Thursday, November 30, 2023

PULSE: Who foots the bill for environmental reforms?

Avatar photo
New Zealand agriculture is facing a raft of environmental reforms under the Government’s Freshwater Management National Policy Statement amendments. These include further stock exclusions from waterways, restrictions around winter grazing, audited farm environment plans and enforcing nitrogen caps.
Reading Time: 3 minutes

Nicola Dennis | November 11, 2020 from GlobalHQ on Vimeo.

This is in addition to greenhouse gas mitigation policies and biodiversity measures that are yet to be announced.

In general, farmers are very motivated to reduce their environmental impact, but the cost of doing so competes with rising running costs and servicing debt on land. So, who is footing the bill?

Politicians are quick to point to the export markets, which they believe will pay a premium for clean, green, NZ products. AgriHQ asked a number of NZ exporters if this was feasible. They all thought it wasn’t.

Large portions of NZ meat is sold to manufacturing customers (the US beef grinding market or sheepmeat to China) to mix with their domestically-produced meat or other ingredients. Therefore, many international consumers will not even be aware that they are eating NZ meat. As such, it will be difficult to extract more value from these price-sensitive markets. However, beef exporters are hopeful that NZ manufacturing and trimming beef will one day be recognised for its ethical attributes (for example, grass-fed and hormone free) in the US market, which would significantly boost beef returns. That seems a long way off despite efforts from exporters over the years.

With most of the carcasses traded as commodity meat, that leaves the higher-valued, lower-yielding meat cuts that are sold via restaurants and retailers to pick up the slack. Currently, it would be nice to be able to sell these for their usual prices, let alone command a premium for them. 

Exporters point out that it is difficult to prove if NZ products receive a premium since there is no way of being sure what customers are paying for competing products. However, most believed that high-valued NZ cuts, such as lamb racks, were already capitalising on the NZ image. With a lot of restaurants shut and lamb racks trading for bargain prices, those premiums will be dwindling. 

There does seem to be extra demand for the NZ “raised without antibiotics” assurance program in the US retail markets, which is encouraging. However, it is arguable that NZ is being rewarded for food safety rather than for environmental efforts. Consistent with this, NZ meat producers have secured good market access into China by excluding growth hormone promotants and by avoiding zoonotic diseases like BSE (Mad Cow). Even with those benefits in play, a NZ plant could expect to be swiftly excluded from the Chinese market if its staff contracted covid-19.

Exporters were skeptical that international consumers could stump up with additional money for environmental reforms here. But, even if consumers are prepared to reward NZ for its efforts, this would likely be for about 10% of the total carcase, which is unlikely to translate to large price gains at the farm gate.

Most assurance programs add an extra 10c/kg to the farm gate price. This is roughly $1.90 per lamb and $30 per steer slaughtered. That won’t go far to fencing 32,000km of waterways, even at the Government’s proposed bargain price of $14/m.

If the politicians are to be proven correct, then the most obvious way to deliver value back to farmers would be to turn NZ’s environmental glow into free trade agreements with major international markets, such as India or the US. It would also be a bonus to be able to remove trade barriers on existing beef markets such as chilled beef exports to China, which are hampered by the number of Chinese-approved plants within NZ. This might be a big ask when we consider that covid-19 has most nations focused solely on their home turf and that NZ politicians are, hopefully, busy protecting NZ lamb’s market access into the UK market.

People are also reading