costs.

National electricity prices rose by about 9 per cent from July 1, with rises varying depending on power sources.

Mr Keogh said on average, a megawatt hour of electricity produced in Australia equated to one tonne of carbon equivalent emissions.

Many of the liable entities on the Federal Government's list have spoken out about cost burdens associated with increased electricity prices.

Wesfarmers and Woolworths are among the retailers on the list, and last week these supermarkets promised they would not pass on carbon costs to their consumers in the early stages of the tax.

Mr Keogh said the Federal Government's carbon pricing mechanism placed exporters at an advantage over businesses that processed their products onshore.

"The less processing you have, the less costs you will have under the carbon tax, particularly in relation to energy use," he said.

"If you compared live cattle exports with processing and exporting of chilled meat cuts, the carbon tax advantages live exports."

He said energy intensive producers such as dairy and piggery operators would be hardest hit in the sector by the carbon tax.

"For farmers, costs are certainly going to increase, but it won't be game-breaking increases -- in the region of half to 2 per cent in costs by 2014," he said.

He said intensive livestock operators faced cost increases of up to 3 per cent per unit of production, but there were mechanisms available for them to offset their emissions.

"These industries have got some options at the moment with approved methodologies of carbon mitigation projects, which generate revenue every year," he said.

"The only problem with those is it can take several years before you start to generate credits."

WAFarmers policy director Alan Hill said the lobby group always feared processors would end up passing on costs of carbon to farmers.

"The Government told us that their modelling said the costs were all going to be passed through to the consumer," he said.

"We never believed that."