November 2022
Fonterra welcomes the opportunity to comment on the consultation document
Te tātai utu o ngā tukunga
ahuwhenua – Pricing agricultural emissions. We trust this submission will provide constructive feedback to
help deliver a practical framework for reducing agricultural emissions in line with the principles of the He
Waka Eke Noa partnership (‘the partnership’).
Fonterra is a dairy co-operative owned by around 9,000 New Zealand farming families with 27
manufacturing sites spread across the country, making us the country’s largest exporter and a major
supplier of dairy products to the domestic market.
The ultimate strength of the NZ dairy sector is the ability of our farmers to innovate and adapt to change.
Our farmers lead the world by producing the highest quality milk, quickly adopting technological advances,
and increasingly enhancing and protecting the environment and land. A healthy environment is the
foundation for a strong economy and a sustainable dairy industry.
We strongly value the fact that, due to our pastoral production model and efficient manufacturing and supply
chain, we can deliver dairy products to the market with a world leading low-carbon footprint. We’re
committed to continuing to reduce our footprint across the value chain and recognise that on-farm emissions
must be reduced as part of this. Doing nothing is not an option
Fonterra is in the process of determining a target for scope three emissions, encompassing carbon
emissions across our entire supply chain, including farms. Setting a scope three target could contribute to
maintaining our low carbon advantage and keeping pace with expectations of stakeholders, including those
high value customers who are beginning to set their own targets. Such a move would also build on our
existing commitment to achieve net-zero emissions by 2050 and a 30 percent absolute reduction to our
operations emissions by 2030 (compared to FY18 levels).
To support these ambitions, we’ve made becoming a leader in sustainability a core part of our strategy and
have committed to spend $1 billion over ten years to further decarbonise our manufacturing sites and
improve water use and quality. We’ve also already started work to tackle on farm emissions, signing up to
the Memorandum of Understanding with the Government and other industry partners to establish a Joint
Venture to tackle agricultural emissions. We are looking to invest up to $50 million through the Joint Venture
over the next four years. The work of the Joint Venture will complement other work we already have
underway to reduce on farm emissions, including our own Kowbucha trials, our partnership on Asparagopsis
seaweed and work with Royal DSM on feed additives.
Fonterra supported the He Waka Eke Noa partnership process that aimed to design a practical, credible and
effective pricing system for reducing on farm emissions. We supported the recommendations of the
partnership because they delivered a balanced package that would provide the framework for a credible and
workable system for reducing New Zealand’s agricultural emissions.
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Fonterra Co-operative Group
We believe the Government’s proposed response has created an imbalance and some of the changes
undermine the credibility and workability of an agricultural emissions pricing system. We have particular
concerns about the price setting process, governance and sequestration. These concerns, and other
observations, are set out in more detail below.
We believe adjustments to some proposals would significantly improve the workability of a system, for
example greater utilisation of collectives could reduce the administrative burden for farmers and support
greater on-farm emissions reductions.
We welcome the opportunity to continue working with the Government and sector partners to develop an
agricultural emissions pricing scheme. Fonterra remains committed to supporting our farmers to be ready to
implement a farm-level pricing system from 2025.
Consultation Question
Fonterra’s Response
Question 1: Do you think modifications
Yes. Fonterra believes the proposed system undermines the
are required to the proposed farm-level
carefully balanced consensus that was agreed through the
levy system to ensure it delivers
He Waka Eke Noa partnership. The recommendations from
sufficient reductions in gross emissions
the partnership were balanced, practical and would deliver
from the agriculture sector? Please
the emissions reductions required to achieve the legislated
explain.
targets.
The proposed system relies on production decreases to
achieve emissions reductions, whereas the He Waka Eke
Noa partnership recommendations aimed to deliver a system
that achieved reductions through meaningful action and
efficiency gains.
Fonterra believes that the pricing system should focus on
incentivising on-farm efficiencies and supporting the adoption
of new technologies to reduce emissions, rather than on
achieving targets through necessarily lowering production.
We set out further improvements we believe are required in
response to question 3 below.
Question 2: Are tradeable methane
Tradeable methane quotas may be worth considering in the
quotas an option the Government should
future, in close consultation with the sector, but the immediate
consider further in the future? Why?
priority needs to be on developing a workable system ready
for implementation by 2025 so agriculture does not enter the
Emissions Trading Scheme.
Any tradeable methane quota system would need to factor in
equity across the sector and avoid penalising farmers who
have taken early action to reduce emissions and adopt new
technologies. Finding a fair way to address this would be
challenging, given the need to set baseline emissions at an
individual farm level.
Question 3: Which option do you prefer
Fonterra supports a farm-level split gas levy system including
for pricing agricultural emissions by 2025 fertiliser, as recommended by the He Waka Eke Noa
and why?
partnership.
a) A farm-level levy system
including fertiliser?
This approach means farmers can consider all nitrous oxide
b) A farm-level levy system and
emissions together, rather than just nitrous oxide emissions
fertiliser in the New Zealand
from non-synthetic nitrogen fertiliser sources. It will also allow
farmers to be recognised for new mitigation technologies or
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Fonterra Co-operative Group
Emissions Trading Scheme (NZ
practices that reduce emissions from synthetic nitrogen
ETS)
fertiliser.
c) A processor-level NZ ETS?
A farm-level approach is consistent with market expectations
on low carbon food, which is becoming increasingly important
for some international customers.
We do not support a processor level system via the New
Zealand Emissions Trading Scheme. It would not allow for a
split gas approach, links prices to abatement costs across the
entire economy and makes revenue recycling harder to
implement.
Question 4: Do you support the proposed Fonterra supports the proposed approach, particularly the
approach for reporting of emissions?
transition from a simple system to a more complex one over
Why, and what improvements should be
time.
considered?
Beginning with a simple method for estimating on-farm
emissions and utilising a centralised calculator will minimise
administrative complexity for farmers as the system beds in.
We acknowledge that the Government agrees with the
partnership that it would be sensible to transition to a more
complex system from 2027.
We would like to work alongside the Government to
accelerate this transition and put in place the right tools and
support for our farmers to avoid any unnecessary
administrative burden or cost.
Question 5: Do you support the proposed Fonterra supports a split-gas levy with separate levy rates for
approach to setting levy prices? Why,
short and long-lived gases and we acknowledge the
and what improvements should be
alignment between the Government’s proposal for a split gas
considered?
levy and the recommendation of the He Waka Eke Noa
partnership.
We do not agree with the price setting process and have
concerns about the governance arrangements proposed to
oversee this process.
Price setting process
We acknowledge the Climate Change Commission’s role in
providing independent advice to the Government and that
they are an appropriate agency to input into the price setting
process. However, we have concerns about the narrow
criteria for determining the levy price.
The Commission, when drafting advice on appropriate levy
prices, and the decision-making ministers themselves, should
consider a broader range of factors than exclusively the
trajectory towards targets.
The Commission and decision-makers should have detailed
analysis available to them about the full impact of pricing
decisions and balance all factors that were recommended by
the He Waka Eke Noa partnership.
The factors recommended by the partnership were:
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Fonterra Co-operative Group
• Trajectory of emissions towards emissions targets;
• Availability and cost of mitigations;
• Social, cultural, and economic impact on farmers,
regional communities, and Māori agribusiness;
• Currently available scientific, mātauranga Māori and
economic information;
• Emissions leakage from production moving offshore
and impacts on food security.
We recommend strongly these criteria be written into
legislation, including because we think risks such as carbon
leakage continue to be underestimated by many in New
Zealand. We also believe further criteria could be considered,
such as emissions per unit of production and international
competitiveness.
We believe the split gas emissions targets need to remain fit
for purpose and so support regular reviews. The targets
should reflect a science-based approach with a trajectory to
limiting warming to 1.5 degrees.
Governance
We believe the price setting process proposed by the
Government falls short with respect to involving the primary
sector. There needs to be an enhanced consultation process
and this should occur prior to the drafting of price-setting
regulations.
Involving the sector early and meaningfully will ensure robust
public policy decision making. Doing so prior to the drafting of
regulations will also avoid criticism that the consultation is
merely a tick box exercise.
We recommend writing an enhanced consultation process
into legislation and enshrine a requirement for feedback to be
considered and responded to by decision makers through a
published report. For example, an Independent Oversight
Board from the sector could be established for the
Commission and officials to consult with prior to developing
levy prices.
We also believe the sector should have a more direct role in
appointing membership to the proposed advisory groups as
recommended by the partnership.
Question 6: Do you support the proposed Yes, Fonterra agrees that revenue should be recycled for the
approach to revenue recycling? Why,
purposes of driving further emissions reductions in the
and what improvements should be
agricultural sector and supporting farmers to reduce their
considered?
emissions.
We are concerned with the possibility that funding could be
diverted away from the levy’s stated purpose and into funding
shortfalls in New Zealand’s National y Determined
Contribution via offshore mitigations, or to cover shortfalls in
other policy areas. In particular we do not believe the
recycled revenues should be used to cover the Government’s
share of the Joint Venture to tackle agricultural emissions,
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Fonterra Co-operative Group
which is aiming to build a partnership between industry and
Government with meaningful contributions from both sides.
We recommend legislation sets out that revenue will only be
recycled into driving emissions reductions in the agricultural
sector and support for farmers to reduce their emissions.
Question 7: Do you support the proposed Yes. We are pleased to see the Government confirming that
approach for incentive payments to
incentive payments are the best approach to encouraging the
encourage additional emissions
uptake of mitigation practices and technologies.
reductions? Why, and what
improvements should be considered?
We believe it’s important that a wide range of mitigation
technologies are captured and recommend the Government
considers expanding the list outlined in Table 3 of the
consultation document. This could include measures that will
enable productivity improvements, for example genetic merit
improvements and pasture management tools.
We agree that varying the rate of reward for different
technologies based on the associated emissions reduction
and the cost of uptake is appropriate.
Question 8: Do you support the proposed No. Fonterra backed the recommendations of the He Waka
approach for recognising carbon
Eke Noa partnership because it delivered a balanced
sequestration from riparian plantings and package. The approach to sequestration recommended by
management of indigenous vegetation,
the partnership was important for this overall balancing.
both in the short and long term? Why,
and what improvements should be
The approach recommended by the partnership aimed to
considered?
recognise as much on-farm sequestration as possible, while
ensuring the system is scientifically robust, not overly
complicated, nor administratively burdensome.
This approach helped support equity across sub-sectors and
partners considered the final recommendations struck the
right balance between providing appropriate recognition and
administrative complexity.
We recognise the Government’s proposed approach aims to
deliver a pragmatic solution to recognising carbon
sequestration, however we have concerns about the potential
impacts from excluding certain categories.
We believe the Government should revert to including those
categories for sequestration recommended by the
Partnership but excluded from the current proposal.
We acknowledge there is some administrative complexity
associated with including certain categories, such as
shelterbelts and scattered forest. This was considered by the
partnership, who ultimately agreed that such complexity was
outweighed by the benefits of giving farmers, particularly in
the sheep and beef sector, access to these categories.
We encourage the Government to maximise the utility of
satellite and other technology to minimise the burden of on-
farm assessments.
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Fonterra Co-operative Group
An approach to sequestration that sits outside the New
Zealand Emissions Trading Scheme is also preferred as it
would be simpler than the proposed approach and avoids
more stringent international guidelines that will only add to
implementation challenges.
Question 9: Do you support the
No.
introduction of an interim processor-level
levy in 2025 if the farm-level system is
Fonterra has been working hard alongside our farmers to be
not ready? If not, what alternative would
ready to implement a farm-level system in 2025.
you propose to ensure agricultural
emissions pricing starts in 2025?
Currently, more than 71 per cent of our farmer shareholders
have a Farm Environment Plan and we are on track for 100
per cent of farmers to have one by 2025. We have a team of
40 Sustainable Dairy Advisors working with farmers across
the country to get ready for new requirements and finding
practical mitigations and farm improvements that suit
individual situations.
We also already provide our farmers with farm insights
reports, which break down the information they will need to
understand their emissions for reporting purposes. A sample
of a farm insight report is attached to this submission.
The Government could consider shifting the dairy sector to a
farm-level system from 2025, while introducing an interim
processor-level levy for the sheep and beef sector as an
alternative.
This would give the Government time to refine the farm-level
system with dairy farmers, who are used to day-to-day farm
level reporting, and provide a pilot from which lessons can be
drawn for a wider roll-out.
Ultimately, we’ve consistently held the view that a farm level
system is a better option because it is a more efficient way of
driving behaviour change and incentivising farmers to reduce
emissions and we would be disappointed if the Government
moves forward with an interim processor-level levy from
2025.
Question 10: Do you think the proposed
The He Waka Eke Noa partnership recommended an
systems for pricing agricultural emissions equitable system whereby all agricultural emissions,
is equitable, both within the agriculture
regardless of source, are treated the same. Targeting
sector, and across other sectors, and
transitional support to certain subsectors would go against
across New Zealand generally? Why and the objectives of the He Waka Eke Noa partnership.
what changes to the system would be
required to make it equitable?
Fonterra does not support differentiated pricing for
subsectors, or financial support for individual subsectors.
Subsector pricing would create distortions from direct market
signals, undermine progress on reducing emissions, risk
encouraging inefficient land use and artificially support the
profitability of certain sectors over others.
The He Waka Eke Noa partnership worked hard to provide a
unified view on a pricing system and the recommendations
that were agreed represented the best option to create
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Fonterra Co-operative Group
incentives and to reduce emissions while maintaining the
viability of the primary sector.
We believe there are better ways to support sub-sectors as
they transition into an emissions pricing system. This could
include the Government targeting strategic investments that
make implementation easier through providing greater
advisory support services.
Another alternative to differential pricing could be transitioning
the sheep and beef sector via an interim processor levy while
the dairy sector moves directly to a farm level levy from 2025,
as discussed in response to question 9.
We encourage the Government to consider a mechanism to
allow temporary levy relief on a case-by-case basis for
farmers who do not have access to any to mitigations and
access to sequestration is restricted by either national or local
body regulation. This temporary levy relief should be
provided only where these mitigation and sequestration
access factors result in the viability of their farming
businesses being threatened.
Restoring all sequestration categories recommended by the
Partnership would also provide the sheep and beef sectors
with more options to manage the impact of the levy.
Question 11: In principle, do you think
Fonterra believes the levy system should be structured to
the agricultural sector should pay for any
support the agriculture sector on the pathway towards
shortfall in its emissions reductions? If
meeting the split gas targets as set in legislation. We also
so, do you think using levy revenue
support the principle that funding should be recycled back
would be an appropriate mechanism for
into reducing agricultural sector emissions.
this?
It is unclear exactly how a shortfall is being defined in the
consultation document, however deploying levy funding to
purchase international mitigations to meet New Zealand’s
NDC would not help deliver emissions reductions in the
agriculture sector and would therefore undermine the
principle of the levy. This would also exacerbate carbon
leakage and worsen the issue globally.
Question 12: What impacts or
Because the Government’s proposal shifts away from the
implications do you foresee as a result of balanced approach recommended by the He Waka Eke Noa
each of the Government’s proposals in
partnership, the negative impacts will be greater.
the short and long term?
The Government’s model ing suggests the proposal will lead
to New Zealand producing less milk with a slight increase in
emissions per unit of production, due to an approach that
prioritises lower production over productivity improvements.
There is also a greater risk of emissions leakage with the
Government’s proposal and the resulting increase in global
emissions from animal agriculture.
The proposals will have negative impacts on the wider
primary sector and the health of our rural communities and
these impacts need to be carefully factored in when finalising
the system design.
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Fonterra Co-operative Group
Question 13: What steps should the
The Crown can support Māori land owners, farmer and
Crown be taking to protect relevant iwi
growers by ensuring the criteria for price setting includes an
and Māori interests, in line with Te Tiriti o assessment of the social, cultural, and economic impact on
Waitangi? How should the Crown
Māori agribusiness, as outlined in our response to Question
support Māori land owners, farmers and
5.
growers in a pricing system?
Question 14: Do you support the
Fonterra is broadly supportive of the proposed approach. The
proposed approach for verification,
system needs to be transparent in recognising real reductions
compliance and enforcement? Why, and
and real sequestration and has to be high quality and
what improvements should be
trustworthy. This is vital for both industry participants and
considered?
international markets.
We believe greater use of collectives can minimise the
burden on farmers and recommend reconsideration of the
proposal to exclude many types of collectives from
participating from 2025.
We see potential benefit from developing a collective that
would support our shareholders to meet the expectations and
responsibilities placed upon them, including minimising
duplication and thus costs borne directly by farmers. This
could also be a support service for collective participants that
builds on our Co-operative value proposition.
We are open to considering this further alongside the
Government, including developing key principles that would
define the provision of a collective by Fonterra. We do not
believe the development of a collective should be mandatory
or expected, and that a collective would be offered as a
voluntary opt in service for farmers.
Question 15: Do you have any other
The Government’s statement that producers of low carbon
priority issues that you would like to
dairy may achieve price premiums that result in a 20%
share on the Government’s proposals for increase in farm profit is not a realistic assessment of actual
addressing agricultural emissions?
market willingness to pay.
There is risk in over-promising any additional value in low
carbon dairy production (lower than the global leadership
today) that Fonterra will simply not be able to deliver upon.
We have concerns about the commentary on the premiums
that could be obtained for low emissions products on
international markets.
There is evidence that some customers are increasingly
willing to pay a modest premium, but this remains limited and
only applies to particular markets, such as North America and
Europe which Fonterra does not have meaningful access to
transact in at the scale required for these premiums to be
realised.
We also note that the modelling that supports the
Government’s consultation actually results in a small increase
in emissions per kilogram of milk solid, which further
diminishes any ability to leverage the emissions pricing
proposal for any market advantage for Fonterra, including
dynamic trading terms.
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