Doubts About Sugar Project

Press, Volume CIV, Issue 30895, 30 October 1965, Page 10

Doubts About Sugar Project

A LTHOUGH the report of the South Otago Sugar Beet Investigation Company has been in the hands of the Government for several weeks, the Government is evidently in no hurry to act on it

' The Minister of Industries i and Commerce (Mr Marshall) (said in the House of Repreisentatives on October 9 that more extensive investigations ‘ would have to be made before a sound assessment of the I prospects of the industry • could be made. Mr Marshall was referring,; no doubt, to the over-all eco- ; nomics of the industry. This, I no doubt, is discussed in the i investigation company's re- ! port, which has not been made i public. One recently-published I report, though not primarily (concerned with this, gives a (lot of interesting information ; on the industry, from the fari mer’s point of view. i This is a discussion paper i published by Massey University. Entitled “The Economics

of Growing Sugar Beet on Farms in South Otago,” it is the work of Mr A. R. Frampton, a research officer io the Agricultural Economics Research Unit at Lincoln College, who is at present at Corneil University in the United States studying for a doctorate of philosophy.

Mr Frampton surveyed the! prospects for such an industry' centred on Balclutha. Close to the Kaitangata coalfield, in an ! area suited by topography, | soil and climate to beet growing, the Balclutha region has’ many advantages as a beet-! growing area. “Unless yields and sucrose contents are high and (or) rotations are short,” says Mr Frampton, “it is unlikely that there is sufficient suitable land within a 30-mile radius of Balclutha to support a 30.000 ton sugar beet factory’. This becomes even more apparent if the assumption of 1.00 per cent farmer participation in the project is relaxed. As economies of scale are important in beet proces- ' sing plants, a factory of lower ; capacity may not be feasible. ! It is probable that processing (costs per ton rise sharply as [capacity falls below 30,000 (tons of refined sugar. Thus it is essential that an accurate estimate of the area of suitable soils in South Otago be made before the project is taken very far.” Farmers’ Views Farmers questioned by Mr Frampton were asked to estimate the gross margin they would require from sugar beet relative to wheat; 28 of the 34 farmers asked wanted a higher gross margin for sugar beet than for wheat. “It would appear that a gross margin substantially higher than for wheat would be required to induce farmers to grow even small acreages,” he says. Estimating the costs of beet

production, and assuming a price of £5 a ton to the grower, Mr Frampton has tested various farm plans involving beet production. On one “case farm” he found that revenue would increase by £2OOO when 120 acres of wheat were grown, but no sugar beet. Revenue would increase by £4642 when 90 acres of wheat and 85 acres of sugar beet were grown. But later in his paper he points out: “It is clear that higher tax payments will absorb the greatest share of the increased revenue.” High tax rates, he says, would be “a strong disincentive to sugar beet production." Discussing the possibility of establishing a factory capable of processing sugar from either beet or cane. Mr Frampton says that if the world price of cane sugar fell to a low level which enabled it to pay any “reasonable” protective tariff and still undersell beet sugar, “then the factory would either have to reduce the price to the farmer or sugar to maintain a competitive position.” Mr Frampton's farm survey was carried out in 1963. In that year the world price, of cane sugar (before refining) averaged £72 a ton. Prices since then have been as high as £lOO a ton, but have been about £22 a ton in recent months. At £5 a ton for New Zea- ■ land beet, the cost of the raw ! sugar in the beet is £35 a ton, he estimates. A New Zealand sugar beet industry would have required protection—apart from the remission of the excise duty of £9 a ton—in eight of the preIvious 12 years.

Mr Frampton recommends that New Zealand should continue to purchase her supplies of raw sugar at the world price. He also recommends that the setting up of a domestic sugar beet industry should not be considered “for at least five years.”