Food processing sector indirectly affected by carbon tax

04 July, 2012

The food processing sector accounts for only a small portion of carbon emissions and its contribution to overall emissions has fallen over the past two decades.

The sector will be indirectly affected by the carbon tax due to carbon pricing on energy, freight and agricultural inputs.

Large food processors and manufacturers will be the most affected, primarily through electricity or natural gas usage, for example through the operation of large cold storage or heating facilities.

The country's largest food manufacturers, such as those participating in the dairy and snack food industries, will be most likely to incur the $23-per-tonne carbon tax if any single manufacturing establishment emits more than 25,000 tonnes of carbon per annum.

These businesses will be required to purchase and surrender to the Australian government a permit for every tonne of carbon emitted until the introduction of the Emissions Trading Scheme in 2015.

The impact on logistics and freight costs will be pertinent to food processors due to off-road fuel transport usage across the domestic aviation, shipping and rail channels. The carbon tax will not apply to household transport fuels, light-vehicle business transport and off-road fuel use for agriculture, forestry and fishing industries.

Given food processing's reliance on agricultural inputs and the rising incidence of vertically integrated agribusiness corporations, downstream manufacturers may potentially be affected by the increase in farm operating costs.

As part of the Clean Technology Food and Foundries Investment Program, domestic food manufacturers will be entitled to merit-based grants from a $200 million fund created to encourage competitiveness in a climate of rising costs and increasing import penetration.

The grant is expected to primarily support investment in energy-efficient capital equipment, processes and products, and will last until 2016-17. Food processors are in a unique position to benefit from the imposition of the carbon tax and the transition to a low-carbon economy.

This is due to the relatively small cost of electricity, fuel and freight within their overall cost structures. The focus on carbon emissions and green trading could also provide many food processors with opportunities in new markets, products and customers.

In October 2010, ALDI became Australia's first retailer to use the Carbon Trust carbon footprint to label its everyday olive oil range to assist consumers to make more informed decisions about the amount of carbon dioxide and other greenhouse gases used to produce products.

Source: IBISWorld