A CARBON-trading scheme is likely to push up the costs of fertiliser and farm chemicals but it may also force grain growers to adopt greater efficiencies, according to a Rabobank report.
Rabobank's Global Focus report on farm inputs said more farmers might move to precision farming if fertiliser and chemical prices rise as a result of the introduction of a carbon trading scheme.
"Carbon trading may affect the cost of farm inputs, such as power, fuel, agrochemicals and fertiliser," the report said.
"This occurs as the carbon emissions associated with the manufacturing, delivery and use of these farm inputs is priced and this additional cost is likely to be passed on to end-users, such as farmers.
"Increasing farm input prices will provide a further push to utilise farm inputs more efficiently through techniques such as precision agriculture."
Rabobank said economic modelling by the Australian Bureau of Agricultural and Resource Economics showed average farm costs in Australia could increase by between 0.2 and 0.5 per cent annually if a carbon trading scheme was mandated.
Carbon trading was one of the issues affecting farm inputs canvassed in the Global Focus report.
Rabobank also looked at the impact of recent and forecast supply and demand factors on farm inputs.
It said local farmers could expect to pay more for fertiliser and farm chemicals next year but not as much as when prices spiked in 2008.
The report has forecast higher farm input prices in response to better commodity returns as the global economy picks up.
"In 2010, as the global economy gathers momentum and agricultural commodity prices shift higher, farm input demand will increase," the report said.
"With increased farm input demand, especially from emerging countries, it is expected that some logistical constraint in both the global and local supply chains over the next six months will occur and place upward pressure on farm input prices.
"That said, the increased investment in farm input production capacity should prevent a repeat of the 2008 price spikes."
Rabobank said the Fertiliser Industry Federation of Australia had estimated that local farmers had cut their fertiliser use by 25 per cent last year compared to two years earlier when confidence in the cropping sector was at its highest level.
"At current commodity prices, in particular Australian wheat prices, it is unlikely that fertiliser consumption will return to 2007 levels in the short term," it said.
Rabobank said an expectation that El Nino conditions would persist through the first part of 2010 might prompt farmers to defer purchases of farm inputs until sowing time.
Any last minute rush on fertiliser and chemicals could put pressure on supplies, driving prices higher.
