The combined effects of a 25pc fall in sugar cane prices and higher costs for farm inputs, such as fertilisers, fuel and contractors' services, have led to a decline in profitability of sugar cane in 2007-08, according to new figures from ABARE.

The findings are contained in the report Financial performance of Australian sugar cane producers, 2005-06 to 2007-08, released today by Dr Don Gunasekera, ABARE's acting executive director.

The report presents results from ABARE's survey of more than 300 sugar cane growers that was undertaken in April 2008.

"On average, farm cash incomes fell significantly in 2007-08 to around $7000 a farm," Dr Gunasekera said.

"Small to medium sized sugar cane growers realised, on average, negative or small positive farm cash incomes."

The average gross margin of sugar cane production (the difference between price and cash costs of production) is estimated to have been around $3 a tonne in 2007-08, well below the 2006-07 levels of slightly more than $11 a tonne.

"The Australian sugar cane industry appears to be in transition, with the volume of production relatively stable but the number of producers declining, suggesting a trend toward a smaller number of larger farms," Dr Gunasekera said.

The decline in sugar cane profitability is estimated to have resulted in the number of sugar cane growers falling from 4800 farms in 2005-06 to around 4100 in 2007-08.

But there is evidence of economies of scale in the Australian sugar cane industry, ABARE says.

That is, the average cost of production declines with the increase in the scale of sugar cane production.

For example, in 2007-08 growers producing more than 50,000 tonnes of sugar cane per farm realised an average gross margin of $6.30 a tonne compared with $1.24 a tonne for producers growing less than 7500t per farm.