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5. Industry and Business Structures<br />

Industry and business structures will have a significant impact on supply chain development and<br />

operation. In particular industry regulation, payment formulae, supply agreements and ownership<br />

within the supply chain has influenced innovation in and development <strong>of</strong> the sugar supply chain. This<br />

chapter provides a review <strong>of</strong> sugar industry and business structures and concludes with considerations<br />

and recommendations for mallee industry development.<br />

5.1 Overview<br />

The Australian sugar industry is predominately based on the production <strong>of</strong> raw sugar. Other uses and<br />

by-products include molasses, green energy production from the combustion <strong>of</strong> bagasse (fibrous<br />

waste), low volumes <strong>of</strong> organic sugar (speciality) and packaged cane trash as garden mulch. Section<br />

4.1 <strong>of</strong> the report provides greater detail on sugar products and by-products. Refined sugar is regarded<br />

as a separate business. The sugar industry supply chain consists <strong>of</strong> growing, harvesting, transport and<br />

milling which is effectively driven by farmers and millers.<br />

The basic pr<strong>of</strong>it centre within the sugar industry is the mill area. Both the growing and milling sector<br />

is closely dependant on each other due to the perishability <strong>of</strong> cane and high transport costs. The sugar<br />

content (commercial value) <strong>of</strong> sugarcane starts to deteriorate within 16 hours <strong>of</strong> being harvested.<br />

Sugarcane cannot be economically transported beyond a time and cost limited geographical radius.<br />

For both the growing and milling sectors to achieve a pr<strong>of</strong>itable outcome, each in turn must be<br />

pr<strong>of</strong>itable for the economic sustainability <strong>of</strong> the mill area.<br />

Hildebrand (2002) summarises this relationship:<br />

• Farmers seek to ensure that a mill will accept the cane they will grow and harvest over the<br />

season for optimum farm proceeds, to a schedule that averages crop and climate event risks<br />

between farmers (farmer equity) and<br />

• The mill seeks to ensure that cane farming is the most pr<strong>of</strong>itable use <strong>of</strong> land in its feeder area,<br />

and that its milling capacity is adequate to ensure cane continues to be grown in sufficient<br />

quantity by its supplying farmers, in order for the mill to remain economically viable.<br />

Mill areas have various farmer and miller ownership structures however each mill area forms the basic<br />

pr<strong>of</strong>it centre.<br />

5.2 Institutional / Regulatory Framework<br />

5.2.1 Historical Arrangements<br />

The sugar industry has been in operation for more than 100 years and has been examined in detail<br />

many times throughout its history. A relatively rapid change in the institutional / regulatory<br />

arrangements has occurred in the last 10 years, to a point where the sugar industry has moved from a<br />

highly regulated industry to one <strong>of</strong> deregulation.<br />

Historically legislation governed most aspects <strong>of</strong> the industry where development and commercial<br />

activity were premised on remunerative price and grower equity (Sugar Industry Oversight Group,<br />

2006). In the early stages <strong>of</strong> the industry all raw sugar produced in <strong>Queensland</strong> was compulsory<br />

acquired by the Government and sold by a central Sugar Board (the predecessor <strong>of</strong> the <strong>Queensland</strong><br />

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