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Submissions close at 11.59pm, 18 November 2022.
9(2)(a)
17th November 2022
To whom it may concern,
This submission on Te tātai utu o ngā tukunga ahuwhenua, Pricing agricultural emissions
has been written with the lens of sheep and beef farmers based in the Rangitikei District
of New Zealand, where this policy is going to have significant financial implications for
our farm systems.
Please take this document as our signed and confirmed feedback on the policy on behalf
of:
9(2)(a)
This submission showcases how the policy will influence our businesses, the context not
lost on farmers, particularly when up to 811 million people, about 10% of the world’s
population, regularly go to bed hungry. (https://www.worldvision.org/hunger-news-
stories/world-hunger-facts).
In section 3.1 of the consultation document, the Government has identified three
objectives for a pricing system for agricultural emissions for all of Aotearoa New Zealand.
The system needs to be:
• effective – in incentivising emissions reductions that contribute to the
achievement of the country’s domestic and international targets
• practical – in being able to be implemented within statutory timeframes and
established, operated and modified in a cost-effective manner
• equitable – within the agriculture sector, between the agriculture sector, other
industries and the broader economy, and in terms of the effect on Māori
agribusiness and Māori overall, including Māori aspirations
Under the current remit, the pricing model is not equitable for extensive sheep and beef
farmers. BLNZ completed modelling which was released in September 2022
(https://beeflambnz.com/sites/default/files/consultations/HWEN-explainer-sep-22.pdf)
which illustrated the impact a priced methane levy will have on these systems under the
current market conditions because of the amount of production (money) made per unit of
emissions produced, therefore high emitting farm systems, which have a better land use
capability, not only are generating more margin for their activities they can produce on
their properties, they also have more levers to pull, to diversify into different farming
types, due to the productive capacity of their land.
This is not equitable, the suitability of LUC 5-8 land to stock as its only land use
mechanism, is treated unfavourably in this consultation document and in the proposed
levy pricing system.
The climate change commission under their independent review to the government on
30th June 2022 suggested implementing a streamlined version of the partnerships
proposals would be possible by 2025, so why are the government entertaining the idea of
an initial processor-level levy? It is our preference to get the model correct, and provide
some certainty for farmers moving forward.
Areas of concern for our farm business:
• Revenue recycling system administration. Who determines the minimum bottom
lines for the cost and efficiency of this system?
• Who determines “approved mitigation technologies?” for sheep and beef farm
businesses there is a considerable amount of sequestration that we are not getting
recognised, so how can we ensure the efficacy of this process in the future?
• There are limited developments in technology for extensive sheep and beef
farming, eg: methane inhibitor is easy for dairy farmers, but what about sheep and
beef farmers that have over 10,000 sheep? How are mitigation strategies going to
be prioritised for the different sectors from revenue collected from the levy?
• Many farmers are disappointed at the support from their levy organisation
throughout this process, more farmers need to be at the table as the system is
reviewed and improved.
• The transaction costs associated with the levy. The high establishment costs of the
system ($87M) and ongoing operating costs ($32M)
• The role of sequestration in our sheep and beef business, we are not being
recognised for sequestration that is occurring each and every day. This part of the
policy needs to be further developed.
• The pricing mechanism is going to have monumental effects on NZ sheep and
beef farmers, in most cases a reduction of more than 17% in farm revenue from
modelling completed in the consultation document. The flow on to rural
communities which are dominated by extensive sheep and beef farming are going
to be immense. There are very limited levers to pull for these farmers, outside of
blanket pine planting.
• The increased mental health issues and financial implications for rural
communities and wider New Zealand with this policy are going to change our
future landscape.
• Further concerns are expressed in the 15 consultation questions below.
Consultation questions
Question 1: Do you think modifications are required to the proposed farm-level levy
system to ensure it delivers sufficient reductions in gross emissions from the
agriculture sector? Please explain.
Yes.
The lack of reflection on the farming type and land use capability in the methane levy
needs to be included in this discussion. In addition, the relative impact on pricing per unit
of output for farming systems needs to be included in this discussion.
The administration function needs to be clearer to farmers, as $32M of
operational/administration costs per year.
Question 2: Are tradeable methane quotas an option the Government should
consider further in the future? Why?
Yes
The complexities which surround this model need to be intricately reviewed, and the
complexity of the system also needs to be analysed, for purpose and fit as the current
system is too complex for sufficient uptake on farm.
Question 3: Which option do you prefer for pricing agricultural emissions by 2025
and why?
(a) A farm-level levy system including fertiliser?
(b) A farm-level levy system and fertiliser in the New Zealand Emissions Trading
Scheme (NZ ETS)
(c) A processor-level NZ ETS?
A
Option A brings more awareness to farmers around their emissions and fertiliser use and
the interaction between the two. It also keeps the organisational authority in a farmer's
hands for decisions they make on a daily basis.
However, if Open B or C is chosen, the cost is likely to be directly passed on to the farmer
in fertiliser pricing, whereby the farmer can choose to apply fertiliser based on the return
to their system.
As aforementioned, the CCC suggested a 2025 deadline could be achieved, so it is
frustrating to see so many statements in this consultation document about the time of
implementation, whereby farmers are going to have to pay something by 2025, so it
should be the government's responsibility and target to have a program in place by then,
instead of continually pushing deadlines and reverting to processor levies.
Question 4: Do you support the proposed approach for reporting emissions? Why,
and what improvements should be considered?
• Why is this not the same as the minimum requirements set out under the Essential
Freshwater process for farm planning?
• Having a different metric for what constitutes a farm creates an added layer of
complexity and confusion for farmers.
• The liability and responsibility for reporting emissions need to encompass the
landowner and a lessor.
• Having a collective reporting model for corporate businesses and iwi/hapu is
supported.
• Data and evidence are sufficient for reporting requirements, although it is
suggested farm management software be utilised for this process, to reduce
duplication.
• Evidence needs to allow for farmers’ actions, for example, more efficient animal
production systems, resulting in lower CH4 emissions.
• Timing of reporting needs to be aligned with a specific business's end of the
financial year, with a lag phase, like the current NZ tax system, to allow for the
calculation of business risk and suitable certainty elements from a financial point
of view.
Question 5: Do you support the proposed approach to setting levy prices? Why, and
what improvements should be considered?
No
• Ministers should not have oversight for setting the levy price for biogenic
methane.
• An independent panel of qualified experts should advise on price setting and also
market conditions maintained, to ensure integrity.
• Annual updates of the long-lived levy gas are acceptable
• Measures for measuring traction to emissions targets need to be transparent to the
whole sector and in line with the uptake of any technologies, and in line with the
biological system
• The levy price needs to be set for a period, to provide farmers with enough
certainty to make business decisions, and also, to allow market forces to change
the rate. Could a fixed and floating model be used in this instance, like bank
interest rates?
Question 6: Do you support the proposed approach to revenue recycling? Why, and
what improvements should be considered?
Yes
• The specific principles outlined by the partnership are accepted
• Funding priorities need to be holistic and encompass the monetary drivers of
each different farming system, specifically those with the least mitigation
opportunities for biogenic methane.
• The administration seems to still be very expensive, transparency needs to be
addressed as a part of this process and checks and balances in place to ensure
integrity.
Question 7: Do you support the proposed approach for incentive payments to
encourage additional emissions reductions? Why, and what improvements should
be considered?
• All of the mitigation technologies, with the exception of the low emitting project
run through AgResearch are all directed towards the dairy industry, with very
limited current research focused on extensive sheep and beef research to aid the
more the 12,000 sheep and beef farmers in New Zealand.
• This aids the problem for this industry, as we have very limited levers to pull with
land use change and a model which has revenue constraints due to the productive
capacity of the land.
• Incentive payments, will be utilised by the dairy sector, once again, promoting
unequal opportunities for different sectors.
• Thus, the proposed approach for incentive payments needs to include other
industries and the associated payments spread fairly across different sectors.
Question 8: Do you support the proposed approach for recognising carbon
sequestration from riparian plantings and management of indigenous vegetation,
both in the short and long term? Why, and what improvements should be
considered?
• No
• Farmers are not being recognised for the amount of sequestration occurring on
their farms
• A primary concern on the contractual payments for sequestration and the
application process farmers could apply for to recognise eligible sequestration to
reduce their emissions bill, is the resource, given the current amount of pressure
put on the governments' resource processing ETS applications for this accounting
period. Leaving farmers out of pocket, because they can’t process the applications
fast enough.
• What is the minimum size for riparian margins to qualify for sequestration?
•
Question 9: Do you support the introduction of an interim processor-level levy in
2025 if the farm-level system is not ready? If not, what alternative would you
propose to ensure agricultural emissions pricing starts in 2025?
No
• Farmers need certainty with their businesses and having an interim system does
not provide this, it just confuses the market and makes business more
complicated.
• The interim processor-level levy option could have monumental economic
implications due to reduced payments for farmers’ and growers’ products at the
meat/milk company. This will result in an increase in the cost of food for all New
Zealanders.
• The system needs to be completed prior to 2025 and implemented successfully so
farmers know where they stand in the future.
•
Question 10: Do you think the proposed systems for pricing agricultural emissions
is equitable, both within the agriculture sector, and across other sectors, and across
New Zealand generally? Why and what changes to the system would be required to
make it equitable?
No
• A 32% reduction is sheep and beef farm revenue due to a processor-level NZ-ETS
will put farmers out of business.
• A 17% reduction is sheep and beef farm revenue due to a processor-level levy will
put farmers out of business.
• A 21% reduction is sheep and beef farm revenue due to a farm-level levy will put
farmers out of business.
• The impacts for the sheep sector will be profound with this policy
• This will be devastating for the Rangitikei community
• The changes in net revenue with other land uses such as dairy make this policy
extremely inequitable.
• Transitional support will not be sufficient to remedy the costs associated with this
policy, some farms are facing a liability of over $300,000 per year when they are
paying 100% of their CH4 liability.
• The evidence in support of “market benefits” for carbon-neutral products does not
outweigh the financial implications of this policy.
• Food production was not supposed to be compromised in the Paris Agreement,
and this policy changes the landscape for sheep and beef farmers in New
Zealand, especially the Rangitikei.
• The challenges for rural communities is going to be immense with this policy
Question 11: In principle, do you think the agricultural sector should pay for any
shortfall in its emissions reductions? If so, do you think using levy revenue would
be an appropriate mechanism for this?
• Do other industries have to pay for their shortfall, or can they just continue their
business decisions and offset their requirements with no repercussions?
• The system needs to be established effectively before considering any shortfall in
2030
Question 12: What impacts or implications do you foresee as a result of each of the
Government’s proposals in the short and long term?
• This policy is likely to have a similar economic effect to “rogernomics” in the
1980’s for New Zealand sheep and beef farmers.
• The current cost of living crisis with inflation will continue to rise and the state of
the sector will change for the long term.
• These effects on farmers will continue to build, with further migration from rural
areas due to work availability, increased stress on farms, reduced sector growth.
Question 13: What steps should the Crown be taking to protect relevant iwi and
Māori interests, in line with Te Tiriti o Waitangi? How should the Crown support
Māori land owners, farmers and growers in a pricing system?
• Support every farmer, with knowledge transfer, research and development
• Support and facilitate the functional running of businesses that have multiple
owners and interests
Question 14: Do you support the proposed approach for verification, compliance
and enforcement? Why, and what improvements should be considered?
Yes
• Transparency still needs to be applied across the compliance and enforcement
model.
Question 15: Do you have any other priority issues that you would like to share on
the Government’s proposals for addressing agricultural emissions?
• The question of equity needs to be addressed with land use capability and
farming revenue opportunities with different classes of land.
• This policy is going to have lasting negative effects and implications for New
Zealand’s sheep and beef sector
