Hard on the heels of a positive dairy auction result, the recommendations of the Primary Sector Climate Action Partnership (HWEN) have been sent to the Government, backed up by overwhelming farmer support

A couple of quick notables this morning.

The first is the latest GDT auction result. It is a mix of good and bad.

The good is that the weighted average has (finally) reversed its downward trend and lifted by +1.5%. However, on the negative ledger both Whole Milk Powder (WMP) and cheddar cheese have had another fall.

For WMP fortunately, not a lot with on a -0.3% drop. This makes Skim Milk Powder now worth more which hasn’t happened for a long time (US$4,158 for WMP versus US$4,240 for SMP). Cheddars drop was a bit more substantial falling by -3.6%. This perhaps reflects the world fast food economy which is a major user of bulk cheese.

HWEN recommendations released

The other news of note today is the release of the He Waka Eke Noa Partnership recommendations for the future scheme for farm emissions.

With farm feedback already fairly well publicised there were no real surprises. However, one area that I had expected to be included was a transition period to be included where processors collected the farm levy’s first while the mechanics of the scheme got up and running. The Partnership however has chosen to go straight to on farm reporting (and collecting). Not a  major issue and presumably those making the decisions have confidence that the ‘scheme’ can be progressed fast enough to meet the governments requirements.

The recommendations also include pricing going forward which takes in account the proposal to operate a ”split gas “ scheme with methane priced differently to CO2. 

The HWEN scheme is expected to cost between $114 mln and $144 mln to be set it up.

Legislation will be written that will set the levy rates and prices.

Modelling on a range of price options after removing the $27 mln in annual admin cost and sequestration and incentives show:

• In 2025, at a price of 11c /kg methane and 4.25$/tonne CO2e, total levies would raise $66 mln.
• In 2030, at a price of 17c/kg methane and $13.90/tonne CO2e, total levies would raise $113 mln.
• In 2030, at a price of 35c/kg methane and $13.90/tonne CO2e, total levies would raise $304 mln.
• But the report says that if you add in interest and capital payments for the IT system, the total annual operating cost from 2027 to 2030 will be up $47 mln to administer it, and $37 mln in additional time spent by farmers on data and reporting.
• The group wants a price ceiling set so the levy rate is no more than if agriculture was put into the ETS at the massively discounted (95 percent) rate - with only a 1 percentage point increase in exposure each year.
• It also wants a maximum price for methane of no greater than $0.11/kg for the first three years of pricing (till 2028).
• Essentially, it wants its plan to be no more onerous than the backstop settings.
• A simplified version of a farm-level levy starts in 2025, transitioning to a full farm-level levy in 2027 - with the more basic version not expected to lead to lower emissions reductions.

No doubt as time passes and more analytical focus comes on this, views will emerge as to how will this will be accepted by farmers. But given DairyNZ chairman Jim van der Poel said:

• more than 2600 dairy farmers and sheep and beef farmers attended 71 HWEN events hosted by DairyNZ and Beef + Lamb New Zealand (55 in-person events and 16 online meetings)
• 99% of farmers told us they didn’t want ag priced through the ETS.
• 86% supported farm-level pricing as the final outcome of HWEN

... nay-sayers will have a difficult task convincing the powers that be they have it wrong.