Dairy Holdings Ltd 243 Tancred Street | Ashburton, 7700 | P O Box 224 | Ashburton, 7740 | New Zealand
T: 03 687 9258
E:
[email address] | www.dairyholdings.co.nz
To:
Ministry for the Environment and Ministry for Primary
Industries
[email address]
Submission on:
2022 Pricing agricultural emissions: Consultation document
Publication number: ME 1685
From:
Dairy Holdings Limited
Date:
18 November 2022
Contact:
COLIN GLASS
CHIEF EXECUTIVE
Dairy Holdings Limited
PO Box 224,
Ashburton,
New Zealand
P 03 687 9258
E
[email address]
SUBMISSION
2022 Pricing agricultural emissions: Consultation document
Publication number: ME 1685
1.
INTRODUCTION
1.1.
Dairy Holdings Limited (Dairy Holdings) welcomes the opportunity to submit to the
Ministry for the Environment (MfE) and Ministry for Primary Industries (MPI) on the
Government’s pricing agricultural emissions consultation and its impact on the dairy
industry.
1.2.
The comments within this submission come from consultation within the Dairy Holdings
Management Team and the Company’s Board of Directors.
1.3.
This submission has been prepared with the assistance and support of Federated
Farmers of New Zealand (the Federation), of which Dairy Holdings is a member, and
DairyNZ, of which Dairy Holdings is a levy payer. While many of the submissions of Dairy
Holdings align with the Federation and DairyNZ there are a few areas where we have
reached different conclusions. We therefore encourage our full submission to be read
and considered.
1.4.
We reserve the right to be heard in support of our submission and we would be happy
to appear to clarify any points if this is required.
2.
SUMMARY OF RECOMMENDATIONS
Dairy Holdings recommends that:
• The May 2022 HWEN proposal be adopted in its entirety.
• Specifically Dairy Holdings recommends the following changes to the Government’s
proposal:
o The methane price be set at the minimum level needed to ensure revenue
recycling and be fixed for a five-year period.
o The future price be set by the Minister on the advice of an independent
oversight board appointed by all HWEN partners. This must consider the wider
context of markets, local communities, and New Zealand farmers’ international
competitiveness, to avoid unintended consequences of blindly pursuing a
target.
o All sequestration that can be measured and is additional should be counted.
o Any levy revenue be ringfenced and recycled to investment in R&D, farmer
incentives, additional sequestration, and minimal administration costs.
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o Farmers should be able to use collectives to measure, manage and report their
emissions in an efficient way e.g. through processor quality assurance
programmes or other farmer collectives.
o Pricing at a farm-level will incentivise reduction in global emissions, technology
uptake and adoption of good farming practices.
o The number of systems and processes that farmers are required to complete
should be minimised and integrated.
o Targets should be science based and look to prevent additional warming.
3.
ABOUT DAIRY HOLDINGS
3.1.
Dairy Holdings is a growing dairy business that provides our customers with the highest
quality food from 100% pasture.
3.2.
Dairy Holdings is a large farming business currently operating 80 farms in the South
Island. These farms include 60 dairy farms and 20 dairy support properties that provide
replacement dairy heifer grazing, non-lactating cow winter grazing and the supply of
service bulls to the dairy units.
3.3.
Producing 17.5m Kg MS from 55,000 cows, Dairy Holdings is the largest supplying
shareholder of Fonterra, and the largest pastoral farmer in New Zealand that is not
Government owned or controlled.
3.4.
Dairy Holdings is owned by two New Zealand farming families, Colin and Dale Armer,
and Murray and Margaret Turley, 11 Iwi Groups, and the Canadian Public Sector
Pension Fund.
4.
DAIRY HOLDINGS OPERATIONS
4.1.
Dairy Holdings farming operations are based on simple systems that harvest the optimal
quantity of pasture per hectare with minimal purchased feed. These systems can be
replicated at scale which has ensured the operations have been able to grow since the
company was first formed in 2001 without further capital being introduced.
There are approximately 370 sharemilkers, contract milkers and staff across the wider
Dairy Holdings business. The integrated operating model has enabled Dairy Holdings to
develop and progress its people with more than 40 of our operators purchasing their
own farms over the past two decades. This is testimony to a long-term farming view
that has been predicated on achieving the highest levels of sustainability, while being
active participants in our local communities.
Dairy Holdings takes the sustainability of our operations seriously and has implemented
the following initiatives over the past few years:
• Removed the purchase of palm kernel from our operations.
• Only utilises pasture silage and minimal quantities of grain to supplement the
pasture diet of our livestock. This has reduced our intensity while maintaining our
profitability.
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• Our nitrogen application rates across the dairy operations have reduced to 172 kgN
per hectare.
• We are self-contained, for our replacement heifer and dairy grazing operations and
as a result we have assumed full responsibility for the farming footprint of our farm
system.
• For the past five years we have been using high fertility Premiere Sires from LIC and
the reproductive performance of our dairy herd has progressively improved to
achieve a 6-week in calf rate of 75%. This reduces the number of replacement
heifers we require to sustain the dairy herd.
• The refrigeration systems on our dairy units have been upgraded to the latest snap
chilling technology. These systems utilise refrigerant gases with 10 times lower
global warming potential compared with those used historically, the heat exchange
systems have reduced our dairy shed electricity consumption by 30%, and the milk
cooling capacity exceeds Fonterra’s latest requirements.
• All farms, except two undergoing significant developments, have been assessed with
‘A’ grades under the external auditing process of our Farm Environment Plans.
4.2.
The implementation of these above initiatives demonstrates that Dairy Holdings has
been quietly adopting good farming practices which have culminated in significant
change over the past 10 years. It is important to recognise that this change has been
achieved by collaboratively working with local farmers, irrigation schemes and our
cooperatively owned processors and suppliers. It is this collaboration that has achieved
the enduring change that our farming families have embraced without fear that their
viability may be challenged.
4.3.
This demonstrates the importance of farmer buy-in with any change process. The
crucial aspect is that farmers feel that the direction of change will make them
sustainable, better farmers, and more valued in their local communities.
4.4.
Dairy Holdings acknowledges the challenge with achieving widespread farmer
acceptance of the need to change. It is for this reason that we were so supportive of the
May 2022 He Waka Eke Noa Partnership proposal and why we were so disappointed
that the Government saw the need to “tweak” this proposal. The “tweaks” made,
fundamentally changed the delicate buy-in of the partners. For this reason, Dairy
Holdings strongly recommends that the May 2022 He Waka Eke Noa (HWEN) proposal
be adopted in its entirety.
5.
OUR KEY CONCERNS WITH THE GOVERNMENT PRICING PROPOSAL
5.1.
The methane price should be set at the minimum level needed and be fixed for a five-
year period to give farmers certainty.
5.1.1. Dairy Holdings strongly endorses the concerns expressed by DairyNZ regarding the
Government's changes to the key aspects of price setting.
5.1.2. We endorse the concept of revenue recycling, and that the levy be pitched at the
minimum level to achieve the desired change. This provides for all revenues being
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recycled to reward sequestration, mitigations and support research and
development, with minimal administration costs.
5.1.3. It is the journey that is important, and farmers must remain engaged. Providing
certainty to farmers with a price ceiling in the first five years will be valuable in
maintaining engagement in a non-threatening way. We have witnessed through our
involvement in farm environment plans how farmers respond to clear directions
when they are supported and not threatened. Regularly we hear examples where
farmers have simply asked what they need to do to achieve the objectives. Farmers
want to do the right thing and we have noticed that this happens provided they
remain engaged and supported.
5.2.
The future price should be set by the Minister on the advice of an independent
oversight board appointed by all He Waka Eke Noa Partners.
5.2.1. Maintaining collaboration is extremely important as farmers embark on this journey.
5.2.2. Representation on the oversight board with the Minister ultimately setting the price,
ensures that farmers are involved.
5.2.3. Price setting needs to have regard to a range of factors to ensure that farmers feel
the process is effective, practical, and equitable. With 96% of our dairy production
being sold on the world market it is important that any price setting is undertaken
with reference to international markets and the regulatory frameworks of our
competitors.
5.2.4. New Zealand’s dairy and beef production is already recognised as being among the
most emissions efficient in the world. This has been calculated by DairyNZ and Beef
and Lamb NZ. Any price setting needs to ensure that the viability of farm businesses
that are already more emissions efficient than their competitors, are not further
disadvantaged in the pursuit of reduction targets that are more onerous than our
international farming peers.
5.2.5. It is also important to recognise that price setting with the singular purpose of
meeting emissions targets with no consideration of other factors can drive
unintended consequences. For example, economic viability and the impact on local
communities must be considered.
5.2.6. True collaboration means that the Minister, when setting the price, should be free
to equally consider all feedback. We note that the Climate Change Commission has a
narrower focus to advise on carbon budgets and emissions targets, and this may
mean that other equally important economic, social, cultural, and environmental
factors are excluded.
5.2.7. The Government’s proposal linking the levy price for long lived agricultural gases,
including nitrous oxide emissions, to the price of NZUs in the NZETS market is
rejected. The price should only be set at a rate required to achieve the revenue
recycling principles referred to above. Any linkage to the NZETS unit prices ignores
these principles.
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5.3.
All sequestration that can be measured and is additional should be counted. We stand
by what is proposed by the HWEN partnership on sequestration.
5.3.1. We support the DairyNZ and Beef and Lamb NZ submissions on recognising all
additional on farm sequestration.
5.3.2. Dairy Holdings notes the fear principally held by sheep, beef, and deer farmers that
the emissions levies will significantly erode their financial viability. For this reason,
all farmers need to have all sequestration fully recognised.
5.3.3. We note that farmers are concerned about the cost of extra administration. We also
note that farmers are concerned about the extra burden of this administration on
small family businesses that are already struggling to manage the ever increasing on
farm regulation and compliance. This means that farmers need to be supported so
that they can minimise this administration in their own businesses and not be
required to have multiple systems that might include HWEN, NZETS, and other farm
regulatory systems such as farm environment plans, freshwater farm plans, and
quality assurance schemes.
5.4.
Any levy revenue must be ring fenced and only be used for the administration of the
system, investment in R&D, or go back to farmers as incentives. Administration costs
must be minimised.
5.4.1. Dairy Holdings strongly endorses the DairyNZ submission regarding the revenue
recycling principles.
5.4.2. We note the critical role within the HWEN proposal of the System Oversight Board
to set the strategy and direct the investment of levy revenue.
5.4.3. By allowing all additional sequestration to be included, enables the levy revenues to
be utilised without generating surplus funds. We note that the Government is
proposing to utilise surplus levy funds outside the areas of what was proposed by
HWEN, such as funding already announced Government investments in the
agriculture sector and possibly buying offshore abatement or overseas carbon
credits. We fundamentally disagree with this proposed wider use of levy funds.
5.4.4. We strongly support the agriculture sectors involvement in the use of levy funds and
note the strong partnerships that already exist between Government and industry
such as OSPRI and the Mycoplasma Bovis response.
5.5.
Farmers should be able to form collectives to measure, manage and report their
emissions in an efficient way.
5.5.1. We note that the Government proposes that only Maori farmers can form and enter
collectives, with the possibility of other farmers being able to do so in the future at
some undetermined time.
5.5.2. Dairy Holdings strongly disagrees that collectives be limited to Maori farmers.
5.5.3. Collaboration and strong farm cooperatives is a key feature of the strength and
longevity of New Zealand farming businesses.
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5.5.4. Dairy Holdings is actively involved with our processing cooperatives, Fonterra
Cooperative Group Ltd, and Silver Fern Farms Ltd. Both organisations support Dairy
Holdings and their farmer suppliers and shareholders through quality assurance
programmes. These programmes drive farmer behaviour and deliver the product
attributes sought by their customers. As a large shareholder and supplier to Fonterra
and Silver Fern Farms, Dairy Holdings works very closely to ensure we can exceed
the standards of these quality assurance programmes efficiently and with minimal
cost.
5.5.5. In the 2021/22 season Dairy Holdings achieved the four foundation pillars of the
Cooperative Difference programme on all our 55 Fonterra supplying dairy farms.
This was a huge effort. We recognise that the information collected through this
process has enabled Fonterra to benchmark the emissions profile of all our farms.
Similarly, we recognise that the annual nutrient budgets completed through
Overseer for all our dairy and dairy support properties enables our farm emissions
profiles to be compared to other farmers as well as our nitrate losses to
groundwater. Enabling collectives will ensure that this information and resource is
not duplicated.
5.5.6. We believe that expanding the proposal to include all collectives, especially farmer
owned cooperatives, will help drive the changes sought while ensuring a direct link
with customer expectations.
5.6.
The system must incentivise farmers to uptake technology and adopt good farming
practices that will reduce global emissions.
5.6.1. The Government’s proposal of an interim processor levy, should they fail to deliver a
farm-level levy, creates uncertainty for all farmers and removes accountability from
the Government.
5.6.2. As demonstrated in sections 3 and 4 above, Dairy Holdings has willingly adopted
new technologies proactively to reduce our global emissions where this has
enhanced our sustainability and profitability. By driving a farm-level levy farmers are
directly rewarded for all mitigations they implement.
5.6.3. We note that Government’s proposal has overly simplified the May 2022 HWEN
proposal, and this has been at the expense of recognising adoption of technology at
a farm level. We do not support a backstop processor level option and would prefer
a simplified farm-level option as an interim backstop as this will be a step to the
more complete farm level option once finalised.
5.6.4. We note that the Government proposal is indifferent on the point of obligation for
synthetic nitrogen fertiliser. We support nitrogen fertiliser being priced at farm-level
as this incentivises future reductions. Minimising the administration by having one
system for farmers will also be positive.
5.7.
The current methane targets are wrong and need to be reviewed. Any target should
be science-based, not political, and look to prevent additional warming.
5.7.1. Dairy Holdings endorses the submission of DairyNZ, Federated Farmers, and Beef
and Lamb NZ regarding the setting of targets.
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6.
CONCLUSION
6.1.
Dairy Holdings acknowledges the huge effort that the HWEN partners have put in to
develop the proposal submitted to Government in May 2022. This proposal followed
extensive consultation and collaboration between the partners including MPI and MfE.
6.2.
It was disappointing that Government’s proposal chose to “cherry pick” the HWEN
proposal and overlooked several key principles developed by the partners based on
farmer feedback and engagement.
6.3.
As a large farmer, Dairy Holdings is looking for certainty, collaboration across the
industry partners, and strong farmer support for the ultimate proposal. We hope that
our processors can ensure that New Zealand farmers are financially rewarded for any
emissions reductions we may achieve.
6.4.
We acknowledge that pricing agricultural emissions is a journey. In this journey it is
important that farmers are engaged so that we maintain market access, our local
licence to operate, and meet our customers requirements. However, we cannot afford
to reduce our emissions to the extent that this jeopardises our businesses, threatens
our short-term viability, or results in emissions leakage. We must also ensure that food
production is not compromised. This requires a balanced and measured approach that
can only encourage farmer buy-in.
6.5.
The May 2022 HWEN proposal achieved this balance.
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