Summary

• Some ISCC requirements, such as aerial spraying of certain chemicals near water bodies, have been changed from moderate to immediate implementation.
• Many Australian farmers are now questioning their ability to meet ISCC requirements.
• The six principles of the ISCC program are summarised below with a deep dive on principle 2.
• The consequences to the grower from non-compliance is predominantly the loss of the ISCC premium.
• International markets and price forecasts for non-ISCC are quite good but traders are unsure of the size and long-term strength of non-ISCC canola markets.
• Risk reward scenarios will differ for each farmer.
• There is some discussion on Australia setting up its own ISCC equivalent system but it isn’t that straight forward.
• Australian Industry stakeholders are collaborating to investigate the potential to tweak some ISCC requirements and definitions pertaining to the applications of chemicals via aerial application – with the aim of better suiting the conditions of Australian farms and environments.
• It is possible for growers to cancel existing 23/24 ISCC agreements prior to delivery but they need to speak to the respective grain buyer/s as the first point of call.
• Traders are willing to work with growers to help them understand and meet their ISCC requirements.
• Canola is the focus of this article but the same principles apply to ISCC barley as well.
• For the 23/24 season Planfarm Marketing will continue to fill in ISCC self declarations on CBH LoadNet on behalf of clients but we will require a text, email or WhatsApp from the grower to confirm this.
• As per previous years we will not do the NGR (SGA) self declarations due to the security risk from us accessing a clients NGR portal.
• For 24/25 onwards we will not do CBH ISCC self declarations.

 

A re-introduction to ISCC
A recent straw poll on X (formerly Twitter) by the WA Farmers Grains Council indicates that roughly 2/3 of respondents (excluding “Just Looking”) stated that they would not be compliant with the ISCC scheme.

Reference: WA Farmers Grains Council, August 2023

 

In this article we look at a number of considerations for growers when deciding on committing to ISCC. This will include a look at some of the key agronomical challenges of the program, the premiums paid for ISCC grain, the market forecasts for non-ISCC grain, other costs associated with the program and possible alternatives to the ISCC program.

The European Commission requires that material, including grain, that are imported into the EU for use in their Renewable Energy Directive (RED II) and the associated biofuel mandates must meet their sustainability criteria. The standards and auditing processes implemented by ISCC are recognised by the EU as meeting the EU’s definition of sustainability.

ISCC is a not for profit, independent initiative owned by multiple stakeholders (including most of the major grain importers) and is based in Germany. It is not the only sustainability certificate recognised by the European Commission but it is the most commonly used for grain imports and adopted by Australian grain traders.

There are 6 principles set out by ISCC that need to be met or have plans in place to meet by certain dates. Most of the principles are reasonably straight forward and most farmers/businesses would plan to implement these principles as standard practice.

Principle 1 – Protection of land with high biodiversity value or high carbon Stock.
E.g. No land clearing after 01/01/2008.

Principle 2 – Environmentally responsible production to protect soil, water and air.
See key examples below.

Principle 3 – Safe working conditions.
E.g. sufficiently trained staff and contractors, good work place OH&S.

Principle 4 – Compliance with human and labour rights and responsible community relations.
E.g. Fairly paid staff (insert joke here about the boss being underpaid).

Principle 5 – Compliance with land rights, laws and international treaties.
E.g. Proof of legal ownership or lease agreement, respect the rights of indigenous people (the Aboriginal and Cultural Heritage Act could have impacted this).

Principle 6 – Good management practices and continuous improvement.
E.g. Good business management including record keeping and business planning.

Most of these principles are logical, justifiable, applicable globally and can be comfortably implemented. The principle that Australian grain growers might struggle with is principle 2.

DISCLAIMER – Don’t rely solely on the extracts and opinions in this article to determine your ISCC compliance. Refer to the full official ISCC documents and contact the ISCC auditors for current and accurate information.

The ISCC principles are available at the following website under the ISCC EU dropdown:
https://www.iscc-system.org/certification/iscc-documents/iscc-system-documents/

Principle 2—In Focus

Principle 2 covers topics including applications of fertiliser and chemicals, storing and disposing of waste, soil fertility, conservation of natural resources and biodiversity, and pollution. Below are EXTRACTS from the ISCC’s principles that we think would be most relevant to Australian growers.
It is important to note that there are different timeframes for the implementation of each obligation, ranging from immediate (i.e. its already happening) to long-term.

Principle 2.1.7 Restriction on burning
The burning of arable stubble or other crop residues is not allowed except where authority (e.g. local, regional or national) has granted an exemption for plant health reasons. Burning as part of land and/or vegetation clearance is prohibited. When burning takes place as a sanitary measure, it must be done in a way that considers safety factors, such as wind directions, appropriate distance from easily flammable objects in the immediate vicinity, etc.

Degree of obligation: Immediate requirement

2.6.1 Staff dealing with plant protection products must be skilled
Where the plant protection product records show that the technically responsible person choosing the plant protection products is a qualified adviser, technical competence should be demonstrated by official qualifications or specific training course attendance certificates.

Where the plant protection product records show that the technically responsible person choosing the plant protection products is the producer, experience must be complemented by technical knowledge that can be demonstrated via technical documentation such as relevant technical literature on products or specific training course attendance certificates.

Degree of obligation: Immediate requirement

Principle 2.6.2 The application of plant protection products is carried out appropriately
The person applying the plant protection products/the person responsible must follow the label instructions. All requirements, in line with the respective labelling and the ISCC criteria (protective clothing, storage, handling, maximum amount etc.) for the products used must be followed. There must be clearly documented procedures that regulate all the re-entry intervals for plant protection products applied to the crops according to the label instructions. Where no re-entry information is available on the label, there are no specific requirements.

If plant protection products are applied near populated areas or water bodies, appropriate distances must be maintained and all necessary precautions are taken to avoid people entering recently sprayed areas. The size of these buffer and safeguard zones shall be chosen based on the respective local, regional or national legislation and designed in a way to avoid pollution of surface water and groundwater used for the abstraction of drinking water. Buffer zones shall reduce the exposure of water bodies to spray drift, drain flow and run-off and their size should depend in particular on soil characteristics and pesticide properties, as well as agricultural characteristics of the areas concerned.

If plant protection products are applied aerially, any residents within 500 m of the planned application should be notified in advance. Pesticides classified as WHO1a, 1b or 2 should not be applied aerially within a 500 m distance to any populated areas or water bodies. The FAO Guidelines on Good Practice for Aerial Application of Pesticides should be considered when plant protection products are applied aerially.
During the application of plant protection products, the weather conditions (e.g. wind speed, wind direction, temperature) should be examined and taken into account to minimise drift. The person applying the plant protection products/the person responsible must be able to show that good agricultural practices have been used during spraying and that weather conditions have been considered.

Degree of obligation: Immediate requirement

The CBH website provides some further clarification, stating:
Under ISCC Principle 2.6.2, several pesticides (classified as World Health Organization 1a, 1b or 2) are prohibited from being applied aerially within 500 metres of water bodies.
A water body is considered any significant and distinct mass of water, such as a lake (salt or fresh), river, pond, dam or creek (with water present at time of application).
Some of the prohibited pesticides (herbicides, fungicides, insecticides, rodenticides and molluscicides) growers may be familiar with include Diquat, Gamma-Cyhalothrin, Alpha-Cypermethrin, and Zinc Phosphide.

There is also a list on the CBH website of commonly used chemicals in Australia that are prohibited from being aerially applied within 500m of a waterbody under ISCC.

https://www.cbh.com.au/marketing-and-trading/iscc

For refence, the blue shaded area in the image below are dams plus the 500m buffer in south west of Western Australia. Reference: Phillip Honey, August 2023.

2.6.4 Plant protection product applications are recorded
Records must be available and complete on:

The crop name and/or variety;

Date, location and trade name of product;

Justification for application, product amount applied;

Application machinery used and the operator;

The common name of the pest(s), disease(s) or weed(s) treated;

Active ingredient

Degree of obligation: Immediate requirement

2.7.7 The premises must have adequate provisions for waste disposal
National and regional legislation must be followed when storing and disposing of waste. The farm/plantation should have designated areas to store litter and waste which do not create a safety or health hazard. The risks of different types of waste are identified, and waste is stored according to risk identification. Especially, the disposal of hazardous waste must be done in a safe and environmentally-friendly way. Hazardous wastes include for example different types of waste include e.g. chemical waste, fuels, lubricants, batteries, tyres, etc. If applicable, waste burning and disposal should always be done by an official, authorised system. If waste is burned on-site, the following rules must be applied:
Burning hazardous waste like solvents, certain plastics or plant protection products on-site is not allowed;

PVC (polyvinyl chloride) and certain other plastics that cause harmful fumes such as dioxins are prohibited to be burned on-site;
Incinerators and burning sites are in legally permitted locations and fit for purpose.

Degree of obligation: Immediate requirement

Principle 2.8.2 Plant protection products are stored in accordance with local regulations in a secure storage facility
The plant protection product storage facilities should comply with all relevant current national, regional and local legislation and regulations. The plant protection product storage facilities are kept secure under lock and key. Potential contamination of groundwater must be avoided. Appropriate storage facilities:
Are structurally sound and robust;
Have a sealed floor;
Are built of fire-resistant materials (minimum requirement RF 30, e.g. 30 minutes resistance to fire);

Degree of obligation: Immediate requirement

The auditing process
There are two auditor systems for WA growers. The CBH run system, which uses LoadNet for the self declarations and uses SGS as the auditor, and the Sustainable Grain Australia (SGA) run system, which uses NGR for the self declarations and uses Control Union as the auditor. SGA is an initiative of the Australian Oilseeds Federation and they manage the audits on behalf of all the canola traders aside from CBH. Growers could expect to be audited once every five years.

The self-assessment check list for each of the auditors are below.
http://www.australianoilseeds.com/iscc_certification/grower_requirements/document_downloads
https://www.cbh.com.au/marketing-and-trading/iscc

Current discount for non-ISCC canola
Traders who are willing to buy non-ISCC canola are currently discounting it by between $15 and $25 below the ISCC price. This applies to both GM (CAG) and non-GM (CAN) canola. However, there are also a number of buyers who will not buy non-ISCC canola at all. On days where these non-buyers have the highest ISCC bid then the discount will in affect be even greater for non-ISCC. We have seen days where it as much as a $50 discount.

Market forecasts for ISCC and non-ISCC canola
Most Australian ISCC, non-GM (CAN) canola will go into the Europe market, therefore we generally use the French futures exchange (Matif) for an indication of ISCC non-GM pricing.
Most Australian Non-ISCC and GM (CAG) canola will go into the Asian market. Our main competitor into Asia is Canada, therefore we generally use the Canadian futures exchange (ICE) for an indication of non-ISCC and GM pricing.

The graph following shows the movement in these two futures markets for the past seven years.

The Matif (French) futures canola is the blue line in EUR/tn and uses the axis and the ICE (Canadian) canola futures is the black line and uses the right axis in CAD/tn. As the graphs use different currencies it is more important to focus on the pattern rather than the numbers.

Historically, the European market paid a premium over the Asian market for Australian canola but in the last few years with Canada suffering a major drought in 2022 together with a significant increase to their domestic processing of canola, the Canadian (ICE) price has maintained higher levels than the French (Matif) price. In 2022 China also lifted a ban on Canadian canola but retained the ban on Australian canola, further pushing up demand and prices for Canadian canola.

Assuming this current price trend continues we should see strong demand for Australian canola into Asia and other markets as they move away from expensive Canadian canola. This would be even more significant if China lifted its ban on Australia canola as it recently did on Australian barley.

An alternative to canola for the Asian market is soybean. The graph below once again shows the ICE (Canadian) canola futures (black line, right axis, CAD/tn) this time compared to CBOT (US) soybean futures (blue line, left axis, US cents/bu). Once again, it is more important to focus on the trend than the numbers. The trend is soybeans are not cheap either due to a run of below average soybean crops in the US, strong demand from China and the continuation of US biofuels mandates pushing up demand. Again, this supports strong demand for Australian canola into Asian markets.

 

Given the above price information then why is there a discount for non-ISCC? The main issue for buyer is they don’t know the size of the Asian market and whether it can take all of Australians CAG and non-ISCC canola. Markets can also change very quickly so if Europe all of a sudden found itself short for canola (e.g. they can’t access Ukrainian oil seeds) then all of a sudden have ISCC canola is worth a lot more to traders than non-ISCC. With that said, it would not be surprising to see traders sell non-ISCC canola shipments into Asia and then offer non-ISCC prices similar to ISCC levels but we may need to wait a few more months for that to happen.

In the longer term we do anticipate that the EU market will go back to paying a premium for ISCC canola as they phase out the use of palm oil by 2030. No doubt a lot will change between now and then.

Risk versus reward

The risk reward assessment will vary for each business and potentially for each season.

The reward from participating in the ISCC program is currently between $15 and $50/tn.

There are two main risks to growers.

They participate in the ISCC program, do everything by the book but potentially take a yield penalty due to a change in agronomy practices and/or they have to invest significantly to improve elements like chemical sheds, record keeping and staff training.

The other risk is growers participate in the ISCC program but don’t do it by the book. The risk now becomes what are the consequences of failing an ISCC audit?

Below are some frequently asked questions with a summary of responses from Nick Goddard, CEO of Australian Oilseeds Federation (AOF) and Sustainable Grain Australia (SGA), and Trevor Lucas, Head of Accumulations at CBH.

What happens if a grower sells and delivers grain under the ISCC program but later fails an audit or multiple audits?

This is dependent on the ISCC condition that has been breached. In most cases, a ‘corrective action’ is issued, giving the grower a certain time period (e.g. 60-90 days) to take corrective action. If the breach is not able to be corrected (e.g. land of high conservation value has been cleared) then the grower is not able participate in the ISCC Scheme. That tonnage has to be removed from the trader’s mass balance calculations which can create issues for the trader, including being suspended from the program. This could have major ramifications for the trader, especially if they had already sold grain into Europe under the ISCC program.

For the farmer, they could be suspended from the ISCC program, and may require repaying the ISCC premiums but this would require an individual negotiation with the buyer/s.

Can growers cancel/retract their ISCC self declaration for the canola they are yet to harvest and nominate?
A grower is under no obligation to trade their grain as ISCC sustainable, even if they have already completed an ISCC grower declaration for the coming harvest.

If the self declaration is cancelled before the grain has been transferred then the grower is no longer in the ISCC program and will not need to complete an audit. It is likely the price agreed will be reduced to the non-ISCC price but this needs to be negotiated between the buyer and seller. Future sales will need to be made as non-ISCC at the relevant price.

Can a grower do ISCC for certain parts of a property or for separate properties owned by the same business? E.g. areas with no water bodies.
No, the ISCC regard the business entity (e.g. the entity with the ABN or NGR number) as the entity that is certified. In most cases, this involves the whole property- though is some cases, part of the one property may operate under a different entity (e.g. share farming).

Does the ISCC requirement carry from one year to the next or can growers step in and out of the program depending on things like crop treatments?
No, it does not roll over- its starts fresh with each season. Although some aspects won’t change from year to year (e.g. historical land clearing).

Does the ISCC certificate apply to the grain that is being certified (e.g. canola in crop treatments) or to the whole business over a 12 month period?
ISCC Certification applies to the whole farm- or to be more precise, the business entity. However, if growers have sold and/or nominated last seasons grain to contracts in the current year they will need to do an ISCC self declaration for the applicable year.

Longer term outcomes

A lot of the frustration and criticisms associated with the ISCC program is because it is seen to be incentivising/enforcing agronomical practices that are more suited to other parts of the world, especially Europe. It is seen as a “one size fits all” approach that doesn’t sufficiently consider different soil types, weather, geographies, farming systems etc. However, the European Commission via ISCC will tweak some definitions and also allow some local, state and national laws to be the determining factor for some farming practices (e.g. the use of omethoate and zinc phosphide) so a bit of tweaking does occur for different countries.

Some Australian grain growers and industry participants have raised the idea of Australia creating its own sustainability program more suited to Australian soils and conditions. Although this would be very logical and possibly have better outcomes for the environment, the likelihood of the European Commission accepting, lets call it, ASCC canola is slim. If they aren’t very willing to tailor their principles to different parts of the world, then I can’t imagine they would be willing to accept a completely different sustainability programs. It is worth bearing in mind that many of the stake holders in ISCC are the traders and end users (i.e. our customers) so they are going to prefer ISCC over other programs. The new, alternative programs would also need support from the European Union and if given the option of supporting either Australian farmers or European farmers it is clear which farmers EU politicians would side with.

There is one thing that might change the EU’s stance and that is what happens if a large percentage of Australian farmers turn their backs on the program and the EU starts to struggle to meet their requirements?

On average Australia exports 2.2MMT of canola to Europe each year +/- 1MMT depending on the season (see graph below provided by CBH). If Europe didn’t have access to a portion of that grain then what are their options?

 

 

They could increase imports of other oilseeds such as soybean or they could also change their own sustainability criteria to make it easier for growers in countries such as Australia and Canada to meet the ISCC requirements. Another outcome is as the supply of ISCC canola decreases the premiums for ISCC canola would increase to a point where growers are incentivised enough to stay with or rejoin the ISCC program. These premiums may also be applied to other grains going into Europe such as malt barley, further incentivising farmers to stay with the ISCC program.

At the end of the day, Australian farmers will always have the choice to go down the ISCC pathway or not, and that decision may change each year for a variety of reasons. The most important thing is farmers are aware of the risks and rewards for the path they choose to be on.

Grower Action Plan

Before selling and transferring 2023/24 grain as ISCC:

• Familiarise yourself with the ISCC requirements. The above CBH and SGA checklists are a good starting point.
• Consider your capacity to meet these requirements and estimate the costs, both in terms of increased costs and also decreased productivity.
• Weigh up these costs versus the premiums received for the grain under the ISCC program.
• If the numbers don’t stack up or you don’t want to go through the audit process then it might be in your best interest to stay out of the program until the benefits outweigh the costs and effort.
• Remember, you can cancel your 2023/24 ISCC self declarations if required, just be sure to get in touch with the buyer/s you have already sold 2023/24 ISCC canola to and discuss your change in situation. They will most likely issue you with a new contract with the price adjusted for non-ISCC. They are keen to work with farmers as it is in their best interest to make the system work.

 

Planfarm Marketing Policy

• For the 23/24 season Planfarm Marketing will continue to fill in ISCC self declarations on CBH LoadNet on behalf of clients but we will require a text, email or WhatsApp from the grower to confirm this. As per previous years we will not do the NGR (SGA) self declarations due to the security risk from us accessing a client’s NGR portal.
• From 24/25 onwards we will not do CBH ISCC self declarations.