The World Bank’s conclusion that biofuels have been responsible for most of the increase in world food prices suggests Australia needs to give up its increasingly damaging dalliance with ethanol. And Australian farmers would be the first to benefit.

Greenwash has been around for decades, but biofuel has been the biggest and most successful greenhouse scam — initially championed by environmentalists and the agricultural sub-sectors that stood to benefit from them, before its effects on other agricultural producers, and therefore on world food prices, became apparent.

Australia’s support for ethanol is limited compared to Europe and the US, but even so amounts to tens of millions of dollars, and is growing. Domestic producers — led by Dick Honan’s Manildra, by far the largest ethanol producer in the country — are provided with a subsidy for fuel excise (38.1 cents per litre), costing taxpayers $63.4m in 2008-09.

For those who came in late, this was a protectionist measure introduced by the Howard Government at the behest of Manildra’s Dick Honan in 2003 to block competition from cheaper Brazilian ethanol, which is considerably more efficient than that produced by Manildra. Capital grants are also available that amount to about 1c per litre over the life of the production facility.

Earlier this year, Resources Minister Martin Ferguson announced a review of the subsidy scheme, which is due to commence slowly winding down in 2011. The review is scheduled to conclude later in the year.

If Ferguson’s review is comprehensive, it will consider the growing evidence that biofuel companies are supplementing agricultural waste with food-grade starch (reported in Crikey in February and The Australian in May). This gives the lie to the traditional defence of Australian ethanol advocates against claims that it is driving up prices for other users such as pastoralists by increasing demand for wheat, and that it plays no role in driving up world food prices. A former employee has detailed to Crikey how Manildra is importing Chinese gluten for both ethanol production and re-export to the United States, mixed with Australian gluten and labelled as Australian in origin under the AUSFTA.

But, while the Federal Government may be on to the impact of ethanol on food prices, the same cannot be said for state governments. Last year NSW mandated ethanol levels of 2% in fuel, which is intended to rise to 10% in 2010, pushing the cost of the fuel excise subsidy over $230m. The Queensland Government has committed to a 5% mandate by 2010.

Either mandate would require a massive increase in ethanol production, thereby driving up grain prices domestically and adding to international demand for starch, as well as significantly expanding the subsidies being paid to companies like Manildra.

Like any good agricultural scam or market distortion, the Nationals are backing ethanol, especially in Queensland, where Ron Boswell, Fiona Nash, Barnaby Joyce and Lawrence Springborg have all backed forcing motorists to use ethanol, regardless of the massive impact it would have on other agricultural sectors the Nationals purport to represent.

As is now well-known, former Federal Labor MP Con Sciacca has assiduously represented Manildra’s interests with Federal and State Governments, including with his former colleagues in Canberra. Manildra also has a reputation as a generous political donor. Richard Farmer has discussed how generous Manildra is previously but we’ve pulled together all of Manildra’s donations. It may explain the apparent willingness of politicians — especially Labor politicians in NSW — to protect and subsidise Manildra. Bear in mind this doesn’t include donations made between July and November last year.

Based on the evidence, one can expect that Federal Labor did very well out of Manildra this financial year.

  Federal ALP Federal Liberal Federal Nationals
2000-01 11,000 50,000 7,500
2001-02 55,455 95,741 145,350
2002-03   141,978.18 162,780
2003-04 15,000 34,400 14,816
2004-05   2,727 2,750
2005-06   13,983 29,100
2006-07 88,550 60,400 39,450
  NSW ALP NSW Liberal NSW Nationals
2000-01   2,000  
2001-02     110,455
2002-03 50,000 39,000  
2003-04      
2004-05 15,000 1,818 6,454
2005-06 40,400 14,500 1,800
2006-07 248,500 113,500  
  QLD ALP QLD Liberal QLD Nationals
2000-01      
2001-02      
2002-03      
2003-04      
2004-05      
2005-06 3,000   1,165
2006-07 11,250   31,000
  VIC ALP VIC Liberal VIC Nationals
2000-01   22,000  
2001-02      
2002-03      
2003-04      
2004-05 22,000    
2005-06   20,500  
2006-07      
  TOTAL ALP TOTAL LIBERAL TOTAL NATIONALS
2000-01 11,000 74,000 7,500
2001-02 55,455 95,741 255,805
2002-03 50,000 180,978 162,780
2003-04 15,000 34,400 14,816
2004-05 37,000 4,545 9,204
2005-06 43,400 48,983 32,065
2006-07 348,300 173,900 70,450

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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