From: The Australian - 01/05/2008
COMMONWEALTH grants to the ethanol industry are under review by the Rudd Government amid mounting global concerns over links between food shortages and biofuel production.
Resources, Energy and Tourism Minister Martin Ferguson yesterday refused to rule out axing a $40 million-a-year program, which producers say is crucial to the survival of the nascent Australian ethanol industry.
Plans to expand ethanol production facilities and build new plants are on hold pending clarification of Canberra's stand on industry support. The industry is also waiting to see how it will be affected by the planned emissions trading scheme to reduce greenhouse gases.
The production of ethanol from Australian sugar and grains has been regarded as part of the solution to dwindling and increasingly expensive petroleum supplies.
However, the use of agricultural land for biofuels worldwide - along with climate change and increased demand from China and India - is being blamed for food shortages and rising food prices.
Last year, $42 million in commonwealth subsidies was paid to four operators for the production of 110 million litres of ethanol. The major beneficiaries were Manildra for its wheat plant in Nowra, NSW, and CSR for its sugar plant in Sarina, Queensland.
In 2006, the Howard government introduced legislation that compensated producers for a 38.14c-a-litre excise on ethanol, with reductions in the subsidy due to be phased in from 2011.
The legislation was opposed by Labor, which noted that Manildra was a big donor to the Liberal Party. Labor has had a rocky relationship with the industry, which it regards as being close to the Coalition.
In 2003, Manildra donated more than $300,000 to the Liberal Party and Manildra chief Dick Honan secured a meeting with then prime minister John Howard.
But Manildra had also donated $50,000 to the ALP, which the party then forwarded to a charity so it could continue to attack the Howard government over the matter. In recent years, Manildra has been far more even-handed, and in 2006-07 Mr Honan gave $347,000 to Labor and $244,000 to the Coalition.
Mr Ferguson told The Australian yesterday that his department would conduct a review of the industry and its future in conjunction with the Department of Agriculture, Fisheries and Forestry. The review would be finalised in the second half of this year.
Asked if the Government would continue paying the excise subsidy, Mr Ferguson said: "The review will look at the outlook for the industry and it would be inappropriate to pre-empt its outcomes now."
Mr Ferguson's move follows a call last month by the Productivity Commission for an urgent review of assistance for the ethanol industry amid warnings that it was pushing up feed-grain prices.
Mr Ferguson would not be drawn on whether he supported the Howard government's commitment for 350 million litres of Australian ethanol to be produced annually by 2010, saying only that his department had committed funding to "help deliver a long-term sustainable future for biofuels in Australia".
Industry sources said CSR had shelved plans to double the capacity of its Sarina plant to 60million litres of ethanol a year.
Dalby Bio Refinery chief executive Kevin Andrews said the continuation of government assistance was central to his company's plans to begin production of ethanol from sorghum later this year at its new $130million plant in the western Queensland town of Dalby.
"It is a cornerstone in terms of allowing us to proceed and getting the industry on its feet," Mr Andrews said. "The Government would be ill-advised to scale that program back."
Mr Andrews dismissed as spurious claims of a link between food shortages and ethanol production. "The price of rice has doubled in recent weeks and not one drop of alcohol for biofuels has come from rice."
Peter Anderson, chairman of Agri Energy, said plans by his company to build an ethanol plant at Swan Hill in Victoria had been put on hold indefinitely.
Mr Anderson said the industry could not survive without government support, with soaring grain prices making ethanol production increasingly unattractive to investors.
Apart from the excise subsidy program, the Government paid $3.7 million last year in capital grants to biofuel producers for plant expansion and $3.4 million to compensate service stations for the costs of installing pumps to sell blended fuel.
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