Allan Barber says pastoral farming for food has a doubtful future when the government incentivises polluters to plant trees to avoid reducing their emissions. The impact of carbon farming has screwed the scrum already

A year ago I assessed the potential for meat processing capacity reduction, especially ovine plants, because of the continued conversion of sheep and beef land to forestry and the decline in returns to farmers. This trend has carried on in spite of a lower rate of sales for forestry, but has been exacerbated by drought in the South Island and the continuation of low lamb prices.

The latest Beef+Lamb Economic Service stock number survey at the end of June paints a rather depressing picture of the sheep and lamb population which has fallen by 6.5 million in the last 10 years with breeding ewes making up 5.7 million of the decline, equivalent to a 27% fall in the ewe population over the period.

Beef cattle provide a rather more optimistic view, having fallen only 120,000 in 10 years, with breeding cows comprising less than half the drop, although the 2024 forecast has been unduly affected by drought in the South Island.

There were regional variations in the extent of the decline in both sheep and cattle, dictated mainly by the severity of climate effects, particularly on the North Island’s East Coast where the decline in both species was greater than 2%, Marlborough/Canterbury which saw a decline in excess of 10%, and Otago/Southland where the sheep population fell by 3% and beef by 2.4%.

Unfortunately, the prospects for a reversal of these rates of decline are not great, because the B+LNZ new season’s outlook forecasts continuing low returns for lamb, although beef prices are expected to remain firm, boosted by the reduction in the US herd. Hopefully the firm beef price will result in more calves being reared this spring to counter the falling cattle numbers.

Overall farm incomes are predicted to fall further next year with a 1.1% increase in earnings more than offset by a 1.8% rise in costs. Faster interest rate cuts than forecast and any recovery in lamb prices would improve the situation, but herd and flock rebuilding would clearly affect short term farm incomes. Wild cards include geopolitical tensions provoking tensions between the USA and China or in Europe, while the American presidential election in November could lead to uncertainty for exports to the USA which Trump has threatened to ban or protect with high tariffs.

Rabobank recently released a report entitled “Watering the green shoots of New Zealand sheepmeats” in which report author, senior protein analyst Jen Corkran, urges the sector “to reflect and learn from the downturn and embrace the change needed to deliver stronger and more consistent returns year-on-year… and in this new report, we identify three pathways that we believe could help lift sheepmeat returns moving forward: focusing on increasing domestic consumption, reassessing trade and diversifying export markets away from China, and investing to boost the competitiveness of New Zealand sheepmeat.”

Corkran argues these three areas of focus are all doable, although I suspect many in the sector will say either “we’ve tried that and it hasn’t worked”, or “we have to take the highest price on offer from available markets”, or “we’re already spending as much as we can afford on R&D.” She agrees the messages in the report are well known and some parties may either find them difficult or impractical to implement. However she says it is not the Rabobank research team’s job to solve the problems, but to provide thought leadership about potential solutions to the unsustainable cycle of boom and bust. It is important to extract every available cent from all parts of the carcase.

She is particularly keen to see an improvement in collaboration between government, research organisations, industry and representative bodies to make the best use of investment in research and development. There is the risk of the declining flock leading to a reduction in R&D or marketing promotion and Corkran points to New Zealand’s relatively lower visual presence at overseas trade shows than major competitors like Australia.

Corkran’s argument for a potential increase in domestic lamb sales is based on Australian consumption patterns which show a three times greater level of domestic consumption than in New Zealand. She maintains Australian supermarkets do more to promote lamb, but this is because a far higher proportion of lamb is sold domestically than here. I pointed out the excellent work of Beef + Lamb NZ in improving the quality of domestic red meat and promoting its taste and health benefits over many years in partnership with the retailers. Without substantially more investment and cheaper pricing in store which would only occur with lower export returns, it is hard to see the share of the local consumer dollar increasing much if at all.

One major problem stands out. Regardless of what happens to prices and farm profitability in the short or medium term, if this government or the next fails to address the elephant in the room of overseas and local companies being able to buy land for forestry conversion to offset their carbon emissions, sheep and beef farming will continue to decline.

By 2030 it may well be too late to reverse the trend and, in any case, there will have been meat processing capacity closures across the country. The proposal by Alliance Group to close its Smithfield works is unlikely to be the last closure, especially as the North Island is experiencing the same trend as the South Island.

Analysis shows sheep and beef farming is just as profitable as forestry over 30 years, if the trees are for conventional harvesting and sale to a pulp mill (will there be any left by then?) or for export.

It is the ETS that screws the scrum by allowing profits to be earned from the totally unproductive activity of carbon farming.

Until the government recognises the ETS is an artificial market which contributes nothing to the national economy, merely acting as an incentive for polluters to avoid reducing their emissions, pastoral agriculture has a doubtful future.  

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