CONSULTATION DRAFT VERSION 1.0 2XEP Agricultural Sector Overview i i A The energy productivity Roadmap: Re-energising the Australian economy Doubling energy productivity by 2030 to improve the competitiveness of the AGRICULTURE sector December 2014 Draft Version 1.0
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CONSULTATION DRAFT VERSION 1.0
2XEP Agricultural Sector Overview
i
i
A
The energy productivity Roadmap: Re-energising the Australian economy
Doubling energy productivity by
2030 to improve the competitiveness
of the AGRICULTURE sector
December 2014
Draft Version 1.0
CONSULTATION DRAFT VERSION 1.0
2XEP Agricultural Sector Overview
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ii
Thanks
The Board and Staff of the Australian Alliance to Save Energy (A2SE) gratefully acknowledge our
colleague Anita Stadler as the primary researcher and author of this text. Contributing also: Rachael
Hackney and Tony Westmore.
We acknowledge the considerable intellectual and practical contributions of David Eyre at the NSW
Farmers’ Association.
This work has been supported by financial contributions to various components of the Australian
Energy Productivity Roadmap project made by the Commonwealth Department of Industry, the New
South Wales Office of Environment and Heritage and the Clean Energy Finance Corporation.
This work would not have been possible without the exceptionally generous support of the Institute for
Sustainable Futures (ISF) at the University of Technology, Sydney, and Energetics. ISF hosts A2SE
and the Roadmap project. Energetics provides significant in-kind support, notably through
contributions to the project made by Jonathan Jutsen and Anita Stadler.
We acknowledge our project collaborators: ClimateWorks Australia at Monash University, the Low
Carbon Living CRC at the University of New South Wales, the Energy Change Institute at the
Australian National University, the Newcastle Institute for Energy & Resources at the University of
Newcastle and the Energy Flagship program at CSIRO.
The views expressed in this text are those of A2SE and not necessarily those of our supporters and
partners. We have taken all care to ensure that data is correct. All responsibility for the text rests with
c/- Institute for Sustainable Futures University of Technology, Sydney Level 11, Building 10 235 Jones Street, Ultimo, NSW 2007 email: [email protected] phone: 02 9514 4948
web: www.a2se.org.au abn: 39 137 603 993
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Executive summary
Modern agricultural operations have become progressively more intensive users of energy
(electricity and fuel) in order to secure efficiencies of labour and capital inputs. Electricity
prices in Australia are the highest in the world … farm enterprises operate in a highly
competitive market. Increases in expenses, such as electricity, are largely not able to be
passed on to consumers.
(National Farmers’ Federation, 2014c)
In July 2014, the Australian Alliance to Save Energy (A2SE) commenced the Australian Energy
Productivity (2XEP) Roadmap initiative with the support of governments, businesses, industry
associations and thought leaders from a range of institutions.
Energy productivity is a stated policy priority for federal, state and territory governments. Improving
energy productivity is about increasing the economic value added per unit of energy, as well as the
dollar of energy spend. In a period of rapidly increasing energy prices in Australia, an holistic approach
to energy productivity can make a major contribution to Australia’s overall productivity and hence
competitiveness.
This report was prepared to provide an overview of issues that need to be addressed to substantially
enhance energy productivity in the agriculture sector. It will also provide a starting point for discussion
with stakeholders in the agriculture sector and development of the Agriculture Sector 2XEP Roadmap.
Why focus on energy
productivity in
agriculture?
Agriculture is critical to future global food security. In this increasingly
globalised market for agricultural commodities, competitiveness is paramount if
Australia is to retain its leadership position in many agricultural commodities.
The agriculture sector’s performance is a significant contributor to the
Australian economy and the living standards of the Australian people. The
recent Free Trade Agreement (FTA) with China is expected to lend further
support to the red-meat, dairy, horticulture, wool and barley sub-sectors
(Department of Foreign Affairs and Trade, 2014).
Agriculture is a large energy user, and the response of the sector to improving
productivity, including energy productivity, will shape its future competitiveness
and the extent to which it remains the anchor of Australia’s rural economy.
Significant unexploited energy productivity opportunities exist across the
agriculture value chain in all sub-sectors. Savings of 20% or more are
achievable in many instances, including farm vehicle fuel efficiency, electricity
use in intensive farm operations such as dairy, as well as irrigation systems.
The rationale for Australia adopting an energy productivity target is strong:
Overall productivity in many sectors of the Australian economy has been
flat or declining in recent years. Although agriculture performed better than
most other sectors, Australian agriculture’s export market share growth
declined from 2005 to 2010 (Lydon, Dyer, & Bradley, 2014). This suggests
a drop in the global competitiveness of Australian agricultural production.
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Australia’s energy productivity lags that of other G20 countries, and is
increasing at a lower rate (World Bank, n.d.).
Energy prices have risen steeply since 2008 relative to other nations,
eroding what was once a competitive advantage for Australia.
The 2XEP initiative In response to these factors, the A2SE 2XEP initiative proposes doubling
energy productivity across the Australian economy by 2030. This target is in
line with other major economies, and needs to be achieved to avoid
entrenching the competitive disadvantage that has emerged in recent years.
An appropriate 2030 energy productivity target for the agriculture sector needs
to be set by the sector. A2SE will consult with a divers range of stakeholders
about what this target should be, the optimal pathways to follow for different
sub-sectors within the agriculture sector, as well as how progress could be
measured against such a voluntary target.
Consultation will also canvass collaborative action the industry could take to
support a significant improvement in energy productivity and recommend
actions required by governments to reduce or remove barriers to achieving
such a target.
Potential strategies for
improving energy
productivity.
Energy productivity is typically expressed as the real economic output per unit
of energy (usually primary energy). Consequently, the potential to achieve a
voluntary energy productivity target could be influenced by adopting
complementary strategies that could either increase economic output or reduce
the relative energy consumption per dollar output. Energy productivity is not
energy efficiency by a different name. Energy efficiency, which generally
focuses on using less energy to deliver the same service, is, however, an
important part of one the four key strategies, as illustrated below.
The key strategies to enhance energy productivity are summarised below:
‘Traditional’ energy management – e.g. improving energy efficiency
through better management of energy use including the implementation of
innovative energy-use technologies and demand-management initiatives,
as well as best practice data-management and benchmarking practices to
facilitate energy productivity decision making. Structure of the economy and stage of economic development
Geographic size and features, as well as climate (and weather variability)
Demographics / Social Factors
Government
Policy & Planning
frameworks
Energy
Market Dynamics
Energy
Productivity Growth
Factors directly impacting energy
input
Output dimensions ($ or other
perceived value)
e.g.
• Energy market
policy, incl price
determinations
• Regulation, incl
minimum
standards
• Investment
incentives
e.g.
• Energy price
sensitivity
• Renewable /
Fuel mix and
primary:final
energy ratio
Dri
vers
Co
nte
xt
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Systems optimisation – e.g. focusing on energy aspects of the agriculture
infrastructure design, production processes and extended value chain,
including capacity optimisation strategies and the impact on water and
waste streams. These changes may be implemented for reasons of
broader productivity improvement, but greater value can be realised by
bringing to them a deliberate energy competency and focus.
Business model transformation – e.g. focussing on the energy aspects of
fundamental longer term change in the business of agriculture – relating to
the design, development and operation of agriculture, as well as trading
and asset management.
Value creation or preservation – e.g. focussing on increased production,
yield and value add to products.
Opportunities to
improve energy
productivity in the
agriculture industry
The agricultural sector has made significant investments in energy efficiency
in recent years, with leading-edge research underway that will assist
Australia in maintaining its position as a leader in agricultural production.
However, by way of example, energy is currently not a central consideration
in water efficient irrigation system design, which, if not addressed, will
undermine water management programs and continue to drive up the cost of
irrigation.
The agriculture sector stands to benefit from advances in precision agriculture
and robotics, exploiting the wealth of data available for sustainable gains in
productivity with considerations of yield, water, electricity and chemicals.
Farmers are also realising the benefits of upstream and downstream
collaboration, including the sharing of infrastructure at regional level, such as
community bore pumps and solar photovoltaic installations, thus increasing the
utilisation of assets, which influences the return on investment in energy
efficient equipment.
Farmers are adopting innovative new business models that reduce costs
through vertical integration, increased specialisation and scale whilst
retaining the family character of the farm business, or enhance the resilience
of the business to climate variability and natural resource constraints. For
example, Sundrop Farms is effectively decoupling tomato production from
weather variability, fresh water availability and soil quality. They use solar
technology to generate power that is then used to desalinate seawater for
irrigation, and for heating and cooling hydroponic greenhouses (Sundrop
Farms, 2014).
Finally, as a sophisticated, but high-cost producer, with a reputation for ‘safe,
sustainable and healthy food’ (Australian Trade Commission, 2013), Australia
can exploit opportunities presented by high value, fast growing global niche
markets. These markets increasingly subject the food supply chain to scrutiny,
demanding traceability to verify how food is produced (e.g. employment
practices, animal welfare and environmental footprint) (KPMG, 2013).
Clearly, there is no ‘silver bullet’ that will address the economic and energy
productivity challenges facing Australia generally and the agriculture sector
specifically. Rather, a consistent and sustained productivity agenda, which has
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energy as a central tenet in the design and operation of primary food
production systems, is required.
Benefits from 2XEP for
agriculture
Many producers of agricultural commodities in the sector are price takers, with
very limited value added or product differentiation options. The key strategies
for optimising operating income are managing production costs and
maximising yield.
Energy is already a significant cost to many agricultural producers. However,
the convergence of high input cost, the strong Australian dollar and
increasingly variable climatic conditions has resulted in a decline in the growth
of Australia’s export share (Lydon et al., 2014) and placed pressure on profit
margins across many Australian agriculture sub-sectors.
Across ANZSIC Division A: Agriculture, Forestry and Fisheries, energy spend
is equal to about a third of pre-tax profit. Given prevailing margins of
approximately 17%, saving one dollar in energy cost is equal to an additional
$6 at the farm gate (Australian Bureau of Statistics, 2014a). Optimising energy
productivity will, therefore, contribute to the increased resilience of Australian
agricultural producers, helping farmers to better withstand the cyclical nature of
the industry.
The benefits of a significant improvement in agriculture energy productivity will
depend on the voluntary target and actions agreed by the sector, but could
include:
Energy efficiency improvements and cost savings for agricultural
producers; this will improve profitability, and also reduce emissions.
Improved utilisation of resources and equipment (i.e. capacity utilisation).
Multiple dividends in terms of reduced maintenance and downtime, as well
as reduced waste and improved water management.
Agriculture program
objectives
A successful outcome from an A2SE 2XEP Roadmap process will be a realistic
but challenging energy productivity target and a plan developed by the sector,
with the support of a broad spectrum of constituent industry representatives, to
lead changes in the sector and their individual businesses to achieve the
target. It is envisaged that an A2SE 2XEP Roadmap will comprise:
Definition of pathways to significantly enhance energy productivity, with
reference to the different sub-sectors and scale of operations.
Identification of opportunities to collaborate to enhance Australia’s
leadership position in agriculture.
Mechanisms to create greater awareness and adoption of emerging RD&E
innovations that can help agriculture sub-sectors achieve a step change in
energy efficiency, such as the recently launched AgriInnovators website.
Strategies to overcome the barriers to adoption of new, more efficient
processing technologies.
The initiation of new, or strengthening of existing, programs to support
agricultural producers to achieve 2XEP.
Recommendations proposed to federal, state and territory governments for
policy changes to facilitate these activities and support 2XEP in agriculture.
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Such changes could be achieved through a collaborative process,
involving agricultural enterprises, researchers and industry associations,
with government engagement to accelerate innovation, transformation and
value adding in the sector.
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Notes:
All dollars ($) are Australian dollars unless otherwise stated
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Table of Contents
Executive summary .............................................................................................................................. iii
In the current political environment, regulation is not the preferred policy option to effect change in
markets (Department of Industry, 2014). While the 2XEP program will prioritise other mechanisms to
drive change, regulatory barriers to energy productivity and well-targeted and -designed regulation,
must be considered.
First, where governments are extending support, the industry is calling for a more nuanced policy
approach. In order to deal with the productivity challenges facing the agriculture sector, in the words of
the NFF, the ‘complex nexus between water, carbon and energy’ needs to be recognised in policy
design and implementation (Eyre et al., 2014; National Farmers’ Federation, 2014c).
Second, government also has a prominent role to play in building ‘Brand Australian’ in the global food
market and facilitating access for farmers to new markets. The work of the Commonwealth in this
regard is recognised (Australian Trade Commission, 2013) and support welcomed. However,
distribution infrastructure is a critical element of global agricultural competitiveness and market access
strategy. Regulatory changes recommended by the Productivity Commission to restore cost-
competitive coastal transport has support from industry (National Farmers’ Federation, 2014b). In
addition, strategic investment in rural transport is also central to energy competitiveness. The mode of
transport (e.g. shipping, rail or road), as well as ‘congestion’, that results in longer storage,20
have
direct energy-productivity implications.
20
Cold storage is particularly energy intensive.
Box 15: Victorian Farmers Federation (VFF) calls for energy efficiency
grants to put farmers on an ‘equal footing’
During the 2014 State Election, VFF called on political parties to invest in energy efficiency of on-farm
infrastructure to support the then-State Government’s goal of doubling agricultural output by 2030, targeting
dairy, poultry and horticulture businesses in particular. For example, the VFF estimated that if 20% of
Victorian dairy farms installed heat-recovery units, they would save almost $3 million a year in their
electricity costs and 11,420t/CO2e. This would be equivalent to more than 2% of dairy farm energy-related
emissions (Victorian Farmers Federation, 2014).
The key barriers to investment in these solutions by farm businesses are the high upfront capital costs and
a typical payback period of more than five years. The VFF proposed the re-opening of the Sustainability
Victoria’s Smarter Resources Smarter Business program, which offered energy efficiency co-contribution
grants to small- and medium-sized businesses until it closed in May 2014. According to VFF, few farmers
were able to access the program, due to:
The tight timeline provided;
The online nature of rollout;
The extensive and detailed application process; and
Clarity issues around eligibility requirements (Victorian Farmers Federation, 2014).
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Third, the extension of minimum equipment performance standards to agricultural equipment can be
cost effective in accelerating market transformation. (See shaded Box 16). The same principles could
also be extended to an energy efficient certification or labelling system for pressurised water networks
(Cabrera, Cabrera, Cobacho, & Soriano, 2014). Such a scheme has the support of some industry
stakeholders (Eyre et al., 2014).
6.6. Other considerations
6.6.1. Data
Whilst there is sufficient information emerging from the EEIG Program and other data sets to develop
a rough estimate of the scope for energy productivity improvement in key agriculture sub-sectors, data
is not available to support the development of a robust national energy productivity strategy. The
development of sector and sub-sector energy baselines, with reference to end use and geographic
regions/farm types, is essential. An inventory of large equipment, such as tractors, would also
enhance the development of targeted initiatives.
6.6.2. Address energy competitiveness issues from escalating energy prices
While not included in the formal scope of work for the 2XEP program, industry has expressed concern
that this program also recognise and communicate the other element of the energy competitiveness
issue i.e. how government should act regarding energy prices, as action to reduce energy prices in the
medium term would greatly assist efforts to improve energy price competitiveness specifically and
energy productivity more broadly.
It is proposed that 2XEP communicate the need for action to restrain energy prices to improve
competitiveness alongside our main message of doubling energy productivity. Key issues in this
regard include policy certainty on the diesel rebate and electricity tariff structures applicable to regional
Australia.
6.6.3. Role of renewable energy
Defining the role of on-site renewables (wind, solar PV and solar thermal) in improving energy
productivity in the agriculture sector needs further consideration. With regard to the secondary energy
productivity metric, this could include consideration of renewable energy as a hedge against future
energy cost rises.
Box 16: Performance standards for industrial equipment
The Equipment Energy Efficiency (E3) program has been predominantly focused on domestic appliances. It
was estimated in 2010 that minimum energy-efficiency performance standards (MEPS) applied to industrial
and manufacturing equipment could save at least $1.5 billion per annum in industry energy costs and annual
greenhouse abatement of up to 2.8 Mt CO2e (COAG, 2010, cited in Smith, 2013).
Increasing coverage of industrial products beyond certain classes of motors and drives is being planned.
Electric and gas process and industrial equipment standards are now projected to account for 33% of the
estimated 101.9 PJ energy savings attributed to the E3 program between 2014 and 2030 (Kimura & Le Thi,
2013).
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7. Next steps
This report was prepared to form a starting point for discussion to address the opportunities, barriers,
policy recommendations and proposed implementation plan for 2XEP in the agriculture sector. Key
issues for consultation include:
Defining a data collection strategy. This may include collection of better disaggregated data on
tractor fleets, fuel usage by subsector and benchmarks on fuel usage per hectare for different end-
use applications to provide a better understanding of the current state of energy use and energy
productivity in the agriculture sector. This data could inform the establishment of achievable and
sustainable future goals for energy productivity.
Agreeing the metrics for measuring energy productivity improvement in the sector (and
determining whether different metrics are needed for sub-sectors), and cascading metrics down to
farm level.
Defining the scale of opportunities in the sector and agreeing an energy productivity improvement
target for 2030 for the sector. There is sufficient evidence that 2XEP is achievable, though
challenging to justify with the existing dataset; it will be used as a starting point for discussion.
Whichever target is set, it will also be important to set milestones for achievement year by year
and a process for tracking progress.
Defining the key barriers (and they may be somewhat different across each sub-sector of
agriculture) and developing a detailed and integrated sector-led program to overcome these
barriers and support businesses to make substantial energy productivity gains.
Implementing initial programs during the 2XEP Roadmap development activity if possible.
Particular consideration could be given to:
- The viability of designing and launching a voluntary leadership and recognition program
(‘2XEP Challenge’) in parallel with implementing the energy productivity pathways.
- Continuation of currently funded information and education programs covering best
technologies and energy use and management practices customised for key sub-sectors.
- Pricing or regulatory reform that would help drive 2XEP in the sector.
Developing recommendations for government policy measures to facilitate 2XEP achievement in
the sector.
Modelling the costs and benefits of recommended measures for the agriculture sector.
Communicating the outcomes of the industry Roadmap and marketing the benefits of
implementing the program.
Defining and agreeing the best means to engage companies on the journey. This may vary by
sub-sector and between large corporate and family/SME operations.
Delivering and measuring the outcomes.
A2SE is looking forward to working with stakeholders to scope opportunities, consider options and
drive change for the better.
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Appendix A. Abbreviations and acronyms
ABS Australian Bureau of Statistics
AIP Australian Institute of Petroleum
ANZSIC Australian and New Zealand Standard Industrial Classification
boe barrel of oil equivalent
BREE Bureau of Resources and Energy Economics
CTIP Clean technology Investment Program
EEO Energy Efficiency Opportunity (Program)
GDP Gross Domestic Product
GVA Gross Value Added
NRMA National Roads & Motorists' Association
RD&E research, development and extension
RD&E Research, development and extension
TGP Terminal gate prices
US/USA United States of America
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Appendix B. Conversions
Reproduced from BREE (Department of Industry, 2014)
UNITS
Metric units Standard metric prefixes
joule k kilo 103 (thousand)
litre M mega 106 (million)
tonne G giga 109 (billion)
gram T tera 1012
watt-hours P peta 1015
billion (1000 million) E exa 1018
STANDARD CONVERSIONS
1 barrel = 158.987 L
1 mtoe (million tonnes of oil equivalent) = 41.868 PJ
1 kWh = 3600 kJ
1 MBTU (million British thermal units) = 1055 MJ
1 m3 (cubic metre) = 35.515 f
3 (cubic feet)
1 L LPG (liquefied petroleum gas) = 0.254 m3 natural gas
Conversion factors are at a temperature of 15°C and pressure of 1 atmosphere.
INDICATIVE ENERGY CONTENT CONVERSION FACTORS
Black coal production 30 GJ/t
Brown coal 10.3 GJ/t
Crude oil production 37 MJ/L
Naturally occurring LPG 26.5 MJ/L
LNG exports 54.4 GJ/t
Natural gas (gaseous production equivalent) 40 MJ/m3
Biomass 11.9 GJ/t
Hydroelectricity, wind and solar energy 3.6 TJ/GWh
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Appendix C. A2SE 2XEP Roadmap
This report incorporates the agriculture sectoral overview, which is part of the Roadmap Foundation
modules, as illustrated below.
Figure 14: The Energy Productivity Roadmap modules