Friday, July 1, 2022

Drystock takes hit under methane scheme

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Fifteen percent of the country’s drystock farmers can expect to take a hit of at least 10% on their net farm profit under the He Waka Eke Noa (HWEN) farm-based emissions scheme released this week. 

But estimates based off Beef + Lamb New Zealand’s survey farms indicate the sector could have faced even greater losses if the scheme had priced methane higher than it has.

HWEN has used a methane cost of 11c/ kg to base its scheme estimates on, with the gas’ pricing a key requirement to distinguish pastoral greenhouse gas emissions from the carbon price used under the Emissions Trading Scheme.

Earlier HWEN modelling using methane pricing of 35c/kg would have hit over half the country’s drystock farms with a 10% reduction in their profit, even if they had taken advantage of sequestering carbon using trees. 

For farms not using sequestration the hit was even greater, with a quarter losing more than 30% of their profit.

Those figures raised alarm bells among drystock industry leaders as HWEN negotiations on the scheme were finalised.

B+LNZ farmer director Nicky Hyslop confirmed there had been a high level of concern over the pricing level, and that HWEN modelling did not reflect the diversity of farm systems operating under the “drystock” description.

“So, we could see that we really needed to dig deeper to understand the numbers better for such diversified farming systems.”  

Push back from the drystock sector had HWEN set the methane price at 11c/kg and undertake to hold it at that for three years from 2025.

Estimates are that on a production basis this pricing will cost dry stock operators from 11-23c/kg of sheep meat, 8-11c/kg for beef, and 26c/kg for venison. 

“Thirty-five cents (per kg) was never going to be the price for methane, it would have been a huge concern to us,” says Hyslop. 

She could not confirm what the price would be after the three years is up.

“There is always a risk it could go up but that is why our work here is not done. 

“We will continue to use this model based off our actual survey farms to reinforce to government, and to the insight board responsible for pricing, that one of the principals guiding the board is to consider the impact of the methane price on dry stock farm profitability.”

B+LNZ’s analysis of the pricing implications clearly outlines the concerns the body had over hitting farmers too hard too soon on methane costs.

Drilling down into its eight different farm classes, B+LNZ notes the sector has few if any mitigations against methane emissions at present, with the exception of emerging low methane genetics. 

It estimated the impact of the farm-based scheme would be greater than HWEN initially estimated, and may hasten the exit of some farmers off the land altogether, either fully converting or selling it to someone who will convert it. 

The body predicted an acceleration of large parcels of land to forestry.

Under the 11c/kg methane cost proposed it is North Island farmers on easier hill country (class 4) whose numbers will be most affected, with 22% experiencing a 10% or more profit loss, against the industry average of 15%.

Hyslop said while the methane price was critical, B+LNZ still supported the HWEN framework as a world first attempt at measuring and reducing farm emissions.

Dairy NZ chairman Jim van der Poel acknowledged the plan’s presentation was “right up there” in terms of historical industry milestones, one that represented a remarkable level of co-operation within the sector.

He said laying a plan for dealing with pastoral emissions was the last big box to be ticked by the sector, alongside product quality, water-nutrient management, and animal welfare.

While the plan now has to be approved by Cabinet following consultation, van der Poel said the industry has worked in good faith and he could see no reason why anything should change.

Van der Poel said industry would be working to try and use existing systems farmers already enter data into, to minimise creating another bureaucratic pathway.

“This could be through IRD systems and accounting systems, where farmers already have to report their livestock numbers anyway.”

The plan plants emissions responsibility firmly with individual farmers, charging them for their respective emissions amount, while also crediting them for steps taken to reduce methane and nitrous oxide emissions.  

Estimates are dairy farmers will face cost of 4-5c/kg milksolids for the first three years under an 11c/kg methane price.

But far from leaving the primary sector to weather the costs unaided, the plan comes hard on the heels of significant emissions reduction funding that totalled over a third of a billion dollars in the latest budget.

Deer Industry NZ, while supporting the scheme, has also expressed concerns over the financial impact on deer farmers, who like dry stock farmers lack mitigation tools at this stage.

The body had pushed for levy relief on farms where trees to sequester carbon could not be planted, possibly due to landscape rules or wilding pine bans.

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