Thursday, April 25, 2024

Westpac report puts numbers to climate pain 

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NZ exposed on two fronts: short, sharp shocks and gradual seasonal change.
Agri-economist Phil Journeaux says once stock numbers per hectare are reduced by more than 10% it becomes difficult to counter the impact on profitability by increasing per-head productivity.
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A mixed bag of climate change outcomes are likely to greet New Zealand farmers and growers, often with any benefits of a warming climate being more than outweighed by the extreme events that accompany it.

The Westpac-backed New Zealand Agribusiness Climate Change report dives into the challenges horticultural and pastoral operators will face in coming years, with some negative outcomes regardless of farm location.

The report was authored by Lincoln University’s Agribusiness and Economics Research Unit, with input coming from NIWA and agri-economist Phil Journeaux of AgFirst Consulting.

The report highlights NZ’s exposure to climate change on two fronts: gradual seasonal change down the length of a long, skinny land mass presents risk and some opportunity; and climate extremes increasing in intensity and frequency offer a more immediate and less predictable threat.

The report provides case-study references based on average-sized regional farms to highlight the impact of future drought events.

 An average Canterbury dairy unit experiencing a moderate drought event could expect to fork out $115,000 extra on grazing and supplements, while experiencing a 30% slide in operating profit. 

Under a “severe” drought event, that profit hit would amount to 43%, with an additional $166,000 needing to be spent on additional grazing and supplements.

A Beef+Lamb NZ-based survey farm in the North Island hill country was also modelled, subjected to drought conditions based on the 1997-1998 El Niño impact, extrapolated over two years with a third recovery year included.

The relatively small (10%) profit drop in year one amplifies to 46% in the drought’s second year, and a further 16% decline in the third, “recovery”, year. Similar figures apply to a South Island intensive farm model.

The report’s authors also touch on the impact of higher temperatures over winter and the effect on kiwifruit growers, who need a level of winter chilling, already increasingly difficult to achieve in some years. 

The land’s extremely high value makes transition to an alternative crop difficult given the gap between kiwifruit and the next highest-earning land use, possibly apples or viticulture.

In a panel discussion on climate change’s impact, Owl Farm demonstration manager Jo Sheridan highlighted the reality of the report’s modelling. 

She said the Cambridge dairy property is already experiencing soil temperatures up to two degrees Celsius above what they were several years ago, heading up to 17.6degC.

“And we are reaching 18degC a lot quicker than usual now, being reached in October. It used to be mid-November and our soils are staying at 18degC or even warmer right through to April.

“Even though our average moisture levels are staying relatively steady, what we are seeing is that big variance, so what we have is going from one year with a 40mm deficit to this year where we have been at field capacity all year round. What we are seeing is the extremes, and how those averages are starting to play out.”
Given NZ’s long, skinny shape, the report’s authors recognise the scope to move land use with the temperature shifts. 

Given climate change’s uncertainty, making a change in advance of observed impacts may be a risky strategy, they note, but that at least identifying options is a good start.  

The report also notes adaptation will take farming only so far, and there is not enough evidence to understand the lifetime of possible adaptation strategies.

The farm-side risks of transitioning to lower emissions are highlighted and typically for farmers will involve moving to lower stocking rates while increasing per head productivity to offset the gross production loss.

Journeaux said the sector appears capable of achieving a 5-8% gas reduction from a 10% reduction in stocking rate, while maintaining if not improving farm system profitability.

“But if we have reduced stocking rates by 10-15%, it becomes very difficult to improve productivity to pull the financials back to the base farm level,” he said.

He pointed to significant variation between farms, and the challenge to achieve gains for farmers already at the top of their game in productivity.

Owl Farm has achieved a 12% reduction in gas emissions with a reduction in stocking rate to 2.8 cows per hectare, partly by reducing N inputs by 20kg/ha, using less imported feed and using higher genetic value cows, all options outlined in the Westpac report.

Downstream market risks identified in the report include the loss of consumer favour, and processors losing out to those who can implement changes to consumer expectations. 

Trade access, including carbon border adjustments, could come into play, with the European Union soon to implement such a policy on non-food products.

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