Numbers down but quality shines through

FARMERS WEEKLY – farmersweekly.co.nz – February 1, 2021 7 NZ dairy farmers lead the way

Gerald Piddock gerald.piddock@globalhq.co.nz

A NEW analysis from AgResearch shows that New Zealand dairy farmers have the world’s lowest carbon footprint – at half the emissions of other international producers.

The study of 18 countries showed that the NZ dairy industry had an on-farm carbon footprint that was 46% less than the average of the 18 countries included in the study.

The study showed milk production from NZ as defined from ‘cradle to farm gate’ is 0.74 kg CO2e (carbon dioxide equivalent) per kg FPCM (fat and protein corrected milk).

The average within the study is 1.37 kg CO2e per kg FPCM.

The method used to calculate the emissions is the IPCC’s regional specific approach rather than the IPCC’s default setting, which when used lifts the footprint to 1.17 kg CO2e per kg FPCM.

DairyNZ chief executive Dr Tim Mackle says the study reaffirmed what the industry had largely thought – that NZ dairy production was world-leading in terms of the carbon emissions for the milk it produces.

He says there are two reasons why the industry had such a low footprint; its pasture based, outdoor farming system and secondly, the innovative, productive nature of New Zealand dairy farmers.

“Our systems are highly productive and our farmers are innovative and they invest and use research,” Mackle said.

Commissioned by DairyNZ, the study was independently produced by AgResearch and peer-reviewed by an international specialist in Ireland. The research analysed 55% of global milk production, including major milk producing countries such as Germany, India, USA, France and the Netherlands.

Mackle says the strict criteria around countries having at least 100 farms to go into the study’s data set limited the amount of countries used in the research.

At 0.74 kg CO2e per kg FPCM, NZ was followed by Uruguay at 0.85, Portugal at 0.86, Denmark at 0.9 and Sweden at 1. Peru was the highest emissions producer among the countries studied, at 3.29 kg CO2e per kg FPCM.

Peru is followed by Costa Rica at 2.96 and Kenya at 2.54. The carbon footprint is measured in total greenhouse (GHG) emissions per kg of product.

Ireland, which often is compared to NZ’s dairy industry, was 10th at 1.18 CO2e per kg FPCM.

The ‘cradle to farm gate’ analysis calculated milk’s footprint from paddock to when it leaves the farm gate. It includes inputs such as fertiliser and imported feed.

The research compares carbon dioxide equivalent (CO2e) emissions per kilogram of milk (fat and protein corrected milk – the nutritional content recognised in the study as CO2e per kg FPCM). This is an internationally recognised method.

The countries selected had published research that enabled a like-for-like comparison. AgResearch scientists Andre Mazzetto and Stewart Ledgard led the research, following methodology in line with International Organisation for Standardisation (ISO) standards.

Mackle says 85% of emissions in the milk making process come from inside the farm gate on NZ farms.

“If you are highly efficient at the farm level like we are, you can still ship your product to countries like Ireland and still be more efficient than the local product. That’s because roughly of the 15% remaining carbon, 10% is processing and 5% is transport,” he said.

The study is a strong value proposition for the dairy industry as customers put greater emphasis on the environmental footprint of food products. But that did not mean the industry could rest on its laurels, he said.

“At the same time, we have to sustain that success and that means building on it and that means getting better. This is not about ‘job done’, it’s a great base to start from,” he said.

There were no easy answers when it came to further efficiencies, and Mackle believed technology could play a crucial role in further lowering dairying’s footprint.

“Because we are already so efficient, there is no silver bullet to even greater efficiency. Significant investment in research and development is needed to find solutions,” he said.

The release of the study comes on the eve of the Climate Change Commissioner releasing a draft blueprint for how the country could reduce its carbon footprint. That blueprint is expected to contain details on to what extent agriculture will have to reduce its carbon footprint.

Mackle says it was timely because it gave context to where the industry sat. The study had taken a year before being completed in November and had just finished being peer reviewed.

“The [Climate Change] commissioner has been through some pretty robust analysis and we look forward to seeing it and engaging in it.”

Waikato dairy farmer and climate change ambassador George Moss says pasture-based farming and genetic improvement are key components to farmers’ low carbon footprint, but there is more that could be done in addressing climate change. “We are world-leading at emissions efficient milk production, but we must continue to adapt and adopt new technology and knowledge,” Moss said.

“Our global competitors are never far behind, plus we know it is the right thing to do for our environment, our consumers and humanity as a whole.”

WORLD-LEADING: New Zealand’s grass-fed outdoor farming systems have helped keep the dairy industry’s carbon footprint low in comparison to other dairy producing nations.

Because we are already so efficient, there is no silver bullet to even greater efficiency. Significant investment in research and development is needed to find solutions.

Tim Mackle DairyNZ

Numbers down but quality shines through

Colin Williscroft colin.williscroft@globalhq.co.nz

ENTRY numbers may have been down on past years at the 2021 New Zealand Dairy Event in Feilding last week, but the quality of cows on show was still high, organisers and participants say.

Event organising committee co-chair Lawrence Satherley says because of Mycoplasma bovis the event has not been held for the past two years and the uncertainty created by covid-19 affected this year’s turnout.

Bearing that in mind, he says the 270 cows entered compared well with the 400 that were part of the event the last time it was held.

“We’re rapt with it. It’s a unique event that usually brings together animals from North Cape to Bluff,” Satherley said.

“We haven’t run it for two years but this year’s entries are a good start.

“We’ve got the best animals from around the country. There’s some top cows here.”

There were entries from as far south as Ashburton and as far north as South Auckland.

Youth are traditionally an important part of the event and Satherley says this year was no different.

“There’s more young people involved in this event than any other, except the Young Farmers competition,” he said.

“They love their animals and they’re passionate about the industry.”

Julie Pirie, who travelled to the event from Ngatea on the Hauraki Plains with her daughter Ella who was taking part in the youth competition, says the event is educational and provides young people with encouragement.

“It’s not just about pretty cows. It’s about learning things like animal husbandry and what makes a good cow,” Pirie said.

This year was the third time she has attended the event and despite the lower than usual

FAMILY AFFAIR: Morrinsville’s Tom Bennett and his supreme Holstein champion are joined by his wife Fran, right, mother-in-law Linda Deane and children Harrison, two, and seven-month-old Fearne. WINNER: Tom Bennett with his six-year-old cow that was named supreme Holstein champion at the NZ Dairy Event.

Climate risks could impact rural loans

Neal Wallace neal.wallace@globalhq.co.nz

FINANCIAL institutions are including climate change risk when considering rural loans, but most are working with farmers to help them address these challenges.

Climate change is not yet a significant consideration for lenders, but all say they are closely monitoring the sector’s environmental impact, including climate change, and it will have greater prominence in the coming decades.

Last September the Government introduced a requirement for the financial sector to disclose their exposure to climate risk.

The new rule is based on a “comply or explain” basis and applies to all financial businesses that have total assets or investments over $1 billion.

Businesses meeting the criteria are required to make annual disclosures covering governance arrangements, risk management and strategies for mitigating climate change impacts.

Westpac NZ’s head of agribusiness Tim Henshaw says the bank is not “at this stage” changing its rural lending consideration to include climate change risks, but it is a consideration for all lending decisions.

“However, we’re looking closely at the potential risks of climate change and we expect our policies will evolve to account for changing impacts over time,” Henshaw said.

A Westpac report released last November detailed exposure to climate-related financial risks based on 2018 data.

The bank had a $10.17b of agricultural lending and noted the sector faced “complex physical and transition risks from drought, storm flooding, erosion, consumer preference and regulation.”

But it identified opportunities from selling premium products to environmentally-conscious consumers or from forestry expansion.

The bank’s credit policy is that any loan over $1 million is subject to an assessment of climate change risk and those loans considered high risk are elevated to senior management for consideration.

Westpac is also reducing its own emissions and has provided $2b of lending to businesses to fund climate change solutions.

ASB’s rural manager Ben Speedy says the bank has not changed its lending criteria to the rural sector but offers environmental compliance or low interest loans for on-farm environmental improvements and to meet environmental legislation.

“As part of that, we’re also working closely with customers providing support to make sure they are prepared for the level of investment needed going forward to maintain appropriate environmental standards,” Speedy said.

A Rabobank spokesperson says managing climate challenges are not new for farmers and it is helping them adapt to these challenges.

“Our approach is to get alongside clients individually and support them to make their businesses more sustainable commercially and environmentally rather than simply changing our lending criteria,” they said.

That involves developing a snapshot of their business’ ability to meet regulatory requirements and consumer expectations.

“This includes how they’re faring with their agronomic, environmental, including climate change impacts, social and workplace performance,” they said.

From this information the bank has learnt more than half their clients have a comprehensive farm environment plan, about a third are voluntarily monitoring and protecting plant and wildlife biodiversity on their farms, twothirds have completed at least half their applicable riparian planting and a third have forestry plantation eligible for carbon credits.

An ANZ bank spokesperson says environmental impacts were a consideration when assessing loans.

“For example, in the agriculture sector when customers buy properties in areas of low rainfall, we ask about their financial resilience to climatic events like drought and rainfall variation,” they said.

The bank is working on an enhanced climate risk management framework that aligns with regulatory requirements and will include estimates of the potential financial impact of future extreme weather events.

“In coming years, we will seek to identify geographic areas most exposed to climate change risks,” they said.

“This may help us identify higher incidences of a lack of insurance or under insurance.”

FMG’s chief product and pricing, underwriting and claims officer Nathan Barrett says the specialist rural insurer will continue to rely on its own modelling and assessment of areas exposed to heightened natural risks.

As an “advice-led insurer” it views each case on its merits and in accordance with established risk appetite

“Given we take an adviceled approach and price each client’s insurance based on their individual needs, we haven’t had a need to change any of our cover criteria at this stage,” Barrett said.

“That said, we’ll continue to monitor clients’ needs and adapt any policy in the future if need be.

The Insurance Council of NZ chief executive Tim Grafton says it’s inevitable premiums and excesses will rise in the coming decades due to the effects of climate change, but those increases will be incremental.

“Insurance costs will increase year-on-year to reflect the changing climate risk, particularly to risk of frequency or severity to any sector or individual,” Grafton said.

Agriculture’s exposure to the effects of climate change was no different to other sectors and Grafton says those seeking cover will need to take steps to reduce their risk, such as ensuring buildings and stock are not exposed to flooding.

WHAT TO EXPECT: Multiple financial institutions say environmental impacts will ultimately be taken into consideration when assessing loans.

EU could introduce greenhouse gas tax

Neal Wallace neal.wallace@globalhq.co.nz

A GLOBAL research company believes Europe will soon follow New Zealand and introduce a charge for agricultural greenhouse gas (GHG) emissions.

Industry risk and research company Fitch Solutions believes the Europe Union will be forced to impose a tax as growing methane emissions loom as a major reason for missing its 2030 GHG targets.

“We believe that the EU is highly likely to introduce similar policies by 2030, in particular bringing agricultural methane emissions into greenhouse gas regulations,” the Fitch report states.

“This follows the identification of methane emissions as a major threat to missing the EU’s 2030 climate commitments by the European Commission.”

Fitch rates as a medium markets to focus on incentivising innovation, although emissions pricing or limits could be introduced as the deadline for climate goals draws closer, with significant effects on the livestock industry,” he said.

It has a low expectation that China and Brazil will impose a price of agricultural GHGs.

In an earlier report, Fitch believes NZ’s agricultural emissions can be reduced without lowering stock numbers.

The report only looks at the dairy and beef sectors and says the goals will be met because of government and industry collaboration.

But it warns some farmers will leave the industry, unable or unwilling to change or adapt.

It was supportive of He Waka Eke Noa, a partnership between the food and fibre industries and the Government to develop by 2025 a plan to lower emissions.

By then farmers and growers will be incentivised to take action to reduce emissions through an agreed pricing mechanism.

The passing of the Zero Carbon Act in 2019 aims for zero net GHG emissions, excluding methane, for all sectors by 2050.

For methane, the goal is a 10% reduction by 2030 based on 2017 levels, and a 24-47% reduction by 2050.

Fitch says meeting methane targets will be challenging especially if the Government imposes a price without the ability to offset through sequestration.

This will leave farmers with the only choice of reducing stock numbers, but it believes that within the next decade science will provide a solution either through special feed or inhibitors that target digestive microbes.

It is less confident livestock breeding for low emissions or a vaccine will be substantially successful within the next decade.

Fitch expects farmers to become more active and benefit from selling carbon credits through emissions trading and that agricultural production will continue to rise, albeit at a slower rate, as farmers adapt to the low emissions regime.

It noted farmers need to have a method for measuring their emissions and it predicts carbon sequestration will play a greater role through the use of permanent forestry as carbon sinks.

A Beef + Lamb NZ commissioned report found between 63% and 118% of onfarm carbon emissions could be offset by existing native bush and woody vegetation on sheep and beef farms.

But Fitch warns this vegetation does not comply with international sequestration agreements so does not qualify for carbon credits, a permanent forest sink or the emissions trading scheme.

CATALYST: Methane emissions have been highlighted as a major threat to Europe missing the EU’s 2030 climate commitments, which could see GHG tax implemented.

FARMERS WEEKLY – farmersweekly.co.nz – February 1, 2021 9 Ag sector poised for profitable year

RABOBANK is predicting New Zealand farmers should enjoy a fifth year of general profitability with above-average pricing, manageable cost inflation and production holding up well.

The bank’s Agribusiness Outlook 2021 report says while the year is “bristling with risk” and bumps are anticipated throughout the coming months, NZ agriculture is well placed.

Rabobank senior dairy analyst Emma Higgins says as 2021 gets underway, the “world remains a turbulent place” for NZ’s agricultural sector”.

“The covid-19 pandemic continues to rage in many regions around the globe, the finer points of the messy Britain and the EU divorce are now in full swing, and tensions in the US remain high following an acrimonious transfer of power to the new Biden administration,” Higgins said.

“More frequent use of market intervention is a further factor creating global instability as are ongoing trade wars which have distorted the direction and price of traded goods.”

She says while NZ agriculture had been unable to completely avoid the discomfort caused by this turbulence, the sector had “done much right to keep itself on a strong path.”

This includes the country’s efforts to control covid-19’s spread better than almost any other country in the world.

“We also saw domestic agricultural supply chains pivot during the peak of infections last year, allowing these to stay open and continue to function at close to full capacity. In addition, we’ve seen diplomatic relations with key trading partners remain stable, keeping vital markets open,” she said.

While it sounded simple, they are achievements that have eluded most countries in 2020 and early 2021.

“And given the extent of the turbulence, and compared to most other peers, NZ agriculture is travelling astoundingly well,” she said.

The new year did bring more uncertainty than previous years with a number of potential bumps which may need to be navigated in the year ahead.

“The pandemic in the US and the EU will probably not start to look materially better until quarter two as winter passes and the vaccine rolls out, while the current spike of infections in key Asian markets is now looming as a major threat for NZ agricultural exporters,” she said.

Risks to commodities will need to be tackled, such as the threat of Chinese dairy destocking, labour shortages in the horticulture sector and the impacts on the animal protein sector of China’s pig herd recovery.

“We also expect to see NZ exporters facing a much stronger NZ dollar in 2021,” she said.

Developments in the Chinese market shaped as the key watch factor for NZ agriculture in 2021. In the 12 months to November 2020, the share of NZ ag exports to this market came in at 31% in value terms.

She says what happens in China in 2021 will be vital to shaping the year for NZ agriculture as a result.

“Maintaining strong relations with China will be crucial for the sector. At present, NZ is treading a difficult path between standing up for its own values and its allies and the desire to constructively engage with a country offering a huge market, preferential access and the ability and willingness to pay for premium NZ product and supply chains,” she said.

“NZ seems well placed to manage these tensions, but this will become harder if China becomes more strident in its actions in the region and/or the US continues to push back.”

In dairy, Rabobank expects limited supply growth in competing regions and firm Chinese buying will bring not only a fifth consecutive profitable season for dairy farmers in 2020-21, but probably supportive pricing for early 2021-22.

Farm gate prices for beef are expected to remain marginally below the five-year average through most of 2021 due to continuing foodservice restrictions, strong competition from South America and a high NZD.

Weak foodservice and incomes in the EU and the US will also impact demand for higher-value lamb cuts in the sheep market, pushing export returns below 2019-20 levels. But Chinese demand will help provide a healthy floor.

In horticulture demand for quality and safe horticultural produce will remain strong. Covid disruptions to labour supply may take the shine off this opportunity, while navigation of geopolitical tensions will be key.

ACHIEVEMENT: New Zealand being able to keep supply chains open during the peak of covid-19 infection was an achievement that eluded other countries.