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Report predicts gas prices a bigger hit than carbon tax

ABC Rural Lucy Barbour
Gas price rises expected to cost food manufacturing billions

A report by Deloitte Access Economics predicts that rising gas prices could cost the food processing sector $10 billion over the next seven years.


A report suggests that rising gas prices will impose a greater cost on the food processing sector than the carbon tax ever did.

The report by Deloitte Access Economics predicts that gas prices could triple over the next seven years, costing the food and beverage industry up to an extra $10 billion during that period.

The rise is being fuelled by increasing demand for liquid natural gas exports, and the fact that export prices are higher than domestic ones.

The Australian Food and Grocery Council was one of the six industry bodies that commissioned the report, and it wants the Federal Government to open the gas market up to more suppliers.

Council chief executive Gary Dawson says agriculture, as well as consumers, will be hit by increasing gas prices.

"So as those export streams become active and as the LNG starts being exported, more and more of domestic production will be pushed into that export market because that's where there's a higher price," he said.

"Areas that are significant gas users include meat processing, dairy processing, sugar refining, right through to baked goods, bread makers, through to confectionary.

"So if we can't get more gas supplies on stream and we can't remove some of these distortions from the gas market, the manufacturing sector will suffer and that flows through to the broader economy."

Mr Dawson says the cost of more expensive gas to the entire manufacturing industry is predicted to be $118 billion, which could mean the loss of up to 14,000 jobs across the entire sector.

"The impact would be greater than the carbon tax across the food processing sector and that's the conclusion of this report," he said.

"A simple example is if the food processing plant shuts down, then the farmers supplying that plant lose their market.

"And that's where we need the balance in this debate to highlight the full impact of this through the economy, and through to communities and other sectors like agriculture."

The report found that gas prices rises would cost the agricultural sector $4.5 billion over the next seven years and while that's half the what the manufacturing sector is expected to face, Gary Dawson says it's still significant.

"It underlines the interconnected nature of these sectors...with almost 40 per cent of agricultural production going into food and beverage processing."

Mr Dawson says rising gas prices could also lead to higher food costs for consumers.

"They'll certainly be paying higher for their gas and if the effect flow through to food processing, then there'll be (food) cost increases," he said.

But he maintains the processing companies will take the biggest hit.

"One of the things we found with the impact of the carbon tax was that because food processing is such a trade-exposed sector, processing companies had very little or no capacity to pass through those increased costs to the retailer and therefore to the consumer," he said.

"So it went straight to the bottom line of the company and had a direct impact on the viability and profitability of the company.

"That's likely to be the case with gas price increases."

The AFGC plans to use the report findings in its attempt to convince state and federal governments to consider gas market reform.

"It's about the need to remove some of the distortions in the domestic gas market to try to get more competition to make it more transparent," he said.

"So that those price signals effectively result in more producers coming into the market, more suppliers coming on-stream, which then results in downward pressure on the price."

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