Australian energy policy and its likely impact on rural industry costs and profitability

During the past three years petrol pricing arrangements in Australia have undergone several major changes. In particular, the 1977-78 Budget introduced a new set of crude oil pricing arrangements which were to have wide ranging ramifications over the next decade- for all consumers. These pricing arrangements were amended in the 1978-79 Budget to encompass a policy of moving Australia's oil prices to world market prices immediately. The impact of these petroleum price increases on the rural sector in aggregate is estimated, for example, at approximately $36 million in the 1977-78 period and $69 million in the 1978-79 period. This represents an average across the board increase of 1.2 and 1.6 per cent per annum respectively, in total cash costs per farm. The assessments given in this paper are tentative and assume a number of factors which may well change. It is therefore important to realise the assumptions behind some of these qualitative statements. These are: (i) price elasticity of demand for petroleum products is more inelastic in agriculture than other sectors, (ii) rural sector's petroleum intensity remains unchanged; (iii) agricultural producers lack the ability to pass on cost increases; (iv) there is no change in the marketing or distribution of close substitutes to petroleum or rapid change in farm technology. Given changes in any one or more of these explicit assumptions the need for adjustment/ in the rural sector to post-OPEC energy prices may be negated.