Australian Commodities June Quarter 2006

australian commodities 06.2 june quarter 2006

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economic overview 265 agriculture crops 281 wheat 281 coarse grains 284 oilseeds 287 cotton 290 sugar 293 livestock products 295 sheep industry 295 beef and veal 298 dairy 301 minerals and energy energy 303 oil and gas 303 thermal coal 314 metals 320 steel and steel making raw materials 320 gold 330 aluminium and alumina 334 nickel 339 copper 342 zinc 347 articles avian infl uenza: potential economic impact of a pandemic on Australia benjamin buetre, yeon kim, q.t. tran, jim thomson and don gunasekera 351 interregional water trade: effi ciency impacts of exit fees anna heaney, tim goesch, ahmed hafi and stephanie szakiel 360 export infrastructure and access: key issues and progress brian s. fi sher and roger rose 366 minerals and energy: major development projects — april 2006 listing ian haine and commodity analysts, resource markets and infrastructure group 398 statisical tables 413 abare management 450 australian commodities > vol. 13 no. 2 > june quarter 2006 263 avian influenza

> don gunasekera > +61 2 6272 2366 > [email protected] avian inﬂ uenza potential economic impact of a pandemic on Australia benjamin buetre, yeon kim, q.t. tran, jim thomson* and don gunasekera

> A medium level outbreak of an avian infl uenza pandemic in Australia is estimated to result in a 6.8 per cent reduction in Australia’s gross domestic product (relative to a reference case) in the short term. > Economic activity in all states and territories is estimated to decline at rates close to the national level, with Queensland incurring the most adverse short term effect — an estimated 7.1 per cent reduction in gross state product. > Key sectors that are likely to be adversely affected the most include transport services and tourism related activities. The expected increase in demand for health services in the event of a pandemic is likely to lead to an expansion in such services across the country. > Given the potential high costs to Australia and the global economy of an infl u- enza pandemic, there is a clear need to continue to focus on preventive measures through regional and international collaboration. Prevention of an infl uenza pandemic is likely to be much more effective than a cure. introduction There is continuing concern and interest in the possible emergence of an avian infl uenza pandemic in many countries across the world, including Australia. How a pandemic might affect Australia is an important policy issue, as is formulating appropriate responses to such a pandemic. The focus in this article is on the potential short term economic impacts on Australia, its states and territories and the key sectors likely to be affected by a pandemic. It is useful to classify the potential economic effects of a pandemic into three broad categories: direct impacts, fl ow-on effects and confi dence effects. direct effects The fi rst category of effects relates to people being away from work because they are sick or are looking after other people who are sick, or because of measures taken to prevent the spread of disease, such as stringent quarantine measures. The severity of the direct effects depends on both the infection rate and the mortality rate from the pandemic.

* The Treasury. The views expressed in the article are not necessarily those of the Australian Treasury. australian commodities > vol. 13 no. 2 > june quarter 2006 351 avian influenza

ﬂ ow-on effects The second category includes, for example, loss of exports stemming from reduced demand in other countries or stringent quarantine measures; and disruptions to supply chains either through loss of key imports or disruptions to domestic production. The impact of these factors depends in part on whether alternative sources of supply can be found. In addition, if the infection does not spread to a certain country or is contained in certain regions, there might be increased demand for domestic production to make up for lost imports. Irrespective of these considerations, there are likely to be negative demand effects on certain industries and positive effects on others. In an extreme case, there might be a breakdown in key parts of the economy. Effective measures would be required to ensure that, for example, the ﬁ nancial system and other key services were able to continue to operate in the face of a pandemic.

confi dence effects These relate to consumption and investment decisions. They are diffi cult to quantify and in general the studies that indicate a major economic impact from a pandemic are the ones that assume substantial confi dence effects. A recent study by Kennedy et al. (2006) examined the possible macroeconomic effects of a pandemic using the Australian Government Treasury’s TRYM macroeconometric model of the Australian economy (table 1). The authors considered a scenario in which a pandemic spread throughout Australia and its main trading partners and analysed several channels through which the economy might be affected — international trade, labor supply and confi dence effects on domestic consumption and investment. Their analysis suggested that there could be substantial effects on consumption, investment, gross domestic product and employment in the year in which the pandemic started. It is important to recognise that the TRYM model can only provide the broad impact of a pandemic given its aggregated nature.

1 Rrecent analyses of the economic impact of an infl uenza pandemic impact study on GDP a scenario % Australia McKibbin and Sidorenko (2006) –5.6 Severe infl uenza pandemic, with Australian mortality of 107 000 and a global mortality of 71 million Kennedy et al. (2006) –9.3 Global pandemic, with 40 000 mortality in Australia New Zealand Douglas et al. (2006) –10 to –15 Infl uenza pandemic on the scale of ‘Spanish fl u’ outbreak of 1918 United States McKibbin and Sidorenko (2006) –3.0 Severe infl uenza pandemic, with US mortality of 1.01 million and global mortality of 71 million US Congressional Budget Offi ce (2005) –5.0 Severe scenario, with US fatality rate of 2 million people Asia Bloom, Wit and Jose (2005) –6.5 Longer infl uenza outbreak and larger shock to consumption and export

a Relative to reference cases.

352 australian commodities > vol. 13 no. 2 > june quarter 2006 avian influenza

A study by McKibbin and Sidorenko (2006) on the global macroeconomic consequences of pandemic infl uenza, including potential impacts on Australia, had a wider representation of the international sector. As with the Kennedy et al. (2006) analysis, McKibbin and Sidorenko’s study does not provide detailed results for sectors that are likely to be affected by an infl uenza outbreak and does not provide state and territory impacts for Australia. These limitations are addressed here using ABARE’s global trade and environment model (GTEM) and Ausregion model. GTEM allows detailed modeling of interactions with other countries and examination of differences in impacts across industries. Ausregion is a model of the Australian economy with representation of all states and territories. Used in conjunction with the TRYM model, GTEM and Ausregion make it possible to examine potential differences in impacts across Australian industries, states and territories of the scenario considered by Kennedy et al. (2006). The combined use of the three models also allows an examination of alternative scenarios in which infl uenza is widespread in other countries but does not reach Australia. A brief description of the analytical framework and interface between the models used here is provided in box 1. impacts of an infl uenza pandemic pandemic phases The World Health Organisation has identifi ed six pandemic phases: > phases 1–2 – interpandemic phases in which there is animal infection but no human infection. > phases 3–5 – ‘pandemic alert’ phases with human cases, ranging from phase 3, with few cases and little or no human to human transmission, up to phase 5, with large clusters of infection but only localised human to human transmission. > phase 6 – a full pandemic with sustained human to human transmission in the general population. A pandemic is likely to start in one locality before spreading. Past pandemics have occurred in two or three waves, so phase 6 can be divided into subphases: localised (6a), widespread (6b), subsided (6c) and next wave (6d). At present avian infl uenza is in global phase 3 (human cases but no human to human transmission). But there has been no animal or human infection in Australia.

box 1: analytical framework

GTEM ABARE’s global trade and environment model (GTEM) is a dynamic, multiregion, multisector, general equilibrium model of the world economy. The model provides a useful framework for analysing economywide and sectoral impacts, including those resulting from phenomena that affect the productive capacity of an economy, such as a pandemic. The GTEM framework takes into account the interactions between different sectors and other agents in an economy and captures the interactions between economies through trade. It estimates the impacts of the changes in policies or events on key economic variables. continued

australian commodities > vol. 13 no. 2 > june quarter 2006 353 avian influenza

box 1: analytical framework continued Using GTEM’s population module, the wider impacts of a pandemic infl uenza can be estimated through effects on mortality, labor supply and labor productivity. The population in each region in GTEM is classifi ed into one year age cohorts from 0 to 100+ years, making the model suitable for analysing the effects of a pandemic infl uenza on different age groups. Full documentation of the model is available on ABARE’s web site (www. abareconomics.com).

Ausregion ABARE’s Ausregion model is a dynamic computable general equilibrium model of the Australian economy with representation of all states and territories. Ausregion has a comprehensive coverage of sectors that are important to Australia. It has a population module that is broken into 100+ age cohorts. Details of the model are also available on ABARE’s web site.

TRYM The Treasury Macroeconomic (TRYM) model is a quarterly, dynamic, macroeconometric model of the Australian economy. It consists of around 30 behavioral equations and 100 accounting identities that provide for detailed short run dynamics around a theoretically consistent long run growth path. Documentation of the model is available on Treasury’s web site (www.treasury.gov.au).

interface The three models have unique characteristics that, when used together, provide a robust and rigorous framework for analysing policy issues that have international, national, sectoral and state level impacts. The interface between the models is illustrated below:

model interface

TRYM macroeconomic effects

key macro international information information

sectoral and GTEM Ausregion state/ international effects territories and sectoral information

> TRYM is used to assess the macroeconomic impacts on Australia of an avian infl uenza pandemic. TRYM is focused on the macroeconomic impacts of the demand and supply side changes that are likely to result from an infl uenza pandemic. > GTEM is used to take into account the likely international trade fl ow impacts associated with the pandemic in different parts of the world. > Taking the relevant results from TRYM and GTEM as inputs, Ausregion is employed to analyse the possible impacts on Australia’s individual states and territories as well as their key sectors.

354 australian commodities > vol. 13 no. 2 > june quarter 2006 avian influenza scenarios

Two scenarios are analysed here. Both assume a worldwide pandemic outside Australia (phases 6b–6d overseas), but they differ in their assumptions about the spread of the pandemic in Australia.

scenario 1: infl uenza outbreak – whole world Under this scenario, the whole world is assumed to be affected by the infl uenza outbreak (phases 6b–6d). The purpose in the scenario is to illustrate how an infl uenza pandemic across the world may affect economic activity in Australia, including the states and territories.

scenario 2: infl uenza outbreak – rest of the world (excluding Australia) Under this scenario, it is assumed that there is an outbreak of infl uenza all over the world except in Australia. It is also assumed that strict quarantine and border control measures enable Australia to protect itself from the outbreak of infl uenza. assumptions mortality There is obvious uncertainty over the actual number of people that are likely to be infected and die from an infl uenza pandemic. The distribution of possible infected cases among countries and age groups is also uncertain (Bloom, Wit and Jose 2005; Cooper and Coxe 2005). For example, during the Spanish Infl uenza outbreak of 1918–19 the young and robust sections of population suffered signifi cant mortalities (Brainerd and Siegler 2003; Almond 2005). In the United States, mortality rates appeared to have been randomly distributed, with no pattern related to economic development, climate or geog- raphy (Brainerd and Siegler 2003). Taking into account these uncertainties, several assumptions about the infl uenza outbreak are made in the current analysis. First, it is assumed that the severity of a global pandemic infl uenza is medium scale, if the Spanish fl u of 1918–19 was considered severe. (Osterholm 2005 estimated that a global infl uenza pandemic of similar virulence to the 1918–19 infl uenza striking today would result in 180–360 million deaths.) A global mortality of around 80 million is assumed here. A similar number of fatalities was assumed by McKibbin and Sidorenko (2006) under a severe scenario. Mortality rates, by country, are assumed to be infl uenced by each country’s ability to deal with a highly contagious disease. Several factors including health infrastructure and services are assumed to affect mortality rates (as was assumed by McKibbin and Sidorenko 2006). As many of these factors are income related, different mortality rates in developed and developing countries are used here. The assumed mortality rates are based on best available estimates. In this study, the mortality rate for Australia and other assumed mortality developed countries is assumed to be 0.20 per cent 2 of total population, while in developing countries, it is scenario 1 scenario 2 1.39 per cent of the population. This results in 40 000 ’000 ’000 deaths in Australia and 80 million for the whole world under scenario 1 (table 2). Rest of world 79 960 79 960 Australia 40 0 In each country, mortality is distributed among four age groups regardless of gender (0–18, 19–45, 46– World 80 000 79 960 australian commodities > vol. 13 no. 2 > june quarter 2006 355 avian influenza

64 and 65+ years of age). It is assumed that people in the 65+ age group are at high risk of contracting and dying from the disease. As with the Spanish ﬂ u, the young and robust age group (19–45 years) is also assumed to sustain higher mortality in all countries. People in the 0–18 years age group are assumed to have the smallest rate of mortality. The fatalities by age group and by country are introduced as speciﬁ ed reductions in the population in the pandemic scenarios.

labor productivity It is expected that an inﬂ uenza pandemic will affect labor productivity by reducing the number of working days of those infected. Absenteeism from illness, caring for family members and funeral service attendance are also assumed to affect labor productivity and are calculated for all countries using the rates similar to those in Meltzer et al. (1999). An infection rate of around 40 per cent is assumed for all countries.

quarantine measures Government imposed measures to prevent entry or spread of pandemic inﬂ uenza, such as border closures and restrictions or bans on travel and trade in goods, are modeled as changes in trade in goods and services.

changes in consumption Changes in ﬁ nal consumption away from goods or activities that are likely to put consumers at risk of being infected with inﬂ uenza are modeled as changes in consumption. Examples include reduced demand for travel affecting services such as airlines and tourism related activities, and higher demand for health services resulting in an increase in consumption of such services.

confi dence effects Changes in consumer and investment confi dence are modeled in TRYM. They are assumed to be related to the severity of the pandemic, in particular to the scale of mortality. In scenario 1, it is assumed that there are substantial confi dence effects on consumption and investment in Australia. In scenario 2, the presence of a pandemic overseas is expected to affect international trade, in part because of likely quarantine measures. The impact on Australia will depend on whether precautionary measures taken domestically affect labour supply and on the size of adverse confi dence effects. It is not easy to assess what these measures might be — in part because they depend on perceptions of whether it will be possible to prevent infection reaching Australia. By way of illustration, in scenario 2, however, no labor supply effects are assumed for Australia but confi dence effects are estimated to be half the size of those in scenario 1. In analysing the impact of an infl uenza pandemic, the two scenarios are benchmarked to 2007. The economic impacts of these scenarios are determined as the difference between a reference case (in which no policy or other external changes occur) and the pandemic scenario. simulation results According to the analysis undertaken in this study, a global infl uenza pandemic could impose signifi cant costs on the Australian economy. Losses of about 6.8 per cent of Austra- lia’s gross domestic product, relative to the reference case, are estimated for an infl uenza outbreak benchmarked to 2007 in the whole world including Australia (table 3). The estimated decline in Australia’s economic activity stems mainly from the constraints imposed by

356 australian commodities > vol. 13 no. 2 > june quarter 2006 avian influenza the pandemic on the production side of the economy change in Australian gross domestic and the reduction in demand. These economic costs 3 product a relative to the reference case refl ect short term impacts. Even when the infl uenza outbreak is confi ned to % Scenario other countries only (scenario 2), economic activity in 1: Infl uenza – whole world –6.8 Australia could still be affected negatively. This refl ects 2:Infl uenza – rest of world only –3.0 the uncertainties over the spread of the disease, which a Estimates using TRYM, GTEM and Ausregion. Simulation results can dampen consumer and investment confi dence. benchmarked to 2007. At the same time, the combination of stringent border control measures and reduced overseas demand for change in gross state product a goods and services are expected to lead to a decline 4 relative to the reference case in exports of Australian products. Under this scenario, Australia’s gross domestic product could fall by about Scenario 1 3 per cent relative to the reference case (table 3). % Overall, the cost to the Australian economy is New South Wales –6.6 most signifi cant when the whole country is exposed Victoria –6.9 to the infl uenza virus, resulting in signifi cant mortality. Queensland –7.1 South Australia –6.4 An important fi nding of the analysis is that Australian Western Australia –6.5 economic activity could fall even in an event where Tasmania –5.8 Australia was free from any infl uenza outbreak while Northern Territory –5.8 there was a pandemic in other countries. ACT –4.3 The results of the analysis in this study are consistent a Ausregion estimates. Simulation results benchmarked to 2007. with the few studies conducted so far on an infl uenza pandemic (table 1). state impacts When the whole of Australia is affected by an infl uenza outbreak, as in scenario 1, economic activity in all states and territories is estimated to decline (relative to the reference case) at rates that are close to the national level. Small interstate differences in impacts refl ect differences in economic structure. The state of Queensland, which has a relatively large tourism sector, is estimated to be the most adversely affected by a pandemic (table 4). impact on key sectors In addition to the negative effects of an infl uenza outbreak on the production side of the economy, changes in demand can be expected to have impacts as consumers move away from activities that would be likely to expose them to the disease. Some sectors may be affected more than others. For example, health services are likely to expand during an outbreak because of higher demands for their services. As the results of the two scenarios are similar, only the results of scenario 1 are presented and discussed here. Under scenario 1, tourism related activities are likely to be affected the most by an infl uenza outbreak, falling by as much as 18 per cent relative to the reference case (table 5). The transport sector, particularly air transport services, is estimated to decline by 11 per cent relative to the reference case. The sensitivity of these sectors, in general, to outbreaks of highly contagious diseases such as infl uenza is illustrated by the recent SARS (severe acute respiratory syndrome) outbreak in Asia. During the outbreak of SARS, retail sales dropped by 10–40 per cent in Hong Kong, fl ights by Dragon Air were cut by 48 per cent (Cooper and Coxe 2005),

australian commodities > vol. 13 no. 2 > june quarter 2006 357 avian influenza

impact on key sectors of a global pandemic inﬂ uenza: scenario 1 a 5 relative to the reference case Australia NSW Vic Qld SA WA Tas NT ACT % % % % % % % % % Tourism related activities –18. 4 –18.9 –18.8 –18. 7 –17.3 –15.8 –16. 5 –16. 4 –19.2 Air transport –11.2 –11.7 –11.0 –9.9 –10.5 –10.9 –11.1 –12.1 –9.5 Other transport –5.2 –5.3 –5.4 –4.7 –5.0 –5.8 –4.0 –6.7 –3.4 Other services and Insurance –5.0 –5.2 –5.1 –5.0 –4.9 –4.8 –5.1 –5.3 –4.0 Services including health 3.9 5.6 4.7 3.8 0.3 0.8 0.3 2.3 1.0

a Simulation results benchmarked to 2007.

while tourist arrivals in Singapore were down by two-thirds and hotel occupancy rates for fi ve star hotels in Beijing were down around 20 per cent (The Economist 2003). In contrast to tourism related activities, services that include health are expected to expand in response to increasing demand. An implied assumption in the analysis is that despite concern about the infl uenza virus, health workers will be available (as it is assumed that health workers sustain negligible mortality because they are given priority for access at a very early stage of the pandemic to vaccines and other protective drugs and supplies) to provide the workforce for the expanding health sector. Another sector that could potentially expand during an infl uenza outbreak is communications and information technology services. This sector provides services that are alternative to international travel to conduct business and related activities. Self confi nement to avoid exposure to the infl uenza virus would also boost the use of communications and information technology services. The direction of impact on key sectors in the states and territories is similar to the changes at the national level (table 5). For all states and territories, tourism related activities are expected to be affected the most, followed by transport services. In all cases, activities that include health services are expected to expand under an Australiawide infl uenza outbreak, although there are some small differences in estimates among states and territories. Two factors driving the differences in services including health are the absolute number of infl uenza cases assumed in different states and the differences in their economic structures.

international impacts economic impact of a global infl uenza The economic impacts of an infl uenza pandemic on 6 pandemic on selected countries: various countries/regions are presented in table 6. The scenario 1 change in GDP relative to the estimated impacts on developing countries/regions reference case a are larger than the impacts on developed countries. This largely refl ects the high mortality rate expected % in developing countries/regions compared with rates China –8.7 in developed countries in the event of an infl uenza ASEAN –7.1 Korea, Rep. of –6.7 pandemic. Japan –6.1 United States –3.5 European Union –3.7 concluding remarks Canada –3.0 The fi ndings in this study show that a global infl uenza a Estimates using GTEM. Simulation results benchmarked to pandemic could potentially result in substantial costs 2007. for Australia’s economy. Reducing these costs through measures to prevent the virus from entering Australia is

358 australian commodities > vol. 13 no. 2 > june quarter 2006 avian influenza an important policy objective for Australia. Considerable work is currently being undertaken by federal and state governments to prepare for a possible pandemic (Department of Health and Ageing 2006). A global infl uenza pandemic could create fear similar to that during the SARS outbreak in 2003. Potentially, fear of a disease that causes mortality at the scale assumed in this study could create panic or chaos that could disrupt the supply of food, basic services, the fi nancial system and even compromise public order. Under such circumstances, the economic costs imposed by an outbreak would be far greater than what is estimated in this study. It is important to recognise that many countries, including Australia, are potentially vulner- able to a pandemic, regardless of where the initial outbreak occurs. Hence, it is more effi - cient for Australia and other countries to continue to be active in international efforts aimed at eradicating, preventing or containing the infl uenza virus at its source before it reaches international boundaries. A collective approach in dealing with the spread of the virus may be more effective and effi cient than individual or unilateral measures. Cooperation involving sharing of information, resources and expertise at the regional, interregional and international levels could play an important role in preventing a pandemic. Prevention of an infl uenza pandemic is likely to be much more effi cient than a cure. references Almond, D. 2005, Is the 1918 infl uenza pandemic over? Long term effects of in utero infl uenza exposure in the post-1940 U.S. population, National Bureau of Economic Research, Boston. Bloom, E., Wit, V.D. and Jose, M.J.C-S. 2005, Potential economic impact of an avian fl u pandemic on Asia, ERD Policy Brief Series no. 42, Asian Development Bank, Manila. Brainerd, E. and Siegler, M. 2003, The Economic Effects of the 1918 Infl uenza Epidemic, Center for Economic Policy Research, London. Cooper, S. and Coxe, D. 2005, An investor’s guide to avian fl u, BMO Nesbitt Burns, August. Department of Health and Ageing 2006, The Australian Health Management Plan for Pandemic Infl uenza, Canberra (www.health.gov.au). Douglas, J., Szeto, K. and Buckle, B. 2006, ‘Impacts of a potential infl uenza pandemic on New Zealand’s macroeconomy’, New Zealand Treasury Policy Perspectives Paper 06/03, Wellington. Kennedy, S., Thomson, J. and Vujanovic, P. 2006, A primer on the macroeconomic effects of an infl uenza pandemic, Treasury Working Paper 2006-1, Australian Government Treasury, Canberra. McKibbin, W.J. and Sidorenko, A.A. 2006, Global macroeconomic consequences of pandemic infl uenza, Lowy Institute for International Policy, Sydney. Meltzer, M., Cox, N. and Fukuda, K. 1999, ‘The economic impact of pandemic infl uenza in the United States: priorities for intervention’, Emerging Infectious Diseases, vol. 5, no. 5, pp. 659–71. Osterholm, M.T. 2005, ‘Preparing for the next pandemic’, Foreign Affairs, July–August (www.foreignaffairs.org). The Economist 2003, SARS and business, 5 May (www.economist.com/agenda/display- Story.cfm?story_id=1747241). US Congressional Budget Offi ce 2005, A potential infl uenza pandemic: possible macroeconomic effects and policy issues, Congress of the United States, Washington DC. australian commodities > vol. 13 no. 2 > june quarter 2006 359 interregional water trade

> anna heaney > +61 2 6272 2066 > [email protected] interregional water trade efﬁ ciency impacts of exit fees

anna heaney, tim goesch, ahmed haﬁ and stephanie szakiel

> Exit fees can distort interregional trade in water and generate a net economic loss compared with open trade. > Economic losses escalate at an increasing rate with increasing exit fees until the point where water trade is no longer profi table. > The cost of the exit fee would be shared between the buyer and the seller of the water entitlement, with the distribution depending on the nature of water demand in each region. As demand is more elastic in the longer term, the distorting effects on trade become larger over time. > Unbundling water access rights from delivery access rights and attaching the access fee (either annually or as a lump sum) to the delivery right would be a more effi cient means of addressing the third party impacts of trade on delivery system costs. Unbundling would decouple recurrent nonvolumetric costs from the volume of water traded, allowing buyers and sellers to trade at market prices that refl ected the true costs and returns from water use.

introduction what are ‘exit fees’? One mechanism proposed for man- A central objective of the National Water Initiative is to increase the aging the third party impacts of productivity and effi ciency of Australia’s water use. This will require a trading water rights out of one supply commitment to facilitating water trade. However, recurrent costs that district and into another is the impo- are not dependent on the volume of water delivered are a concern sition of exit fees on irrigators who for irrigators and irrigation utilities in schemes where these costs are sell their water entitlements. Exit fees spread over a smaller customer base as a result of permanent out of are a once-off payment by irrigators scheme trade. This could lead to the ‘stranding’ of assets — a situation to the irrigation utility when access to delivery services is no longer re- that can occur when an irrigation utility has large fi xed infrastruc- quired. The rationale for irrigation utili- ture costs and fewer customers. Under the National Water Initiative, ties imposing exit fees on irrigators for signatories have committed to managing any third party impacts that entitlements leaving a district appears arise from trade, and it is important that these effects are addressed to be that remaining irrigators should in an effi cient manner. not be required to pay higher charges Exit fees have been proposed as a means of managing these third (that arise as a consequence of a party impacts. They could be used to mitigate the fi nancial impact smaller customer base) to cover the fi xed costs of water supply. This re- on irrigators remaining in a system when other irrigators are trading duces the potential for the stranding water out of that system, and to maintain the utility’s revenue base of irrigation assets. from water supply activities. While determining what costs should be included in the exit fee is not the focus in this article, Brinsley et al.

360 australian commodities > vol. 13 no. 2 > june quarter 2006 interregional water trade

(2000) propose that the fee be calculated as the net present value of any outstanding future charges that individual irrigators would have faced had they remained in the system. However, exit fees would lead to economic losses if they reduced the potential gains from trade. The purpose in this article is to consider the economic implications of imposing exit fees on permanent out of scheme water trade. The ‘unbundling’ of water rights and infrastructure access rights is considered in the concluding remarks as a preferred approach to managing the ﬁ nancial impacts on irrigators remaining in a supply system that is a net exporter of water. water trade and exit fees determining the optimal level of water use A demand curve shows the optimal level of water use over a range of different opportunity costs of water use. From a buyer’s perspective, each point on a demand curve shows the maximum price a buyer is willing to pay for a given volume of water. From a seller’s perspective, each point on the demand curve shows the minimum price a seller would be willing to accept to forgo a given volume of water use. Figure A shows an illustrative water demand curve. An irrigator would be willing to pay up to price Pa to purchase Qa megalitres of water. Conversely, if an irrigator owned

Qb megalitres of water, Pa is the minimum price that the irrigator would accept to place Qb–Qa megalitres of water for sale on the open market. At higher volumes of water demand curve water purchased or sold, prices decline — for example, A

Pb is the maximum purchase price for the volume of $/ML water Qb. This reﬂ ects the assumption that additional water would be used in lower returning activities or P that the value of increased use on existing activities a would decline. free trade between regions P b If there were free trade within regions, all irrigators would face a common opportunity cost equal to the market price, exclusive of any delivery charge. As a consequence, a regional water demand curve could Q Q be represented in the same way as for a single irrigator. 0 a b ML Figure B illustrates the demand for water by irrigators in two regions. Water demand in region 1 descends water demand with two regions from the right. The sum of the two region’s demand is B equal to the total supply of water within both regions price price and is shown E1E2. The demand curve for region 1 is drawn as in ﬁ gure A. The demand curve for irrigators in potential benefits from trade P region 2 is drawn such that the quantity of water avail- 2 able for irrigators in this region increases as you move from point E1 to E2. P In a situation where interregional trade was not 1 demand demand allowed, the total supply of water is assumed to be 2 1 E Q E divided between regions such that region 1 would 1 A 2 australian commodities > vol. 13 no. 2 > june quarter 2006 361 interregional water trade

water demand between two regions have E Q megalitres of water and region 2 would C 1 A have E2QA megalitres of water. Proﬁ ts for irrigators

price price in regions 1 and 2 would be maximised at P1 and P2 respectively. Water would be ineffi ciently allocated if inter- P 2 regional trade were not allowed as there would be P* potential gains from trade that were not realised. The potential benefi ts from free interregional trade are P 1 represented by the shaded triangle in fi gure B. demand demand 2 1 If interregional trade were allowed, a market price E Q* Q E 1 A 2 would be established such that the marginal returns from water use were equalised in each region (fi gure

C). Starting from the no trade equilibrium of QA, it can be seen that the marginal return that irrigators in region 1 receive from the last megalitre of water used would be less than the marginal return that irrigators in region 2 received. Therefore it would be in the interests of both parties to trade that megalitre of water out

of region 1 into region 2 at a market price somewhere between P1 and P2. This would increase the profi tability of irrigators in both the exporting region (1) and importing region (2), with trade facilitating the transfer of water to a higher value use. With free interregional trade, the effi cient allocation of water would occur at Q*P*. It would not be possible to increase the gains from trade beyond this point as the net return of expanding water use in one region would be less than the net loss of reduced water use in the other. effi ciency impacts of exit fees water demand between two regions Introducing an exit fee on the sale of water would drive D with exit fees a ‘wedge’ between the price that the buyer (importer) would pay and the price that the seller (exporter) would priceexit fee price lost benefits receive. It would effectively act as a tax on permanent from limiting out of district water sales. While the maximum price trade P** that a buyer would be willing to pay for a given volume P* of water would be unchanged, the minimum price that a seller would be willing to accept would now include demand the exit fee. The demand curve in the importing region demand 1 2 (2) would be unaffected but the demand curve in Q* Q** the exporting region (1) would be shifted upward, as shown in fi gure D. A shift in the demand curve would mean that at each volume, a higher acceptance price, by the amount equal to the exit fee, would be required to compensate the seller. This is because sellers would have to pay the exit fee from the post-trade revenue that they received from the sale of water, reducing the effective price that these irrigators would receive from selling water. This would reduce the quantity of water that these irrigators were willing to sell, which would in turn lead to an increase in the traded price of water and lower demand for water in the importing region. This is shown in fi gure D — the volume of water traded would fall from Q* to Q** and the trade price increases from P* to P**. There is a commensurate economic loss compared with open trade. Goesch et al. (2006) developed a stylised model of three irrigation regions, with water demand representative of typical irrigation districts in the southern Murray Darling

362 australian commodities > vol. 13 no. 2 > june quarter 2006 interregional water trade

Basin, to examine the effi ciency impacts exit fees. The price of water in each region before interregional trade was introduced were assumed and set at a level such that the marginal value of water in one region was signifi cantly higher than in the other two, creating economic benefi ts from water trade. Goesch et al. (2006) found that the larger the exit fee as a proportion of the traded price of water the larger would be the economic losses when compared with open trade. This would continue to the point where water trade was no longer profi table. For example, an exit fee levied on both exporting regions at 10 per cent of the traded price of water would result in economic losses of around 1.4 per cent compared with open trade, whereas a 30 per cent exit fee would reduce economic effi ciency by around 18 per cent. The analysis also found that trade would cease when the exit fee reached 70 per cent of the traded price of water, and all potential economic benefi ts from trade would be lost. Importantly, the modeling indicated that exit fees that were a small proportion of the traded price of water would lead to a relatively small economic loss compared with open trade but the economic losses would increase at an increasing rate as exit fees increased. different exit fees between regions There are likely to be two main implications if irrigation regions imposed exit fees differ- ently or if some regions chose not to levy exit fees at all: fi rst, the volume of water traded would be reduced compared with open trade (as explained above); and, second, the composition of trade would change — that is, the source of the water would change. The composition of trade would be changed as exit fees would alter the relative price of water in each exporting region until a new equilibrium was reached. Using the three region model developed in Goesch et al. (2006), the authors found that the effi ciency losses from imposing exit fees in only one exporting region would be less than if they were imposed on both exporting regions. For example, an exit fee equivalent to 30 per cent of the traded price of water imposed on irrigators in only one region would result in economic losses of around 3 per cent compared with open trade, whereas the imposition of a 30 per cent exit fee on both exporting regions would result in economic losses of 18 per cent. High exit fees in one exporting region would tend to encourage trade to those with lower fees. Goesch et al. (2006) showed that an exit fee set at 70 per cent of the trade price of water would concentrate all trade to other exporting regions. The presence of excessively high exit fees in some regions could arise if, for example, the cost of future infrastructure renewal or a share of the volumetric costs of delivery were included. The imposition of differential exit fees would be likely to provide an incentive for irrigation utilities to lift their fees to levels comparable with other regions. The ongoing escalation of exit fees would impose further effi ciency losses. It is important to note, however, that the fi xed and variable costs of water delivery could vary signifi cantly between regions if, for example, one used a gravity feed system and another used pressurised pumps. Provided exit fees were calculated to refl ect the fi xed costs of water supply, higher exit fees in some regions than in others would not create (further) ineffi ciencies by distorting trade or production patterns. Nevertheless, the purchase of water entitlements for environmental purposes would also be concentrated in regions with lower exit fees. In turn, lower exit fees in some supply districts would tend to concentrate the regional fl ow-on effects of reduced water avail- ability.

australian commodities > vol. 13 no. 2 > june quarter 2006 363 interregional water trade

distributional effects of exit fees

The cost of an exit fee would be shared between the buyer and the seller of the water entitlement, with the distribution depending on the nature of water demand in each region. Irrigators with less fl exibility to adjust their agricultural operations would tend to have more inelastic demand and would bear a greater proportion of the cost of the exit fee. Those with more elastic demand would most likely have more fl exibility to manage their operations to mitigate the effects of the imposition of exit fees on water price. Overall, both buyers and sellers of water entitlements would be worse off when faced with exit fees compared with a free trade scenario. Sellers would be worse off if, for example, the exit fee locked water into low returning activities and opportunities for trade were forgone. As discussed above, buyers would be worse off if they had relatively inelastic demand and the price of water increased to compensate sellers for the cost of the exit fee. If exit fees were calculated to refl ect the capitalised annual recurrent costs of supply services, water utilities should be no worse off than if there were no out of scheme trade. Compared with a open trade situation, exit fees would represent a transfer of wealth from entitlement sellers to the irrigators remaining in the system (via the water utility) as access fees for those remaining would stay the same as pretrade levels. At the regional level, the distributional impacts would be less certain and would depend on the demand characteristics of each supply district and the level at which an exit fee was set. The distorting effects of exit fees on water trade would be smaller in water volume terms the more inelastic was the demand for water. As water demand is more elastic over the longer term, the distorting effect of exit fees on trade would become larger the longer they were in place. This, in turn, would lead to a distortion in long term investment if exit fees were maintained.

concluding remarks The presence of any exit fee would reduce the volume of trade compared with what would have occurred under open trade and would lower the returns that irrigators received when they sold water. Importantly, the efﬁ ciency losses from exit fees would increase at an increasing rate as the exit fee would become a larger proportion of the trade price of water. The greater the number of regions that imposed exit fees and the longer they were in place, the larger would be the economic losses compared with open trade. ‘Unbundling’ water entitlements from access rights to the infrastructure and recouping delivery costs on the basis of the infrastructure rights may be a more appropriate method than charging exit fees to maintain a utility’s revenue base if water rights permanently left the district. Unbundling offers the advantage of decoupling infrastructure costs from trade in either water allocations or longer term entitlements. If the situation arose where the costs associated with unbundling water rights could not be justiﬁ ed, an alternative approach could be to attach the infrastructure access fees to the land serviced by the infrastructure (PriceWa- terhouseCoopers 2006). If infrastructure access rights were unbundled, irrigators could be required to pay the access charge annually. Alternatively, the annual access charge could be converted into a lump sum of the net preset value of the charges that the irrigator would have been liable for had they remained in the system. If this liability was independent of whether an irrigator elected to trade all or part of their entitlement, the incentive for trade would not

364 australian commodities > vol. 13 no. 2 > june quarter 2006 interregional water trade be distorted. The decision to put an additional megalitre on the market would not increase their liability over fi xed costs; hence the trade would be made as long as the offer price was greater than the net value of using that megalitre on farm. If infrastructure costs were unbundled, buyers and sellers would be able to trade at market prices that refl ected the true costs and returns from water use. At the same time, the remaining irrigators would not face higher infrastructure access fees. Unbundling would also avoid the situation where an irrigation utility received an exit fee paid on water leaving the system and another irrigator who wished to enter the system paid the annual access fee. If water rights were unbundled, an irrigator could trade water and infrastructure access in separate markets. If a buyer for the infrastructure access right could not be found, the irrigator could choose to continue to pay the annual access charge or a lump sum refl ecting the capitalised value of the annual access fee. In the event that a buyer could not be found for the right to the infrastructure, an irrigator would be in the same position as if the rights remained bundled. That is, he or she would remain liable for the ongoing fi xed costs of water delivery. If the delivery system was congested, the price of the access right might exceed the capitalised value of the annual access fees and the irrigator selling the access right might be able to earn a resource rent (profi t). As with all policy interventions, it is important that the benefi ts of unbundling the water resource rights from the delivery access rights exceed the transactions costs of doing so. In the context considered here, unbundling would have the greatest benefi ts in regions that were likely to be net importers of permanent water. In addition to the reason outlined above, unbundling and establishing a market for infrastructure capacity would be an effective and effi cient mechanism for allocating delivery access, particularly if the system was congested. references Brinsley, P., Lewis, D., Eigenraam, M., Coburn, G., Spangler, G. and Vandewerdt, J. 2000, Future infrastructure maintenance: in water origin/donor areas, Discussion paper prepared for the Murray Darling Commission (unpublished). Goesh, T., Hafi , A., Heaney, A. and Szakiel, S. 2006, Exit Fees and Interregional Trade: An Analysis of the Effi ciency Impacts of Exit Fees, ABARE Research Report 06.5, Canberra, June. PriceWaterhouseCoopers 2006, National Water Initiative Water Trading Study, Draft Interim Report for the Department of Prime Minister and Cabinet, Canberra, March.

australian commodities > vol. 13 no. 2 > june quarter 2006 365 export infrastructure

> brian ﬁ sher > +61 2 6272 2100 > bﬁ [email protected] export infrastructure and access key issues and progress

brian s. ﬁ sher and roger rose

> In May 2005 the Exports and Infrastructure Taskforce reported to the Prime Minister on the then state of infrastructure supporting Australia’s major exports. The taskforce was set up at a time when some export facilities were under considerable pressure from a rapid rise in demand for Australia’s mineral and energy production. The taskforce found that, although there were some signifi cant short term bottlenecks, there was not a ‘crisis’ in export infrastructure. > The taskforce did fi nd, however, that there was substantial room for improvement in the way in which infrastructure is regulated. In particular, it appears that there has been a signifi cant opportunity cost resulting from not having respon- sive structures in place in the coal industry. Coal exports from Australia have grown slowly compared with those from Indonesia, for example, over the past few years. > This article contains a brief review of some of the signifi cant changes, and plans for change, in export infrastructure development and in regulation of infrastructure that have occurred over the past year. It also contains a discussion of some specifi c issues that were not addressed in detail by the taskforce. In particular, questions about the future of export grain transport are addressed.

purpose and perspective The Exports and Infrastructure Taskforce (2005) made a number of recommendations designed to make the regulatory environment less oppressive for Australia’s export industries. The focus of those recommendations was on limiting regulation of export related infrastructure to actions likely to produce economic efﬁ ciency gains. Reducing the complexity of regulatory approval processes and removing conﬂ icts between regulation at state and national levels were seen to be important. Also a priority was to speed up the regulatory decision making process. The taskforce recommended that, ‘in regulating export oriented infrastructure, the presumption should be that commercial negotiation between users and providers would be the natural starting point, with only light handed regulation when needed, and heavier handed regulation as a last resort’. For cases where heavier handed regulation was needed, the taskforce recommended that the Council of Australian Governments (COAG) change the regulatory framework in a number of ways designed to reduce the complexity of the process and limit the time taken to reach a decision to a maximum of six months. Any appeal of a decision should be considered ‘on the documents’.

366 australian commodities > vol. 13 no. 2 > june quarter 2006 export infrastructure

On a related issue, the taskforce recommended that each jurisdiction set up a ‘one stop shop’ for project facilitation and approvals. The taskforce recommended a series of planning and coordination initiatives, including facilitation of the development and operations of logistics chains, speeding up of planning under Auslink and extension of Auslink to include ports and shipping channels. It was recommended that work on harmonising road and rail regulations be given priority. The taskforce also suggested that Part IIIA of the Trade Practices Act 1974 be amended in order to protect vertically integrated, tightly managed logistics chains, especially those related to export industries, from third party access and thereby preserve their effi ciency. Finally, the taskforce recommended that the Productivity Commission be asked to carry out an infrastructure audit, to be repeated at fi v e y e a r l y i n t e r v a l s . developments in 2005-06 In response to continuing high levels of demand for Australia’s mineral and energy commodities, progress has been made on expansion of a number of regulated export logistics chains, particularly for coal. Some regulatory issues have also been resolved and, through COAG, Australian governments have committed to a broad program of regulatory reform. specifi c bottlenecks and investment issues At the time that the taskforce was set up, the abrupt, and largely unforeseen, increase in demand for mineral and energy commodities had given rise to a number of transport infrastructure bottlenecks both in Australia and elsewhere. The most evidently serious of those bottlenecks in Australia were caused by the combined rail and export terminal constraints on Hunter Valley coal exports and the capacity constraint at the Dalrymple Bay Coal Terminal. In both of those cases, temporary devices to ration available capacity have been in place for some time. Those devices have limited the queuing of ships, and thus have reduced demurrage charges. In mid-May 2006 there were moderate queues of ships at Dalrymple Bay and Glad- stone (thirteen and fourteen ships respectively) with waiting times between ten and sixteen days. Four ships were waiting to be loaded at Hay Point and three ships were queued at Newcastle. There were no queues at Abbot Point, Brisbane and Port Kembla. The Senior Offi cers Group (Australian Government 2005) pointed out that export volumes were less than the declared capacity of the Hunter Valley coal chain and that this loss of export potential was symptomatic of capacity rationing systems. However, it is not a simple matter to determine the short term effects of the rationing system, given that capacity usage will be determined by several factors, including mine throughput and overall demand for coal. For example, from January to May 2006 the annualised outloading rate at Newcastle was 81.7 million tonnes, which was signifi cantly below system capacity, possibly representing constraints on mine capacity. Work on longer term resolution of capacity constraints is under way in both the Hunter Valley and Dalrymple Bay.

Hunter Valley coal The major rail infrastructure expansion in progress is the Sandgate rail ﬂ yover, to be completed early in 2007. Some increase in effective system capacity was provided in the second half of 2005 by additional rolling stock and three head loading at Port Waratah (HVCCLT 2006). In November, Port Waratah Coal Services (2005) announced the australian commodities > vol. 13 no. 2 > june quarter 2006 367 export infrastructure

commencement of an expansion program on Kooragang Island that is designed to take total Newcastle port coal export capacity to 102 million tonnes by the end of 2007. In August 2005 the New South Wales Government selected the Newcastle Coal Infrastructure Group as the developer and operator of the Port of Newcastle’s third coal loader. The group plans an initial capacity of 30 million tonnes a year for the facility by 2009 (Newcastle Coal Infrastructure Group 2006).

Queensland coal For Queensland’s export coal industry there were several signifi cant regulatory decisions taken in 2005, both on the Goonyella coal chain specifi cally and to rail access more generally. First was the approval by the Australian Competition and Consumer Commis- sion (ACCC) of a capacity rationing system for exports from the Dalrymple Bay Coal Terminal. The ACCC gave temporary approval for the scheme to begin on 29 April 2005 and fi nal approval for a longer period, in December. The rationing scheme does appear to have reduced queuing, with a consequent reduction in demurrage. However, mine capacity continues to exceed system capacity, with mines such as Blair Athol ramped back because of system constraints. Second was the Queensland Competition Authority’s April 2005 fi nal decision on the access regime to the Dalrymple Bay Coal Terminal. That has allowed some progress on a set of investments to expand capacity at the terminal. For rail, the authority handed down its fi nal decision on Queensland Rail’s 2005 Draft Access Undertaking, December 2005, rejecting the draft. Queensland Rail is required to submit a revised document for the authority’s approval. That process is currently under way and is expected to result in a new undertaking from July 2006. Progress has been made on a diversity of private and public sector projects to expand production and reduce system constraints in the production and transport chain. These include works on: > rail infrastructure – upgrades of the Goonyella, Moura and Blackwater systems, completion of the Bauhinia Regional Rail Line serving Xstrata’s Rolleston mine and ordering of additional locomotives and wagons. > export terminals – Dalrymple Bay Coal Terminal, Hay Point Coal Terminal and Gladstone Port’s RG Tanner and Barney Point facilities. > water – various offstream water storage projects to improve short term supply, including the Moura Weir and Moura offstream storage, which will add 1620 megalitres a year to existing supplies, and commencement of the large scale Burdekin Falls Dam to Moranbah pipeline that will enhance supply for industry expansion. > power – planning of electricity transmission/distribution upgrades for mines and to support rail capacity enhancement. In addition, the Queensland Government has requested a report on the proposal to connect the Goonyella rail corridor (that services the Hay Point Coal Services and the Dalrymple Bay Coal terminals near Mackay) to the Newlands corridor that is connected to Abbot Point.

grain railways Rail transport of grain has not suffered from abrupt, or sustained, bottlenecks but there have been problems associated with failing rail infrastructure and diversion of grain to road transport. In this context, two signiﬁ cant sets of commitments have been made over 2005-06 — one to upgrade a number of the New South Wales restricted lines, another to

368 australian commodities > vol. 13 no. 2 > june quarter 2006 export infrastructure rationalise and rejuvenate the Eyre Peninsula rail system. Work is expected to commence by October 2006 on the latter project. iron ore Not all recent regulatory determinations can be regarded as having a positive impact on either export values or economic effi ciency. In November 2005 the National Competi- tion Council issued a draft declaration on BHP Billiton Iron Ore’s Mount Newman rail line. As is discussed further below, if this declaration is carried through, signifi cant economic damage is likely to result. It is of concern that the NCC made a recommendation without conducting an economywide benefi t–cost analysis to determine whether declaration would be in the national interest. Given the ineffi ciencies and delays that have arisen in the operation and expansion of multi-user infrastructure in the Australian coal export chain, it is likely that the application of such a test would demonstrate that declaration of the Mount Newman rail line would impose considerably more costs on the Australian economy than any benefi ts it may confer. COAG response to recommendations of the Exports and Infrastructure Taskforce At its 3 June 2005 and 10 February 2006 meetings, COAG reached agreement on a number of initiatives of direct relevance to export infrastructure. Those initiatives fall into three categories — regulatory changes under National Competition Policy; transport reviews and decisions; and a group of individual decisions related to the taskforce recommendations. In response to the taskforce recommendations, COAG reached agreement in principle at its 3 June 2005 meeting to: > speed up long term planning under Auslink > extend the reach of Auslink to cover ports and shipping channels > produce infrastructure reports for each jurisdiction every fi ve years > work toward harmonising road and rail regulations > establish ‘one stop shops’ for project facilitation. It was also agreed that the Commonwealth should facilitate the establishment of logistics chains coordination groups for systems of national importance. Agreement has since been reached that the fi rst infrastructure audit is to be completed by January 2007, although work is still in progress on the appropriate framework for the reports. On export infrastructure regulation, COAG agreed at its 10 February 2006 meeting on a presumption that commercial negotiation between provider and user be the starting point. For those cases where regulatory intervention becomes necessary to set access arrangements, key aspects of what was agreed involve: > inclusion of objectives clauses promoting economically effi cient investment in, operation of and use of infrastructure in all third party access regimes > consistency of principles for determining access prices > binding regulators to a maximum six month decision period, and > more simple and consistent rail access regulation with the Australian Rail Track Corporation access undertaking as a model. It was also agreed that state and territory access regimes would undergo a certifi ca- tion process to be completed by 2010 and that the regulation of port, port authority and associated handling and storage facilities be reviewed in each jurisdiction. On broader issues of regulation, agreement was reached on an effort to harmonise regulation and ensure competitive neutrality. australian commodities > vol. 13 no. 2 > june quarter 2006 369 export infrastructure

A number of transport specifi c initiatives were agreed at the 10 February 2006 COAG meeting. Those included a reference to the Productivity Commission to develop effi cient approaches to road and rail freight infrastructure pricing. The commission is to report by December 2006. There was also agreement that the work toward harmonised rail and road regulation should be completed within fi ve years. Improved safety regulation and standards for innovative vehicles designed to reduce road damage are included in the targeted changes in regulation. Further, there was agreement on coordinating transport planning and appraisal processes used for evaluating proposed road and rail infrastructure projects. As well, work will proceed on reviewing causes of urban congestion and options for managing it, with a focus on national freight corridors.

key issues for 2007 and beyond Australian exporters face a wide range of infrastructure terms and conditions. Exporters of high value goods that are neither perishable nor bulky compete in the broader domestic economy for transport and other inputs. Their concern is that domestic markets work effi - ciently. Only at or near ports do they have export specifi c infrastructure concerns. On the other hand, for the exporters of bulk commodities, such as coal, iron ore and grains, specialised export infrastructure is essential as is an intermodal approach to evaluating the transport logistics chain. Much of the port, rail and related infrastructure supporting Australia’s exports has elements of natural monopoly. In many cases it is impractical, or makes no economic sense, to have multiple systems. In cases where there are strong elements of natural monopoly, infrastructure owners could provide too little capacity and too low a quality of service in the process of extracting monopoly rents if left unregulated. The presence of some degree of natural monopoly offers reason to consider regulation. Taken alone, it is not always suffi cient to justify regulation, though. Of itself the act of regulating carries no guarantee of improvement. There are three reasons for that. First, there might not be that much of a problem in the absence of regulation. In that case, nothing of signifi cance could be gained from regulation even if intervention were possible at low cost. Second, regulators sometimes make mistakes, just as market participants do. Even when there is a problem in the absence of regulation, intervention may not make the situation any better. Finally, regulation imposes costs. Staffi ng and supporting regulatory agencies involves the direct use of resources. As well, regulatory processes require often signifi cant input of resources from existing and intending participants in the market. In addition, regulation of one facility may make investors wary of committing funds to other, similar, projects. A clear focus on achieving net benefi ts is required if the best is to be derived from regulation. an economic effi ciency objective A core issue in facilitating the development of effi cient infrastructure support for Australia’s export industries is the balance between action to limit the economic losses associated with extraction of monopoly rent by infrastructure owners and still providing incentives for investment in infrastructure. Much of the emphasis of Australian regulation has been on minimising the extraction of monopoly rent — so much so, that investment has not always been encouraged up to levels that are economically effi cient. The issue was raised by a number of exporters, industry groups and analysts in submissions to the taskforce and other forums in the context of a perceived reluctance to invest by owners of regulated export infrastructure. Affl eck (2005, p. 14) argues that there is ‘... indisputable evidence of

370 australian commodities > vol. 13 no. 2 > june quarter 2006 export infrastructure endemic underprovision of infrastructure capacity in the Hunter Valley export coal supply chain ...’ This has been particularly the case for rail infrastructure. The taskforce took the view that regulation of export infrastructure should be relatively light handed. A presumption that decisions should be made on the basis of commercial negotiation should be the starting point. A regulator, once involved, should avoid an emphasis on spurious accuracy. Instead, the emphasis should be on fi nding an accept- able range for the rate of return, service price or other parameter in question. In recom- mending this approach, the taskforce recognised the need for pragmatism in seeking to achieve economically effi cient outcomes. The Australian Government had already accepted the importance of including an economic effi ciency objective in Part IIIA of the Trade Practices Act in its response to the Productivity Commission’s review of the National Access Regime (Australian Government 2004). Such an objective, and a requirement that the National Competition Council and the minister have regard to the objective when making decisions, is to be incorporated into the act through the Trade Practices Amendment National Access Regime bill, currently before the Senate. However, it is an open question whether the inclusion of the economic effi ciency objective proposed will achieve the result recommended in the taskforce report. The proposal as drafted links the concept of economic effi ciency to ‘promoting effective competition in upstream and downstream markets’ and is not therefore a simple unquali- fi ed economic effi ciency objective. The potential effect of not having an effi ciency override in Part IIIA, and in related state legislation, can be illustrated by the case of disputed access to BHP Billiton Iron Ore’s Mount Newman rail line. In June 2004, Fortescue Metals Group Limited lodged an application with the National Competition Council to declare the Mount Newman line under Part IIIA of the Trade Practices Act. In November 2005 the council issued a draft declaration for the line for third party track access. They argued that the declaration would introduce competition into the markets for iron ore haulage and iron ore tenements in the southern central Pilbara region (NCC 2005). BHP Billiton is the owner and sole user of the service from the line, in the absence of a declaration for access to the rail line but it is legally obliged, by a state access regime, to haul iron ore for third parties. Since BHP Billiton is free to introduce competition in haulage, but chooses not to because it can provide the service effi ciently itself, there is no clear economic gain from introducing competition in haulage. It is also not clear that there are gains to be made from increasing competition in the market for iron ore tenements. For an intervention to increase economic effi ciency, any gains to be made from introducing competition into another domestic market through declaration would need to exceed the costs of that declaration. BHP Billiton estimates the present value of direct costs to it alone of introducing third party ore shipments at almost $1.7 billion (BHPBIO 2006). Those costs include the reduction in present value of net income from delays in BHP Billiton’s own projects, increased coordination costs and loss of rail slots on the Mount Newman line. In addition, it is estimated that the present value of lost taxation and royalty revenue would amount to $840 million. The estimate is based on assumed third party ore shipments of 45 million tonnes a year, based on an argument that Fortescue and its joint venture partner would need to jointly develop both Mindy Mindy and their Chichester Ranges deposits in order to cover their own infrastructure costs, even given access to the Mount Newman rail network. The costs estimated by BHP Billiton are very signifi cant and would probably substantially exceed the net present value of cash fl ows from the entire Mindy Mindy deposit (which is foreshadowed to operate at a rate of 5 million tonnes a year), although there would need to be some allowance for additional output that might australian commodities > vol. 13 no. 2 > june quarter 2006 371 export infrastructure

result from other junior miners taking advantage of the declaration (if this is considered likely). Furthermore, the BHP Billiton fi gures contain no estimate of the dynamic costs of depressing the incentive for infrastructure owners to invest and do not take into account the wider costs to Australia that would fl ow from delayed/lost investment and/or reduced capacity, as the analysis is confi ned to the net cost to BHP Billiton. The costs of declaration of the Mount Newman network would have been substantial, but it is unclear what benefi ts there would have been, if any. There is no comparative estimate of the potential gross benefi t of allowing third party access, even for the Mindy Mindy deposit alone. In fact, as is pointed out by CRA International (2005), insuffi cient is known about the deposit to assess whether or not it would be economic to mine it under any rail access arrangement. Even if the Mindy Mindy deposit proved to be economic with access to rail infrastructure, an alternative to declaration already exists. The state based Rail Transport Agreement requires BHP Billiton to haul third party ore using its locomotives and wagons. Such an approach may potentially provide most of the benefi ts of access to the rail track provided by declaration without the wider incentive costs. In particular, the discouraging effect on potential investments in the Pilbara more broadly, and possibly beyond, that is a characteristic of declaration is largely missing from the state agreement. Without the explicit inclusion of an economic effi ciency override in Part IIIA, all that is required to support a declaration is a demonstration that an increase in competition will occur, even if economic effi ciency is lowered. In fact, as the National Competition Council (2005, p. 66) points out in reference to an Australian Competition Tribunal decision on access to Sydney Airport, it is not even necessary to demonstrate that a potential third party entrant has a viable business. Inclusion of an economic effi ciency override and the requirement to undertake a benefi t–cost analysis that takes into account the loss of effi ciency may prevent one other possible problem. Although it does not use the criterion in its Mount Newman draft declaration, the National Competition Council (2005, p. 2) points out that Part IIIA requires that it be shown that a declaration would promote competition in a market, or markets, ‘... (whether or not in Australia)’. In other words, in another case, it could be suffi cient to show that a declaration promotes competition in some foreign market. Yet in terms of the economic welfare of Australians, promotion of competition in markets outside Australia is of no value, at best. If anything, increased competition between Australian iron ore producers on export markets would reduce export prices at a consequent cost to the Australian economy. This matter was raised by the taskforce (Exports and Infrastructure Taskforce 2005, p. 39) Among Australia’s export facilities, the Pilbara iron ore export chains stand out for the way that mine production, transport, cargo assembly and blending, loading and shipping are integrated. Relative to an integrated logistics chain with one owner, market processes with multiple owners of various parts of the chain often involve effi ciency losses as a result of less effective coordination, particularly in those chains for bulk commodities. For many of Australia’s exports involving high value, low bulk goods it is not evident that there is a problem. For example, Everett (2002) describes the development of coordinated logistics chains in the competitive transport market that has grown as a result of deregulation of rail in Australia. Importantly, competition is also likely to give rise to effi ciency gains in a number of other areas. For some major bulk commodities, such as grain and particularly coal, however, there are evident losses from lack of coordination under current structures. The setting up of the Hunter Valley Coal Chain Logistics Team was a response to coordination problems and capacity constraints. To date, the gains from operation of the logistics team have arisen almost entirely from its focus on operations, rather than through

372 australian commodities > vol. 13 no. 2 > june quarter 2006 export infrastructure its infl uence on investment patterns. It has been able to achieve an increase in effective capacity of the coal export chain of around 20 per cent through its efforts in modeling, scheduling and bringing the participants in the chain to view the system as a whole. As part of the package agreed by COAG in February 2006, the Australian Govern- ment agreed to take the lead in facilitating the development and operation of similar logistics groups in other export chains of national signifi cance. The Hunter Valley team operates largely at an operational, rather than at a long term planning, level. A reasonable question to ask is whether or not such groups should also have a direct hand in providing advice on infrastructure investment. The Hunter Valley Coal Chain Logistics Team was set up and has developed to facilitate effective operation of the coal chain. A natural consequence of an operational understanding of the system is an understanding of the likely future bottlenecks. The Blackwater System Export Coal Producers Executive and the Goonyella Coal Chain Improvement Project have provided forums for coal companies and rail and port service providers to address both operational and longer term capacity issues on these key Queensland export coal corridors. Most recently, Queensland Rail Network Access, as the common element in all corridors, has assumed the central role for evaluating options for Queensland coal infrastructure expansion on an integrated, whole of system basis. Some have argued that regulatory change is necessary to encourage cooperative efforts. For example, Pacifi c National (2005) argues for amendment of the ACCC guide- lines for assessment of access undertakings. Affl eck goes further in suggesting permanent change of Part 47 of the Trade Practices Act dealing with collaboration and cartel behavior. The purpose of the suggestion is to allow participants in export chains to coop- eratively produce demand forecasts and investment plans. Whether such suggestions are practical is another matter. Companies competing in export markets often have strong disincentives for sharing price and market information. In the coal industry, past achievements and current initiatives in addressing capacity constraints show that a great deal can be achieved within existing regulatory frameworks, as demonstrated in the Hunter Valley. Outside the coal industry, the ACCC approval of a joint venture between GrainCorp and AWB Limited to provide logistics services for export grain to the AWB and GrainCorp parent companies does not point to a severe constraint (ACCC 2005). In considering whether a more formal relationship would be useful, there is also the question of whether better information, either forecasts or base cost information, would be provided by parties that have divergent, as well as some common, interests. Prospects for gaming are considerable, as each user and infrastructure provider is tempted to pass information through the screen of self interest before releasing it. The type of gaming that might limit the effectiveness of attempts to coordinate an export logistics chain is also evident in the process of arriving at regulatory decisions. In order to establish the conditions for an access decision, for example, a regulator must gather information from competing parties. Always, the infrastructure provider and users are competing for shares of the net benefi ts of infrastructure provision. As well, the infrastructure users are competing in input and output markets. To each participant in the process, what matters is the individual share of net benefi ts, not the total economic gain. Therefore, each may have a strong incentive to provide information and argue a case with a particular slant. Gaming involves direct costs in terms of the additional effort that all of the participants expend in arguing individual cases. It generally involves additional cost to the regulator, as well. Almost inevitably, the more intense the gaming, the longer is the decision process.

australian commodities > vol. 13 no. 2 > june quarter 2006 373 export infrastructure

The taskforce argued that the greater the discretion given to the regulator, the greater is the potential for gaming. In principle, implementation of the agreed six month time limit on regulatory decisions should limit the undesirable effects of gaming, as should the agreement to limit information used in any appeals process to that already documented before the appeal. There is evidence of successful use of face to face workshops involving the infrastructure provider and users in reaching fi nal resolution of outstanding issues. For example, the workshop approach was used by the Independent Pricing and Regulatory Tribunal of New South Wales to arrive at an agreed remaining mine life and range for the rate of return to Austra- lian Rail Track Corporation assets on the Hunter Valley coal network (IPART 2005). rent seeking, sovereign risk and investment Existing and potential infrastructure investors face two types of risk — market risk and sovereign risk. Market risk arises from the unpredictability of supply and demand in input and output markets, and consequently in input and output prices. Sovereign risk is the risk arising from unpredictable change in government policy or behavior of a regulatory agency. There is another aspect of government/private sector relationships that runs almost parallel to sovereign risk that has particular application to infrastructure investments. That is the impact of private lobbying, or rent seeking behavior. Rent seeking related to infrastructure may be directed to convincing governments to fund investments — either through direct fi nancial contributions or tax breaks or indirectly by waiving regulatory conditions. Regulatory actions may have incentive effects outside the case at hand, or even the industry to which the case applies. A regulatory or legislative decision that has a negative effect on investment returns in one activity may discourage productive investment if it is considered likely to set a precedent having wider implications. For example, declaration of an asset under Part IIIA of the Trade Practices Act may have such an incentive effect. Declaration of a privately provided asset will almost always have some negative effect on broader investment incentives. An application to declare an asset should only be made when the applicant has failed to come to a commercial arrangement with the asset owner after genuine attempts to reach agreement. If there have been genuine attempts to nego- tiate access but no arrangement has been agreed, this means that access will involve some costs that the asset owner is not willing to bear voluntarily. In some circumstances the negative effect of a regulatory decision may be overwhelmed by other, positive, economic effects of the decision. The greatest discouragement to investment is likely to fl ow from a decision that appears to represent a change in direction in regulation and to represent a precedent for a broader set of cases. The potential incentive effects of regulatory change may be substantial across the broad set of infrastructure access regulation. In this sense, the recent set of decisions by COAG designed to produce greater harmonisation of competition, access, and road and rail regulation is particularly important. In recent times, the role of government in Australia has moved away from provision of infrastructure toward an emphasis on facilitation and regulation of private infrastructure. Nevertheless, governments are still the main providers of roads, the owners of infrastructure providers, such as Queensland Rail and Australian Rail Track Corporation, and joint funding agencies for port, rail and other facilities. As well, governments have a direct infl uence over the costs borne and revenues received by infrastructure providers through taxation and other regulatory arrangements. That means that it may be in the interests of

374 australian commodities > vol. 13 no. 2 > june quarter 2006 export infrastructure private sector infrastructure providers and users to indulge in a variety of lobbying and gaming behavior in an attempt to receive favorable treatment from government. Lobbying may involve bidding to have government provide all or part of the funds for an asset, or to change competition or other regulation in favor of the applicants. Industry participants may indulge in gaming by stalling private contributions to construction of a clearly necessary asset in the hope that government can be embarrassed into contributing. There is strong public interest in facilitating effi cient development of Australia’s export infrastructure. What should be possible is to reach a degree of harmonisation on investment rules, based on achieving net economic benefi ts, between jurisdictions. That may limit the tendency for interstate competition and wasteful use of public funds and thus limit private lobbying and delaying efforts designed to attract those funds. asset values and rates of return in access regulation A primary mechanism in the structure of infrastructure access agreements approved by Australian regulatory agencies is the allowable rate of return on an approved valuation of the asset base. While Australian regulators have developed common approaches in these and other key areas of regulatory decision making, in applying these approaches there are aspects that necessarily involve discretion and case specifi c judgment by regulators. There is also some question about the appropriateness of standard approaches, particularly on rates of return. On asset values, whether a new asset should be included in whole in the regulated asset base, or an existing asset should be ‘optimised’ out, has a number of dimensions. Those dimensions include scope (whether the asset is needed to deliver required capacity) standard (whether it is overengineered), cost (effi ciently procured) and, generally, the application of replacement cost valuation methodologies. On the rate of return, the primary issue is establishing the appropriate risk premium. In some instances it may be possible to estimate a risk premium from market trading associated with related assets. That will not always be possible. Even when it is possible to estimate a risk premium from market data, a degree of subjectivity is inevitable. It is both possible and desirable, however, to view the risk premium in the context of the other contractual arrangements. A risk premium is not something that is primarily dependent on the nature of the asset. It is a function of the business arrangements as a whole. Conventional approaches to risk premiums may lead to serious underestimates of the required rate, by failing to take account of real options. The standard valuation techniques ignore the granting and/or extinguishing of real options — essentially options to choose when to invest or not invest — when access is mandated and/or expansions to declared facilities required. This ignoring of real options tends to bias down the calculated required rate of return, perhaps substantially. As well, the capital/asset pricing model that under- lies the standard approach to rates of return embodies an assumption that all assets are marketable. In some circumstances, that assumption may not be met, at least in the short to medium term. When skilled labor is effectively not available from the market at any price, the opportunity cost of committing resources to expand the facility from expansion cost estimates – Dalrymple other parts of the business may be particularly high. 1 Bay Coal Terminal Again, the standard market valuation approach may september july april underestimate the required return. 2004 2005 2006 More generally, relying on rate of return regulation Capital cost $m 587 1 113 1 327 raises issues about incentives to minimise the capital New capacity $m 90 90 85 cost of new assets. In this regard it is pertinent to australian commodities > vol. 13 no. 2 > june quarter 2006 375 export infrastructure

examine the data on the changing estimates of the cost of expansion of the coal terminal at Dalrymple Bay over the past eighteen months (table 1). Using take or pay contracts for infrastructure capacity to replace casual fees for use is a risk shifting and sharing device. With a casual fee for service approach, the infrastructure owner bears the risk that future demand will not meet forecast demand. With a take or pay contract, much of the demand risk is shifted onto the user. How much is shifted depends on the price struck. The infrastructure owner still bears some risk associated with failure of the user’s business. In some instances, there may be a substantial risk of default in cases of falling commodity prices, particularly in the case of single commodity fi rms. road and rail charges and investment Road transport is important to the success of a wide range of export industries. As well, investments in and charges for roads can also be important through their competitive effect on rail transport. Road transport issues fall into two broad categories — those associated with investment in roads and those with charging for road use. Leaving aside the investment question for the moment, for an effi cient outcome to result from charging for access to infrastructure, the price a user pays must equal the additional cost that that user imposes on the infrastructure owner and other users. On a road, the relevant costs are: the cost of providing the road; the wear and tear from use; congestion costs and accident costs to other users; and, in at least some circumstances, noise and other pollution costs. No road user is charged for congestion or pollution costs, although all users bear congestion costs. Accident costs are partly covered by insurance premiums, but only partly. As well, it is road users who bear much of the cost of accidents. What they do not do is bear costs in proportion to the marginal cost that they impose on other users. Historically, charging users on the basis of marginal cost would have been too costly to consider. However, new technology may make it feasible to do so at reasonable cost in the near future. Heavy vehicle owners pay a two part price for road access. They pay registration charges to state governments and they contribute 19.6 cents a litre in fuel excise to the Commonwealth. The intent behind heavy vehicle charges is to refl ect something of the repair costs that they impose and the space that they occupy. Road damage costs are a function of axle loads, distance traveled and the type of road being traveled. The marginal road damage done by a large truck using a highway with heavy duty construction may be very much lower than that imposed by the same truck on a lightly built country road. Existing two part charges are weakly related to axle weight and distance traveled. They are not related in any way to the type of roads being used. Even evaluated at average distance traveled by vehicles in each class, with existing charges, B-doubles and road trains pay too little relative to their road use (NTC 2005). Further, setting fi xed charges on the basis of average road use for each class of vehicle means that vehicles that travel the greatest distance pay the least per tonne kilometre. The greater fuel effi ciency of large vehicles limits the use of fuel excise as a distance charge. Overall, there is a large cross subsidy from smaller heavy vehicles involved in local transport tasks to large vehicles involved in long distance transport. In addition to the costs outlined above, the use of heavy vehicles involves signifi cant costs that are not covered by road charges. Leaving aside congestion costs, the primary additional costs that are not covered by road charges are the uninsured portions of road accidents. These costs are much higher than rail costs for an equivalent transport task. The Bureau of Transport Economics (1999) estimated that an average additional charge of 0.34 cents per tonne kilometre would be necessary to produce competitive neutrality

376 australian commodities > vol. 13 no. 2 > june quarter 2006 export infrastructure between road and rail. The basis of that analysis was average road charges. So the charge on B-doubles and road trains might need to be considerably higher than that to account also for cross subsidisation from smaller heavy vehicles in the current arrangement. From an economic effi ciency perspective, it would be desirable to set road use charges equal to marginal cost if the same occurred in rail, the main competitive transport mode. The structure of ownership and regulation of rail means, however, that rail services are not priced at marginal cost. Public roads in Australia are funded through a variety of programs by federal, state and local governments, with funding not directly related to revenue from road charges. On the other hand, railways, whether publicly or privately owned, are more frequently run as commercial operations. Rail charges are set with the intent of covering capital costs. Whether they do or not is open to question. Ergas (2006) points out that the use of depreciated optimised replacement cost as a regulatory guide for charges has no obvious economic basis. It does, however, ensure that rail charges exceed marginal cost. To the extent that roads are funded from general taxation revenue and railways are funded from rail charges, there seems to be an economic case either for charging road users more than marginal cost or for providing fi nancial support for rail investments. The differential between road and rail accident costs appears to strengthen that case. Without an effective means of charging on a mass/distance basis with differentiation according to road type, though, the gains in effi ciency may not be large. The Productivity Commission has been asked to report by December 2006 on effi - ciency in road and rail pricing. The commission’s task will include a comprehensive review of the pricing issues outlined above, but not the road investment issue. From an export infrastructure point of view, some assurance of appropriate investment choices is provided through Auslink. The focus of Auslink, however, is on routes of national importance. It seems unlikely that it will ever be true that all of the roads that are important to export industries will be covered by a national scheme. Therefore, it is important that a strong framework exists for making effi cient funding choices for roads across all levels of government. grain transport In recent years, Australian exports of grain have typically been around 24 million tonnes a year, but fl uctuations in seasonal conditions make the range quite large. Although virtu- ally all export grain moves some distance by road, approximately 84 per cent of the total transport task, in tonne kilometres, is carried out by rail. Most export grain is moved from farm to local silo, or strategic site, by road and from there to the export port by rail. Excep- tions have been regions such as the Eyre Peninsular, where signifi cant amounts of grain are grown close to export ports. Over time, road transport has become increasingly important in moving grain longer distances, either to larger regional storage and handling facilities or direct to export ports. Several factors have contributed to the increasing use of road transport, including the increasing diversity of grain products produced and improvements in the technology embodied in trucks and trailers. To some extent, diversion to road transport may refl ect effi cient responses to changing industry structures and market opportunities. On the other hand, there appear to be serious issues about the appropriateness of regulation and levels of investment in the road and rail infrastructure that services export grain. Issues arise at three interrelated levels in transport of export grain. The fi rst concerns the viability of a number of branch lines that wholly or largely service the grains industry. The second concerns the effi ciency of transport to port. Finally, there are questions about australian commodities > vol. 13 no. 2 > june quarter 2006 377 export infrastructure

the appropriateness of regulation of access to rail infrastructure and of the relationship between road and rail pricing. At all three levels, the infl uence of the historical development of the grains industry and related transport, storage and handling infrastructure is important. Most of the branch lines over which grain is now moved were built in the late 19th or early 20th century. Their initial transport task was some mix of passengers, livestock products, fertiliser and other farm inputs, grain and general freight. Over time, while grain production has increased, falling rural populations and improvements in road transport have resulted in most nongrain use of rail diminishing greatly, if not ending. The combination of changes in population and industry structure has left many branch lines in grain growing areas effectively orphaned, with only a brief seasonal demand for transport of grain to sustain the lines. Competitive pressures arising from a less regulated pathway from farm to market, along with improved trucking technology, may mean that some of these lines are no longer viable, even given expanding production of grain. The transport and handling of much of Australia’s export grain before domestic market deregulation can be characterised in fi gure A. Grain was transported a short distance by road to a local silo on a branch line. From there, it was moved by branch line to a sub-terminal or other collection point on a main line where full loads could be assembled for larger, more typical grain transport and handling system effi cient trains. Trucks were small, roads were bad and A before deregulation there was little on-farm storage. Having numerous small silos close to farms facilitated the harvest. The farm absence of a profi t motive and pooling of costs in state owned and cooperative grain handling organi- local silo road sations further encouraged the proliferation of small subterminal silos. It meant that there was little incentive for grain branch line handlers to seek economies in operation and pass port terminal them back to growers. main line Deregulation of grain storage and handling, of export markets domestic marketing of grain and export marketing of grains other than wheat offered opportunities for rationalisation of storage and handling facilities. Priva- tisation of grain handlers and marketers promoted competition in marketing and handling. Coinciding with those changes was privatisation of rail carriers and the introduction of potentially competitive above rail operations. The removal of regulatory constraints and creation of profi t oriented handling and marketing organisations has provided both the opportunity and competitive pressure for innovation in provision of effi cient farm to port logistics services. In the current competitive environment in handling and transport, grain handlers have a strong incentive to develop effi cient sites and to offer growers competitive handling and transport packages. Increasingly, there has been investment in larger regional facilities that allow the capture of size economies in grain handling. Development of larger regional centres allows more effi cient handling and the capture of synergies between handling, marketing and transport to port. High speed inloading in such centres limits expensive waiting time for loaded trucks. High speed outloading facilities may allow the owner of a regional centre to profi t from more effi cient use of trains to port. For example, AWB Limited has been able to reduce total costs of handling and transport to port by 25 per cent at its Dimboola railside site (AWB 2005, p. 23). The cost reductions include gains from the competitive rail transport provision on an Australian Rail Track Corporation controlled line to port. Not all of

378 australian commodities > vol. 13 no. 2 > june quarter 2006 export infrastructure the strategic sites are rail based. Ausbulk has two road based strategic sites on east Eyre Peninsula, for example. Larger strategic sites also have the potential to allow effi cient handling of a greater number of segregations. With a much greater diversity of grains and pulses now produced, there is demand for segregated space in storage and handling. As well, in an environment of privatised marketers and partially deregulated marketing, there is a much greater emphasis on maximising the value from segregated wheat and barley than there was in the past. For many growers, the greatest net value may come from trucking grain to a strategic site, as represented in fi gure B. Increasing use of larger strategic storage and handling facilities does not necessarily make branch lines uncompetitive. There may be instances where the effi ciency gains from a regional handling facility enhance the viability of one or more branch lines that service the facility. However, in most circumstances there are several factors that work against branch lines. First, with improved road technology, particularly in the form of B-doubles and road trains, road transport may offer a cheaper option. Trucking direct from farm to a regional silo avoids the double handling of grain. As well, the design and condition of many branch lines militates against low cost transport to strategic sites. And the charging system for road access strongly favors road users. Generally, branch lines were constructed to a standard that made it possible to use only light trains at typical grain transport and handling system moderate to low speeds. Those factors alone mean B after deregulation that grain carried on branch lines must be consolidated at some point on a main line to allow realisa- road strategic site tion of the economies from use of heavier, faster trains on the main route to port. A rail line that supports only export small trains at low speeds has a cost disadvantage. farm port terminal markets For example, labor cost may be largely fi xed on a per crew per shift basis. Unit labor costs, then, will be local silo greater the smaller and slower the train. Many other road operating costs do not increase in proportion to the size of the train, so cost per unit of freight are higher subterminal/ for small trains. In many cases, low speed loading at branch line strategic site small silos adds to the time disadvantage. Low total main line turnover at those silos will limit the net gains that can be made from installing higher speed loading facilities. As well, trains with slow turnaround may involve a signifi cantly greater unit cost of rolling stock, even allowing the higher total cost of a heavier, faster train. These are negative cost factors that are inherent in the light construction standard of many branch lines. The current state of repair of many branch lines adds to those negative infl uences. The state of repair of branch lines appears to vary considerably between states and within states. A set of pressures that are common across grain dependent branch lines is, however, effectively illustrated by the New South Wales restricted lines. New South Wales In New South Wales the fi fteen restricted lines for grain transport were maintained on a ‘fi x when fail’ basis over a long period. That meant that train speeds were severely constrained and eventually led to operations on some of those lines being suspended on safety grounds. The track is owned and maintained by the Rail Infrastructure Corporation, with above rail services provided by Pacifi c National as part of an agreement that expires australian commodities > vol. 13 no. 2 > june quarter 2006 379 export infrastructure

grain rail in 2007. Effectively, the lines are maintained if the cost 1 New South Wales of doing so is seen by the New South Wales Govern- ment as a worthwhile avenue for public expenditure. open In January 2004, the NSW Grain Infrastructure Moree restricted Advisory Committee reported on the cost of upgrading closed Narrabri the fi fteen restricted branch lines (map 1), compared with suspending rail use and upgrading roads. For Werris Creek Dubbo each branch line, the estimate of road upgrade costs is based on upgrading a single route by road. Those comparative cost estimates are given in table 2, NEWCASTLE Griffith expressed as differences between the cost per tonne SYDNEY Temora of the rail upgrade option and the road option. The PORT KEMBLA costs per tonne were estimated on the basis of an Albury annual grain quantity at the average of recent past grain production per hectare of farm area levels being sustained over a twenty year period. The committee’s estimates of the cost of the alternative of upgrading roads were based on information obtained from the Road Traffi c Authority and local councils. The committee based the estimates on a controlled, postharvest, movement of grain from rail side silos along a single route for each of the branch lines, while recognising the limitations of the approach. In the case of some of the branch lines, the reality may well involve grain moving on several alternative road routes. The estimates may, therefore, understate the costs the road alternative. The committee considered the information underlying the estimates in table 2 along with additional information on operating costs provided by Pacifi c National. It recommended funding upgrades of fi ve of the branch lines: Merrywinebone–Burren; North Star–Camurra; Tottenham–Bogan Gate, Ungarie–West Wyalong and Naradhan– Ungarie. The committee did not include Greenethorpe–Koorawatha in that group although the estimated cost of upgrading the line is less than the estimated cost of upgrading costs of upgrading options for New South Wales roads. Pacifi c National indicated that the 2 restricted lines operating costs of that line are high relative to those of other restricted lines. The committee total rail difference in cost: upgrading costs road – rail suggested that there was little point in further expenditure on the three lines for which the cost $m $/t per tonne of a rail upgrade cost exceeded that Gwabegar – Binnaway 25.5 –13.5 of a road upgrade by the greatest amount. The Warren – Nevertire 4.2 –7.6 Burcher – West Wyalong 5.5 –6.2 committee suggested that further research was Rankin Springs – Barmedman 13.4 –5.2 required to more accurately determine the road Willbriggie – Yanco 4.1 –4.1 upgrade costs for the remaining seven lines. Hillston – Griffi th 10.2 –3.1 In July 2005 the New South Wales Govern- Boree Creek – The Rock 9.6 –2.6 ment announced it would spend $21 million Weemelah – Camurra 12.2 –1.7 upgrading eleven of the lines (highlighted in Lake Cargelligo – Ungarie 9.5 –1.0 table 2). Suffi cient repairs were to be made Tottenham – Bogan Gate 18.6 0 Greenethorpe – Koorawatha 3.8 1.8 to the Gwabegar–Binnaway line for the grain Ungarie – West Wyalong 0.9 1.9 already stored along that line to be removed. North Star – Camurra 3.0 2.2 From then, operations have been suspended Merrywinebone – Burren 7.1 3.5 on the four lines identifi ed by the committee as Naradhan – Ungarie 1.3 6.7 having the highest differential cost per tonne

380 australian commodities > vol. 13 no. 2 > june quarter 2006 export infrastructure between rail and road upgrades. The government has since announced that it will further fund repairs to the eleven lines to the extent of $15 million a year to 2007-08, bringing total expenditure since the review to $69 million (Watkins 2005a,b). Implicit in the committee’s recommendations was a need to make appropriate funding and road regulatory arrangements in the case of lines being closed. However, there was no parallel commitment to upgrade roads. It is clear that operating conditions on the eleven restricted lines that are to be upgraded will be improved by the upgrading program, at least for the medium term. The information underlying the committee’s cost estimates suggests that trains will be able to operate safely on the upgraded lines at considerably higher speeds than has been the case. That should reduce operating costs per unit of grain moved. There should also be some reduction in routine maintenance costs. The committee estimated the annual cost of maintenance at $13 600 per kilometre of line, but that could be reduced to around $5000 per kilometre with an initial intensive repair effort and ongoing preventative maintenance program. It also noted, though, that the capital expenditure could not be justifi ed purely on the basis of the savings in ongoing cost and potential revenue from operation of the lines. It should be noted, however, that the government’s total spending package of $69 million is less than the $80 million for the eleven lines on which the committee’s estimates were based. In consequence, the gains in effi ciency of operation and maintenance cost might also be reduced. Private ownership of lines in other states means that the level of detail available about the condition of branch lines is less than it is for the New South Wales restricted lines. Nevertheless, it is clear that deferred maintenance and problems in the running of the lines are common across much of the Australian grain belt. AWB Limited states that the majority of branch lines in Western Australia are in relatively good repair (AWB 2005). It seems also that some effort has been made to maintain branch lines in Queensland, although the narrow gauge limits the size of loads. In Victoria, Pacifi c National holds a long term lease on the track, except the national routes held by the Australian Rail Track Corporation, and also operates the above rail services. In South Australia, Genessee and Wyoming owns the track and operates the above rail service. In Western Australia, Babcock and Brown owns the track and Queensland Rail operates the above rail services. Until early 2006 all the Western Australian and South Australian assets were owned by Australian Railroad Group. It is clear that, at the time of privatisation of rail in Victoria and South Australia, the new owners purchased a package with seriously degraded branch lines. Track conditions on branch lines in South Australia are probably reasonably well illustrated by those on the Eyre Peninsular, where an increasing frequency of derailments and other system failures compromise the competitiveness of rail (Parliament of South Australia 2006a). Stra- tegic Design and Development (2005) describes the condition of branch lines in South Australia and Victoria, respectively, as ‘very poor’ and ‘failing’. There is little evidence that the operators of track in either state have demonstrated a willingness to invest in upgrading branch lines (ABB 2005; AWB 2005). That is not surprising, bearing in mind that the revenue from access charges to the New South Wales restricted lines has been around 3 per cent of maintenance costs (Grain Infrastructure Advisory Committee 2004, p. 10). The poor state of repair of many branch lines often means that there are more severe restrictions on the operation of rolling stock on the lines than those imposed by the underlying light construction of the lines. For example, branch lines in South Australia and Victoria are subject to severe speed limits or closure when temperatures reach 30 degrees. In essence low speed limits and line closures caused by poor maintenance exaggerate the australian commodities > vol. 13 no. 2 > june quarter 2006 381 export infrastructure

effect described above of low operating speeds on the effi ciency of transporting grain. Both factors contribute to less effi cient use of rolling stock, and consequently greater unit cost of transport. Both limit the timeliness with which grain can be moved to market, with consequent increases in demurrage cost or diffi culties in obtaining preferred shipping. Some low volume branch lines may be subject to feedback effects that will ultimately make their continued operation unviable. To achieve economies in transport requires consolidation of small loads from light trains into larger loads in heavier trains. To do so through collection at often small silos on branch lines may be a slow and rather costly process, compared with direct trucking to a larger centre with higher speed inloading and greater segregation. Many of the small farms on branch lines were established at a time when most farmers had little reliable on-farm storage and owned or had access to limited trucking capacity. In such circumstances, having a small silo near the farm solved the harvest time transport and storage problem. The amount of on-farm storage has increased and farmers now have access to larger, more effi cient trucks, at a time of their choosing. Of course, the more that growers use road transport to larger centres, the less is the potential revenue available for upgrading the branch line and associated silos. From a systemwide perspective, there may be more to gain from concentrating investment funds on upgrading larger grain handling facilities on main lines and track and rolling stock on those lines. It is worth noting here that the Grain Infrastructure Advisory Committee’s study is based on a simplifying assumption of a constant amount of grain transported on the branch lines studied for the duration of the twenty year period of the analysis. It is diffi cult to say how accurate that assumption will turn out to be. On the one hand, grain production is likely to increase over at least the initial part of the twenty year period. On the other hand, the factors encouraging farmers to use road transport to strategic sites seem likely to strengthen. In recent years, continuous productivity improvement in the grains industry has bolstered total Australian grain production. Ongoing improvement in plant varieties and crop management technology is expected to maintain growth in yields and support continued profi tability of grain growing. Additionally, the medium term outlook for wool is subdued, making some expansion of total cropping area attractive. The combination of crop area and productivity growth is expected to result in an increase in production of grains. Never- theless, continuing rationalisation of grain handling and storage facilities and improvements in road transport technology seem likely to draw a greater proportion of production onto roads, at least for farm to silo trips. Any resulting decline in rail’s transport task over time would make the net costs per unit of branch line upgrades greater than those estimated. In other words, if any of the factors encouraging direct road delivery to strategic sites strengthen, the value from upgrading the branch lines may be less than that estimated by the committee. The results of the Grain Infrastructure Advisory Committee’s study for New South Wales restricted lines, and the similarity of those results to the Canadian results, suggest that, for some branch lines, investment in upgrading may not make economic sense. That seems likely to be true even if allowance is made for the potential effect of the most critical of the committee’s simplifying assumptions. On the one hand, the costs of road upgrades may well be greater than that implied by a controlled movement along a single road for each branch line. On the other hand, the competitive pressure from road transport to strategic sites may well increase over time suffi ciently to reduce the movement of grain over at least some of the branch lines, even in the face of upgrades. If that were true, the net benefi t from rail upgrades could be less than that estimated by the committee.

382 australian commodities > vol. 13 no. 2 > june quarter 2006 export infrastructure

Even allowing for the possibility that the committee’s assumption of a controlled movement of grain on a single road led to an underestimate of the costs of road upgrades for some of the lines, it appears that the road upgrade may be the better option in some cases. Whether that is true or not may depend on the size of other ‘external’ costs imposed by the choice of transport. In the analysis of the New South Wales restricted lines, the Grain Infrastructure Advisory Committee considered the effects of accounting for external cost. The inclusion did not materially change the results of the analysis for most of the lines. For the Gwabegar–Binnaway line, the line involving the greatest difference between rail and road upgrades per tonne of grain moved, accounting for external costs increased the total costs of road transport by around $0.50 a tonne. That reduced to estimated excess of cost of rail compared with road from $13.50 a tonne to $13.00 a tonne. The impact of estimated external costs is proportionally more important for some of the lines where fi nancial costs of road and rail are more closely matched. The importance and impact of external costs of road transport may differ across three levels from farm to port. Using a fi xed, per kilometre estimate of external costs of road transport does have limitations. In a practical policy sense, the nature and concentration of external costs may also be important. For example, in the case of some movements of grain from farm or local silo to main line storage and handling facilities, congestion costs may be limited. On the other hand, where road transport to port is being considered, the congestion costs and loss of amenity from large concentrations of trucks in builtup areas around ports may be very high. In fact, providing even basic access for large numbers of trucks to deliver to a port may involve considerable expenditure on specifi c facilities at the site, in addition to any external costs over the rest of the route. The question about the most effi cient alternative between branch lines and road for the New South Wales restricted lines is confi ned to local transport. That is also likely to be true of those areas of Western Australia that are more distant from port, for Queensland and parts of Victoria and South Australia. Regardless of the choice, transport from a major collection point to port is almost certain to be rail. In regions where road transport to port is feasible, there may be a broader set of issues. Eyre Peninsula The Eyre Peninsula region of South Australia has all of the issues associated with low volume branch lines facing competition from road transport. There is a serious question about the viability of those parts of the rail lines more distant from Port Lincoln, including the usefulness of maintaining the rail link to Thevanard, the second, but minor, export port. In addition, the region faces a broader set of issues associated with diversity of choice or route from farm to port illustrated in fi gure B. There has long been direct competition between road and rail for delivery to port. Construction of strategic offrail storage and handling sites by Ausbulk may have added to that competition. The Eyre Peninsula rail system is a grain dominated system, isolated from other rail systems. The track is owned by Genessee and Wyoming, which is also the above rail operator. As is the case with many other branch lines, the lines are in a poor condition. As is noted above, derailments and other failures are frequent and appear to compromise the system’s performance suffi ciently to encourage reliance on road transport. In a report produced for the South Australian Parliament Public Works Committee, Strategic Design and Development (2004) calculated that the rail system ‘cannot be operated on a profi t- able basis’ in its current condition. Only with signifi cant expenditure would it be possible for the net benefi ts from operating the rail system to be positive. australian commodities > vol. 13 no. 2 > june quarter 2006 383 export infrastructure

proposed rationalisation Strategic Design and Development estimated the 2 Eyre Peninsula network truncated at Wudinna and Kimba net present value of rail operations for a number of track upgrade and rationalisation scenarios, including one Thevenard involving an upgrade of all of the existing rail network (as shown on map 2) and one involving complete Poochera abandonment of rail. For each of the scenarios, they Buckleboo modeled the pattern of road and rail movements of Streaky Bay Wudinna Kyancutta Kimba grain. They provided, separately, estimates of net Witera Warramboo Waddikee returns to the rail system and of the road repair and Darke Park external costs imposed by road transport of grain. Mangalo Kielpa Lock Elliston Cowell Strategic Design and Development identiﬁ ed the Murdinga rail network Rudall option involving truncation of the rail network at Lock upgraded Tooligie Wharminda Arno Bay and Rudall, with capital expenditure of $13.4 million rail lines closed Kapinnie Yeelanna Ungarra Port Neil sealed road network Cummins and a net present value of $14 million (given a twenty

port site Edillile Tumby Bay year life), as having some apparent commercial strategic rail site appeal to a rail operator. They questioned whether Port Lincoln general rail site the option would provide a suffi ciently robust structure strategic road site general road site to allow rail to compete over the long run, though. The scenario involves cutting the rolling stock from three to two trains, which could seriously compromise rail’s ability to handle peak harvest volumes. They suggested that the option of maintaining the rail links to Wudinna and Kimba, and maintaining three trains, may be more practical, although it involves capital expenditure of $24.1 million to achieve a net present value of $14 million. Who in the export grain logistics chain would capture the estimated net gains from rail rationalisation and upgrades is an open question. Strategic Design and Development suggested that the potential rewards to the rail owner are not suffi ciently high to justify investing the $24.1 million, given the risks inherent in crop production variability and the risks of losing benefi ts to other parties in the logistics chain. They went on to recommend seeking Australian Government assistance for a package of measures, including expenditure of: > $24 million for rail upgrades to Wudinna and Kimba > $3 million for partial rail upgrades to Poochera and Buckleboo > $3 million for upgrades of road transfer and rail loading at a strategic site > $10 million for roadworks likely to experience heavier grain traffi c, including sealing of unsealed roads. The proposal involved specifi c contributions from the Australian Railroad Group, the then owner of the railway, Ausbulk, Eyre Peninsula growers as well as state and federal governments. It was also recommended that both public and contractual commitments be sought that were designed to give rail and other operators some medium term security. Key elements of the consultant’s proposal form the basis for an arrangement for which matching funding up to $15 million has been gained from the Australian Government as a special purpose grant (Parliament of South Australia 2006a). The arrangement excludes the partial rail upgrades to Poochera and Buckleboo but includes most of the other recommended elements. Overall, the arrangement was to involve expenditure on rail upgrades amounting to $11 million by Australian Railroad Group (the then owner of the lines), $2 million by the South Australian Government and $2 million from growers, raised through a levy of 50 cents a tonne (Slee 2006). Of the total proposed expenditure on rail upgrades only $19 million will be relevant to the grains industry, rather than the $24 million recom-

384 australian commodities > vol. 13 no. 2 > june quarter 2006 export infrastructure mended by Strategic Design and Development. Included in Australian Railroad Group’s spending was $5 million for rail services for transport of gypsum. It is unclear what impact the lesser effort will have on the effectiveness of rail for grain transport. The arrangement involves a fi ve year agreement between ABB, AWB Limited and ARG (now Genessee and Wyoming) on grain transport. It is also to involve expenditure of $10 million on upgrading roads. It is worth noting the additional road repair and external cost that would result from abandoning rail in the Peninsular is estimated at $3.2 million a year. Given a real interest rate of 5 per cent, that is equivalent to a once off current cost of $64 million. In other words, the direct and indirect road related costs of losing the rail network are estimated to vastly outweigh the total investment costs of restoring the network to a potentially sustainable condition. Abandonment of rail would also have at least one other serious consequence for the effi ciency of the grain export chain. An increasing proportion of grain ships loading at Port Lincoln are Panamax vessels. That will mean that the ability to move large quantities of grain to port quickly will become increasingly important. It seems almost inevitable that reliance on road transport for this task would give rise to delays and consequent increases in demurrage costs. the broader picture Together the analysis of and decisions about the New South Wales ‘restricted’ lines and the Eyre Peninsular road and rail network illustrate some of the problems inherent in the mix of funding and regulatory responsibilities across the private sector and different levels of government. In the case of the New South Wales restricted lines, the state government bears the fi nancial cost of upgrading the eleven lines that are to be kept open. There is no linked proposal to fund the road upgrades identifi ed by the committee for the four lines to be closed. The roads involved include a mix of local roads, main roads and highways, supported to some extent by each of the three levels of government. It is evident that the branch lines servicing the grains industry across Australia are under pressure. There is general pressure associated with the potential gains from concentrating storage and handling into fewer, larger, modern facilities. That means a lesser reliance on small local silos and, consequently, a lesser demand for the services of many branch lines. Elements of that pattern are in evidence in the United States and Canada. In both countries, grain handling is becoming concentrated into fewer, larger, centres. In Canada, the total number of silos fell by 60 per cent in four years after major changes in regulation of storage and handling (Transport Canada 2005a). In the initial review of the Canadian grain handling system, it was suggested that deregulation would lead to closure of many branch lines and in the legislative package setting up the change in regulation, allowance was made for a signifi cant shift of grain onto roads (Transport Canada 2005b). In practice, closure of branch lines has not yet been extensive (Transport Canada 2005a), although only limited time has passed since the deregulation. In the case of the United States, the change is largely in response to changes in technology and commercial opportunities, with increasing domestic demand for grain, and consequently for shorter transport tasks, encouraging proportionally more road transport (Fritelli 2005). Adaptation to the emerging opportunities for economies in grain handling and logistics seems inevitable. Closure of some branch lines will most likely be the most economic choice. Nevertheless, choices are being pushed further in that direction than is economi- australian commodities > vol. 13 no. 2 > june quarter 2006 385 export infrastructure

cally desirable by the effects of accumulated neglect of branch lines, underpricing of road transport and the disconnect between road and rail policy. In this context it is worth noting that in both the United States and Canada some part of the shift to road transport may reﬂ ect underpricing of road services, relative to rail. Never- theless, there are underlying economic forces that point in the direction of greater use of road and a lesser role for branch lines. Those same forces exist in Australia. It seems reasonably clear that, left to purely private hands, closure of branch lines will be in excess of what is socially optimal, with a consequent transfer of costs onto road users and those funding roads. Even in the case of Western Australia, with less of the deferred maintenance problem common in most other states, road transport may compete too effectively for some lines. In New South Wales the government has explicitly taken responsibility for grain lines, but the three tier system of responsibility for road pricing and funding may limit the economic rationality of the eventual outcome. above rail competition The primary concerns with branch lines are the viability of carrying grain on those lines and the pricing and ﬁ nancing of road alternatives. Outside New South Wales, there appears to be another issue for both branch lines and much of the main line network. That is the question of effective third party access arrangements. Aside from those using Australian Rail Track Corporation lines, there are no third party operators carrying grain in states other than New South Wales. AWB (2005) argues that the restrictive nature of access agreements in other states means that it is not commercially worthwhile for a competitor to enter.

coal transport and loading Most of Australia’s coal exports fl ow through the Hunter Valley and several Queensland logistics chains. All of those chains face challenges in terms of identifying and imple- menting optimal integrated operations and investment paths for future expansion. While a high degree of coordination among the participants is a common feature, the arrangements for this coordination vary. Two-thirds of Queensland exports are moved through coal chains that share with the Hunter Valley characteristics of multiple owners of mines and other infrastructure. It is those chains with mixed ownership that face the greatest coordination challenges. coal exports Australia They also dominate Australian export coal production. C The evident difference in responsiveness of total coal exports and total iron ore exports to changing market export volume 200 80 conditions suggests that coordination in the coal export growth 5.6% logistics chains has been less than successful. Recent trends in prices and total Australian exports 150 60 are illustrated in fi gures C and D for coal and iron ore respectively. Over the past few years, a 1 per cent 100 40 increase in the real contract price of iron ore has led weighted average to a rise of around 0.71 per cent in export volumes. contract price However, a similar percentage increase in the real 50 20 price of coal has resulted in a smaller rise in coal 2006 export volumes of around 0.46 per cent. Another way Mt US$/t of looking at this is to test whether the trend in coal and 1989 1993 1997 2001 2005 iron ore export volumes changed slope signifi cantly

386 australian commodities > vol. 13 no. 2 > june quarter 2006 export infrastructure after the price rises in 2003. In the case of coal there is no signifi cant difference in the slopes of the trend in export volumes before and after 2003. However, in the case of iron ore the average growth rate in export volumes after 2003 is signifi cantly different from that before 2003. The most obvious difference in the structure of the export coal and iron ore industries is the degree of integration in the logistics chains. Hunter Valley Exports of coal through the Hunter Valley coal chain (map 3) in 2005 amounted to almost 81 million tonnes, up from 74 million tonnes in 2003. A considerable part of that increase was made possible by the improvements in scheduling and in other aspects of the effectiveness of use of assets due to the efforts of the Hunter Valley Coal Chain Logistics Team. The team provides logistic support to participants in the chain on a continuing basis and has almost completed installing a fully computerised system. The Australian Rail Track Corporation rates the current capacity of the rail system at 85 million tonnes a year, to expand to 90 million tonnes on completion of the Sandgate fl yover (expected early in 2007). The coal chain as a whole has a declared capacity for the purposes of the capacity allocation system of 87.5 million tonnes for 2006 (HVCCLT 2005). Continued expansion in exports requires investment in new capacity throughout the chain. Port deepening works are also necessary to allow expansion of loading and shipping capacity. To take capacity beyond around 120 million tonnes, to 150 million tonnes a year, a level likely to be required between 2010 and 2015, would require commissioning of Newcastle Coal Infrastructure Group’s new terminal at the planned capacity of 30 million tonnes. The Australian Rail Track Corporation has released a parallel strategy of sequential investments to upgrade rail capacity, with total intended investment of $375 million to 2011 (ARTC 2006a). The sequence of necessary changes to the rail network is partially dependent on the location of future mine expansion. Coal production in the Hunter Valley coal chain is moving north and west. How quickly that occurs and how much of the development is from each of the Gunnedah basin and the area around Ulan will have a strong infl uence on the investments needed. Regardless of questions about the viability of mine development at longer distances from port, much of the expansion likely over the next few years, and therefore iron ore exports much of the infrastructure development will be quite D Australia close to port. Nevertheless, price will be an important average annual export growth factor in determining both the total coal output through 1988–2002 = 4% the Hunter Valley chain and the location of produc- 200 2003–05 = 12% 60 tion. In 2005 BHP Billiton won the right to explore a large export volume 150 50 tract at Caroona in the Gunnedah basin and there are numerous other prospects for mines in the basin. In developing its strategy, the Australian Rail Track 100 40 contract price Corporation assumes mining development at Caroona and near Boggabri and Narrabri. The capacity of the 50 30 Gunnedah line is very limited and coal shares what is available with grains, cotton, fertiliser and a variety of 2006 other freight and passenger services. Any signifi cant Mt USc/dltu expansion in production from the basin will be possible 1989 1993 1997 2001 2005 australian commodities > vol. 13 no. 2 > june quarter 2006 387 export infrastructure

only with substantial upgrading of many aspects of the line. A critical constraint is the line through the Liverpool Range. Whether to completely realign that section and, if so, which realignment to choose are key questions if a major expansion of coal production from the Gunnedah coal basin is to occur. The Australian Rail Track Corporation is currently studying realignment options (ARTC 2006b). Even the Caroona prospect is some distance further from port than existing mines, and sites around Boggabri and Narrabri are more than 100 kilometres further still. That will mean signifi cantly higher transport costs than those borne by current producers. Therefore, realisation of large scale expansion in the Gunnedah basin may be contingent on moder- ately high prices for coal. ABARE’s medium term forecasts are for moderate falls in real prices for coal, more so for thermal than metallurgical coal. One moderating factor may be future rail costs. The Australian Rail Track Corporation expects to be able to lower track access charges, per tonne kilometre, over time as a coal transport result of effi ciency gains (2006, p. vii). The introduc- 3 Hunter Valley tion of competition above rail with Queensland Rail now offering services on the Hunter Valley coal chain Murwillimbah may provide coal producers with a further advan- Byron Bay tage. Lismore Funding of a Liverpool Range realignment may Grafton Narrabri become an issue when further development in the Gunnedah coalfield Boggabri Coffs Harbour Gunnedah basin materialises. Options may include Gunnedah Macksville mine owners contributing directly to the capital Hunter Kempsey cost. While there appear to be no direct regulatory coalfield Muswellbrook Taree impediments to the Australian Rail Track Corporation Mudgee Gloucester Cessnock Gloucester basin and prospective miners considering a wide range of Newcastle coalfield Maitland Lithgow Newcastle capital cost and risk sharing options, some uncertainty is introduced by two factors. First, the Australian Rail Southern coalfield Picton Sydney Track Corporation’s current access agreement was Wollongong approved by the Independent Pricing and Regulatory Tribunal of New South Wales when the Rail Infrastruc- ture Corporation was the track owner. The access agreement was transferred to the corporation with the transfer of ownership. The corporation is obliged to apply to the ACCC for an agreement and has committed to do so as soon as is practicable. There may be a degree of uncertainty about future arrangements until an ACCC approved agreement is in place. Second, a related issue may be alignment of the agreement with the one that the Rail Infrastructure Corporation has with the Independent Pricing and Regulatory Tribunal. On the Gunnedah line, the track north of Werris Creek is owned by the Rail Infrastructure Corporation. That uncertainty may have an infl uence on both the Australian Rail Track Corporation’s investment decisions and those of existing and potential users of the corporation’s Hunter Valley track. There are some other potential regulatory issues in the Hunter Valley coal chain. The prospective addition of a third coal terminal may raise questions about an appropriate rate of return in the access agreement. Given that the investment is planned by a group of major potential users, the likelihood of confl ict should be low. As well, the take or pay approach embodied in the Queensland Competition Authority agreement for the Dalrymple Bay Coal Terminal exists as an obvious template. The Hunter Valley coal chain shares with the Moreton coal chain issues of competition for access with other freight, particularly grain, and with passenger services. Passenger

388 australian commodities > vol. 13 no. 2 > june quarter 2006 export infrastructure services have priority. Passenger trains travel faster than coal and other freight trains. A passenger train catches up quickly with trains in front and leaves a long space behind, thus having a disruptive effect on other traffi c over a long distance. The Senior Offi cers Group (Australian Government 2005) questioned the absolute priority given to passenger trains. It would seem reasonable to at least consider what options there are for minimising the costs of confl icts between uses and producing objective measures of the costs and benefi ts of those alternatives. In some parts of the Hunter Valley coal chain, provision of passenger services may in essence be a community service obligation. It could well be worthwhile to examine what other ways the obligation to provide passenger transport could be met. Queensland Queensland’s export coal industry consists of fi ve largely independent coal chains, each operating on a different ownership structure and in some cases on different regulatory bases (map 4). As coal transport Queensland Rail owns the track and owns and oper- 4 Queensland ates the above rail facilities for all of the chains, none is a fully owned and integrated system as are the iron Abbot Point ore chains in Western Australia. Both Hay Point and Collinsville

Abbot Point operate on a highly integrated basis, Newlands system Mackay Dalrymple Bay though. Each of the other chains involves multiple Hay Point Goonyella system Coppabella mine owners and separation of mine, rail and export Clermont Dysart terminal ownership. That means that there are oppor- Emerald Blackwater Rockhampton tunities for confl icts in the day to day operations and Blackwater system longer term plans of individual participants. Nonethe- Gladstone Rolleston less, there has been signifi cant progress in meeting Moura system Theodore Bundaberg increasing demand for coal and there are plans for Monto Wandoan further signifi cant expansion. Roma Figures E and F illustrate the broad thrust of expan- Gympie Moreton system Nambour sions in port and rail capacity that are either under Dalby Toowoomba way, planned or under consideration. They are Brisbane derived from a recent study of Queensland coal export capacity expansion by the New Energy and Indus- trial Technology Development Organisation of Japan (NEDO 2006). A more comprehensive and up to coal export port capacity date picture will emerge soon from Queensland Rail’s E Queensland coal rail infrastructure master plan, which is currently Fisherman Islands under development and expected to be fi nalised in 250 Gladstone mid-2006. While this document will be essentially a Hay Point ‘business plan’ for the expansion of Queensland Rail’s 200 Dalrymple Bay coal transport network, it will take into account the Abbot Point plans of the port owners and operators. 150 The prospective expansion in port capacity illustrated in fi gure E includes major extension to existing 100 facilities at Hay Point, Abbot Point, Dalrymple Bay and the RG Tanner terminal at Gladstone. Also included 50 in the fi nal year for Gladstone is the fi rst stage of a new terminal at Wiggins Island. It is unlikely that all of Mt/yr these port projects will take place within the timeframe 2003 2005 2007 2009 shown here, as is implied by the lower forecasts of rail -04 -06 -08 -10 australian commodities > vol. 13 no. 2 > june quarter 2006 389 export infrastructure

rail system capacity capacity expansion shown in fi gure F. More broadly, F Queensland whether some of the expansion suggested for later Moreton years in the period actually takes place may depend 250 Moura on the pace of development of new mines and thus, Blackwater ultimately, on coal prices. 200 Goonyella The issue in the Queensland system that has caught Newlands the most attention over the past two years has been 150 a series of problems with capacity at the Dalrymple Bay Coal Terminal. The coincidence of rapidly 100 increasing demand for coal, a change in ownership and a long drawn out approvals process contributed 50 to those problems. As well, the collapse of a reclaimer signifi cantly lowered effective capacity. The process Mt/yr of achieving approval for and investment in neces- 2003 2005 2007 2009 sary capacity expansion has been an extended one. -04 -06 -08 -10 Although slow in coming, the eventual outcome of Prime Infrastructure’s application to the Queensland Competition Authority for an access agreement was a regulatory agreement with a good deal of inbuilt commercial fl exibility. For future expansions, the Queensland Competition Authority will automatically approve any expansion that is within the bounds of an agreed master plan and, for which: ‘60 per cent of the proposed expansion is subject to fi rm contractual commitments; and 60 per cent of other users do not oppose the expansion’ (Queensland Competition Authority 2005, p. ii). Both the reliance on contracted capacity and the fl exibility built into the agreement are important. The acceptance of substantial contracts as a signal for regulatory clearance allows for commercial negotiations to decide investment levels. The condition that at least 60 per cent of those not contracting must not object provides a safety net to limit the possibility of accepting change that runs strongly against the interests of one or more users (although it should be noted that this gives minority users the right to frustrate an expansion opportunity). The agreement contains suffi cient fl exibility for the terminal owner to expand beyond immediate requirements if there appears to be a commercial opportunity. The Queensland Competition Authority more recently recommended a similar process of user endorsement of rail expansion capital in its fi nal decision on Queensland Rail’s 2005 draft access undertaking. The details of how this approach might be practically implemented in the more diverse and complex context of a multisystem rail network is currently under consideration by Queensland Rail, the Queensland Competition Authority and the coal industry. The risk sharing approach applied to the Dalrymple Bay Coal Terminal may have broader application than for loading facilities only. Elements of the approach appear to apply to the Bauhinia spur line servicing Xstrata’s Rolleston mine. The line was constructed by and is owned and operated by Queensland Rail. The line is funded under a twenty year contract with Xstrata, with provision for entry by a number of other prospective mine owners.

issues arising with multi-user infrastructure In the following sections, issues that are common to multi-user infrastructure are examined and some observations are made on how these have been addressed at some multi- user facilities. These issues do not arise and therefore do not need to be addressed with

390 australian commodities > vol. 13 no. 2 > june quarter 2006 export infrastructure single user infrastructure. By addressing some procedures to alleviate against the identifi ed problem it should not be taken that this removes the problem. The problems identifi ed are endemic with multi-user facilities and can never be fully removed. The only facilities in which these problems are avoided are single user facilities and this should be a signifi - cant consideration in deciding whether such facilities should be converted into multi-user infrastructure. capacity rationing In both the Hunter Valley and Dalrymple Bay coal chains a mismatch of logistics chain capacity and demand led to large queues of ships. Temporary capacity sharing arrangements have been approved by the ACCC for each of the systems. Those arrangements do appear to have helped to limit queuing (Australian Government 2005; NEDO 2006). In doing so, they have reduced demurrage costs. A negative side of capacity allocation systems is that there tends to be unused capacity. Almost inevitably, some users will not be able to fi ll their allocations in every period. The time taken to arrange contracts and shipping and change production schedules means that other users can often not fi ll the gap, even when the fl exibility to swap or trade allocations exists. The effective losses of capacity from the capacity allocation systems may refl ect conservatism in setting declared capacity, more than it refl ects an inherent problem with capacity sharing. coordination issues Of the Queensland systems, only those supplying Abbot Point and the BMA Hay Point terminal resemble integrated logistics chains. In the former case, Xstrata owns the mines on the Newlands coal line and operates the terminal (although it is owned by the Queensland Government). The BHP Mitsubishi Alliance (BMA) owns the Hay Point terminal and the mines supplying it, so can coordinate mining, loading and shipping. Trains to the Hay Point terminal, however, share the Goonyella track with those to Dalrymple Bay Coal Terminal, which may limit BMA’s operational control. The ownership of both mines and export terminal, however, provides BMA the ability to coordinate mine and terminal capacity and to schedule shipping on the basis of mine to terminal movements of coal. On the other hand, both the Dalrymple Bay Coal Terminal and the Gladstone logistics chains service mines with a number of different owners. As is mentioned above, the Black- water System Export Coal Producers Executive, the Goonyella Coal Chain Improvement Project and Queensland Rail Network Access have provided opportunities to consider options and coordinate decisions at both an investment and operational level. It is ques- tionable, though, whether the combination of these groups provides the logistics chains with the degree of coordination and scheduling that is carried out by the Hunter Valley Coal Chain Logistics Team. Missing in both cases is a computerised scheduling system that can allow both forward planning and just in time adaptation to changing circumstances along a complex logistics chain. The Senior Offi cers Group (Australian Govern- ment 2005) suggests that it is unlikely that an export coal chain can effi ciently deliver coal much beyond 80 million tonnes a year without computerised scheduling. Better planning and more effective scheduling have the potential to reduce the total capital used to deliver a given level of throughput. It is understandable that coal producers can be troubled by reluctance on the part of infrastructure owners to invest. And it would seem that those producers would have a strong incentive to support a strategy that reduces the amount of capital needed to handle a given throughput in a regulated logistics chain. The precise share of any savings in capital costs that fl ows to producers will depend on australian commodities > vol. 13 no. 2 > june quarter 2006 391 export infrastructure

access pricing arrangements and on other aspects affecting effi ciency of the logistics chain. In any of the regulated systems in Queensland or the Hunter Valley, however, the access arrangements are such that coal producers stand to gain a signifi cant share, if not the bulk, of any such gains. Potentially, there is more to the operations of a logistics chain coordinating team than savings in capital outlays. There may also be savings in system operating costs. At the same time, there are limitations to the gains that can be expected to fl ow from attempts at coordination. A team focused on operational aspects of a logistics chain, as is the Hunter Valley Coal Chain Logistics Team, for example, can identify existing and likely future constraints on capacity. It is unlikely, however, that such activities will provide the answers to questions about the relative benefi ts and costs of alternative capacity enhance- ments. Ultimately, ensuring that effi cient investment choices are made also requires that appropriate pricing systems are in place and that participants in the logistics chain have a common understanding of likely future demand conditions is important to achieving optimal investment. forecasting demand for infrastructure capacity A critical element in achieving effi cient operation of an export logistics chain is to have a good match between the capacities of the components of the chain. That is likely to arise only when investment in those components are based on a common view of likely future demand. Reacting to this observation, the Senior Offi cers Group recommended that each coal chain logistics team seek to establish agreed forecasts of capacity demand (Austra- lian Government 2005). Unlike the case of an integrated logistics chain, each participant in a logistics chain with diversifi ed ownership holds part of the information about the system, only. Commercial confi dentiality issues are likely to limit the degree to which individual coal producers, rail track owners, above rail operators and terminal owners are willing to divulge cost and other operating details. As well, there may be regulatory issues with apparent collusion in producing a logistics chain view of the future. The issues raised in this section relating to information fl ows between interested parties and the need to have a system that encourages all parties to act in the best interests of the users as a whole, rather than their own individual interests, is probably the single largest problem with multi-user infrastructure. If a party has rights it will generally use those rights to protect its own interests even if this is against the interests of the other users or the facility owner. The scope for gaming and tactical moves are almost endless and there appears to be no system that satisfactorily removes the opportunity for such tactical manoeuvres. rail regulatory issues Two issues related to rail contracts and competition appear to have the potential to infl uence the performance and effi ciency of rail transport of Queensland coal. First, Queensland Rail has applied for a judicial review, by the Supreme Court of Queensland, of the Queensland Competition Authority’s fi nal decision in its 2005 Draft Access Undertaking. The application has been stayed, pursuant to an agreement among Queensland Rail, the Queensland Competition Authority and the Queensland Resources Council (representing coal producers) to work toward a negotiated outcome and approved undertaking by the end of June 2006. The second issue is the continuing vertical integration of Queensland Rail. The Queensland Rail Access Undertaking, and its oversight by the Queensland Competition Authority, provides a comprehensive framework for above rail competition in Queensland.

392 australian commodities > vol. 13 no. 2 > june quarter 2006 export infrastructure

However, the effective implementation of that agreement is reliant on an access provider that is only functionally, and not organisationally, separate from the incumbent above rail operator. That structure may discourage entry of potential above rail competitors. Further, the need for special measures to address the anticompetitive effects of Queensland Rail’s vertical integration makes the regime particularly complex. The absence to date of a non-Queensland Rail rail operator in the Queensland coal sector suggests that these factors may reduce the degree of effective contestability, although this alone is not suffi cient evidence of a lack of effective competition. Everett (2005) argues that differences in approach between jurisdictions have limited the competitive gains from deregulation of rail in Australia generally, and cites at least one case of a potential above rail entrant to Queensland’s coal industry being discouraged by the structure of Queensland Rail and its supporting state legislation. other aspects of port capacity and linkages between ports and rail/road systems The taskforce observed two systematic issues with ports in addition to the capacity constraints at coal and iron ore ports. Those issues concerned the need to deepen and widen channels, leading to a number of ports and the linkages between ports and other parts of export logistics chains. It recommended the extension of Auslink to include port channels, a recommendation that has been taken up by the Australian Government. Increasing ship size is an ongoing and predictable trend. Its predictability means that there is no reason not to be able to plan ahead suffi ciently to avoid shallow channels becoming a constraint on the effi ciency of exports. Dredging existing channels or additional passing areas either has become or will soon become a priority in a number of Australian ports. A long process of environmental clearance is still delaying dredging of Port Phillip Bay. The extent to which channel deepening is delayed appears to vary between jurisdictions. There was no evident delay in the work that began at Adelaide Port in late 2005. The inclusion of port channels in Auslink’s charter may expedite some developments, although action is still dependent on state government initiative in applying for Auslink funding. As much as differences in opportunities, different approaches from state to state may account for regional disparities in port and related developments. For example, in both Adelaide and the Fremantle/Perth area, there are integrated port, road and rail developments. The combined road and rail upgrades are partially Auslink funded in both cases. The Adelaide port development includes dredging of the port channel to ensure access to large vessels, although funding of that activity was outside the Auslink charter at the time that it was begun. The speed and economic focus of these activities contrast in some ways to the Port Phillip Bay dredging process and to aspects of port developments in New South Wales. Port developments in New South Wales for containers and general cargo centre on the 2003 Ports Growth Plan. The emphasis in that plan is on expanding Port Botany as a container port and progressively moving much other cargo out of Sydney Harbour to Port Kembla and Newcastle. Given that much of the industry served by those ports is in the south and west of the Sydney urban area, diversion of freight to Port Kembla and Newcastle seems an expensive option. While there are some questions about the effectiveness of road and rail connections, the Commission of Inquiry into the Port Botany expansion found that road access would not be a serious constraint (Cleland 2005). The australian commodities > vol. 13 no. 2 > june quarter 2006 393 export infrastructure

approach taken by the Commission of Inquiry involved consideration of costs and benefi ts of the alternatives considered in broad terms, but not in the sense of a formal benefi t–cost analysis. Across Australia, most ports, loading and associated warehouse facilities are privately owned. The exception is the Queensland Government owned ports, which are part of a strongly export focused program. While governments are no longer the primary owners of port facilities, they have a strong infl uence through planning and approval processes for both the ports and connecting road and rail systems and direct funding of road and sometimes rail links. The approach to planning and approval measures and the broader context of port and related infrastructure appears to vary greatly between jurisdictions. In particular, the degree to which economic benefi ts and costs are considered appears to vary from state to state. The extent to which full and formal consideration of benefi ts and costs of port and related infrastructure should be considered depends on the nature of the decision being faced. In some instances, the government role is simply to facilitate private investments, having assured itself that the development does not impose unacceptably high costs on nonparticipants. In cases where changes in government planning or other policies are likely to cause major shifts in transport hubs, closure or relocation of ports, though, it would seem prudent to have a reasonably complete estimate of the costs and benefi ts of major options.

concluding observations Over the past twelve months, advances have been made in both the planning, building and running of the transport, handling and loading infrastructure that supports Australia’s major exports. As well, progress has been made on the regulatory frameworks that are intended to guide, but sometimes limit, the construction and use of that infrastructure. Some of that progress has been in the form of individual decisions by regulators, such as the fi nal decisions by the Queensland Competition Authority on the Dalrymple Bay Coal Terminal. Much more of it has been in the form of commitments by COAG members to upgrade and harmonise aspects of the regulatory environment and to have investigated other key questions, such as those concerned with effi cient transport pricing. The real gains from these commitments lie in the future and depend on timely implementation of appropriate regulatory change. The need to protect the effi ciency of single user integrated export infrastructure remains and the inclusion of the proposed economic effi ciency objects clause in Part IIIA of the Trade Practices Act in amendments before the Senate at the time of writing is unlikely to achieve this protection. The observations in the taskforce report about the advantages of single user integrated facilities in responding to increased demand continue to be borne out by the extensive expansion programs that have been completed in the Pilbara and by the further commitments to expand that have been announced since the release of the report. Any change to multi-user status is likely to interfere with this expansion path. This is likely to mean that the latest forecast from ABARE of iron ore exports increasing from 241 million tonnes in 2005 to 375 million tonnes in 2011 will not be met. In realising the potential gains from regulatory review and change, emphasis needs to be maintained on the goal of promoting economic effi ciency. That will mean striking a balance between regulatory constraint on the potential exercise of monopoly power and allowing the prospect of suffi ciently high returns to encourage timely investment in infrastructure. Two developments are important to note in this context. The fi rst is the increasing

394 australian commodities > vol. 13 no. 2 > june quarter 2006 export infrastructure use of ‘take or pay’ contracts for infrastructure access. The use of such contracts can provide an infrastructure owner with a degree of assurance of future income, and thus with a greater investment incentive. It should be borne in mind, however, that ‘take or pay’ contracts shift risk onto the users of infrastructure and, therefore, reduce their expected rates of return. Thus, there is no case for a regulator pressing for the use of such contracts. Rather, the regulator’s role should be confi ned to facilitating the development of ‘take or pay’ contracts, or other means of risk sharing, when the parties to an intended agreement show an interest in such solutions. The second is the scheme for approval of future investments embodied in the access agreement for the Dalrymple Bay Coal Terminal. Routine approval of expansion within an agreed master plan on the basis of a defi ned majority of the added capacity contracted and the absence of signifi cant objections means that decisions can be made in a more timely manner. It also increased the incentive to plan ahead and to invest. While there have been evident gains from deregulation and commercialisation of Australia’s rail industry, problems remain with respect to some export industries. In the fi rst place, outside New South Wales and the Australian Rail Track Corporation controlled track, there is little above rail competition. While access undertakings exist in each state, the virtual absence of competition, and some supporting evidence, suggests that those agreements are less than effective. The COAG commitment to harmonise access agreements, using the Australian Rail Track Corporation agreement as a template, should signifi - cantly increase competition, and through it effi ciency, if carried through. In much of the grain belt, a combination of modernisation of storage and handling facilities, competition from road transport and both the original design and poor state of maintenance of branch lines is putting those lines under pressure. It seems inevitable that economies from developing larger regional storage and handling centres, along with advances in road transport, have made some branch lines uneconomic. In other cases there may be economic gains from upgrading the rail line and associated facilities. Within the current road and rail funding and road access pricing arrangements, though, rail lines may not be able to compete even when their survival would benefi t the economy as a whole. Among Australia’s export infrastructure, the Pilbara iron ore supply chains stand out for their effectiveness and effi ciency. Those positive aspects of the design and operation of the chains are highly dependent on the integrated planning, investment and operational processes used by the owners. In turn, investment in both the physical infrastructure and intellectual capital components of the chains depends on the owners’ confi dence about future access and use of the facilities. Changes in access rules may greatly lower that confi dence. Such a reduction in confi dence about the future value of infrastructure investments may have much broader application than the particular case at hand and have a negative impact on economic activity more generally. references Affl eck, F. 2005, Exploration of some factors contributing to under-provision of infrastructure capacity: coal railway networks in Queensland and the Hunter Valley of New South Wales, Planning and Transport Research Centre, Perth. ABB 2005, Submission to the House of Representatives Standing Committee on Transport and Regional Services Inquiry into the Integration of Regional Rail and Road Networks and their Interface with Ports, Submission no. 24 (www.aph.gov.au/house/committee/ trs/networks/subs.htm). australian commodities > vol. 13 no. 2 > june quarter 2006 395 export infrastructure

ACCC (Australian Competition and Consumer Commission) 2005, Proposed Joint Venture Arrangements for Export Grain Freight and Logistics in the Eastern States of Australia, Determination: Applications for Authorisation, Canberra, April (www.accc.gov.au). ARTC (Australian Rail Track Corporation) 2006a, Hunter Valley Coal Network Capacity Improvement Strategy, Consultation Draft, Adelaide, 7 April (www.artc.com.au). —— 2006b, ‘Liverpool Range new route selection study’, Adelaide, 6 April (www.artc. com.au). Australian Government 2005, Delivering Reliable Australian Coal Exports to the World: Coal Transport Infrastructure, Canberra (www.itr.gov.au). —— 2004, Government Response to Productivity Commission Report on the Review of the National Access Regime, Canberra, February (www.treasurer.gov.au). AWB Limited 2005, Submission to the House of Representatives Standing Committee on Transport and Regional Services Inquiry into the Integration of Regional Rail and Road Networks and their Interface with Ports, Submission no. 97, Canberra (www.aph.gov. au/house/committee/trs/network/subs.htm). BHPBIO (BHP Billiton Iron Ore Pty Ltd) 2006, Modelling and Related Submissions to the National Competition Council in Response to Draft Recommendation dated 4 November 2005, Submission to the NCC, Canberra (www.ncc.gov.au). Bureau of Transport Economics 1999, Competitive Neutrality Between Road and Rail, Working Paper 40, Canberra. Cleland, K. (Deputy Chairperson Commissioners of Inquiry for Environment and Planning) 2005, Proposed Port Botany Expansion, City of Port Botany [proposed by] Sydney Ports Corporation: Report to the Honourable Craig Knowles MP, Minister for Infra- structure and Planning, Minister for Natural Resources, Ofﬁ ce of the Commissioners of Inquiry, Sydney. Council of Australian Governments 2006, Council of Australian Governments Meeting 10 February 2006 (www.coag.gov.au/meetings/100206/index.htm). —— 2005, Council of Australian Governments Meeting 3 June 2005, Canberra (www. coag.gov.au/meetings/030605/index.htm). CRA International 2005, FMF Application to Access Mt Newman Railway Line under Part IIIA, Final Report prepared for BHP Billiton Iron Ore, Canberra (www.ncc.gov.au). Ergas, H. 2006, Road pricing and modal choice, Paper presented at the CRA Interna- tional Workshop, ‘Freight Infrastructure: What are the Challenges in Achieving Efﬁ cient Pricing’, National Library, Canberra, 28 April. Exports and Infrastructure Taskforce 2005, Australia’s Export Infrastructure, Report to the Prime Minister by the Exports and Infrastructure Taskforce, Canberra, May. Everett, S. 2002, ‘Deregulation, competitive pressures and the emergence of intermo- dalism’, Australian Journal of Public Administration, vol. 61, no. 3, pp. 19–26. —— 2005, ‘Jurisdictional and constraints on effective competition: the case of rail access regimes’, Australian Journal of Public Administration, vol. 64, no. 4, pp. 91–9. Frittelli, J.F. 2005, Grain Transport: Modal Trends and Infrastructure Implications, CRS Report for Congress, Fairfax, VA (www.nationallawcenter.org/assets/crs/RL32470. pdf). Grain Infrastructure Advisory Committee 2004, Report on Rail/Road Options for Grain Logistics, Sydney, January (www.transport.nsw.gov.au/giac/GIAC-Report.pdf). HVCCLT (Hunter Valley Coal Chain Logistics Team) 2005, Q1 2006 capacity declaration, Carrington, New South Wales, 8 December (hvcclt.com.au). —— 2006, News, no. 6, January, Carrington, New South Wales (hvcclt.com.au).

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IPART (Independent Pricing and Regulatory Tribunal) 2005, Report on the Determinations of Remaining Mine Life and Rate of Return: NSW Rail Access Undertaking (www.ipart. nsw.gov.au). NCC 2005, Application by Fortescue Metals Group Limited for Declaration of a Service Provided by the Mount Newman Railway Line, Draft Recommendation (www.ncc.gov. au). NEDO (New Energy and Industrial Technology Development Organization) 2006, Queensland Coal Export Capacity and Expansion: Coal Infrastructure Development, Tokyo. Newcastle Coal Infrastructure Group 2006, ‘Group welcomes government decision on third coal loader’ (www.excelcoal.com.au/investor). NTC (National Transport Commission) 2005, Third Heavy Vehicle Road Pricing Determi- nation: Draft Technical Report, Melbourne, July (www.ntc.gov.au). Paciﬁ c National 2005, Submission to the House of Representatives Standing Committee on Transport and Regional Services Inquiry into the Integration of Regional Rail and Road Networks and their Interface with Ports (www.aph.gov.au/house/committee/ trs/networks/subs.htm). Parliament of South Australia 2006a, Eyre Peninsula Grain Logistics Rail Network Upgrade, Agency Submission of the Public Works Committee, Adelaide (www.parliament.sa.gov.au). —— 2006b, Eyre Peninsula Grain Logistics Rail Network Upgrade, 239th Report of the Public Works Committee, Adelaide (www.parliament.sa.gov.au). Port Waratah Coal Services 2005, ‘$170 million expansion program commences’ Carrington, New South Wales (pwcs.com.au). Productivity Commission 2001, Review of the National Access Regime, Report no. 17, AusInfo, Canberra. Queensland Competition Authority 2005, Dalrymple Bay Coal Terminal Draft Access Undertaking, Brisbane (www.qca.org.au). Slee, S. 2006, ‘EPgrowers railroaded into paying grain levy’, Stock Journal, 7 April (http://sj.farmonline.com.au/news.asp?editorial_id=66568). Strategic Design and Development 2005, Grain sector value chains commercial and policy implications, Presentation to the Agriculture Australia Conference, Melbourne, 9–10 August (www.strategicdesign.com.au). Strategic Design and Development 2004, Eyre Peninsula Grains Transport Integration and Investment Plan, Adelaide (www.parliament.sa.au/committees/committee.asp? doCmd=show8IntID=43). Transport Canada 2005a, Monitoring the Canadian Grain Handling and Transportation System, Annual Report 2003-04 Crop Year, Ottawa (www.tc.gc.ca). —— 2005b, ‘Transport Minister tables draft grain reform legislation’, Ottawa (www.tc.gc. ca). Watkins, J. 2005a, ‘$21million for grain lines before next harvest’, Minister for Transport News Release, Syddney,19 April (www.transport.nsw.gov.au). —— 2005b, ‘Country rail services’, NSW Legislative Assembly Hansard, Sydney, 8 Nov- ember, p. 19192 (www.parliament.nsw.gov.au/prod/parlment/hansart.nsf/V3Key/ LA20051108031)

australian commodities > vol. 13 no. 2 > june quarter 2006 397 development projects

> ian haine > +61 2 6272 2134 > [email protected] minerals and energy major development projects — april 2006 listing

ian haine and commodity analysts, resource markets and infrastructure group

> The record number of minerals and energy projects that have been completed recently and the record number that are currently committed to or under construction will add signifi cantly to the sector’s production and export capacity in the short to medium term. > In addition, the signifi cant number of large scale projects at less advanced planning stages that are under active consideration for development is expected to provide a fi rm platform for future growth in the medium term and beyond.

exploration expenditure It is important to recognise that the ability of Austra- private minerals exploration A expenditure – Australia lia’s minerals and energy sector to sustain its strong in 2005-06 dollars recent growth and expand its contribution to national other economic performance in the medium and longer 3.5 base metals gold terms depends critically on the amount of investment 3.0 other energy in minerals exploration. Most of the strong growth in 2.5 petroleum the minerals and energy sector of recent years, and most of the expected growth implicit in ABARE’s list of 2.0 planned projects, is underpinned by exploration that 1.5 was undertaken over the past decade. Australian minerals exploration expenditure, in real 1.0 terms (2005-06 dollars), for the period 1980-81 to 0.5 2005-06 is shown in ﬁ gure A. The 2005-06 data $b are estimates based on actual data from the Austra- lian Bureau of Statistics for July—December 2005, 1980 1985 1990 1995 2000 2005 -81 -86 -91 -96 -01 -06 combined with data from the ABS survey of expected expenditure for January—June 2006. Total Australian minerals exploration expenditure in 2005-06 is estimated to have risen by 13 per cent to $2.3 billion. In real terms, estimated expenditure in 2005-06 was the highest since 1997-98 and around 6 per cent above average annual expenditure on minerals exploration over the past 25 years. While the substantial number of minerals and energy projects in ABARE’s latest projects list will ensure robust growth in the mineral resources sector’s productive capacity over the medium term, continued sectoral growth over the longer term will require levels of real average annual exploration expenditure around, or higher than, that in 2005-06.

398 australian commodities > vol. 13 no. 2 > june quarter 2006 development projects

In 2005-06, all major commodity categories recorded increases in estimated minerals exploration expenditure. Expenditure on petroleum exploration is estimated to have risen by 5 per cent in 2005- 06, to around $1.1 billion. However, this is still around 4 per cent lower than the annual average expenditure in real terms over the past 25 years ($1.15 billion). The increase in petroleum exploration expenditure in 2005-06 is likely to have been encouraged by further signiﬁ cant rises in world oil prices during the year. However, short term oil prices are only one factor in determining exploration expenditure in any particular period. A range of other factors also have a signiﬁ cant bearing on exploration expenditure decisions. These include factors such as: longer term oil price trends; Australia’s relative prospectivity for petroleum; the prospect for Australia’s share of growing global LNG trade; the need for long term planning, particularly for relatively expensive offshore petroleum exploration; and shortages of skilled labor and the concur- rent commitment of resources (funds, equipment and labor) to other activities such as project development.

abare’s list of major minerals and energy development projects

the full list ABARE’s listings of major minerals and energy projects expected to be developed over the medium term are compiled every six months. Information contained in the lists spans the mineral resources sector and includes energy and minerals commodities projects and minerals processing projects. The information comes predominantly from publicly available sources but, in some cases, is supplemented by information direct from companies. The lists are fully updated to reﬂ ect developments in the previous six months.

what’s in the list The latest projects list contains information on 256 projects, providing the following details: > project name > proponent company or joint venture > location > project status > expected startup date > additional output capacity > capital cost of the project > additional employment, where available. With one industry exception, ABARE’s listing provides details of announced projects for which total capital expenditure is expected to exceed $40 million. The exception is the gold industry, which typically has a relatively large number of smaller projects. For gold, the expenditure threshold for inclusion in the table is $15 million. In general, projects identiﬁ ed are at relatively advanced stages of planning. That is, for new projects, stage of planning categories range from ‘feasibility study underway’ through to ‘under construction’. Projects are listed by the principal mineral commodity to be produced, under the broad headings: ‘Mining projects – energy’, ‘Mining projects – minerals’ and ‘Minerals processing facilities’. The table includes new greenﬁ elds projects as well as expansions of existing projects.

where to get the list This projects listing is released around May and November each year. The lists are available only as electronic products. The list can be downloaded from ‘Publications’ at www.abareconomics.com enquiries: [email protected] or phone +61 2 6272 2010.

australian commodities > vol. 13 no. 2 > june quarter 2006 399 development projects

After falling in 2004-05, gold exploration expenditure is estimated to have increased by 2 per cent in 2005-06, to $400 million. In real terms, however, estimated expenditure on gold exploration in 2005-06 was a little below the average of the past three years ($410 million). The nominal rise in estimated expenditure in 2005-06 is expected to have been infl uenced by increases in Australian dollar denominated gold prices. However, with most of the sharp increases in gold prices having occurred in the past few months — for example, Australian dollar gold prices increased from $738 an ounce in January 2006 to over $900 an ounce in early May 2006 — the full effect of recent gold price rises on gold exploration expenditure is not expected to be felt until 2006-07. Base metals exploration expenditure is estimated to have risen by 38 per cent to $361 million in 2005-06. This increase is mainly attributable to strong rises in expenditure on copper and silver–lead–zinc, refl ecting recent substantial rises in global prices for these commodities. For example, world prices for both copper and zinc more than doubled in the twelve months to April 2006. In real terms, exploration expenditure on base metals in 2005-06 was 45 per cent higher than the 25 year average ($249 million) and was the highest since 1981-82. Apart from the main exploration sectors referred to above, three other commodities — iron ore, coal and uranium — are estimated to have had signifi cant expenditure increases in 2005-06. Spending on iron ore exploration rose by an estimated 15 per cent in 2005-06 to around $159 million (after more than doubling in 20 04 - 05) , refl ecting a positive outlook

box 1: rising costs of materials and skilled labor affecting sector development Together with the rest of the world, Australia’s mineral resources sector is experiencing signifi cant diffi culties in securing suffi cient inputs including materials, equipment, skilled labor and professionals. This is an outcome of the recent acceleration in growth in Austra- lia’s resources sector to meet growing global demand (but particularly from China) for mineral commodities. The pace and scale of current developments in Australia’s mineral resources sector is unprecedented. In the past eighteen months, 62 major minerals and energy development projects, valued at around $16.2 billion, were brought into production. ABARE’s current (April 2006) list of major minerals and energy projects includes a record 90 projects, valued at around $34 billion, that are currently committed or under construction, with a further 166 projects under consideration for development. In this environment, where demand from developers for labor, equipment and materials is rising faster than supply, the impact on project development is being manifested in delays to scheduled completion dates for projects and in increases in project capital costs. For example, of 22 advanced projects in ABARE’s April 2006 projects list that were also in the October 2005 list, 16 (or over 70 per cent) now show a later scheduled completion date compared with six months ago. In a few instances the delays are considerable. The estimated completion date for Western Areas’ proposed Flying Fox nickel mine development in Western Australia is now March 2007, a delay of around nine months compared with the estimate of six months ago. The company cites problems in sourcing suitable mining equipment and additional experienced mining personnel as the reason for the delay. In terms of capital costs, of 30 projec ts in t he Oc tob er list t hat were eit her completed in the six months ended April or still appear in the April 2006 list, 18 (or 60 per cent) show capital cost increases. Some of these increases are substantial. For example, continued …

400 australian commodities > vol. 13 no. 2 > june quarter 2006 development projects for Chinese demand for this commodity. Exploration expenditure on coal is estimated to have increased by 24 per cent to around $157 million in 2005-06, refl ecting high global demand and recent strong price increases, particularly for coking coal. Uranium exploration expenditure is estimated to have more than doubled in 2005-06 (to $56 million). This refl ects increased global interest in nuclear power as an alternative to fossil fuels as well as actual and expected substantial increases in world uranium prices. In general, decisions to invest in mineral exploration depend on the probability of discovering an economic mineral deposit or extending the resource base of a known deposit. A range of economic and policy factors will also infl uence companies’ expectations of the likely return on investing in exploration. Such factors include: expectations and risks relating to mineral prospectivity; prevailing and expected mineral prices; existing mining and processing technologies; input costs more generally; land access; and government policies. Over the medium term, exploration expenditure in each of the main exploration sectors is expected to be infl uenced by a different set of factors. In the petroleum sector, Australia’s prospectivity for crude oil together with the long term outlook for global oil prices will be key factors in determining future levels of exploration activity and expenditure. With world oil prices forecast to remain high in the short term, further increases in exploration expenditure are likely. Movements in the Australian dollar price of gold will be a key factor infl uencing gold exploration expenditure. However, expected future costs of exploration and development will also play an important role in determining the future expenditure. As previously mentioned, rises in the costs of labor, fuel and other inputs (such as steel) have increased

box 1: rising costs of materials and skilled labor affecting sector development continued the estimated capital cost of the Roc Oil operated Cliff Head oilfi eld development in the Perth Basin increased by around 25 per cent between March 2005 and project completion in April 2006. Stated reasons for the rise included increased costs for materials and services and unavailability of contractor personnel. The developer of the proposed Angas Zinc project in South Australia (Terramin Australia) announced in March that the fi nal capital cost of the project is expected to be higher than that estimated as part of the recently completed prefeasibility study because of prevailing higher steel and labor costs. To some extent, major resource companies are better positioned than their smaller coun- terparts to overcome diffi culties in securing labor and equipment because they are able to draw on their own internal resources. However, major companies are also being affected. BHP Billiton noted in its March quarter production report that strong competition for labor, as well as construction and drilling plant and machinery, has led to rising costs. The company indicated that these conditions continue to challenge its ability to deliver development projects to budget. In its 2005 annual report, Xstrata indicates that infl ation specifi c to the mining industry and critical shortages of materials and skilled labor have also had a signifi cant impact on major new capital projects. However, Xstrata indicated that specifi c measures had been taken so that projects remain within budget and on schedule. With an exceptionally large number of minerals and energy projects currently committed or under development in the next few years, competition for skilled labor and materials and the attendant cost pressures are unlikely to ease in the short to medium term. This makes it likely that the feasibility of many less advanced projects will need to be re-examined. It may also mean that, from a market perspective, some project developments may be deferred beyond their optimal startup dates.

australian commodities > vol. 13 no. 2 > june quarter 2006 401 development projects

development costs and may continue to be a negative inﬂ uence on gold exploration expenditure over the medium term. In the base metals sector, the price outlook will clearly be important, as demonstrated by the estimated rise in copper and silver–lead–zinc exploration expenditure. Other important factors are expected to be: expectations of the future strength of Chinese demand for base metals; assessments of the development potential of several known (but as yet undeveloped) base metal deposits in Australia; and Australia’s relative attractiveness for exploration.

capital expenditure Data from the ABS surveys of new capital expenditure in the mining and metal products industries give an indication, in aggregate terms, of the pace and scale of development in the minerals and energy sector, both historically and in the short term (fi gure B). Based on ABS Survey data, new capital expenditure in the mining industry is estimated to be $14.2 billion in 2005-06, 38 per cent higher than in 2004-05. In real terms (2005- 06 dollars), new capital expenditure in 2005-06 was the highest on record and was 79 per cent higher than the average annual expenditure for the past 25 years ($7.9 billion). There are good indications that capital expenditure on mining may increase further in 2006-07. Based on industry intentions canvassed in the March quarter 2006, ABS data indicate that capital expenditure on mining in 2006-07 may increase to around $15.7 billion. The scale of this expenditure and its order of increase are consistent with the development trends shown in the full list of major mineral and energy projects (see fi gure H). Capital expenditure in the metals products sector, which includes the minerals processing activities covered in ABARE’s projects list, is estimated to have been around $4.5 billion in 2005-06, 33 per cent above expenditure in 2004-05. In real terms, estimated expenditure in 2005-06 is the highest since 1981-82 and almost double the 25 year annual average of $2.3 billion (in 2005-06 dollars). However, surveyed industry intentions suggest that metal products expenditure could fall by around 18 per cent in 2006-07 to about $3.7 billion. In 2006-07, if the expenditure intentions for both the mining and metal products sectors are realised, total capital expenditure in the mineral resources sector could rise marginally, by around 1 per cent, in real terms. Over the medium term, there is evidence to suggest new capital expenditure that there is potential for further growth in resource in 2005-06 dollars B sector capital investment. This assessment is based on metal products the observation that there are a signifi cant number of mining advanced projects in ABARE’s projects list (particularly 15 a number of high capital cost petroleum and iron ore developments), and that there now exists a number of large scale, but less advanced projects, that may be 10 developed in a longer timeframe.

5 recently commissioned projects In the six months ended April 2006, 27 major minerals $b and energy projects with a combined capital expenditure of $8.9 billion were completed. These completed 1981 1985 1989 1993 1997 2001 2006 -82 -86 -90 -94 -98 -02 -07 projects will add to the sector’s production and export

402 australian commodities > vol. 13 no. 2 > june quarter 2006 development projects

capacity for a range of commodities, including coal, petroleum, gold, iron ore, base metals, mineral sands, alumina, aluminium and ammonia. Summary details of these projects are shown in table 1. The project completion rate in the six months to the end of April 2006 was signifi cantly higher than in any similar period in the past eight years (table 2; fi gure C). In addition, the average value of projects completed in the period to April 2006 ($328 million, in nominal terms) was signifi cantly higher than the average value in the past eight years ($244 million).

major mineral resource developments – projects completed, November 2005 to 1 April 2006 capital commodity project location company expenditure $m mining – energy projects Black coal Ravensworth West opencut NSW Xstrata na Wambo rail project NSW Excel Coal 73 Broadmeadow underground Qld BMA 102 Newlands northern underground Qld Xstrata/Itochu/ICRA/NCA 117 Poitrel opencut Qld BHP/Mitsui 50 Petroleum Altona Clean Fuels project Vic Exxon Mobil 200 Berwyndale South CSM Qld Queensland Gas Company 52 Caltex Clean Fuels project NSW & Qld Caltex 490 Casino Gas Vic Santos/AWA/Mitsui 200 Cliff Head oil project WA Roc/AWE/Wandoo/ Arc Energy/CIECO 285 Darwin LNG plant NT Conoco Phillips/ENI/ Inpex/Santos/Tokyo Gas/ TEPCO 3 300 mining – minerals projects Copper Nifty sulphide resource WA Aditya Birla 230 Gold Ballarat East Vic Ballarat Goldfi elds 65 Cowal NSW Barrick Gold 510 Raleigh underground WA Placer Dome/Tribute Resources/Rand 52 Twin Hills Qld BMA Gold 22 Iron ore Dampier Port expansion WA Rio Tinto 933 Koolyanobbing expansion WA Cleveland-Cliffs 75 Manganese Bootu Creek NT OM Holdings 45 Mineral sands Ginkgo NSW BEMAX Resources 176 Nickel Perseverence expansion WA BHP Billiton 200 minerals processing projects Alumina Pinjarra refi nery upgrade WA Alcoa/Alumina 440 Worsley refi nery expansion WA BHP Billiton 261 Aluminium Kurri Kurri Surf project NSW Hydro Aluminium 80 Boyne Island S230 project Qld Boyne Island Smelters 56 Ammonia Ammonia plant WA Burrup Fertilisers 800 Zinc Sun Metals refi nery enhancement Qld Sun Metals 40 Total capital expenditure 8 854

australian commodities > vol. 13 no. 2 > june quarter 2006 403 development projects

completed projects, june 1998 to april Looking ahead, ABARE’s project list indicates that 2 2006 the rate of project completions could accelerate in the short term, with around 40 projects (almost half of capital cost of projects which are coal related developments) scheduled for number of completion in the fi nal eight months of 2006. However, projects total average competition for skilled labor, together with equipment $m $m shortages, may mean that the announced scheduled Six months ended completion dates for some of these projects are not June 1998 3 415 138 December 1998 18 3 500 194 met and actual completion does not occur until 2007. June 1999 19 6 500 342 December 1999 16 4 300 269 energy projects June 2000 9 1 800 200 Of the major projects completed in the six months December 2000 9 1 700 189 ended April 2006, by far the largest in terms of capital June 2001 5 282 56 December 2001 5 262 52 cost was the $3.3 billion Darwin LNG plant completed June 2002 10 1 082 108 earlier this year. The plant, owned by a consor- December 2002 10 2 110 211 tium led by ConocoPhillips, has a capacity of 3.24 Four months ended million tonnes of LNG a year, with most of the output April 2003 4 400 100 earmarked for export to Japan. Feed for the plant is Six months ended ‘recycled’ natural gas from the Bayu/Undan gasfi eld October 2003 6 937 156 in the Timor Sea. Five other petroleum developments April 2004 13 4 956 381 were completed in the six months ended April 2006. October 2004 9 3 328 370 These include two ‘clean fuels’ projects — at Exxon April 2005 23 5 812 253 October 2005 12 2 012 168 Mobil’s Altona refi nery (capital cost $200 million) April 2006 27 8 854 328 and at Caltex’s Kurnell and Lytton refi neries ($490 Total 198 48 250 244 million in total) — aimed at meeting mandatory fuels standards now in force. In the Perth Basin, the Roc Oil operated Cliff Head oilfi eld was brought into produc- completed projects tion at a capital cost of $285 million. The Cliff Head C oilfi eld is expected to produce up to 20 000 barrels a day of crude oil. Two gas developments — Santos’ total capital cost of projects $200 million Casino gasfi eld project in Bass Strait and left axis 8 400 Queensland Gas Company’s $52 million Berwyndale average capital cost of projects South project in Queensland — were commissioned in 6 right axis 300 the six months to April 2006. The Casino operation will produce natural gas and condensate while output 4 200 from Berwyndale South will be coal seam methane. Five coal projects were completed in the six months to April 2006. The largest of these was Xstrata’s 2 100 Newlands Northern underground mine, a replacement mine for its depleting southern underground operation. $b $m The Northern underground mine, west of Mackay J DJDJDJDJDAprOct Apr Oct Apr Oct Apr 1998 2000 2002 2003 2004 2005 2006 in Queensland, was developed at a capital cost of $117 million. In the same region, BMA’s (BHP Billiton Mitsubishi Alliance) $102 million Broadmeadow underground mine and BHP/Mitsui Coal’s $50 million Poitrel opencut mine, both near Moranbah, were brought into production. The Broadmeadow mine will produce around 4 million tonnes a year of coking coal, while Poitrel will produce 3 million tonnes a year of coking, PCI and thermal coal. In New South Wales, two projects — a new mine and a mine infrastructure development, both near Singleton — were commissioned. Xstrata’s new

404 australian commodities > vol. 13 no. 2 > june quarter 2006 development projects

Ravensworth West opencut mine will produce up to 1.5 million tonnes a year of thermal coal. Excel Coal’s $73 million Wambo Rail project involved building a rail loop and loading facilities at its Wambo operation. metal mining projects On the metal mining front, the largest development completed in the six months to April 2006 was the fi rst stage of Rio Tinto’s Dampier Port expansion. This development, completed at a capital cost of US$685 million (A$933 million), expands the iron ore export capacity of the port by 42 million tonnes a year. (A further expansion of Dampier Port is expected to be completed late in 2007). Another iron ore expansion — Cleveland- Cliffs’ 3 million tonnes a year expansion of its Koolyanobbing mine — was completed at a capital cost of $75 million. For gold, four projects were completed in the six months to April 2006. The largest of these was Barrick Gold’s new Cowal mine near West Wyalong in New South Wales, completed at a capital cost of US$375 million (A$510 million). The mine is expected to produce around 230 000 ounces of gold a year at full capacity. The other three gold projects completed were also new mines and were: Ballarat Goldfi elds’ $65 million Ballarat East mine in Victoria; Placer Dome’s Raleigh underground mine near Kalgoorlie, developed at a capital cost of $52 million; and BMA Gold’s $22 million Twin Hills mine south of Charters Towers in Queensland. Four other metal mining projects were completed in the six months to April 2006. In the Pilbara region of Western Australia, Aditya Birla’s Nifty Sulphide Resource development (copper) was completed at a capital cost of $230 million. Output is expected to be 60 000 tonnes a year of copper in concentrates. Also in Western Australia, BHP Billi- ton’s $200 million Perseverence nickel mine expansion was completed. A new minerals sands mine in the Murray Basin in New South Wales — Ginkgo, the fi rst stage of BEMAX Resources’ Pooncarie project — was commissioned at a capital cost of $176 million. The annual output from this mine (59 000 tonnes of rutile, 41 000 tonnes of zircon, 136 000 tonnes of ilmenite and 110 tonnes of leucoxene) will be separated at a plant located at Broken Hill. In the Northern Territory, OM Holdings has commenced operations at its $45 million Bootu Creek manganese mine where annual output is expected to be around 550 000 tonnes of manganese ore. minerals processing projects In the minerals processing sector, six projects completed in the half year to April 2006 have raised Australia’s production and export capacity in alumina, aluminium, ammonia and zinc. Two alumina refi nery expansions in Western Australia — Alcoa’s $440 million Pinjarra refi nery effi ciency upgrade and BHP Billiton’s $261 million Worsley expansion — together will add over 900 000 tonnes a year of alumina capacity. In aluminium, two expansions — Hydro Aluminium’s $80 million Kurri Kurri Surf project in new South Wales and Boyne Island Smelters’ $56 million S230 project at Gladstone in Queensland — together are expected to result in an additional 18 000 tonnes of aluminium metal output a year. On the Burrup Peninsula in Western Australia, Burrup Fertilisers has commissioned its new $800 million, 760 000 tonnes a year ammonia plant. Feed for the plant will be natural gas from the North West Shelf gasfi elds. The Sun Metals zinc refi nery enhancement development in Townsville, completed at a capital cost of $40 million, is expected to result in an increase of around 17 000 tonnes a year of refi ned zinc, by recovering zinc from ferrite wastes. Having come on stream, the above projects no longer appear in ABARE’s project list. australian commodities > vol. 13 no. 2 > june quarter 2006 405 development projects

advanced projects

At the end of April 2006, there were 90 projects at advanced stages of development included in ABARE’s projects list — that is, projects that are either committed or under construction. This is a record and six more than the number of advanced projects (84) included in the October 2005 list. Given that a record number of projects (27) were completed in the six months to April (and therefore no longer appear in ABARE’s list), the increase in the number of advanced projects in the April 2006 list indicates that over 30 projects were either newly committed, or entered the list at an advanced stage, in that six month period. The announced capital expenditure of the 90 advanced projects at the end of April 2006 sums to $34 billion (table 3). However, it should be noted that even projects which have reached the committed stage may be deferred, modifi ed or even canceled if economic or competitive circumstances change suffi ciently. The 90 advanced projects as at April 2006 indicate continued expansion across most of the minerals and energy industry spectrum. advanced energy projects Energy developments account for 44 of the 90 advanced projects (49 per cent) and around 48 per cent (or $16.5 billion) of the estimated capital cost of $34 billion for all of the advanced projects (table 3). Six large petroleum developments — fi ve of them Woodside operated — account for just under half of the total value of energy projects. The largest of these is the $2 billion North West Shelf Extension Project in Western Australia, which involves the construction of a fi fth LNG processing train with gross annual capacity of 4.2 million tonnes of LNG. The fi fth train is currently under construction and is expected to be completed toward the end of 2008. Three new offshore oilfi eld developments in the Carnarvon Basin in Western Australia — Enfi eld ($1.48 billion capital cost), Vincent ($980 million) and Stybarrow ($817 million) — are expected to add around 280 000 barrels a day of crude oil production capacity. Of these three projects, Enfi eld (100 000 barrels a day at full capacity) is the most advanced, with fi rst production expected in mid- 2006. Vincent and Stybarrow (BHP Billiton operated) are expected to begin production in 2008. The other two petroleum projects are the $1.6 billion Angel gas and condensate 3 advanced projects, april 2006 – number and estimated capital cost, by state minerals energy projects mining projects processing total number cost number cost number cost number cost no. $m no. $m no. $m no. $m New South Wales 13 1 058 0 0 4 580 17 1 638 Victoria 1 1 100 2 662 0 0 3 1 762 Queensland 20 6 340 5 551 3 700 28 7 591 Western Australia 9 7 460 26 12 461 0 0 35 19 921 South Australia 0 0 2 405 0 0 2 405 Tasmania 1 500 1 77 0 0 2 577 Northern Territory 0 0 2 106 1 1 970 3 2 076 Australia 44 16 458 38 14 262 8 3 250 90 33 970

406 australian commodities > vol. 13 no. 2 > june quarter 2006 development projects

ﬁ eld in the Carnarvon Basin, scheduled for completion in 2008, and the $1.1 billion Otway gas project in offshore Victoria, expected to be completed in mid-2006. Queensland coal mine projects and coal infrastructure developments account for a further 19 per cent (or $6.3 billion) of the estimated capital cost of $34 billion for all advanced projects. The largest coal mine development is the $1 billion Dawson mine expansion (Anglo Coal Australia/Mitsui), southwest of Gladstone, which is expected to add around 12 million tonnes of coking and thermal coal capacity, commencing in early 2007. Anglo Coal/Mitsui is also developing the large new Lake Lindsay opencut mine (capital cost $674 million) near German Creek in central Queensland. The mine is expected to commence production in late 2006, with output subsequently building up to full capacity of around 4 million tonnes a year, mainly of coking coal. Rio Tinto is committed to developing its $440 million Clermont opencut mine by 2008 as a replacement for the existing Blair Athol mine. Output is expected to be around 12 million tonnes a year of thermal coal. Twelve other advanced coal mine developments in Queensland are expected to raise coal production capacity by around 30 million tonnes a year by 2008. The combined capital cost of these twelve projects is $2.6 billion. The large number of coal projects scheduled for completion in Queensland in the short to medium term has provided the impetus for expanded coal terminal capacity. At

advanced minerals and energy projects april 2006 Capital expenditure D $0–100m $101–500m $501–1000m Alcan refinery expansion >$1000m (alumina) Processing Mine/ facility platform Dampier Port expansion stage 2 Weipa Darwin (iron ore) Koolan Island stage 2 Yabulu refinery (nickel) (bauxite) Townsville copper refinery (iron ore) Angel gas & Browns oxide Abbot Point coal terminal condensate field (copper) BMA coal expansion Perseus (gas) Karratha McArthur River Hail Creek (coal) LNG plant Argyle (diamonds) (zinc/lead) Goodwin A LPT Mount Wright (gold) Dalrymple Bay (gas) Ellendale (diamonds) Mt Isa smelter Charters Towers coal terminal Coyote (gold) stages 1, 2 (copper) (gold) Hay Point coal NorthWest Lennard Shelf restart (zinc) terminal Shelf (LNG) Nullagine (gold) Northern 3500 orebody Clermont (coal) Stybarrow (oil) (copper) Carborough Downs (coal) Rapid growth projects 2, 3 (iron ore) Isaac Plains (coal) German Creek Enfield (oil) Millenium (coal) (coal) Yandicoogina (iron ore) Red Mountain JV (coal) Grasstree (coal) Blackwater Vincent oil field Hope Downs (iron ore) Lake Lindsay (coal) (coal) Tom Price (iron ore) Curragh North expansion(coal) RG Tanna coal Rio Tinto rail duplication Rolleston expansion(coal) terminal (iron ore) Jaguar Dawson mine (coal) Base Metals Magellan stage 2 (lead) Orica (ammonium nitrate plant) Kogan Creek(coal) Jack Hills (zinc, copper, silver) Argyle (coal seam methane) Brisbane stage 1 (iron ore) Wallaby (gold) Boggabri (coal) East Boggabri (coal) Sunrise Dam (gold) Ashton (coal) Mt Owen(coal) Dampier to Bunbury Black Swan (nickel) Project Magnet Wambo opencut and (iron ore) underground (coal) Sandgate(coal) gas pipeline Kurri Kurri stage 2 Maggie Hays (nickel) Mindarie Ulan (coal) Perth (aluminium) Waroona (zircon) Flying Fox stages 1, 2 (nickel) (zircon) Wilpinjong (coal) Kooragang Island Boddington (gold) Newpac (coal) coal terminal Coating plant (steel) Sydney Austar (coal) Ravensthorpe Adelaide Douglas Canberra Phillips River (nickel) Port Kembla blast (mineral sands) furnace reline (gold) Melbourne Bendigo (gold) (crude iron & steel) Otway (gas) Port Kembla hot BassGas (gas) strip mill (steel) Camden (gas) Avebury (nickel)

Hobart australian commodities > vol. 13 no. 2 > june quarter 2006 407 development projects

the end of April 2006, there were four terminal expansions either committed or under construction. These four expansions have an estimated capital cost of $1.6 billion and will increase total port capacity in Queensland by an estimated 76 million tonnes a year. The largest of these is Babcock and Brown Infrastructures’ $850 million expansion of the Dalrymple Bay coal terminal that will increase port capacity from 60 million tonnes a year to 85 million tonnes a year by late 2008. The other three projects are Ports Corporation of Queensland’s $430 million Abbot Point coal terminal expansion (stage 3), near Bowen; the Central Queensland Ports Authority’s $232 million expansion of the RG Tanna coal terminal at Gladstone; and BMA’s $70 million Hay Point terminal expansion (stage 2) near Mackay. advanced metal mining projects At the end of April 2006, there were 38 advanced minerals mining projects collectively valued at around $14.3 billion, compared with 29 such projects valued at $10.6 billion at the end of October 2005. Much of the increase in capital expenditure over this period is attributable to a few large projects — in iron ore, gold and diamonds — that have recently advanced to the committed stage. In iron ore, Rio Tinto and Hancock Prospecting immediately began construction of the new $1.3 billion Hope Downs iron ore mine in the Pilbara region following their recent committal to the project. Hope Downs is expected to commence production early in 2008, with stage one capacity expected to be 22 million tonnes a year, building to 30 million tonnes in stage 2. Nine other iron ore projects, collectively valued at around $5.7 billion, were either committed or under construction at the end of April 2006. These include four large expansion projects in the Pilbara — BHP Billiton’s Rapid Growth projects 2 and 3 and Rio Tinto’s Yandicoogina mine expansion and stage 2 of its Dampier Port expansion — which together account for around $4.5 billion in expected capital expenditure. Newmont and Anglogold have recently committed to a $2 billion redevelopment of the Boddington gold mine near Pinjarra in Western Australia. Boddington’s redevelopment is expected to be completed in 2008, with annual output at full capacity expected to be 900 000 ounces of gold and 30 000 tonnes of copper. Bendigo Mining’s new $379 million Bendigo gold mine in Victoria is scheduled to commence in mid-2006. Initial annual output from this mine is expected to be 120 000 ounces of gold, building to 600 000 ounces. In diamonds, Rio Tinto’s new Argyle underground development is under construction following its recent committal to the project. The development is expected to be completed in 2009 at a capital cost of $1.24 billion. advanced minerals processing projects At the end of April 2006, there were eight advanced minerals processing projects — three fewer than at the end of October 2005. The combined capital expenditure of the eight projects is $3.3 billion. By far the largest, in terms of capital cost, is Alcan’s $1.97 billion reﬁ nery expansion at Gove in the Northern Territory. The expansion is expected to add 1.8 million tonnes a year to Australia’s alumina capacity following its scheduled commissioning late in 2006. In Townsville, QNI’s $627 million expansion of its Yabulu nickel reﬁ nery — a development linked to BHP Billiton’s $1.8 billion Ravensthorpe nickel mine development in Western Australia — is currently under construction and is expected to be completed in mid-2007.

408 australian commodities > vol. 13 no. 2 > june quarter 2006 development projects capital value of all projects value of advanced projects Figure E provides a breakdown of proposed capital by commodity, april 2006 expenditure on advanced projects, by major com- E modity grouping. Figure F shows the estimated capital $34 billion cost on a state basis. other 9% At the end of April 2006, the number of advanced petroleum 27% projects was a new record (fi gure G), as is the total value iron ore 21% of advanced projects (in 2005 dollars) — fi gure H. The real average value of advanced projects at the end of April 2006 ($377 million) is just a little above the average for all years since 1995 ($375 million) nickel 8% — fi gure I. coal 21% gold 8% alumina 6%

value of advanced projects number of advanced projects F by state, april 2006 G $34 billion minerals processing Northern Territory 6% New South Wales 5% 80 minerals

Tasmania 2% Victoria 5% energy South Australia 1% 60

Queensland 22% 40

0 Western Australia 59% 1996 1998 2000 June Dec AprOct AprOct Apr Oct Apr 2002 2003 2004 2005 2006

value of advanced projects average value of advanced projects H in 2005-06 dollars I in 2005-06 dollars minerals processing 30 minerals 400 25 energy

20 300

15 200 10 100 5

$b $m 19951997 1999 2001 2003 2005 1996 19982000 2002 2004 2006 australian commodities > vol. 13 no. 2 > june quarter 2006 409 development projects

less advanced projects

Projects in the less advanced planning category are either still undergoing feasibility study (in some selected cases, prefeasibility study), or no deﬁ nite decision has been taken on development following the completion of a feasibility study. Some of these projects cannot proceed for several years and may confront changes in economic or competitive conditions, or may be targeting the same emerging market opportunity, necessitating resched- uling. In addition, securing ﬁ nance for project development — even for high quality projects that have a high probability of success — can present problems, particularly when there is perceived to be excess global supply and/or an uncertain demand outlook. However, despite the uncertainty that attaches to projects at these earlier stages of consideration, they provide a useful indication of the nature and extent of the platform for future development of the Australian mineral and energy sector. Of the 256 projects in total (a record) in ABARE’s April 2006 projects list, 65 per cent (166 projects) remain uncommitted. Table 4 contains a summary of the numbers and commodity distribution of the 166 uncommitted projects together with their potential capital expenditure. The potential capital expenditure data should be used as a rough 4 number of less advanced projects – april 2006 potential capital NSW Vic Qld WA SA Tas NT Aust expend. no. no. no. no. no. no. no. no. $m mining – energy projects Black coal 11 0 20 0 0 0 0 31 7 073 Petroleum 0 2 4 8 0 0 6 20 43 559 Uranium 0 0 1 1 2 0 0 4 594 Total 11 2 25 9 2 0 6 55 51 226 mining – minerals projects Copper 2 0 6 1 4 0 0 13 6 241 Gold 6 0 0 9 1 0 0 16 311 Iron ore 0 0 0 11 0 0 0 11 12 612 Lead–zinc–silver 3 0 2 1 2 1 1 10 1 208 Mineral sands 3 4 1 5 1 0 0 14 600 Nickel 0 0 2 8 0 0 0 10 4 104 Rare earths 0 0 0 2 0 0 0 2 140 Tin 0 0 0 0 0 1 0 1 53 Other commodities 1 0 2 12 0 0 1 16 4 607 Total 15 4 13 49 8 2 2 93 29 876 minerals processing Alumina 0 0 3 2 0 0 0 5 9 620 Aluminium 2 0 1 0 0 0 0 3 2 520 Crude iron and steel 1 0 1 0 0 0 0 2 975 Magnesium 0 1 0 0 0 1 0 2 1 784 Nickel 0 0 0 2 0 0 0 2 341 Titanium minerals 1 0 0 2 0 0 0 3 747 Zinc 0 0 1 0 0 0 0 1 na Total 4 1 6 6 0 1 0 18 15 987 total 30 7 44 64 10 3 8 166 97 089

410 australian commodities > vol. 13 no. 2 > june quarter 2006 development projects guide only. Capital expenditure data for many early stage projects are either not available or, if available, will change signifi cantly if they do proceed to development. In addition, changes in market conditions can often lead to signifi cant variations in capital expenditure estimates. However, most of the projects that will ultimately proceed to development in the medium term are included in ABARE’s current list of 166 less advanced projects. Among the more notable large scale projects in ABARE’s April 2006 list that are still undergoing feasibility studies are seven proposed LNG developments that, collectively, could add around 50 million tonnes of annual LNG production capacity in the medium to long term. The most advanced, and one of the largest, of these LNG projects is Chevron Texaco’s proposed $11 billion, 10 million tonnes a year, Gorgon development on Barrow Island that is currently at the front end engineering and design (FEED) stage. The largest uncommitted metal mining project is BHP Billiton’s proposed $5 billion Olympic Dam expansion, currently undergoing prefeasibility studies. This project aims to more than double the mine’s current output of copper, uranium, gold and silver. Among the uncommitted iron ore projects, six have an estimated capital expenditure of $1 billion or more. These are: Mineralogy’s Cape Preston mine and pellet plant (estimated capital cost of $1.9 billion); Murchison Metals’ Jack Hills stage 2 mine ($1.9 billion); Gindalbie Metals’ Karara magnetite mine and pellet plant ($1 billion); Midwest Corporation’s Kool- anooka pellet project ($1 billion); Fortescue Metals’ Pilbara iron ore and infrastructure projects ($1.9 billion); and BHP Billiton’s Rapid Growth project 4 ($2.2 billion). projects new to abare’s list There are 47 projects (both advanced and less advanced) that are new to ABARE’s list since October 2005. In the eighteen month period from the end of October 2004 to the end of April 2006, over 100 projects have been added to ABARE’s project list. The number of newly listed projects in this timespan is unprecedented and is another indication of the current high level of investment interest in the mineral resources sector. Figure J provides a summary of the 47 newly listed projects in the six months ended April 2006 by commodity category. Of the 47 projects added to the list, 14 are either committed or already under construction. Among the more notable less advanced projects new to the list are two large LNG proposals — the Woodside Energy led Browse LNG development and Inpex’s Ichthys gasfi eld, both in the Browse Basin (offshore Western projects added to list six months to april 2006 total = 47 Australia). The Ichthys project has an estimated capital J cost of $6.4—8 billion. These two proposed devel- coal opments are scheduled to come on line in the period 2011–14. A feasibility study into the proposed stage 5 petroleum expansion of the Dampier to Bunbury natural gas pipeline is currently underway; completion is scheduled copper for 2009, with the capital cost estimated to be $1.5 gold billion. In Queensland, China Aluminium Company mineral (CHALCO) proposes to develop the Aurukun bauxite sands deposit on Cape York Peninsula and to build a new alumina refi nery at a location on the east coast (Towns- uranium ville, Bowen or Gladstone). The project is currently at other prefeasibility stage, with the combined capital cost (mine and refi nery) estimated at $2.9 billion. no.26812 4 10 14 16 australian commodities > vol. 13 no. 2 > june quarter 2006 411 australian commodities

statistical tables GDP, imports

contribution to GDP, Australia in 2005-06 dollars

1994-95 2004-05 $767.1b $854.9b agriculture, forestry and fishing 3% agriculture, forestry and fishing 3% mining 5% mining 4% manufacturing 13% anufacturing 11% building and construction 6% building and construction 6%

services 74% services 76%

share of Australian imports, by source in 2005-06 dollars

1994-95 2004-05 total $99.0b $153.9b United States United States 14% Other 36% 22% Other 43% Japan 11%

Japan 17% China 13% 5% New Zealand China 5% Germany 6% Singapore 3% New Zealand 4% Germany 7% 4% United Kingdom 6% Singapore 5% United Kingdom agriculture $4.8b $7.0b China 2% China 5% Other 17% Other 19% ASEAN 16% ASEAN 15%

United States Other Asia 4% Other Asia 7% 11% United States 15%

Europe 25% New Zealand 18% Europe 30% New Zealand 15% minerals and energy $8.1b $21.6b Indonesia 7% Indonesia 8% Malaysia 1% Singapore 5% Other 21% Vietnam 3% Malaysia 10% Other 40% Other Asia New Zealand 3% 11% Singapore 21% Middle East 10%

Middle East 25% New Zealand 8% Other Asia15% Vietnam 12%

414 australian commodities > vol. 13 no. 2 > june quarter 2006 export markets

markets for Australian exports in 2005-06 dollars 1994-95 2004-05

total $89.1b $130.2b China 4% China 10% Other 37% Japan 24% Other 32% Japan 20%

Korea, Rep. of 8% Korea, Rep. of 8% Europe 11% Europe 11% United States 7% United States 7% India 2% New Zealand 7% India 5% New Zealand 7%

agriculture $23.7b $28.5b China 8% China 10% Other 16% Other 15%

United States 7% Japan 23% Japan 19% United States 11% Middle East 4% Middle East 7% Europe 12% ASEAN 15% ASEAN 5% Europe 10% Other Asia 14% Other Asia 13%

energy $15.1b $30.5b

Other 17% Other 17% Japan 45% Japan 39% Europe 10% Europe 9%

Other Asia 9% Other Asia 12% India 5% India 6% Korea, Republic of 12% Chinese Taipei 6% Korea, Republic of 9% Chinese Taipei 6%

minerals $25.9b $39.8b China 3% China 17% Other 26% Japan 23% Other 24%

Japan 16% Europe 7% Europe 6% Korea, Rep. of 12% Thailand 4% Korea, Rep. of 8% Other Asia 25% Other Asia 12% India 1% India 10% Thailand 5%

manufacturing $21.2b $27.6b China 4% China 9% Other 23% Japan 10% Japan 2% Other 24% Korea, Rep. of 5% Korea, Rep. of 5%

New Zealand 23% United States 17% New Zealand 23% United States 17% Europe 19% Europe 20% australian commodities > vol. 13 no. 2 > june quarter 2006 415 agriculture

principal markets for Australian agricultural exports

wheat barley Egypt Kuwait Japan 2004-05 United Arab 1994-95 Emirates Korea,Rep of Iran 2004-05 Iraq Japan 1993-94

China China

Indonesia Saudi Arabia kt 500 1000 1500 2000 2500 kt 500 1000 1500 2000

sugar wine

New Zealand Sweden 2004-05 New Zealand 2004-05 Indonesia 1993-94 1994-95 Canada Germany

Japan Canada

Malaysia United States

Korea,Rep of United Kingdom

kt 200 400 600 800 1000 ML 50 100 150 200 250

beef and veal sheep meat Canada Mexico Papua New Guinea Chinese Taipei 2004-05 2004-05 1994-95 Japan 1994-95 Korea, Rep.of European Union Japan Saudi Arabia

United States United States

kt 100 200 300 400 kt 1020 30 40 50

wool cheese

Germany Indonesia

France Korea, Republic of 2004-05 2004-05 United States Chinese Taipei 1994-95 1994-95 India Netherlands

Italy Saudi Arabia

China Japan

kt50 100 150 200 250 kt 20 40 60 80 100

416 australian commodities > vol. 13 no. 2 > june quarter 2006 minerals and energy

principal markets for Australian mineral and energy exports

thermal coal metallurgical coal

India United Kingdom 2004-05 2004-05 China Netherlands 1994-95 1994-95 Malaysia Chinese Taipei

Chinese Korea, Rep of Taipei Korea, Rep of India

Japan Japan

A$m 1000 2000 3000 A$m 500 1000 1500 2000 25003000 3500

oil and gas gold

Indonesia Japan 2004-05 United States 1994-95 Singapore

New Zealand Korea, Rep. of 2004-05 Singapore United Kingdom 1994-95 Korea, Rep. of Thailand

Japan India A$m 1000 2000 3000 4000 5000 A$m 500 1000 1500 2000 2500

iron ore aluminium

France United States United Hong Kong 2004-05 Kingdom 2004-05 1994-95 Chinese 1994-95 Thailand Taipei Korea, Rep of Chinese Taipei

Japan Korea, Rep of Japan China

A$m 1000 2000 3000 4000 A$m 200 400600 800 1000 1200

copper iron and steel Korea, Rep of Malaysia 2004-05 Malaysia 1994-95 Indonesia 2004-05 Chinese 1994-95 Taipei New Zealand India Korea, Rep of China China

Japan United States A$m100 200 300 400500 600 A$m 100 200 300 400 australian commodities > vol. 13 no. 2 > june quarter 2006 417 prices

indexes of prices received by farmers 1 Australia

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 s 2006-07 f Crops sector Grains Winter crops Barley 125.1 130.8 159.9 105.9 101.0 111.0 120.2 Canola 79.6 99.7 100.9 104.4 84.9 88.6 94.4 Lupins 104.9 127.7 149.0 120.4 103.2 95.9 98.8 Oats 96.5 128.2 160.3 101.1 92.7 124.8 127.0 Wheat 117.4 132.3 134.4 109.1 96.6 119.0 133.7 Summer crops Sorghum 85.1 102.2 120.9 93.8 88.8 102.4 104.6 Total grains a 108.7 123.7 134.0 105.2 95.0 111.5 122.0 Cotton 106.1 92.7 100.1 88.2 87.0 85.0 85.0 Sugar 70.4 88.5 83.2 76.3 83.1 90.6 112.1 Hay 110.7 104.2 155.0 125.0 128.0 125.5 123.0 Fruit 102.0 117.8 108.9 123.9 114.3 115.6 119.9 Vegetables 107.5 104.3 123.8 124.6 122.2 124.9 117.9 Total crops sector 104.7 113.6 118.7 106.3 98.9 106.6 112.3 Livestock sector Livestock for slaughter Cattle 144.2 167.7 145.0 160.4 174.2 176.7 156.4 Lambs b 104.1 167.2 176.7 190.1 184.1 185.3 188.2 Sheep 117.9 204.7 185.4 230.3 196.1 196.0 196.0 Live sheep for export 111.4 156.1 179.3 178.0 164.1 176.6 193.5 Pigs 113.7 123.6 109.7 109.4 120.1 111.6 109.3 Poultry 90.1 93.0 98.5 97.7 95.8 97.0 98.3 Total 126.0 151.5 139.1 149.2 156.4 157.7 147.3 Livestock products Wool 98.3 113.9 153.2 116.5 106.2 109.3 104.7 Milk 97.0 110.5 90.7 93.4 103.9 113.3 110.5 Eggs 79.1 82.8 92.4 89.2 85.4 81.2 89.1 Total 95.6 109.0 114.0 101.6 103.2 109.1 106.5 Store and breeding stock 126.0 145.3 125.9 144.0 156.4 157.7 147.4 Totallivestock sector 113.0 133.4 128.1 129.3 134.2 137.3 130.1 Total prices received 108.5 122.5 122.6 116.5 114.5 120.2 120.2

a Total for the group includes commodities not separately listed. b Lamb saleyard indicator weight 18–20 kilograms. s ABARE estimate. f ABARE forecast. Note: 1 ABARE revised the method for calculating these indexes in October 1999. The indexes for commodity groups are calculated on a chained weight basis using Fisher's ideal index with a reference year of 1997-98 = 100. Indexes for most individual commodities are based on annual gross unit value of production. 2 Prices used in these calculations exclude GST. Source: ABARE.

418 australian commodities > vol. 13 no. 2 > june quarter 2006 prices

indexes of prices paid by farmers, and terms of trade 2 Australia

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 s 2006-07 f

Farmers’ terms of trade a 98.6 108.6 101.2 94.8 90.1 92.6 90.0 Materials and services Seed, fodder and livestock Fodder and feedstuffs 93.6 105.5 167.5 148.3 147.3 132.5 140.4 Seed, seedlings and plants 105.2 112.9 118.3 104.9 97.0 92.1 97.1 Store and breeding stock 126.0 145.3 125.9 144.0 156.4 157.7 147.4 Total 102.7 116.1 149.8 141.5 143.4 134.2 136.4 Chemicals 103.3 105.6 108.0 110.0 111.9 114.5 116.8 Electricity 99.9 100.4 100.5 100.0 101.3 103.3 105.1 Fertiliser 106.4 104.3 104.5 103.6 103.6 106.2 108.8 Fuel and lubricants 137.6 122.9 121.7 138.6 168.4 198.7 205.3 Total 109.0 112.9 125.4 125.1 129.6 130.8 133.8 Labor 110.1 113.3 117.9 121.6 125.7 129.5 133.0 Marketing 109.3 112.4 115.9 118.7 121.5 125.2 128.6 Overheads Insurance 109.8 118.6 124.5 128.8 131.9 135.1 139.2 Interest paid 111.2 104.2 110.7 118.1 123.7 130.3 138.3 Rates and taxes 112.4 115.5 119.1 121.9 124.8 128.6 132.1 Other overheads 108.7 111.9 115.4 118.1 121.0 124.6 128.0 Total 111.3 109.9 115.2 120.6 125.0 130.2 136.1 Capital items 111.9 115.2 118.3 121.3 124.4 128.2 131.9 Total prices paid 110.0 112.8 121.2 123.0 127.1 129.8 133.5 Excluding capital items 109.6 112.3 121.4 123.1 127.3 129.9 133.6 Excluding capital and overheads 109.2 112.9 122.8 123.6 127.8 129.8 133.0 Excluding seed, fodder and store and breeding stock 111.3 112.0 115.3 119.2 123.7 128.9 132.9

a Ratio of index of prices received by farmers and index of prices paid by farmers. s ABARE estimate. f ABARE forecast. Note: 1 ABARE revised the method for calculating these indexes in October 1999. The indexes for commodity groups are calculated on a chained weight basis using Fisher's ideal index with a reference year of 1997-98 = 100. 2 Prices used in these calculations exclude GST. Sources: Australian Bureau of Statistics; ABARE.

australian commodities > vol. 13 no. 2 > june quarter 2006 419 costs and returns

farm costs and returns 3 Australia

Unit 2001-02 2002-03 2003-04 2004-05 2005-06 s 2006-07 f

Costs Materials and services Chemicals $m 1 760 1 550 1 649 1 691 1 746 1 800 Fertiliser $m 1 980 1 820 1 827 1 851 1 824 1 954 Fuel and lubricants $m 1 580 1 520 1 626 1 765 2 083 2 152 Marketing $m 3 395 2 433 3 567 3 466 3 709 3 642 Repairs and maintenance $m 2 328 2 392 2 453 2 476 2 599 2 675 Seed and fodder $m 3 226 4 874 4 317 4 253 3 847 3 481 Other $m 3 339 3 329 3 378 3 473 3 687 3 809 Total $m 17 608 17 918 18 817 18 975 19 494 19 513 Labor $m 3 367 3 226 3 588 3 661 3 771 3 875 Overheads Interest paid $m 2 087 2 295 2 448 2 579 2 716 2 890 Rent and third party insurance $m 400 412 422 432 445 457 Total $m 5 854 5 933 6 458 6 672 6 932 7 222 Total cash costs $m 23 463 23 851 25 275 25 648 26 427 26 735 Depreciation a $m 3 796 3 915 4 017 4 122 4 249 4 371 Total farm costs $m 27 258 27 766 29 292 29 769 30 675 31 105 Returns Gross value of farm production $m 39 528 32 533 36 871 36 154 38 804 38 200 Gross farm cash income b $m 39 858 34 583 37 493 37 349 38 354 37 750 Net returns andproduction Net value of farm production c $m 12 270 4 767 7 579 6 385 8 129 7 095 Real net value of farm production d $m 13 655 5 146 7 994 6 573 8 129 6 922 Net farm cash income e $m 16 396 10 732 12 218 11 701 11 927 11 016 Real net farm cash income d $m 18 246 11 586 12 886 12 047 11 927 10 747 Gross value added g $m 24 396 18 128 24 366 24 177 23 232 23 576 a Based on estimated movements in capital expenditure and prices of capital inputs. b Gross value of farm production less increase in farmers’ assets held by marketing organisations. c Gross value of farm production less total farm costs. d In 2005-06 Australian dollars. e Gross farm cash income less total cash costs. g Chain volume measures at basic prices. Reference year is 2003-04. s ABARE estimate. f ABARE forecast. Note: Prices used in these calculations exclude GST. Sources: Australian Bureau of Statistics; ABARE. unit export returns 4 Australia

Annual indexes a 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 f Farm 108.3 117.8 116.0 107.1 106.0 108.1 107.2 Energy minerals 141.0 140.8 135.2 120.2 166.1 226.9 233.0 Metals and other minerals 115.6 110.3 105.9 105.1 125.1 160.0 179.3 Total mineral resources 125.4 122.2 117.4 111.1 141.0 185.8 200.2 Total commodities 120.3 121.2 117.3 110.1 130.1 161.1 170.6

2004-05 2005-06 2006-07

Quarterly indexes b June Sep. Dec. Mar. June p Sep. s Dec. f Mar. f June f Farm 104.1 113.1 111.4 107.9 101.2 106.4 111.9 106.7 108.9 Energy minerals 210.1 231.9 241.7 243.8 245.1 252.9 251.1 249.9 234.7 Metals and other minerals 151.3 158.9 163.7 173.6 196.7 196.5 194.7 193.1 192.3 Total mineral resources 174.4 187.6 194.3 201.4 216.2 219.0 217.2 215.7 209.2 Total commodities 149.4 160.6 164.6 168.2 175.2 179.2 179.6 177.2 173.4

a In Australian dollars. Base: 1989-90 = 100. b In Australian dollars. Base: 1994-95 = 100. p Preliminary. s ABARE estimate. f ABARE forecast. Source: ABARE.

420 australian commodities > vol. 13 no. 2 > june quarter 2006 exports

contribution to exports by sector Balance of payments basis 5 Australia

proportion of proportion of exports merchandise exports of goods and services

2000-01 Rural a Other merchandise 27% 22% Mineral resources 35% Other Services merchandise 22% 25% Mineral resources 47% Rural a 21%

2001-02 Rural a Other merchandise 28% 22% Mineral resources 36% Other merchandise Services 25% 21% Mineral resources 46% Rural a 20%

2002-03 Rural a Other merchandise 26% 21% Mineral resources 37% Other Services merchandise 22% 27% Mineral resources 47% Rural a 20%

2003-04 Rural a Other merchandise 26% 20% Mineral resources 36% Other merchandise Services 26% 24% Mineral resources 48% Rural a 20% 2004-05 Rural a Other merchandise 24% 18% Mineral resources 41% Other Services merchandise 22% 23% Mineral resources 53% Rural a 19%

a Includes farm, forest and fisheries products. Source: Australian Bureau of Statistics; ABARE.

australian commodities > vol. 13 no. 2 > june quarter 2006 421 exports

annual exports summary Balance of payments basis 6 Australia

2001-02 2002-03 2003-04 2004-05 2005-06 s 2006-07 f $m $m $m $m $m $m At current prices Rural Cereal grains and products 6 481 4 487 5 094 5 159 5 055 6 408 Sugar and honey 1 610 1 363 1 123 1 292 1 778 1 960 Meat and meat preparations 6 246 5 655 5 758 6 937 6 301 6 432 Wool and sheepskins 3 687 3 545 2 778 2 838 2 561 2 499 Other rural a 16 340 14 901 14 105 14 124 14 484 15 016 Total 34 364 29 951 28 858 30 350 30 179 32 316 Mineral resources Coal, coke and briquettes 13 430 11 987 11 001 17 236 24 704 26 370 Other mineral fuels 10 940 11 049 8 766 11 151 14 619 18 858 Metalliferous ores and other minerals bs 15 286 15 312 15 419 20 504 29 324 36 794 Gold 5 300 5 718 5 839 5 758 6 800 8 997 Other metals cs 10 991 10 941 11 322 13 076 15 010 17 521 Total s 55 947 55 007 52 347 67 725 90 457 108 541 Total commodities sector s 90 310 84 958 81 204 98 075 120 636 140 856 Other merchandise s 30 640 30 842 28 300 29 828 na na Total merchandise s 120 950 115 800 109 504 127 903 na na Services 33 828 33 891 35 172 36 487 na na Total goods and services 154 778 149 691 144 676 164 390 na na Chain volume measures d Rural Cereal grains and products 5 520 3 754 5 094 5 504 5 329 5 995 Sugar and honey 1 058 1 123 1 123 1 178 1 182 1 059 Meat and meat preparations 5 942 6 010 5 758 6 404 6 320 6 575 Wool and sheepskins 3 416 2 735 2 778 3 161 3 086 3 541 Other rural a 16 471 14 153 14 105 13 336 14 679 15 136 Total 32 407 27 775 28 858 29 583 30 596 32 305 Mineral resources Coal, coke and briquettes 9 970 10 438 11 001 11 649 11 894 13 430 Other mineral fuels 10 818 10 129 8 765 8 879 9 047 10 558 Metalliferous ores and other minerals bs 13 983 14 881 15 420 16 827 18 975 21 711 Gold 5 248 5 485 5 838 5 624 5 701 5 986 Other metals cs 11 482 11 808 11 323 10 080 10 194 11 205 Total s 51 501 52 740 52 347 53 059 55 810 62 891 Total commodities sector s 83 908 80 516 81 204 82 642 86 406 95 196 Other merchandise s 24 542 27 638 28 300 30 410 na na Total merchandise s 108 450 108 154 109 504 113 052 na na Services 35 385 34 505 35 171 35 409 na na Total goods and services 143 764 142 675 144 675 148 462 na na

a Includes other farm, forest and fisheries products. Includes exports of wine and of paper and paperboard, which are not included in this balance of payments item by the ABS. b Includes diamonds, which are not included in this balance of payments item by the ABS. c Includes ABARE estimates for steel and nickel which were confidentialised by the ABS. d For a description of chain volume measures, see ABS, Introduction of chain volume measures, in the Australian National Accounts, cat. no. 5248.0, Canberra. Reference year is 2003-04. s ABARE estimate. f ABARE forecast. na Not available. Sources: ABS, Balance of Payments, Australia, cat. no. 5302.0, Canberra; ABARE.

422 australian commodities > vol. 13 no. 2 > june quarter 2006 exports

quarterly exports summary Balance of payments basis 7 Australia

2004-05 2005-06 2006-07

June Sep. Dec. Mar. June p Sep. s Dec. f Mar. f June f $m $m $m $m $m $m $m $m $m At current prices Rural Cereal grains and products 981 1 011 1 095 1 456 1 493 1 350 1 524 1 802 1 731 Sugar and honey 325 469 669 326 314 793 600 292 276 Meat and meat preparations 1 888 1 672 1 780 1 489 1 360 1 651 1 655 1 425 1 701 Wool and sheepskins 749 580 678 622 681 613 686 540 661 Other rural a 3 634 3 848 3 652 3 374 3 610 3 999 3 704 3 461 3 852 Total 7 577 7 580 7 875 7 267 7 458 8 406 8 169 7 520 8 221 Mineral resources Coal, coke and briquettes 5 695 6 032 6 241 6 059 6 372 6 470 6 589 6 945 6 367 Other mineral fuels 2 959 3 543 3 355 3 183 4 538 4 045 4 960 4 990 4 862 Metalliferous ores and other minerals bs 6 372 6 205 7 562 6 523 9 034 8 877 9 214 8 950 9 753 Gold 1 452 1 500 1 603 1 730 1 967 1 985 2 259 2 415 2 338 Other metals cs 3 388 3 227 3 461 3 603 4 719 4 385 4 292 4 462 4 383 Total s 19 865 20 507 22 222 21 098 26 630 25 763 27 313 27 762 27 702 Total commodities sector s 27 442 28 087 30 097 28 364 34 088 34 169 35 482 35 282 35 924 Other merchandise s 8 071 8 260 8 846 8 029 na na na na na Total merchandise 35 513 36 347 38 943 36 393 na na na na na Services 8 884 9 338 9 628 9 945 na na na na na Total goods and services 44 397 45 685 48 571 46 338 na na na na na Chain volume measures d Rural Cereal grains and products 1 053 1 106 1 133 1 581 1 509 1 404 1 367 1 640 1 583 Sugar and honey 285 390 349 166 277 446 268 185 160 Meat and meat preparations 1 744 1 557 1 645 1 406 1 712 1 669 1 681 1 502 1 724 Wool and sheepskins 875 671 809 725 881 826 930 798 986 Other rural a 3 711 3 807 3 654 3 324 3 895 3 895 3 955 3 744 3 542 Total 7 668 7 531 7 590 7 201 8 274 8 240 8 201 7 869 7 994 Mineral resources Coal, coke and briquettes 3 027 2 936 2 851 2 833 3 274 3 280 3 296 3 427 3 427 Other mineral fuels 2 247 2 333 2 223 2 061 2 430 2 467 2 621 2 721 2 750 Metalliferous ores and other minerals bs 4 426 4 095 5 258 4 415 5 207 5 255 5 460 5 284 5 713 Gold 1 442 1 435 1 321 1 275 1 670 1 507 1 387 1 339 1 753 Other metals cs 2 538 2 505 2 644 2 369 2 676 2 702 2 739 2 878 2 886 Total s 13 680 13 304 14 297 12 953 15 256 15 212 15 502 15 648 16 528 Total commodities sector s 21 348 20 835 21 887 20 154 23 530 23 452 23 704 23 518 24 523 Other merchandise s 7 941 7 922 7 836 6 991 na na na na na Total merchandise 29 289 28 757 29 723 27 145 na na na na na Services 8 537 8 857 9 109 9 297 na na na na na Total goods and services 37 826 37 614 38 832 36 442 na na na na na a Includes other farm, forest and fisheries products. Includes exports of wine and of paper and paperboard, which are not included in this balance of payments item by the ABS. b Includes diamonds, which are not included in this balance of payments item by the ABS. c Includes ABARE estimates for steel and nickel which were confidentialised by the ABS. d For a description of chain volume measures, see ABS, Introduction of chain volume measures, in the Australian National Accounts, cat. no. 5248.0, Canberra. Reference year is 2003-04. p Preliminary. s ABARE estimate. f ABARE forecast. na Not available. Sources: ABS, Balance of Payments, Australia, cat. no. 5302.0, Canberra; ABARE.

australian commodities > vol. 13 no. 2 > june quarter 2006 423 sectors

industry gross value added a 8 Australia

Unit 2000-01 2001-02 2002-03 2003-04 2004-05 Agriculture, forestry and fishing Agriculture $m 23 560 24 396 18 128 24 366 24 177 Forestry and fishing $m 2 485 2 476 2 473 2 644 2 541 Total $m 26 045 26 864 20 565 27 011 26 719 Mining Mining (excludes services to mining) $m 32 114 32 044 31 734 30 713 31 753 Services to mining $m 3 537 3 637 3 882 3 652 4 293 Total $m 35 663 35 688 35 609 34 366 36 046 Manufacturing Food, beverage and tobacco $m 18 821 18 726 18 913 18 875 19 100 Textile, clothing, footwear and leather $m 4 320 3 788 3 486 3 223 2 622 Wood and paper products $m 6 543 6 820 6 940 6 898 6 944 Printing, publishing and recorded media $m 9 613 9 783 10 016 10 309 10 062 Petroleum, coal, chemical, etc. $m 12 522 12 639 13 377 12 774 12 773 Non–metallic mineral products $m 3 862 4 111 4 456 4 610 4 844 Metal products $m 16 025 17 228 17 843 17 888 17 385 Machinery and equipment $m 16 002 16 037 17 198 18 071 18 192 Other manufacturing $m 3 568 3 909 4 180 4 453 4 092 Total $m 90 877 92 808 96 277 97 103 96 013 Building and construction $m 36 871 41 276 47 949 51 117 53 568 Electricity, gas and water supply $m 18 624 18 491 18 663 18 816 18 943 Taxes less subsidies on products $m 66 199 69 178 72 926 75 401 77 422 Statistical discrepancy $m 0 – 1 1 0 – 948 Gross domestic product $m 752 434 780 817 806 161 838 251 859 192

a Chain volume measures, reference year is 2003-04. Source: ABS, National Income, Expenditure and Product, cat. no. 5206.0, Canberra.

424 australian commodities > vol. 13 no. 2 > june quarter 2006 production, employment

volume of production indexes 9 Australia

2001-02 2002-03 2003-04 2004-05 2005-06 s 2006-07 f Farm Grains and oilseeds 130.1 59.3 138.6 115.4 132.4 120.0 Total crops 121.7 83.4 123.0 117.1 122.6 115.1 Livestock slaughterings 108.0 109.8 104.4 109.2 107.7 111.4 Totallivestock 107.6 104.2 99.6 103.0 101.5 104.6 Totalfarm sector 115.2 93.6 111.9 110.8 112.7 110.5 Forestry a Broadleaved 107.8 119.6 125.6 132.4 133.1 146.9 Coniferous 127.0 136.2 134.5 131.1 131.7 121.5 Total forestry 118.0 128.5 130.5 132.2 132.8 134.2 Mine b Energy minerals 115.2 115.0 111.0 112.9 110.8 119.8 Metals and other minerals 111.7 115.9 115.9 124.3 126.0 141.5 Total minerals 113.7 115.5 113.5 118.7 118.6 130.9 a Volume of roundwood equivalent removed from forests. b Uranium is included with energy. s ABARE estimate. f ABARE forecast. Note: ABARE revised the method for calculating production indexes in October 1999. The indexes for the different groups of commodities are calculated on a chained weight basis using Fishers' ideal index with a reference year of 1997-98 = 100. Sources: Australian Bureau of Statistics; ABARE.

employment a 10 Australia

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 p ’000 ’000 ’000 ’000 ’000 ’000 Agriculture, forestry and fishing Agriculture 373 386 326 320 312 305 Forestry and logging 13 13 10 12 12 11 Commercial fishing 19 18 17 16 14 12 Total (including services) 435 444 377 374 363 355 Mining Coal 18 20 21 21 23 28 Oil and gas extraction 6 4 4 6 7 9 Metal ore 30 34 35 38 35 43 Other mining (including services) 24 23 26 27 29 34 Total 79 81 86 92 93 115 Manufacturing Food, beverages and tobacco 179 182 183 171 196 182 Textiles, clothing, footwear and leather 84 74 73 65 55 56 Wood and paper product 70 70 74 78 71 72 Printing, publishing and recorded media 118 105 115 110 109 106 Petroleum, coal and chemical product 107 107 112 100 91 88 Non–metallic mineral product 42 43 47 44 36 38 Metal product 175 155 164 157 139 162 Other manufacturing 319 324 323 309 294 297 Total 1 113 1 077 1 091 1 033 991 1 001 Other industries 7 389 7 532 7 769 7 933 8 089 8 388 Total 9 016 9 134 9 323 9 431 9 536 9 858

a Average employment over four quarters. p Preliminary. Source: ABS, The Labour Force, Australia, cat. no. 6291.0, Canberra. australian commodities > vol. 13 no. 2 > june quarter 2006 425 business, banks

business income 11 Australia

2000-01 2001-02 2002-03 2003-04 2004-05 $m $m $m $m $m Farm Net value of farm production 7 776 12 270 4 767 7 579 6 385 Company profits in selected industries a Mining 14 801 14 895 15 092 12 133 17 599 Manufacturing Food, beverages and tobacco 3 146 4 820 4 074 na na Textiles, clothing and footwear 143 439 539 na na Wood and paper products 870 1 314 1 754 na na Printing, publishing and recorded media 1 292 2 006 2 556 na na Petroleum, coal and chemical product 1 536 1 878 2 861 na na Non–metallic mineral product 675 994 1 358 na na Metal product 2 139 4 169 4 869 na na Machinery and equipment 1 400 2 433 2 534 na na Other manufacturing 74 692 723 na na Total 11 275 18 744 21 268 20 797 23 683 Other industries (including services) 18 726 27 895 40 289 50 922 57 459 Total (including services) 44 802 61 534 76 649 83 852 98 741

a Company profits before income tax. na Not available. Sources: ABS, National Income and Expenditure and Product, cat. no. 5206.0, Canberra; ABS, Company Profits, Australia, cat. no. 5651.0, Canberra; ABS, Business Indicators, cat. no. 5676.0, Canberra; ABS, Australian Industry , cat. no. 8155.0, Canberra; ABARE.

all banks lending to business a 12 Australia

2003-04 2004-05 2005-06 Mar June Sep. Dec. Mar June Sep. Dec Mar $b $b $b $b $b $b $b $b $b Agriculture, fishing and forestry 31.8 34.1 35.1 35.7 36.9 39.3 39.8 39.3 41.4 Mining 5.0 5.2 5.4 6.0 5.7 5.7 5.9 6.1 6.7 Manufacturing 31.4 31.8 30.7 30.5 31.1 31.3 32.4 35.1 36.4 Construction 16.4 17.7 17.4 18.1 19.4 19.4 19.9 20.8 21.7 Wholesale, retail trade, transport and storage 47.5 49.3 49.7 51.8 53.7 54.9 56.3 59.5 61.7 Finance and insurance 45.0 47.4 48.3 49.6 48.7 49.6 51.8 54.9 55.7 Other 149.4 153.5 458.5 162.5 165.6 173.4 181.3 190.4 200.0 Total 326.5 338.9 645.1 354.2 361.1 373.5 387.4 406.1 423.6

a Includes variable and fixed interest rate loans outstanding plus bank bills outstanding. Source: Reserve Bank of Australia, Bank Lending to Business - Selected Statistics, Bulletin Statistical Table D8.

426 australian commodities > vol. 13 no. 2 > june quarter 2006 farm debt

rural indebtedness to ﬁ nancial institutions a 13 Australia

1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 $m $m $m $m $m $m All banks a 23 240 25 174 26 829 28 957 34 116 39 261 Other government agencies b 663 701 711 739 763 837 Pastoral and other finance companies 2 527 2 639 2 691 1 628 3 379 3 112 Other farm debt cs 1 901 1 920 1 967 2 017 2 067 na Total rural debt 28 331 30 434 32 198 33 341 40 325 na

a Derived from all banks lending to agriculture, fishing and forestry. b Includes the government agency business of state banks and advances made under War Service Land Settlement. Prior to 1996 includes loans from the Queensland Industry Development Corporation. From 1996 these loans are included in bank lending. c Includes loans from life insurance companies, lease agreements and indebtedness to hire purchase companies, trade creditors, private lenders and small financial institutions. s ABARE estimate. na Not available. Sources: Reserve Bank of Australia, Estimated Rural Debt to Specified Lenders, Bulletin Statistical Table D9; ABARE.

australian commodities > vol. 13 no. 2 > june quarter 2006 427 capital expenditure

capital expenditure of private enterprises 14 Australia

2000-01 2001-02 2002-03 2003-04 2004-05 $m $m $m $m $m At current prices Gross fixed capital formation a All sectors 145 361 161 937 184 803 199 356 215 535 New capital expenditure Mining b 5 491 7 250 8 766 9 282 10 253 Manufacturing Food, beverages and tobacco 2 206 2 205 2 614 2 274 2 418 Textiles, clothing, footwear and leather 256 213 230 200 268 Wood and paper products 632 593 709 912 711 Printing, publishing and recorded media 735 687 553 538 558 Petroleum, coal and chemical product 1 466 1 284 1 608 2 090 2 423 Non–metallic mineral products 543 554 965 590 711 Metal products 1 254 1 541 2 158 2 689 3 390 Machinery and equipment 1 855 1 854 2 180 1 877 1 875 Other manufacturing 197 251 367 257 328 Total 9 144 9 181 11 385 11 423 12 681 Total surveyed industries 42 621 44 380 50 815 51 247 57 554 Chain volume measures c Gross fixed capital formation a All sectors 148 891 164 669 186 668 199 356 211 071 New capital expenditure Mining 5 628 7 284 8 759 9 282 9 833 Manufacturing 8 234 8 243 10 635 11 424 12 719 Other selected industries 24 127 24 628 28 219 30 541 35 598 Total surveyed industries 38 194 40 172 47 599 51 248 58 152

a Estimates taken from ABS national accounts, which include taxation based statistics. b Includes industries covered by Division B (for example, the metallic and nonmetallic minerals, coal, oil and gas, construction materials and other nonmetallic minerals industries) as defined in the 1993 edition of the Australian New Zealand Standard Industrial Classification (ANZSIC). c Reference year is 2003-04. Sources: Australian Bureau of Statistics; ABARE.

428 australian commodities > vol. 13 no. 2 > june quarter 2006 mineral exploration

private mineral exploration expenditure 15 Australia

1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 $m $m $m $m $m $m At current prices Energy Petroleum Onshore 110.1 176.9 164.6 191.3 230.5 270.1 Offshore 613.2 866.9 718.1 803.8 713.6 774.6 Total 723.3 1 043.8 882.7 995.1 944.1 1 044.7 Coal 35.3 41.2 50.4 77.8 81.5 126.8 Uranium 11.6 8.4 8.7 6.9 10.6 20.7 Total 770.2 1 093.4 941.8 1 079.8 1 036.2 1 192.2 Metals and other minerals a Gold 374.8 370.1 331.3 378.4 397.1 391.7 Iron ore 29.7 23.4 25.2 44.5 63.7 137.9 Base metals, silver and cobalt b 156.8 165.3 132.9 142.1 151.9 261.3 Mineral sands 21.5 23.6 33.2 27.3 23.8 27.6 Diamonds 29.8 31.8 35.4 29.9 25.9 23.7 Other 16.9 19.5 23.6 25.9 32.2 38.7 Total metals and other minerals a 629.5 633.7 581.6 648.1 694.6 880.9 Total expenditure 1 399.4 1 727.4 1 522.8 1 727.6 1 730.7 2 073.1 a Uranium is included with energy. b Base metals include copper, lead, nickel and zinc. Sources: Australian Bureau of Statistics; ABARE.

australian commodities > vol. 13 no. 2 > june quarter 2006 429 world prices 16 annual world indicator prices of selected commodities

Unit 2001-02 2002-03 2003-04 2004-05 2005-06 s 2006-07 f Crops Wheat a US$/t 128 160 160 154 176 196 Corn b US$/t 90 107 115 97 104 111 Rice c US$/t 192 199 220 278 299 289 Soybeans d US$/t 201 245 321 275 266 277 Cotton e USc/lb 41.8 55.4 68.3 52.4 56.1 59.0 Sugar g USc/lb 7.6 8.0 7.9 10.5 16.0 14.7 Livestock products Beef h USc/kg 227 202 243 286 276 250 Wool i Ac/kg 841 1 049 820 746 703 680 Butter j US$/t 1 152 1 186 1 621 2 208 2 002 1 738 Cheese j US$/t 2 000 1 775 2 358 2 856 2 790 2 599 Skim milk powder j US$/t 1 619 1 587 1 862 2 210 2 173 1 951 Energy Crude oil Dubai US$/bbl 21.83 25.90 29.06 40.72 58.16 60.25 West Texas intermediate US$/bbl 23.85 29.92 33.76 48.77 64.08 68.40 Brent US$/bbl 22.79 27.82 31.24 46.23 62.46 64.48 World trade weighted average k US$/bbl 21.59 26.26 29.33 41.18 57.25 59.10 Coal l Thermal US$/t 30.14 25.86 29.45 47.14 49.34 48.83 Metallurgical US$/t 40.75 41.85 43.13 68.59 116.02 104.65

Uranium (U3O8) m US$/lb 9.59 10.22 14.90 22.20 36.62 45.96

Minerals and metals n Aluminium US$/t 1 360 1 361 1 568 1 807 2 213 2 238 Copper US$/t 1 516 1 595 2 267 3 150 5 049 6 013 Gold o US$/oz 289 334 389 422 527 639 Iron ore (negotiated) q USc/dltu 28.98 28.28 30.83 36.571 62.72 74.63 Lead US$/t 474 445 700 964 1 085 807 Manganese (negotiated) r US$/mtu 2.11 1.97 2.12 2.45 3.98 3.54 Nickel US$/t 5 919 7 673 12 264 14 971 15 255 15 698 Silver t USc/oz 442 461 579 695 929 798 Tin US$/t 4 045 4 740 6 547 8 491 7 156 6 579 Zinc US$/t 791 775 962 1 171 2 100 3 300

a US hard red winter wheat, fob Gulf. b US no. 2 yellow corn, delivered US Gulf. c Prices previously reported by the Thailand Board of Trade are no longer available. From September 1998 the price quoted is the USDA sourced nominal quote for Thai white rice, 100 per cent, Grade B, fob, Bangkok (August–July basis). d US cif Rotterdam (October–September basis). e Cotlook 'A' index. g Average of monthly averages of New York no.11 spot price; basis: fob Caribbean ports (October-September basis). h US cif price. i Australian Wool Exchange eastern market indicator. j Average of traded prices (excluding subsidised sales). k World trade weighted average price compiled by the US Department of Energy. Official sales prices or estimated contract terms for major internationally traded crude oils. l Average export unit value, fob Australia. m Average of weekly restricted spot prices over the period, published by Ux Consulting. n Average LME spot price unless otherwise stated. o London gold fix, London Bullion Market Association. q Australian hematite fines to Japan (fob) for Japanese fiscal year commencing 1 April. r Japanese fiscal year commencing 1 April. t London silver fix, London Bullion Market Association. Prior to March 2001, Handy and Harman, commercial bar price used. s ABARE estimate. f ABARE forecast. Sources: Australian Bureau of Statistics; Australian Dairy Corporation; Meat and Livestock Australia; Australian Wool Exchange; Cotlook Ltd; Food and Agriculture Organisation; General Agreement on Tariffs and Trade; International Energy Agency; International Wheat Council; ISTA Mielke and Co.; London Bullion Market Association; The London Metal Exchange Ltd; New York Board of Trade; Reuters Ltd; Ux Consulting Company; Platts Oilgram; US Department of Agriculture; US Department of Energy; World Bureau of Metal Statistics; ABARE.

430 australian commodities > vol. 13 no. 2 > june quarter 2006 world prices 17 quarterly world indicator prices of selected commodities

2004-05 2005-06 2006-07 Unit June Sep Dec Mar June s Sep f Dec f Mar f June f Crops Wheat a US$/t 149 159 170 179 198 192 201 196 194 Corn b US$/t 97 101 100 105 110 102 111 116 115 Rice c US$/t 298 287 287 305 310 277 271 300 307 Soybeans d US$/t 291 278 259 257 262 269 271 282 274 Cotton e USc/lb 54.4 53.6 56.6 58.5 55.7 58.0 60.2 60.0 58.0 Sugar g USc/lb 10.3 11.2 13.5 18.2 17.0 15.5 15.0 14.8 14.5 Livestock products Beef h USc/kg 285 287 277 273 269 264 256 245 235 Wool i Ac/kg 723 704 655 728 724 690 640 700 690 Butter j US$/t 2 217 2 233 2 008 1 942 1 825 1 773 1 740 1 725 1 715 Cheese j US$/t 2 917 2 917 2 833 2 733 2 675 2 642 2 608 2 583 2 565 Skim milk powder j US$/t 2 200 2 283 2 217 2 125 2 067 1 992 1 958 1 935 1 920 Energy Crude oil Dubai US$/bbl 48.15 55.92 53.70 58.04 64.98 65.22 61.01 59.23 55.53 West Texas intermediate US$/bbl 53.16 63.08 60.24 62.74 70.25 74.00 69.00 67.00 63.60 Brent US$/bbl 51.58 61.58 57.15 61.36 69.75 70.04 65.15 63.28 59.47 World trade weighted average k US$/bbl 47.13 56.50 52.33 56.28 63.90 64.20 59.70 58.00 54.50 Coal l Thermal US$/t 50.40 48.25 49.70 50.45 48.96 48.96 48.96 48.96 48.42 Metallurgical US$/t 118.47 118.76 118.40 118.23 108.71 108.15 108.68 108.24 93.53

Uranium (U3O8) m US$/lb 27.33 30.32 34.67 38.83 42.67 44.50 45.58 46.58 47.17 Minerals and metals n Aluminium US$/t 1 790 1 830 2 072 2 428 2 520 2 375 2 250 2 175 2 150 Copper US$/t 3 388 3 754 4 301 4 943 7 200 6 250 6 100 6 000 5 700 Gold o US$/oz 427 439 485 554 630 600 654 670 630 Lead US$/t 987 892 1 012 1 212 1 079 823 783 750 700 Nickel US$/t 16 421 14 569 12 639 14 810 19 000 16 590 16 000 15 600 14 600 Silver q USc/oz 715 707 807 969 1 234 950 900 877 860 Tin US$/t 7 955 7 046 6 432 7 680 7 467 6 867 6 533 6 500 6 417 Zinc US$/t 1 273 1 292 1 637 2 000 3 283 3 223 3 250 3 317 3 450

a US hard red winter wheat, fob Gulf. b US no. 2 yellow corn, delivered US Gulf. c Prices previously reported by the Thailand Board of Trade are no longer available. From September 1998 the price quoted is the USDA sourced nominal quote for Thai white rice, 100 per cent, Grade B, fob, Bangkok. d US cif Rotterdam. e Cotlook ’A’ index. g Average of monthly averages of New York no.11 spot price; basis: fob Caribbean ports. h US cif price. i Australian Wool Exchange eastern market indicator. j Average of traded prices (excluding subsidised sales). k World trade weighted average price compiled by the US Department of Energy. l Average export unit value, fob Australia. m Average of weekly restricted spot prices over the period, published by Ux Consulting. n Average LME spot price unless otherwise stated. o London gold fix, London Bullion Market Association. q London silver fix, London Bullion Market Association. Prior to March 2001, Handy and Harman, commercial bar price used. s ABARE estimate. f ABARE forecast. Sources: Australian Bureau of Statistics; Australian Dairy Corporation; Meat and Livestock Australia; Australian Wool Exchange; Cotlook Ltd; Food and Agriculture Organisation; General Agreement on Tariffs and Trade; International Energy Agency; International Wheat Council; ISTA Mielke and Co.; Reuters Ltd; London Bullion Market Association; The London Metal Exchange Ltd; New York Board of Trade; Ux Consulting Co.; Platts Oilgram; US Department of Agriculture; US Department of Energy; World Bureau of Metal Statistics; ABARE.

australian commodities > vol. 13 no. 2 > june quarter 2006 431 unit values

gross unit values or prices of farm products a 18 Australia

Unit 2001-02 2002-03 2003-04 2004-05 2005-06 s 2006-07 f Crops b Grains and oilseeds Winter crops Barley $/t 208 255 169 161 177 191 Canola $/t 384 389 403 327 342 364 Field peas $/t 288 344 232 212 187 200 Lupins $/t 250 292 236 202 188 193 Oats $/t 175 219 138 127 171 174 Triticale $/t 195 258 153 195 185 189 Wheat $/t 262 266 216 191 235 264 Summer crops Maize $/t 198 233 223 256 227 232 Rice $/t 274 348 325 297 361 343 Sorghum $/t 173 205 159 150 173 177 Soybeans c $/t 353 384 365 283 289 300 Sunflowerseed c $/t 390 400 349 341 358 365 Industrial crops Cotton lint d c/kg 194 222 225 167 179 193 Sugar cane (cut for crushing) $/t 31 28 23 26 27 32 Wine grapes $/t 844 817 766 697 668 493 Livestock for slaughter Beef e c/kg 306 256 290 320 323 290 – yearling e c/kg 335 289 327 359 368 330 – ox e c/kg 314 284 307 331 333 300 – cow e c/kg 285 227 262 289 289 260 Lamb eg c/kg 321 367 377 352 348 320 Mutton e c/kg 186 167 199 166 170 155 Pig e c/kg 281 244 235 253 235 230 Poultry h c/kg 380 385 379 377 382 386 Livestock products Wool i c/kg 841 1 049 820 746 703 680 Milk j c/L 33.0 27.1 27.9 31.5 32.6 31.2

a Average gross unit value across all grades in principal markets, unless otherwise indicated. Includes the cost of containers, commission and other expenses incurred in getting the commodities to their principal markets. These expenses are significant. b Average unit gross value relates to returns received from crops harvested in that year, regardless of when sales take place, unless otherwise indicated. c Price paid by crusher. d Australian base price for sales in the financial year indicated. e Average saleyard price (dressed weight). g Lamb saleyard weight indicator 18–20 kg. h Retail, frozen. i Australian Wool Exchange eastern market indicator. j Weighted average farmgate price. s ABARE estimate. f ABARE forecast. Note: Prices used in these calculation exclude GST. Sources: Australian Bureau of Statistics; ABARE.

432 australian commodities > vol. 13 no. 2 > june quarter 2006 world 19 world production, consumption, stocks and trade for selected commodities a

Unit 2001-02 2002-03 2003-04 2004-05 2005-06 s 2006-07 f Farm Grains Wheat Production Mt 582 566 556 628 617 601 Consumption Mt 586 600 588 617 624 612 Closing stocks Mt 197 164 124 135 128 117 Exports b Mt 107 106 103 109 110 112 Coarse grains Production Mt 892 874 914 1 008 958 977 Consumption Mt 903 901 942 972 971 993 Closing stocks Mt 196 167 135 172 159 143 Exports b Mt 103 104 103 101 100 104 Rice Production c Mt 399 377 392 403 412 417 Consumption c Mt 409 404 413 413 416 421 Closing stocks c Mt 139 110 86 75 68 62 Exports bd Mt 28 28 27 29 27 28 Oilseeds and vegetable oils Oilseeds Production Mt 325 329 334 381 391 379 Consumption Mt 325 325 337 368 379 393 Closing stocks Mt 20 24 21 34 46 32 Exports Mt 63 70 67 75 77 84 Vegetable oils Production Mt 93 96 102 111 115 114 Consumption Mt 92 96 101 109 115 117 Closing stocks Mt 9 8 8 9 8 8 Exports Mt 33 35 38 42 44 46 Vegetable protein meals Production Mt 183 185 189 206 212 216 Consumption Mt 181 185 189 203 212 214 Closing stocks Mt 7 7 7 8 7 8 Exports Mt 52 54 58 60 63 62 Industrial crops Cotton Production Mt 22 19 21 26 25 25 Consumption Mt 20 21 21 24 25 26 Closing stocks Mt 11 9 9 12 11 11 Exports Mt 6 7 7 8 9 9 Sugar Production Mt 137 148 143 144 150 153 Consumption Mt 136 141 145 148 151 151 Closing stocks Mt 60 66 65 61 61 62 Exports Mt 43 44 45 46 47 45 Continued

australian commodities > vol. 13 no. 2 > june quarter 2006 433 world 19 world production, consumption, stocks and trade for selected commodities a continued

Unit 2001-02 2002-03 2003-04 2004-05 2005-06 s 2006-07 f Livestock products Meat deg Production Mt 206 207 212 217 223 na Consumption Mt 202 204 208 211 217 na Closing stocks Mt 9.2 12.3 16.1 17.5 23.3 na Exports b Mt 17.5 18.2 18.9 20.9 21.7 na Wool h Production kt 1 308 1 274 1 231 1 237 1 197 1 263 Consumption di kt 1 311 1 256 1 214 1 237 1 196 1 262 Closing stocks j kt 106 124 164 163 165 166 Exports k kt 770 567 533 578 567 599 Butter dg Production kt 3 507 3 060 3 020 2 971 2 740 2 971 Consumption kt 6 018 6 161 6 321 5 262 5 450 5 262 Closing stocks kt 731 733 784 485 235 485 Exports kt 733 852 883 660 550 588 Skim milk powder gl Production d kt 3 676 3 655 3 363 2 971 2 500 2 971 Consumption d kt 3 027 3 030 3 234 2 556 2 700 2 556 Closing stocks d kt 1 129 1 044 949 775 575 775 Exports kt 966 954 1 029 1 110 970 955 Energy d Crude oil Production World m mbd 76.6 79.7 83.0 84.0 86.4 88.2 OPEC n mbd 28.6 30.7 32.9 33.9 35.1 36.0 Consumption m mbd 77.9 79.4 82.5 83.6 84.9 86.0 Closing stocks OECD o days 55.0 52.0 52.0 51.0 53.0 na Coal d Production Hard coal q Mt 3 902 4 231 4 629 4 779 4 885 4 991 Brown coal Mt 885 893 879 871 865 857 Exports Metallurgical coal Mt 179 184 197 200 211 226 Thermal coal Mt 474 515 550 571 592 607

Uranium (U3O8) d Production rs kt 36.5 41.7 46.4 50.0 51.0 58.2 Consumption kt 77.5 77.8 78.5 79.0 79.9 80.6 Metals d Bauxite production kt 154 419 166 656 174 162 180 362 190 316 199 928 Alumina production kt 51 488 54 288 57 836 60 992 65 012 68 719 Aluminium Production kt 26 076 28 000 29 922 31 896 33 473 35 280 Consumption kt 25 371 27 605 29 888 31 620 33 521 35 183 Closing stocks t kt 3 444 3 672 3 033 2 862 2 814 3 015 Exports kt 15 911 16 858 18 098 15 814 16 000 16 125 Continued

434 australian commodities > vol. 13 no. 2 > june quarter 2006 world 19 world production, consumption, stocks and trade for selected commodities a continued

Unit 2001-02 2002-03 2003-04 2004-05 2005-06 s 2006-07 f Iron and steel d Production Iron ore u Mt 989 1 080 1 190 1 313 1 431 1 546 Pig iron Mt 611 670 719 774 830 877 Crude steel Mt 904 969 1 058 1 129 1 212 1 280 Iron ore trade Mt 533 590 646 719 791 850 Gold d Mine production t 2 592 2 590 2 470 2 519 2 527 2 614 Supply t 3 972 4 149 3 842 4 036 4 127 4 064 Fabrication consumption v t 3 134 2 990 3 163 3 280 3 027 3 045 Base metals d Copper Production w kt 15 351 15 239 15 853 16 665 17 468 18 277 Consumption kt 15 039 15 362 16 745 16 817 17 489 18 101 Closing stocks x kt 1 711 1 411 519 550 528 704 Lead Production w kt 6 678 6 749 6 832 7 605 8 182 8 437 Consumption kt 6 663 6 801 7 136 7 664 7 945 8 285 Closing stocks x kt 483 407 299 160 349 457 Nickel Production w kt 1 185 1 201 1 250 1 283 1 353 1 433 Consumption kt 1 176 1 228 1 253 1 245 1 345 1 422 Closing stocks x kt 97 98 98 138 146 156 Tin Production w kt 266 277 346 353 368 380 Consumption kt 276 302 336 348 360 377 Closing stocks x kt 49 38 28 38 41 43 Zinc Production w kt 9 721 9 870 10 170 10 282 10 697 11 236 Consumption kt 9 391 9 828 10 477 10 724 11 133 11 404 Closing stocks x kt 1 095 1 181 1 020 808 401 263 Mineral sands d Production Ilmenite y kt 10 238 10 179 10 417 10 574 10 607 11 071 Titaniferous slag kt 2 049 1 995 2 082 2 285 2 160 2 170 Rutile concentrate kt 458 389 378 409 541 681 Zircon concentrate kt 1 129 1 137 1 168 1 152 1 371 1 586

a Some figures are not based on precise or complete analyses. b Includes intra–EU trade. c Milled equivalent. d On a calendar year basis, e.g. 1991-92 = 1992. e Beef and veal, mutton, lamb, goat, pig and poultry meat. g Selected countries. h Clean equivalent. i Virgin wool at the spinning stage in 65 countries. j Held by marketing bodies and on-farm in five major exporting countries. k Five major exporting countries. l Nonfat dry milk. m Includes crude oil, marine bunkers, refinery fuel, nonconventional oil and natural gas liquids. 1 million litres a year equals about 17.2 barrels a day. n Includes OPEC natural gas liquids. o Industry stocks in OECD countries at the start of the financial year. q Includes anthracite and bituminous coal, and for the United States, Australia and New Zealand, sub-bituminous coal. r World production data has been revised to exclude reprocessed uranium. t LME and producer stocks. u China's iron ore production adjusted to world average. v Includes jewellery consumption. w Primary refined metal. x Commercial stocks excluding former and current centrally planned economies. y Excludes some small producers and large tonnages produced from ilmenite–magnetite ore in the Commonwealth of Independent States. s ABARE estimate. f ABARE forecast. na Not available. Sources: Australian Bureau of Statistics; Meat and Livestock Australia; Commodities Research Unit; Commonwealth Secretariat; Consolidated Gold Fields; Department of Agriculture, Fisheries and Forestry Australia; Economic Commission for Europe; Fearnleys; Food and Agriculture Organisation; Gold Fields Mineral Services; International Atomic Energy Agency; International Energy Agency; International Iron and Steel Institute; International Lead–Zinc Study Group; International Nickel Study Group; International Sugar Organization; International Wheat Council; ISTA Mielke and Co.; Metallgesellschaft A.G.; Ministry of Agriculture, Forestry and Fisheries (Japan); New Zealand Dairy Board; New Zealand Wool Board; UNCTAD Trust Fund on Iron Ore; United Nations; Uruguayan Association of Wool Exporters; US Department of Agriculture; World Bureau of Metal Statistics; ABARE.

australian commodities > vol. 13 no. 2 > june quarter 2006 435 Australia

commodity production 20 Australia

Unit 2001-02 2002-03 2003-04 2004-05 2005-06 s 2006-07 f Crops Grains and oilseeds Winter crops Barley kt 8 280 3 865 10 382 7 708 9 869 8 485 Canola kt 1 756 871 1 703 1 496 1 441 1 393 Chickpeas kt 258 136 178 116 126 108 Field peas kt 512 178 487 321 372 328 Lupins kt 1 215 726 1 180 948 952 866 Oats kt 1 434 957 2 018 1 321 1 416 1 182 Triticale kt 860 327 826 615 676 571 Wheat kt 24 299 10 132 26 132 22 605 25 090 22 784 Summer crops Cottonseed s kt 1 054 546 494 912 844 680 Maize kt 454 310 395 312 380 373 Rice kt 1 192 438 553 323 1 048 900 Sorghum kt 2 021 1 465 2 009 2 184 2 019 2 263 Soybeans kt 63 18 74 54 55 54 Sunflowerseed kt 70 25 58 62 98 106 Other oilseeds a kt 40 63 72 81 83 80 Total grains and oilseeds kt 43 507 20 056 46 560 39 058 44 468 40 172 Industrial crops Cotton lint kt 703 387 349 645 597 481 Sugar cane (cut for crushing) kt 31 424 36 995 36 993 37 485 38 169 37 860 Sugar (tonnes actual) kt 4 987 5 461 4 994 5 196 5 108 4 807 Wine grapes kt 1 606 1 411 1 895 1 937 1 921 1 902 Livestock slaughterings Number slaughtered Cattle and calves ’000 8 587 9 228 8 779 8 853 8 370 8 775 Cattle exported live b ’000 797 968 578 550 518 580 Sheep ’000 14 441 13 657 10 421 11 443 11 600 11 730 Lambs ’000 17 400 16 870 16 562 17 331 18 470 18 900 Sheep exported live b ’000 6 443 5 843 3 843 3 233 4 000 4 500 Pigs ’000 5 402 5 742 5 591 5 342 5 284 5 210 Meat produced Beef and veal c kt 2 028 2 073 2 033 2 162 2 060 2 141 Lamb c kt 348 329 341 354 385 395 Mutton c kt 296 268 220 237 245 248 Pig meat kt 396 420 406 389 380 376 Poultry meat c kt 705 726 732 792 815 830 Total kt 3 773 3 816 3 732 3 934 3 885 3 990 Continued

436 australian commodities > vol. 13 no. 2 > june quarter 2006 Australia

commodity production continued 20 Australia

Unit 2001-02 2002-03 2003-04 2004-05 2005-06 s 2006-07 f Livestock products Wool d kt 605 550 523 525 509 519 Milk e ML 11 271 10 326 10 075 10 125 10 025 10 400 Butter g kt 178 164 149 147 150 152 Cheese kt 412 379 384 386 356 387 Casein kt 14 13 14 13 15 16 Skim milk powder h kt 240 203 184 189 203 207 Wholemilk powder kt 239 198 187 189 170 177 Buttermilk powder kt 18 17 17 17 15 16 Forestry Roundwood '000 m3 24 542 26 717 27 107 27 413 27 536 27 768 Fisheries i Tuna j kt 15.9 13.4 14.7 11.3 12.5 11.4 Other fish k kt 137.3 151.7 164.7 181.6 161.0 158.4 Prawns kt 29.4 26.4 27.5 23.6 23.6 23.8 Rock lobster kt 14.3 17.1 19.7 18.1 15.7 15.4 Abalone kt 5.9 5.2 5.8 5.9 5.5 5.8 Scallops kt 5.6 9.6 9.3 15.4 11.1 11.7 Oysters kt 10.2 10.5 12.7 11.8 11.8 11.9 Other molluscs kt 8.7 9.9 11.0 10.2 10.2 10.3 Other crustaceans kt 8.1 8.1 8.0 7.2 8.7 8.7 Energy Coal Black, salable Mt 272.6 274.9 286.0 304.1 305.9 330.2 Black, raw Mt 344.4 348.9 360.8 390.8 393.4 425.9 Brown Mt 68.7 68.8 70.0 70.6 71.2 71.9 Petroleum Crude oil and condensate ML 37 820 35 142 30 719 27 311 24 545 27 073 Petroleum products l ML 46 677 46 723 43 486 44 555 41 746 43 098 Natural gas m Gm3 35.8 36.8 37.0 41.3 42.7 49.1 LPG (naturally occurring) ML 4 647 4 681 4 639 4 628 4 635 4 644

Uranium (U3O8) t 7 823 9 172 9 569 10 964 11 418 11 284

Metalliferous minerals and metals n Aluminium Bauxite Mt 53.9 54.5 56.3 57.6 61.4 65.2 Alumina kt 16 417 16 413 16 690 17 161 18 010 20 170 Aluminium (ingot metal) kt 1 809 1 855 1 877 1 890 1 915 1 919 Copper Mine production o kt 876 883 811 905 938 1 051 Refined, primary kt 561 537 459 478 472 551 Gold Mine production o t 264.6 277.8 266.7 265.6 253.6 284.0 Continued

australian commodities > vol. 13 no. 2 > june quarter 2006 437 Australia

commodity production continued 20 Australia

Unit 2001-02 2002-03 2003-04 2004-05 2005-06 s 2006-07 f Metalliferous minerals and metals (continued) Iron and steel Ore and concentrate q Mt 185.3 199.1 222.8 251.9 269.3 305.2 Iron and steel Mt 8.3 9.4 9.5 7.6 8.0 8.4 Lead Mine production o kt 744 695 677 682 755 799 Refined r kt 275 267 247 234 251 255 Bullion kt 201 181 143 153 147 154 Manganese Ore, metallurgical grade kt 1 850 2 472 3 062 3 554 4 203 4 248 Metal content of ores and concentrates kt 994 1 127 1 171 1 734 2 049 2 071 Nickel Mine production o kt 193 183 185 194 184 212 Refined, class I s kt 120 117 112 116 111 128 Refined, class II u kt 11 13 12 10 9 10 Total ore processed v kt 235 230 234 241 225 263 Silver Mine production o t 2 106 1 905 2 056 2 299 2 340 2 533 Refined t 616 672 619 722 718 743 Tin Mine production o t 8 173 6 328 1 512 2 055 2 533 3 881 Refined t 829 708 553 445 723 431 Titanium Ilmenite concentrate kt 1 843 2 069 1 910 2 006 2 145 2 770 Leucoxene concentrate kt 34 43 53 46 62 112 Rutile concentrate kt 207 208 154 174 179 328 Synthetic rutile s kt 612 673 696 751 751 774 Titanium dioxide pigment s kt 186 189 196 203 205 219 Zinc Mine production o kt 1 490 1 529 1 355 1 352 1 414 1 513 Refined kt 572 570 502 464 471 480 Zircon concentrate kt 389 458 448 432 443 684 Other minerals Diamonds ’000 ct 30 676 32 006 24 310 32 446 27 751 29 810 Salt kt 9 233 10 438 10 705 12 438 11 459 11 300

a Linseed and safflowerseed. b Excludes animals exported for breeding purposes. c In carcass weight and includes carcass equivalent of canned meats. d Greasy equivalent of shorn wool (includes crutching), dead and fellmongered wool and wool exported on skins. e Includes the wholemilk equivalent of farm cream intake. g Includes the butter equivalent of butteroil, butter concentrate, ghee and dry butterfat. h Includes mixed skim and buttermilk powder. i Liveweight. j Tuna captured under joint venture or bilateral agreements or transhipped at sea is included. k Includes an estimated value of aquaculture but excludes inland commercial fisheries. l Includes production from petrochemical plants. m Includes ethane, methane and noncommercial natural gas. n Uranium is included with energy. o Primary production, metal content. q Excludes iron oxide not intended for metal extraction. r Includes lead content of lead alloys from primary sources. t Products with a nickel content of 99 per cent or more. Includes electrolytic nickel, pellets, briquettes and powder. u Products with a nickel content of less than 99 per cent. Includes ferronickel, nickel oxides and oxide sinter. v Includes imported ore for further processing. s ABARE estimate. f ABARE forecast. Sources: Australian Bureau of Statistics; Australian Dairy Corporation; Consolidated Gold Fields; Coal Services Pty Limited; International Nickel Study Group; Queensland Government, Department of Natural Resources and Mines; Raw Cotton Marketing Advisory Committee; ABARE.

438 australian commodities > vol. 13 no. 2 > june quarter 2006 value of production

gross value of farm and ﬁ sheries production 21 Australia

2001-02 2002-03 2003-04 2004-05 2005-06 s 2006-07 f $m $m $m $m $m $m Crops Grains and oilseeds Winter crops Barley 1 725 984 1 750 1 240 1 744 1 624 Canola 675 339 686 490 492 507 Chickpeas 130 65 58 36 49 44 Field peas 147 61 113 68 70 65 Lupins 304 212 278 191 179 167 Oats 251 210 279 167 241 205 Triticale 168 84 126 120 125 108 Wheat 6 356 2 692 5 636 4 320 5 905 6 026 Summer crops Maize 90 72 88 80 86 87 Rice 327 153 180 96 379 308 Sorghum 349 300 319 328 350 400 Soybeans 22 7 27 15 16 16 Sunflowerseed 27 10 20 21 35 39 Other oilseeds a 23 39 44 45 45 46 Total grains and oilseeds 10 875 5 399 9 837 7 376 9 906 9 831 Industrial crops Cotton lint and cotton seed b 1 499 844 671 1 222 1 105 890 Sugar cane (cut for crushing) 989 1 019 854 968 1 037 1 208 Wine grapes 1 059 1 143 1 491 1 271 1 181 1 142 Total industrial crops 3 548 3 006 3 016 3 461 3 323 3 239 Other crops Fruit and nuts 2 333 2 408 2 350 2 640 2 795 2 915 Vegetables 2 269 2 126 2 356 2 490 2 601 2 715 Other crops nei c 2 236 2 442 2 820 2 443 2 460 2 495

Total other crops 6 838 6 976 7 526 7 572 7 856 8 125 Total crops 21 260 15 380 20 378 18 410 21 086 21 195 Continued

australian commodities > vol. 13 no. 2 > june quarter 2006 439 value of production

gross value of farm and ﬁ sheries production continued 21 Australia

2001-02 2002-03 2003-04 2004-05 2005-06 s 2006-07 f $m $m $m $m $m $m Livestock slaughterings Cattle and calves d 6 617 5 849 6 345 7 331 7 082 6 517 Cattle exported live e 526 562 314 335 336 360 Sheep g 544 468 454 418 442 410 Lambs gh 1 181 1 161 1 318 1 327 1 425 1 348 Sheep exported live 392 408 266 207 275 284 Pigs 968 911 879 924 840 814 Poultry 1 175 1 273 1 264 1 358 1 416 1 461 Total livestock slaughterings k 11 434 10 669 10 879 11 943 11 857 11 235 Livestock products Wool i 2 713 3 318 2 397 2 196 2 187 2 138 Milk j 3 717 2 795 2 808 3 194 3 268 3 245 Eggs 320 296 336 335 340 338 Honey and beeswax 83 75 74 77 66 50 Total livestock products 6 834 6 484 5 614 5 801 5 861 5 771 Total farm 39 528 32 533 36 871 36 154 38 804 38 200 Forestry products Roundwood 1 369 1 513 1 563 1 637 1 470 1 585 Fisheries products l Tuna m 323 317 280 172 182 192 Other fin fish n 546 561 554 532 572 594 Prawns 429 364 358 304 304 310 Rock lobster 502 461 406 415 419 427 Abalone 247 216 196 230 227 245 Scallops 23 35 25 46 32 34 Oysters 57 62 77 73 72 74 Pearls 175 124 122 123 135 137 Other molluscs o 42 64 73 70 71 70 Other crustaceans 65 62 64 58 60 59 Total fish q 2 430 2 284 2 169 2 049 2 109 2 180

a Linseed, safflowerseed and peanuts. b Value delivered to gin. c Mainly fruit, vegetables and fodder crops. d Includes dairy cattle slaughtered. e Excludes animals exported for breeding purposes. g Excludes skin values. h Lamb saleyard indicator weight 18–20 kilograms. i Shorn, dead and fellmongered wool and wool exported on skins. j Milk intake by factories and valued at farmgate. k Total livestock slaughterings includes livestock disposals. l Value to fishermen of product landed in Australia. m Tuna captured under joint venture or bilateral agreements or transhipped at sea is included. n Includes an estimated value of aquaculture. o Includes Northern Territory aquaculture production. q Also includes fish and aquaculture values not elsewhere included. s ABARE estimate. f ABARE forecast. Note: The gross value of production is the value placed on recorded production at the wholesale prices realised in the market place. The point of measurement can vary between commodities. Generally the market place is the metropolitan market in each state and territory. However, where commodities are consumed locally or where they become raw material for a secondary industry, these points are presumed to be the market place. Note: Prices used in these calculations exclude GST. Sources: Australian Bureau of Statistics; ABARE.

440 australian commodities > vol. 13 no. 2 > june quarter 2006 areas, stock

crop areas and livestock numbers 22 Australia

Unit 2001-02 2002-03 2003-04 2004-05 2005-06 s 2006-07 f Crop areas Grains and oilseeds Winter crops Barley ’000 ha 3 707 3 864 4 477 4 615 4 739 4 341 Canola ’000 ha 1 332 1 298 1 211 1 351 962 961 Chickpeas ’000 ha 195 201 152 113 103 99 Field peas ’000 ha 337 380 354 321 285 279 Lupins ’000 ha 1 139 1 025 851 839 757 718 Oats ’000 ha 784 911 1 089 892 859 777 Triticale ’000 ha 409 408 445 338 347 328 Wheat ’000 ha 11 529 11 170 13 067 13 766 12 980 12 382 Summer crops Maize ’000 ha 83 50 70 75 76 72 Rice ’000 ha 150 46 66 48 105 100 Sorghum ’000 ha 823 667 734 807 889 894 Soybeans ’000 ha 32 10 33 26 24 27 Sunflowerseed ’000 ha 79 40 46 46 79 85 Other oilseeds a ’000 ha 14 44 51 55 54 43 Total grains and oilseeds ’000 ha 21 293 20 612 23 070 23 912 22 874 21 649 Industrial crops Cotton ’000 ha 409 224 198 321 336 269 Sugar cane b ’000 ha 426 448 448 441 415 420 Winegrapes b ’000 ha 136 140 146 153 157 160

Livestock numbers c Cattle Beef million 24.74 23.62 24.41 24.74 25.51 26.19 Dairy million 3.13 3.05 3.05 2.99 3.00 3.01 milking herd d million 2.12 2.05 2.01 2.01 2.01 2.02 Total million 27.87 26.66 27.46 27.73 28.51 29.20 Sheep million 106.2 99.3 101.3 102.7 103.1 104.2 Pigs million 2.94 2.66 2.55 2.49 2.47 2.43 a Linseed and safflowerseed. b Cut for crushing. c At 30 June from. Details for establishments with an estimated value of agricultural operations of $5 000 or more. d Cows in milk and dry. s ABARE estimate. f ABARE forecast. Sources: Australian Bureau of Statistics; ABARE.

australian commodities > vol. 13 no. 2 > june quarter 2006 441 yields

average farm yields 23 Australia

Unit 2001-02 2002-03 2003-04 2004-05 2005-06 s 2006-07 f Crops Grains and oilseeds Winter crops Barley t/ha 2.23 1.00 2.32 1.67 2.08 1.95 Canola t/ha 1.32 0.67 1.41 1.11 1.50 1.45 Chickpeas t/ha 1.32 0.68 1.17 1.02 1.22 1.09 Field peas t/ha 1.52 0.47 1.38 1.00 1.31 1.17 Lupins t/ha 1.07 0.71 1.39 1.13 1.26 1.21 Oats t/ha 1.83 1.05 1.85 1.48 1.65 1.52 Triticale t/ha 2.10 0.80 1.86 1.82 1.95 1.74 Wheat t/ha 2.11 0.91 2.00 1.64 1.93 1.84 Summer crops Maize t/ha 5.47 6.20 5.64 4.16 5.03 5.18 Rice t/ha 7.95 9.52 8.38 6.73 9.98 9.00 Sorghum t/ha 2.46 2.20 2.74 2.71 2.27 2.53 Soybeans t/ha 1.95 1.77 2.21 2.07 2.33 2.03 Sunflowerseed t/ha 0.88 0.62 1.26 1.35 1.24 1.25 Industrial crops Cotton (lint) t/ha 1.72 1.72 1.76 2.01 1.78 1.79 Sugar cane (for crushing) t/ha 74 83 83 85 92 90 Winegrapes t/ha 11.81 10.08 12.98 12.66 12.23 11.86 Livestock Wool a kg/sheep 4.38 4.25 4.51 4.48 4.31 4.31 Wholemilk L/cow 5 309 5 037 5 025 5 050 4 988 5 149

a Shorn (including lambs). s ABARE estimate. f ABARE forecast. Sources: Australian Bureau of Statistics; ABARE.

442 australian commodities > vol. 13 no. 2 > june quarter 2006 export volumes

volume of commodity exports 24 Australia

Unit 2001-02 2002-03 2003-04 2004-05 2005-06 s 2006-07 f Farm Grains and oilseeds Winter crops Barley a kt 4 989 3 462 5 308 6 499 5 443 5 620 Canola kt 1 303 612 1 049 1 019 897 975 Chickpeas kt 278 89 164 151 194 106 Lupins kt 414 208 646 419 443 375 Oats (unprepared) kt 130 177 172 165 153 129 Peas b kt 459 108 209 116 128 187 Wheat c kt 16 464 10 845 15 073 15 779 15 714 17 334 Summer crops Cottonseed kt 594 259 167 214 283 343 Rice kt 580 591 234 268 265 652 Sorghum kt 586 70 289 513 276 285 Other oilseeds d kt 23 16 19 28 20 43 Total grains and oilseeds kt 25 820 16 436 23 329 25 172 23 816 26 049 Industrial crops Raw cotton e kt 719 596 459 410 684 558 Sugar kt 3 644 4 167 4 060 4 271 4 150 3 820 Wine ML 416 508 581 661 732 859 Meat and live animals for slaughter Beef and veal gh kt 902 902 860 948 891 915 Live cattle i ’000 797 968 578 550 518 580 Lamb g kt 118 102 119 128 145 165 Live sheep i ’000 6 443 5 843 3 843 3 233 4 000 4 500 Mutton g kt 166 162 129 144 150 155 Pig meat g kt 59 63 51 43 43 41 Poultry meat g kt 21 23 20 20 22 24 Wool Greasy js kt 403 307 321 373 360 367 Semiprocessed kt (gr.eq.) 227 169 127 114 124 125 Skins kt (gr.eq.) 56 28 27 29 30 31

Total js kt (gr.eq.) 686 505 475 515 514 523 Dairyproducts Butter k kt 123 111 83 69 81 82 Cheese kt 218 208 212 227 196 216 Casein kt 9 8 8 7 3 5 Skim milk powder kt 210 181 155 141 179 183 Wholemilk powder kt 165 142 117 105 111 116 Continued

australian commodities > vol. 13 no. 2 > june quarter 2006 443 export volumes

volume of commodity exports continued 24 Australia

Unit 2001-02 2002-03 2003-04 2004-05 2005-06 s 2006-07 f Forest products Woodchips kt 4 721 5 437 5 264 5 598 5 569 6 650 Fisheries products Tuna l kt 13.9 12.6 12.8 10.9 11.6 10.6 Other fish kt 17.5 17.4 13.2 15.0 13.5 13.7 Prawns m Headless kt 0.8 0.6 0.3 0.4 0.2 0.2 Whole kt 10.9 8.7 8.9 9.6 8.7 8.8 Rock lobster Tails kt 0.9 1.7 2.1 1.8 1.5 1.5 Whole kt 9.7 9.5 10.9 10.2 10.2 10.0 Abalone Fresh, chilled or frozen kt 2.0 1.7 2.1 2.0 2.1 2.2 Prepared or preserved kt 2.0 2.5 2.8 2.0 1.5 1.7 Scallops n kt 1.5 1.2 1.5 1.2 1.5 1.7 Mineral resources Energy Crude oil o ML 23 936 20 950 17 526 15 731 14 266 16 887 LPG ML 3 211 3 194 2 916 2 844 2 865 2 990 LNG qs Mt 7.600 7.826 7.914 10.589 12.265 15.300 Bunker fuel r ML 2 267 2 238 2 216 2 207 2 179 2 180 Petroleum products ML 3 409 3 140 2 474 1 847 2 575 2 553 Metallurgical coal Mt 105.8 107.8 111.7 124.9 124.6 142.5 Thermal coal Mt 92.0 99.9 106.7 106.4 110.7 117.9

Uranium (U3O8) t 7 367 9 593 9 099 11 249 11 489 11 284 Continued

444 australian commodities > vol. 13 no. 2 > june quarter 2006 export volumes

volume of commodity exports continued 24 Australia

Unit 2001-02 2002-03 2003-04 2004-05 2005-06 s 2006-07 f Mineral resources (continued) Metalliferous minerals and metals t Aluminium Alumina kt 13 091 13 168 13 572 14 073 14 591 16 428 Aluminium (ingot metal) kt 1 490 1 551 1 546 1 512 1 615 1 593 Copper Ore and concentrate kt 1 271 1 193 1 286 1 326 1 685 1 667 Refined kt 388 359 301 322 310 370 Gold v t 280 282 315 309 294 309 Iron and steel Iron ore and pellets Mt 156.1 181.5 194.8 228.5 247.1 280.8 Iron and steel w kt 3 297 3 589 3 818 2 338 2 428 2 997 Lead Ores and concentrates kt 380 366 417 417 471 495 Refined kt 236 269 231 243 252 256 Bullion kt 153 150 113 164 159 154 Manganese Ore s kt 1 660 2 014 2 603 3 128 2 887 3 780 Nickel vs kt 210 209 214 215 204 232 Titanium Ilmenite concentrate x kt 914 1 020 783 633 624 1 523 Leucoxene concentrate kt 60 41 125 93 73 112 Rutile concentrate kt 190 195 146 158 170 311 Synthetic rutile s kt 398 456 470 520 519 522 Titanium dioxide pigment kt 145 147 165 175 174 186 Refined silver t 547 511 415 517 526 550 Tin v t 8 026 5 963 143 1 529 1 879 3 450 Zinc Ores and concentrates kt 1 849 1 913 1 844 1 953 1 904 2 075 Refined kt 496 486 396 397 401 413 Zircon concentrate y kt 388 445 443 428 438 677 Other minerals Diamonds ’000 ct 25 811 32 274 24 326 32 515 27 751 29 810 Salt kt 8 912 10 172 10 285 12 128 10 625 11 074 a Includes the grain equivalent of malt. b Includes field peas and cowpeas. c Includes the wheat equivalent of flour. d Includes soybeans, linseed, sunflowerseed, safflowerseed and peanuts. Excludes meals and oils. e Excludes cotton waste and linters. g In shipped weight. Fresh, chilled or frozen. h Includes meat loaf. i Excludes breeding stock. j ABS recorded trade data adjusted for changes in stock levels held overseas by Wool International. k Includes ghee, dry butterfat, butter concentrate and butteroil, dairy spreads, all expressed as butter. l Exports of tuna landed in Australia. Tuna captured under joint venture or bilateral agreements or transhipped at sea is not included. m Excludes volume of other prawn products. n Includes crumbed scallops. o Includes condensate and other refinery feedstock. q 1 million tonnes of LNG equals about 1.31 billion cubic metres of gas. r International ships and aircraft stores. t Uranium is included with energy. u Exports of bauxite are confidential. v Quantities refer to total metallic content of all ores, concentrates, intermediate products and refined metal. w Includes all steel items in ABS, Australian Harmonized Export Commodity Classification , ch. 72, ’Iron and steel’, excluding ferrous waste and scrap and ferroalloys. x Excludes leucoxene and synthetic rutile. y Data from 1991-92 refer to standard grade zircon only. s ABARE estimate. f ABARE forecast. Sources: ABS, International Trade, Australia, cat. no. 5465.0, Canberra; Australian Mining Industry Council; Department of Foreign Affairs and Trade; Department of Agriculture, Fisheries and Forestry; International Nickel Study Group; ABARE.

australian commodities > vol. 13 no. 2 > june quarter 2006 445 export values

value of commodity exports (fob) 25 Australia

2001-02 2002-03 2003-04 2004-05 2005-06 s 2006-07 f $m $m $m $m $m $m Farm Grains and oilseeds Winter crops Barley a 1 278 954 1 239 1 274 1 143 1 222 Canola 572 289 453 397 332 386 Chickpeas 167 52 71 65 103 53 Lupins 109 57 148 89 92 74 Oats 37 66 66 36 38 35 Peas b 157 43 56 33 38 52 Wheat c 4 612 3 109 3 475 3 488 3 457 4 558 Summer crops Cottonseed 148 82 62 55 68 80 Rice 354 371 145 171 172 419 Sorghum 109 17 61 96 51 57 Other oilseeds d 20 21 25 33 24 53 Total grains and oilseeds 7 563 5 062 5 800 5 737 5 517 6 989 Industrial crops Raw cotton e 1 547 1 153 982 770 1 163 967 Sugar 1 430 1 220 982 1 140 1 970 1 730 Wine 1 970 2 386 2 545 2 750 2 791 3 236 Total 4 948 4 759 4 509 4 660 5 924 5 933 Other crops 3 432 3 420 3 096 3 186 3 142 3 175 Total crops 15 943 13 241 13 406 13 583 14 583 16 096 Meat and live animals for slaughter Beef and veal 4 189 3 756 3 793 4 584 4 406 4 038 Live cattle g 526 562 314 335 336 360 Lamb 626 554 636 700 783 728 Live sheep g 392 408 266 207 275 284 Mutton 490 346 379 418 431 406 Pig meat 265 256 181 150 139 133 Poultry meat 26 22 20 20 21 23 Total 6 514 5 905 5 590 6 413 6 392 5 972 Wool Greasy h 2 271 2 266 1 850 1 994 1 847 1 755 Semiprocessed 1 119 991 632 505 416 438 Skins 297 288 296 339 299 306 Total h 3 687 3 545 2 778 2 838 2 561 2 499 Dairyproducts Butter 297 224 182 188 217 193 Cheese 1 033 800 738 875 809 881 Casein 77 43 48 56 27 32 Skim milk powder 698 406 386 420 515 480 Wholemilk powder 571 380 321 324 332 325 Other dairyproducts 550 549 534 554 562 543 Total 3 226 2 401 2 210 2 418 2 462 2 454 Other livestock exports 1 771 1 977 2 224 2 329 2 261 2 285 Total livestock exports 15 198 13 827 12 801 13 998 13 675 13 209 Total farm exports 31 141 27 068 26 206 27 581 28 259 29 305 Continued

446 australian commodities > vol. 13 no. 2 > june quarter 2006 export values

value of commodity exports (fob) continued 25 Australia

2001-02 2002-03 2003-04 2004-05 2005-06 s 2006-07 f $m $m $m $m $m $m Forest products Woodchips 712 808 794 858 875 1 047 Fisheries products Tuna i 326 321 273 166 183 194 Other fish 176 164 137 139 125 133 Prawns j Headless 19 12 5 7 3 4 Whole 239 193 151 153 129 134 Rock lobster Tails 65 113 103 101 89 91 Whole 420 344 318 330 394 390 Abalone Fresh, chilled or frozen 123 109 117 124 131 130 Prepared or preserved 140 107 120 139 108 119 Scallops k 34 29 35 33 40 43 Pearls 404 332 310 291 299 305 Other fisheries products 153 121 81 61 74 87 Total 2 100 1 844 1 652 1 542 1 576 1 630 Total rural exports l Derived as sum of above 35 225 30 973 29 860 31 211 31 960 33 205 On balance of payments basis m 34 364 29 951 28 858 30 350 30 179 32 316 Mineral resources Energy Crude oil n 6 390 6 402 5 055 6 330 7 460 9 792 LPG 721 855 647 804 1 062 1 177 LNG 2 613 2 607 2 174 3 199 4 586 6 927 Bunker fuel o 760 775 696 951 1 308 1 296 Other petroleum products 1 234 1 198 918 844 1 579 1 788 Metallurgical coal 8 038 7 448 6 510 10 758 17 324 18 317 Thermal coal 5 294 4 448 4 372 6 336 7 237 7 837

Uranium (U3O8) 361 427 364 475 613 815 Total Derived as sum of above 25 411 24 161 20 737 29 696 41 169 47 949 On balance of payments basis (excl. bunker fuel) 24 370 23 036 19 767 28 387 39 323 45 228 Metalliferous minerals and metals Aluminium Bauxite s 136 159 125 123 134 155 Alumina 4 114 3 660 3 781 4 383 5 357 6 316 Aluminium (ingot metal) 3 965 3 696 3 441 3 726 4 724 4 847 Copper p Ore and concentrate 1 028 1 048 1 242 1 750 3 376 4 005 Refined 1 131 956 924 1 332 2 116 3 060 Continued

australian commodities > vol. 13 no. 2 > june quarter 2006 447 export values

value of commodity exports (fob) continued 25 Australia

2001-02 2002-03 2003-04 2004-05 2005-06 s 2006-07 f $m $m $m $m $m $m Mineral resources (continued) Metalliferous minerals and metals (continued) Gold p 4 950 5 133 5 510 5 523 6 533 8 629 Iron and steel Iron ore and pellets 5 160 5 342 5 277 8 120 13 406 17 382 Iron and steel 1 484 1 855 2 004 2 031 1 674 1 971 Lead p Ores and concentrates 323 289 387 490 616 473 Refined 211 203 199 305 312 281 Bullion 195 165 142 246 262 251 Manganese Ore s 299 312 371 473 489 849 Titanium Ilmenite concentrate q 138 135 82 63 66 168 Leucoxene concentrate 23 16 33 25 24 37 Rutile concentrate 167 149 94 114 139 258 Synthetic rutile s 296 293 253 308 353 363 Titanium dioxide pigment 460 428 399 422 433 469 Nickel s 2 032 2 320 3 090 3 667 3 617 4 198 Refined silver 163 136 118 161 209 218 Tin p 49 38 1 8 17 35 Zinc p Ores and concentrates 735 670 677 852 1 367 1 913 Refined 794 757 557 614 980 1 365 Zircon concentrate r 272 282 260 319 396 607 Total 28 125 28 045 28 966 35 056 46 601 57 850 Other minerals Diamonds s 512 789 531 650 626 625 Salt 267 233 186 226 217 213 Other 2 392 2 555 2 622 3 047 3 151 3 201 Total mineral resources exports 56 707 55 782 53 042 68 676 91 765 109 837 Total commodity exports Derived as sum of above 91 932 86 754 82 902 99 887 123 725 143 042 On balance of payments t 90 310 84 958 81 204 98 075 120 636 140 856

a Includes the grain equivalent of malt. b Field peas and cowpeas. c Includes the wheat equivalent of flour. d Includes soybeans, linseed, sunflowerseed, safflowerseed and peanuts. Excludes meals and oils. e Excludes cotton waste and linters. g Excludes breeding stock. h On a balance of payments basis. ABS recorded trade data adjusted for changes in stock levels held overseas by Wool International. i Exports of tuna landed in Australia. Tuna captured under joint venture or bilateral agreements or transhipped at sea is not included. j Other prawn products included in other fisheries products. k Includes crumbed scallops. l Sum of farm, forest and fisheries products. m The value of exports derived as the sum of published detailed items differs from the balance of payments aggregates shown in table 6 for two main reasons: the ABS makes special adjustments to some recorded trade data for balance of payments purposes; and ABARE derives its own estimates, (using non-ABS sources), for several items as footnoted. For more detail on a balance of payments basis, see table 7. n Includes condensate and other refinery feedstock. o International ships and aircraft stores. p Value of metals contained in host mine and smelter products are not available separately and are included in the value of the mineral product or metal in which they are exported. q Excludes leucoxene and synthetic rutile; data from 1991-92 refer to bulk ilmenite only. r Data refers to standard grade zircon only. t As derived in table 6. s ABARE estimate. f ABARE forecast. Sources: ABS, International Trade, Australia, cat. no. 5465.0, Canberra; ABARE.

448 australian commodities > vol. 13 no. 2 > june quarter 2006 import value

value of imports and exports of selected commodites 26 Australia

2001-02 2002-03 2003-04 2004-05 2005-06 s $m $m $m $m $m Vegetable oilseeds and products a Imports 399 401 382 352 80 Exports 784 443 603 551 828 Dairyproducts Imports Cheese 166 168 158 187 182 Other dairyproducts 84 92 101 124 92 Total 250 260 259 311 274 Exports Cheese 1 033 800 738 875 809 Other dairyproducts 2 193 1 601 1 471 1 542 1 653 Total 3 226 2 401 2 210 2 418 2 462 Edible fisheries products Imports Shellfish b 352 360 360 412 424 Fin fish 537 591 545 547 605 Total 889 950 905 959 1 029 Exports Shellfish b 1 160 1 000 909 932 924 Fin fish c 502 485 410 304 308 Total 1 662 1 485 1 319 1 236 1 232 Forest products Imports Sawnwood 443 505 502 492 429 Wood based panels 170 206 193 219 230 Pulp and paper products 2 611 2 784 2 719 2 809 2 824 Other d 529 591 585 587 547 Total 3 752 4 086 3 998 4 107 4 029 Exports Woodchips 712 808 794 858 875 Pulp and paper products 841 834 820 839 846 Other e 431 418 388 392 404 Total 1 984 2 060 2 002 2 089 2 125 Petroleum Imports Crude oil g 7 458 8 610 6 594 9 995 12 663 Petroleum products h 1 625 2 050 3 595 5 123 8 439 Total 9 083 10 661 10 190 15 118 21 101 Exports Crude oil g 6 390 6 402 5 055 6 330 7 460 LPG i 721 855 647 804 1 062 LNG 2 613 2 607 2 174 3 199 4 586 Bunker fuel j 760 775 696 951 1 308 Other petroleum products 1 234 1 198 918 844 1 579 Total 11 719 11 838 9 490 12 126 15 995 a Includes peanuts, oilseeds, vegetable oils and vegetable protein meals. b Includes all crustaceans and molluscs including canned. c Excludes tuna transhipped at sea or captured under joint venture or bilateral agreements. d Includes roundwood, other processed wood and minor forest products. e Includes roundwood, sawnwood, sleepers, processed wood and minor forest products. g Includes condensate and other refinery feedstock. h Includes LPG. i Naturally occurring and refinery byproduct gas. j International ships and aircraft stores. s ABARE estimate. Sources: Australian Bureau of Statistics; Department of Agriculture, Fisheries and Forestry; ABARE.

australian commodities > vol. 13 no. 2 > june quarter 2006 449 abare management

contacts

Executive director Brian Fisher bfi [email protected] +61 2 6272 2100 Deputy executive director Karen Schneider [email protected] 6272 2033 Chief economist Stephen Beare [email protected] 6272 2040 Chief commodity analyst Terry Sheales [email protected] 6272 2054 Commodity outlook and regional conferences Vince O’Donnell [email protected] 6272 2255 Agriculture Branch manager Terry Sheales [email protected] 6272 2054 Agriculture and biosecurity Lisa Elliston [email protected] 6272 2091 Crops, livestock and food industries John Hogan [email protected] 6272 2056 Energy and minerals Branch manager Paul Ross [email protected] 6272 2349 International energy and minerals analysis Jane Mélanie [email protected] 6272 2266 Energy projections and analysis Graham Love [email protected] 6272 2055 Resource markets and infrastructure Keith Huggan [email protected] 6272 2031 Farm surveys and analysis branch Branch manager Rhonda Treadwell [email protected] 6272 2043 Regional farm data analysis and collection Colin Mues [email protected] 6272 2027 Data management Geoff Armitage [email protected] 6272 2367 International Branch manager Don Gunasekera [email protected] 6272 2366 International economic analysis Neil Andrews [email protected] 6272 2242 Climate change and trade modeling Helal Ahammed [email protected] 6272 2146 Natural resource management Branch manager Peter Gooday [email protected] 6272 2138 Fisheries and forestry Leanna Tedesco [email protected] 6272 2295 Land and water, and resources and trade Anna Heaney [email protected] 6272 2066 Corporate management Corporate manager Annette Blyton [email protected] 6272 2222 Conferences Yvonne Kingsley [email protected] 6272 2265 Media coordinator Maree Finnegan mfi [email protected] 6272 2260 Publishing and marketing Andrew Wright [email protected] 6272 2290 Publications enquiries Denise Flamia dfl [email protected] 6272 2211 Recruitment Peter Cahill [email protected] 6272 2022

450 australian commodities > vol. 13 no. 2 > june quarter 2006