Monday, April 22, 2024

Hitting GHG targets will take carrot and stick, says Rabobank report

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Dairy companies in a ‘delicate position’ as they balance competing interests while tracking sustainability.
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A well-balanced combination of carrots and sticks will be needed to help the world’s top dairy companies meet their GHG emissions targets, a new Rabobank report says.

The report, Global Dairy Companies Taking the Lead in Reducing Greenhouse Gas Emissions, says dairy companies are in a delicate position to balance the interests of their milk suppliers, off-takers, and other stakeholders, while tracking other sustainability targets and maintaining healthy margins.

“For dairy companies to reach the 2030 climate goals and beyond, accelerating the adoption of on-farm GHG emissions reduction measures is crucial,” Rabobank dairy analyst Richard Scheper said.

“Reductions originating from productivity and efficiency gains may diminish over time and gains from new technologies may take years to achieve.”

Market access could also be restricted or limited if competitors are meeting their targets and if the market demands that companies do so, the report says.

Reaching these targets requires a well-balanced combination of incentives and potentially corrective sticks to accelerate the on-farm adoption of a wider variety of GHG emissions reduction tools.

All parties within dairy’s value chain contribute financially to these efforts, it says.

Most companies in the Global Dairy Top 20 – Rabobank’s annual ranking of the world’s 20 largest dairy companies by turnover – have set climate targets or made a voluntary commitment with the Science Based Targets initiative (SBTi).

This includes Fonterra, which is ranked ninth. 

After 2030, these targets may only become steeper and, therefore, a wider variety of on-farm mitigation levers are needed. 

“The stick could become more severe as dairy companies that set (voluntary) targets subject themselves to reputational and litigation risks if targets aren’t achieved,” the report says.

Expanding the financial incentives for farmers will likely require the co-operation and collaboration of participants and stakeholders in the value chain. With such participation, reducing GHG emissions in the dairy value chain in the long-term and accelerating the rate of reduction are believed to be possible, the report says.

While dairy companies have already taken numerous additional steps to stimulate the reduction of on-farm GHG emissions, there is a significant challenge ahead. 

“Reductions originating from productivity and efficiency gains may diminish over time and gains from new technologies – such as specific genetic developments to reduce enteric methane emissions – may take years to achieve.”

Reaching these targets requires a well-balanced combination of incentivising carrots and potentially corrective sticks to accelerate the on-farm adoption of a wider variety of GHG emissions reduction tools.

The report notes that GHG emissions reduction efforts are generally part of wider sustainability programmes including biodiversity, water quality and improved animal welfare, a “triathlon” for dairy companies.

Most targets have to be achieved at the farm level, meaning their relationships with milk suppliers remain pivotal. 

“The increasing downward pressure on milk production volumes in Europe – specifically northwest Europe – and New Zealand has started to reshape dairy companies’ relationships with their milk suppliers and off-takers. 

“Going forward, the combination of increased competition for milk and shared interests to reduce on-farm emissions could contribute to a more balanced distribution of negotiating power and provoke more collaboration,” the report says.

This puts dairy companies in a delicate position to balance the interests of their milk suppliers, off-takers, and other groups, while tracking other sustainability targets and maintaining healthy margins.

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