15 minute read
Emissions pricing roadshow gets under way
Feedback sought on pricing
Colin Williscroft colin.williscroft@globalhq.co.nz
AFTER the He Waka Eke Noa (HWEN) emissions pricing roadshow was put on hold to reschedule meetings as the country moved into the covid red traffic light setting, it’s set to begin this week.
Following initial farmer feedback on two emissions pricing options for agriculture, along with a backstop of going into the Emissions Trading Scheme (ETS), a third approach is being put forward by HWEN partners as the roadshow explaining the options to farmers kicks off.
After feedback on a farm-level levy and a processor-level hybrid levy was floated in December, the partners are now also putting forward a separate two-phased approach, starting with the processor-level hybrid and then transitioning to a farm-level system in the future.
DairyNZ chair Jim van der Poel said there are pros and cons for both options being put forward by HWEN.
“The processor hybrid will be easier to implement and run,” Van der Poel said.
“We can get it up and running much more quickly.”
He said the farmer-facing levy will be more difficult to put in place and run because farmers will need to be clear on what their individual starting numbers are and what they are measuring every year which will take more work to get ready.
“Ours (DairyNZ) and most farmers’ preferred option is to go for the farmer one, but we’re looking at maybe starting with the processor hybrid one and then transitioning over time,” he said.
“That’s part of where our thinking has evolved and that’s part of what we’ll be talking to farmers about.”
HWEN programme director Kelly Forster said the pricing system is part of a whole framework around managing agricultural greenhouse gas emissions.
“Paying a price isn’t the only thing that would encourage farmers to reduce emissions,” Forster said.
That’s why the options are based on putting money raised back into research and development, incentives to uptake technology, or actions on-farm that help reduce emissions.
She said the pricing options’ aim is to recognise the efforts of individual farms as they reduce their emissions.
Farms could also choose to combine forces as collectives to report and account for their emissions.
Feedback from the roadshow and online will form part of HWEN’s recommendations to the Ministers of Climate Change and Agriculture that is due by late April.
However, DairyNZ, B+LNZ and Deer Industry NZ have jointly written to ministers seeking an extension to the consultation timetable, while Federated Farmers president Andrew Hoggard has also written directly to Prime Minister Jacinda Ardern to delay the April 30 deadline until the country is back in the orange traffic light setting.
Van der Poel says the extension sought is only for a month, but farmers need to get involved because the fallback of going into the ETS will do them no favours.
Going into the ETS will mean reverting to legislation that does not recognise the split-gas approach that is a cornerstone of the HWEN options.
He said the ETS is designed to change behaviours around longlived gases like CO2, so that over time that will drive the price up.
“That’s the way it’s set up, it encourages behavioural change,” Van der Poel said.
“But methane is a short-lived gas and it (the ETS) does not suit it.
“The legislation as it’s drafted, it’s a poor option for NZ and for NZ farmers.
“The ETS was not set up for short-lived gases like methane and if it (methane) was pushed into the ETS, it would have major implications for NZ farmers.
“We know that some farmers would like the opportunity to revisit the targets, but the opportunity to revisit all those targets will come in 2024 when the next review is.
“The main discussion here is around should farmers go into the ETS or do they prefer one of the options we’re presenting.”
He said although some farmers want shorter-term changes, they need to focus on the bigger picture.
“The main discussion is should farmers go into the ETS or do they prefer one of the options we’re presenting,” he said.
“If you have some views on the options we’re presenting, the pros and cons or whether you think we can make them better or if you have a preference, that’s what we’re really keen to engage in.”
He just wants farmers to engage in the process because the current situation is not likely to be repeated.
“There’s nothing to suggest we’ll get another chance for this and there’s a good chance we won’t,” he said.
“To miss this opportunity and end up in the ETS, that would be a very poor outcome.
“NZ farmers are pretty efficient already, but this is about us maintaining our position.
“If we have a mechanism where we can have some influence going forward, we’ve got a much better opportunity of doing that than the alternative (the ETS).”
For details of the roadshow, go to either the DairyNZ or Beef + Lamb NZ websites.
OPTIONS: DairyNZ chair Jim van der Poel says there are pros and cons for both options being put forward by He Waka Eke Noa.
Let’s find a better solution to the ETS
The Government has legislated that agriculture greenhouse gas emissions will be priced by 2025 to meet emission reduction targets.
The agriculture sector is already committed to playing its part in reducing emissions, and we know there is a better solution than the New Zealand Emissions Trading Scheme (ETS). That’s why DairyNZ and Beef + Lamb New Zealand are industry partners of the Primary Sector Climate Action Partnership – He Waka Eke Noa. It’s our best opportunity to present an alternative emissions pricing framework to the Government; that is practical, fair and will incentivise farmers to make positive changes. Join discussions and provide your feedback on the partnership’s alternative emission pricing options. Register today for a webinar or an event near you, visit dairynz.co.nz/roadshow.
Ag Emissions Pricing
FARMERS WEEKLY – farmersweekly.co.nz – February 7, 2022 7 OECD pushes for higher carbon value
Richard Rennie richard.rennie@globalhq.co.nz
AS THE OECD calls on New Zealand to lift its carbon price higher and faster, Federated Farmers is urging government to put the brakes on allowances made to foreign companies to purchase land for carbon forestry here.
While offering a generally favourable review of NZ’s response over the global pandemic, the OECD’s latest economic survey also raises concerns NZ will not achieve its zero carbon goals at current carbon prices or emission reduction rates.
The report states the current carbon price is too low and calls for “complementary measures” to help address market failures, including environmental taxes, waste levies and greater vehicle electrification.
But Federated Farmers president and climate change spokesperson Andrew Hoggard says any significant rise in the carbon prices will only put greater pressure on the entire food supply system and also play into higher fuel, distribution and ultimately food costs in the future.
NZ’s carbon unit prices have already almost doubled in only a year, now trading at $76.25 a unit, with April 2024 prices secured at $82.22 a unit.
For NZ to achieve its carbon zero goals by 2050, the Climate Change Commission maintains prices will need to be at $140 a tonne of carbon by 2030.
Feds’ meat and wool chair William Beetham says sorting out the special forestry test would be a good “first step” in restoring some balance to land use policy and with carbon exceeding $70 a unit, industries looking to offset greenhouse gas emissions are behind big increases in the value of land used for sheep and beef farming.
His concern is the land is being purchased under the special conditions and converted to trees ultimately destined for carbon sequestration, rather than for felling.
Forest Owners Association president Phil Taylor said this can’t be true because any overseas investor using the special forestry test to obtain Overseas Investment Office consent is banned from carbon farming.
About 25,000ha of pastoral land was approved for sale to overseas buyers under the special forestry test between 2017 and 2020.
But Forest Management Group Ltd owner Dave Janett said in his experience a larger portion of land purchases for forestry are being conducted by farmerled businesses and families who see the opportunity in having investment in both the pastoral sector and in forestry, with carbon credits forming a valuable part of the enterprise’s income stream.
“They are the top end of agribusiness operators and they see the opportunity there,” Janett said.
“This is not going away, there is sweeping change coming through, dictated by overseas markets. You can question the right or wrong of land going into trees and the money from them going offshore, and that is certainly worthy of some debate.”
Beetham said the Feds were pushing towards more agnostic land use rules for foreign ownership.
Market experts are already predicting NZ’s carbon unit price will continue to rise at a rapid clip.
This is partially based on forward values of $76.75 set for April purchases, already well up on the Government’s pre-set trigger price of $70 a unit.
The $70 a unit price marks the point where government adds additional units from its cost containment reserve at its first carbon credit auction in March.
But most in the market expect that even if the entire year’s seven million additional units are committed in the first quarterly auction, they will do little to quell the continuing push upwards in values.
In her latest review of NZ’s carbon market, ANZ analyst Susan Kilsby points out NZ’s carbon prices still sit well below levels recommended by the IMF and economists.
The IMF estimates NZ’s carbon price needs to be at about $107 a unit. The majority of economists estimate globally carbon prices need to be at about US$100 a unit ($150) to keep warming under 1.5degC.
Europe leads the way in prices at $152 a unit, and Kilsby said the lift in EU units has contributed to expectations NZ’s unit price would continue to lift.
“But there is quite a gap between us and many of the world’s economies. China, for example, is only about the equivalent of US$5, not enough to make a difference,” Kilsby said.
She noted the average carbon unit price for the world’s 20 largest economies is only $7 a unit.
She was not sure NZ would reach $100 a unit by year’s end, despite the rate of increase already experienced.
“It would only take a change in government policy around ETS and there are a number of factors feeding into the ETS that may change – even if they are not directly related to price, they may still impact it,” she said.
Analysts maintain some of the changes that could come in coming months include adjustments around forestry plantation regulations and the likely influence of the Government’s emissions reduction plan, due out in the first quarter.
Dave Janett Forest Management Group
IMPACT: Federated Farmers president and climate change spokesperson Andrew Hoggard said a rapid rise in carbon values will only feed through to higher costs in the food supply chain.
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GDT prices drive up milk price forecasts
Hugh Stringleman hugh.stringleman@globalhq.co.nz
DAIRY commodity prices again rose across the board in the first Global Dairy Trade (GDT) auction for February, led by whole milk powder up 5.8%.
Prices for all products rose and the GDT index rose by 4.1%, to follow the 4.6% increase in the previous, mid-January auction.
Prices are now close to their historical highs set during the 2013-14 commodities boom, butter having set a new record, up 3.3% to US$6359/tonne.
Cheddar is also in new territory, after putting on another 2.4% to reach US$5684.
Dairy analysts responded to the new price levels, and recent news that New Zealand’s production will fall 3% this season, by jacking up their milk price forecasts.
Westpac’s Nathan Penny put on 50c to predict $9.50/kg milksolids and Susan Kilsby, for ANZ Research, also added 50c to sit at $9.30.
Penny said GDT prices were now nearly 40% higher than their five-year average and the index at 1455 is very close to the high plateau reached in the second half of 2013.
The GDT index has risen 25% since last August, prompting dairy companies to forecast $9-plus farm gate returns this season.
Dairy production in all major exporting countries is soft and steeply rising prices for fuel and fertilisers are holding down farmers’ ability to respond to high milk prices.
“All up, we expect the milk price ducks to continue to line up for dairy farmers over the remainder of the season,” Penny said.
Kilsby said the milk price outlook had benefited from the fall in the value of the NZ dollar to US65c, but that a gradual rise to 70c by the end of 2022 was built into the farm gate forecast.
“Dairy prices lifted much faster than anticipated in January as the impact of tight global supplies for milk started to have a material impact,” Kilsby said.
“Buyers are now well aware that there will not be a lot of additional products available from NZ during the latter part of the milk production season.
“Our milk supply is tracking 3.2% behind for the season to December and production in December was down 5.5% month-on-month.
“Dry conditions throughout January mean milk supplies are likely to be curtailed for much of the remainder of the season.”
GDT reached its 300th trading event in mid-January, marked with some publicity about US$30billion worth of products traded during its 14 years.
Director of the Fonterraowned business Eric Hansen said that was equivalent to over nine million tonnes of products, with an average clearance rate of 97%.
Six companies quote products on the GDT Events platform: Fonterra; Dairy America; Amul of India; Arla in Denmark; Arla Food Ingredients; and Polish Dairy.
“GDT brings together buyers and sellers from around the globe, with core commodity dairy products from four continents offered to registered bidders from over 70 countries,” Hansen said.
“We look forward to further serving the dairy industry in the years ahead, by increasing liquidity on GDT Events and actively supporting the growth of efficient dairy derivative trading associated with it.”
Constraints set to bite
GOING UP: Westpac senior agri economist Nathan Penny says GDT prices are now 40% higher than their five-year average.
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Hugh Stringleman hugh.stringleman@globalhq.co.nz
DAIRY, sheepmeat and beef prices at farm level are very high relative to their 10-year averages, ANZ Research agricultural economist Susan Kilsby says in the bank’s February Agri Focus report.
“Commodity prices for dairy produce and most meat cuts are currently very strong, which, combined with a slightly weaker NZ dollar, is delivering exceptionally strong prices at the farm gate level,” Kilsby said.
“Unfortunately, production is constrained in many areas, as soils have dried out rapidly.
“On-farm costs are also rising exceptionally quickly, and labour – or rather the lack of it – is becoming a major constraint for most primary industries.
“The unemployment rate is now the lowest it has been since the early 1980s and this is making it exceptionally hard to find short-term labour.
“The labour shortage means it is very unlikely that all of the fruit will be harvested this autumn and there could be significant delays at meat processors.”
Dairy production in New Zealand is falling as land is converted to other uses and stocking rates are gradually reducing.
Supplementary feed and fertiliser prices are increasingly expensive ways of plugging feed shortages and these factors are working against growth in milk production here and elsewhere.
Exceptionally strong international prices for lamb mean the normal summer drop in farm gate returns has been moderated.
Low export volumes from Australia will persist while the national flock is being rebuilt after droughts and fires.
Australia is targeting the United States market, while NZ lamb goes primarily to China for the cheaper cuts and to North America, the United Kingdom and European Union for dearer cuts.
Kilsby called the $35/kg-plus in-market prices for racks and legs “staggering”, having risen about 50% in the past year.
Farm gate prices for all beef grades are about 30% higher than a year ago and only retreating slowly, which is normal for this time of year.
The seasonal demand for dairy cow culling and post-weaning beef cow slaughter will cause delays at processing plants, exacerbated by labour shortages.
High expectations for export fruit prices will be balanced by the labour difficulties for picking and in packhouses and the horticultural sector is pushing ahead with automation.
OUTLOOK: ANZ Research agri economist Susan Kilsby says the ongoing labour shortage means it is very unlikely that all of the fruit will be harvested this autumn and there could be significant delays at meat processors.
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