While stuck in a traffic jam as a result of a road accident ahead I began cogitating on the issue around the farming externalities to both water and the atmosphere, no doubt brought on by my recent look at the Netherlands experience.
I think most people accept that the problem exists so given that you would think that finding a solution would be relatively simple. Unfortunately in this case, unless I’m very much mistaken, it won’t be the case. Getting agreement over the ‘Three Waters’ proposals has shown what a difficult path the Government needs to walk and in that case the ‘government’ is wearing the bulk of the cost.
So, any solution to try and improve water degradation induced by farming practices where potentially farmers could end up wearing the cost on one hand, or at least are heavily compromised, or Joe Public on the other, is bound to end in extreme reactions. The European farmers reactions to anything that threatens their way of life illustrates that.
The Netherland’s example really brought out the farmers, even though it had a substantial financial package that went with it, so if farmers here are going to be expected to pay all the costs of what society says it wants, then all hell is liable to break loose.
This led to the next question: if farmers, (and lets just stick to dairy farmers for time being although I believe it could easily be argued that the problem extends further than them) are not to directly pay, what is the cost to ‘buy them out’ likely to be? This is really a “how long is a piece of string question” as depending upon assumptions made you could get quite a different answer, but none of them are pretty.
My calculations were based on the assumptions to get to a situation where our waters run clean we would need to, over the whole country, reduce the dairy herd by 25%. Some areas the reduction would need to be greater and others the reduction needn’t be so drastic. Given we currently have a national milking herd of around 4.9 million cows the reduction in cow numbers would be:
Required cow reduction, 1,225,000
Current average value per animal, $3,000 each
Total to be compensated = $3.675 bln
With this scale of reduction there would be very little ‘salvage value’ in the cows and they would end up being processed for meat patties (sadly).
This is just the first cost, as if you are taking away 25% of a farmer’s income there would/should be some form of compensation. I took the approach of the not all a cow earns is profit (obviously) and there is also some new ability to generate income from the land not now allocated on a fulltime basis to dairying (presume some for of cash cropping which could assist in mopping up nutrients might be encouraged and hopefully profitable). So, I allocated 30% of the lost cost potential income as ‘income compensation'. This would hopefully be enough to pay mortgages and a share of fixed costs. It may also not be enough. So:
Milksolids farmgate price @ $8.75 per kg
Milksolids per culled cow is 400 kgs
and that comes to $1050 per cow.
This needs to continue (in my view) for 10 years to allow farmers time to adjust.
That for all the cows involved comes to a total of $12.9 bln plus we still need to add back in the $3.7 bln for the cull cows makes a grand total of $16.5 bln of compensation required so far. At this point if the government and society didn’t realise they had a problem then they should now. It should be put into the context that dairying contributes about $20 bln per year in gross exports and so presumably this would decrease although not by the full 25% as some new enterprises are likely to emerge as land becomes available. This all makes it a very expensive exercise. (It is worth adding here that if the farmer compensation of a share of lost income per cow was lifted from 30% to 50% per year then the total leaps to $25 bln)
As earlier stated, this is a rough and ready approach but given the Dutch war chest is €25 billion and to reduce all livestock (cows, chickens, pigs etc) by 30% and also extends beyond agriculture (they have reduced the speed limit to 100kms per hour to try and limit N emissions from cars), our $16.5 bln could be a credible estimate - just for dairy farmers.
There will be some positives in the outcomes apart from just the clean water. Given New Zealand’s dominant position as a dairy products exporter, the price of milk products is likely to increase. However, the biggest benefit and potentially this could swing over both the government and general society is it would get New Zealand to a net zero greenhouse gas scenario a lot earlier than would be otherwise possible, if indeed it is possible without a wholesale livestock reduction.
By itself this could be considered cold comfort, however, when figures like $5 billion per year (and greater) are being discussed on offshore credit purchases to balance the GHG books then the average $1.65 billion per year (or whatever) starts to sound more feasible.
It is likely this would also lower the demand and price of credits within New Zealand, this may be seen as a mixed blessing by some forest investors.
It’s the farmers that will need the most convincing, I suspect a carrot and stick approach will be required as the Dutch appear to be instigating.
The conversation is overdue and there does not appear to be an appetite by the government to extend their thinking (at least publicly) to go down this path which is disappointing as we seem to leave things to the last minute (compliments of our 3 year electoral term) and face greater costs than could be otherwise.
This topic is likely to continue for some time to come (years). What the final outcome will be is going to be interesting.
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