Dairy is fundamental to New Zealand’s future | interest.co.nz – Interest.co.nz

The key message of this article is that dairy is of fundamental importance to the future of Aotearoa New Zealand. However, the journey to get there is not straight forward and it will be controversial.

First, I set out the reasons why dairy is so important, and hence the need to face-up to the challenges that lie ahead. This then leads towards necessary actions to address the challenges.

It is no accident that New Zealands most important export industry is dairy, comprising some 30 percent of the export value of goods that leave New Zealands shores. Add in sheep, beef, timber, fish, kiwifruit and wine, and New Zealands primary industries contribute a little over 80 percent of the export earnings derived from merchandise goods.

The remaining exports are led by aluminium and some machinery. However, with these and other manufactured goods, the net contribution is typically much less than the export earnings, given the imports that are required to feed into the manufacture of these exports.

There are also non-merchandise invisible exports. These are largely tourism and international education of foreigners who come to New Zealand.

Alas, even in the good times these invisible inflows are more than balanced by the invisible outflows of foreign currency. These invisible outflows include Kiwis spending money on their own overseas tourism, plus interest paid to foreign lenders, plus profits to the overseas-owned businesses operating in New Zealand, with banks and insurance institutions being the standouts.

So, the bottom line when it comes to imports such as pharmaceuticals, computers, vehicles, machinery and fuel, plus surprisingly high quantities of imported food of types we do not grow, is that physical imports need to be balanced by physical exports.

The only alternative to this balance is to keep importing capital from overseas. New Zealand has become very good at this. But there has to be a day of reckoning.

Accordingly, the inevitable conclusion is that New Zealands future depends critically on its export industries.

It is no accident that New Zealand is so dependent on its primary industries for these exports. This follows naturally from being a small country isolated from much of the world. Very simply, New Zealand will never have the scale required to build a comparative advantage for large-scale manufacturing. Also, although some would like to pretend otherwise, New Zealand education levels provide minimal advantages and significant disadvantages when comparisons are made to that bigger world.

As for the specific primary industries, the development path that New Zealand has followed is also no accident. For example, the temperate maritime climate, the topography, and the low inherent fertility of nearly all New Zealands soils, all lead inevitably to pastoralism rather than large-scale cropping.

A quick look at export statistics confirms that exports of staple crops such as wheat, barley, oats and maize are insignificant. Major crops such as rice and soy are not even grown at all in New Zealand. This is not going to change.

As for horticulture, kiwifruit is clearly the stand out but there are other successes such as apples and some sub-tropical fruit. But if anyone thinks that horticulture can save New Zealands export economy, they lack understanding of the issues.

The major non-horticultural crops that New Zealand does export are small seeds, with this mainly linked to out-of-season production on behalf of overseas plant breeders. This trade is also at close to peak, given the need for isolation between cross-fertile cultivars.

The long-term perspective of Treasury economists, echoed by the Climate Change Commission, is that resources allocated to dairy and pastoralism can over time be re-allocated to other industries. However, the key resources that underpin dairying are the sunlight and rain that falls on the New Zealand countryside. How will those resources be allocated given the fundamental unsuitability of most of this land to non-pastoral activities?

I have yet to hear an answer to that question. I suspect this reflects the lack of biological understandings held by quantitative desk economists.

The other argument I hear from people who consider themselves economically literate is that not only dairy but also the overall agriculture sector is unimportant because it comprises such a small part of GDP. As I have pointed out many times, the GDP of agriculture captures only a small proportion of the on-farm value-add and none of the off-farm added value. Also, much of the on-farm contribution, including shearers and all other contractors, is allocated to the service sector. It is a crazy anomaly bound up in distant history when farmers did everything on-farm themselves.

I also read regularly that dairy consumption globally is supposedly in decline. But this is false news. Fresh milk consumption is in global decline, but overall dairy consumption, led by cheese, continues to increase.

I also read that New Zealands dairy will in future supposedly face trade barriers. However, I only hear that from people who are well-versed in political lobbying but are not out there in the Asian markets which New Zealand exports to.

The overall trend in dairy and other food prices, albeit with inevitable volatility, has been upwards for the last two decades, with populations increasing and producers struggling to meet the increasing demand. There is no evidence that this will change. Growing more food is now a huge global challenge, largely disguised until recently by massive historical productivity gains in both plant and animal agriculture combined with huge fossil fuel inputs.

So, given the fundamental importance of dairy, there is a need to face-up to the environmental and other challenges that dairy faces, going forward. If New Zealand walks away from its pastoral industries, it is inevitable the whole economy will decline as imports have to be reined in.

A starting point is to address vociferous calls that dairy somehow threatens planetary survival.

There is no point in denying that methane and nitrous oxide, both fundamental by-products from dairy farming, are greenhouse gasses. These emissions have been with us since ruminant animals first evolved some millions of years ago. The issue is complex because methane is a short lived but powerful greenhouse gas, whereas carbon dioxide has less power but over a much longer atmospheric life.

The focus on methane is driven by short term temperature targets rather than long-term planetary sustainability. Holding informed debates on that issue is challenging.

I am reasonably relaxed about the current legislated 2030 methane target of 10 percent reduction from 2017 levels. This is a combined target for all biogenic methane and some, perhaps most, will come from the current transformation of sheep and beef land being converted to forestry. However, the 2050 target of between 24% and 47% methane reduction across all ruminant species is of a very different order. Quite simply, there are no technologies currently available to achieve this without a huge reduction in all of dairy, sheep and beef.

The second challenge facing dairy is the impact of dairy on water quality. Once again, there is no doubt that dairy can have a big impact on water quality, but sorting out truth from fiction is challenging. A key fact is that most of the nitrogen-leaching comes from urine deposited on paddocks in the second half of autumn and in winter.

I am closely associated with the development of composting-shelter farming systems where cows and in some cases beef animals are off-pasture during the winter, and are also bedded in these shelters at night time in autumn. This greatly reduces the leaching.

One of the current ironies is that development of these farming systems, which can also be super friendly for animals, are being led by innovative farmers who are learning through trial and error. It is time for the formal research and development (R&D) system to catch up.

There are also health challenges with some dairy products. I have for the last 15 years been closely associated with researching and communicating the health issues associated with A1 beta casein and the need to convert to A2. Right now, the A2 issue seems to have gone quiet in New Zealand but elsewhere things are steadily moving ahead. Given the lack of commitment in New Zealand within the mainstream dairy industry, most of my own A2 work is now focused offshore.

Each of these challenges to the dairy industry deserves multiple articles of its own. All of them are big issues, with progress inhibited by a mix of misinformation and defensive lethargy.

There are tough times ahead for most New Zealanders, and it is not just dairy farmers. There is an old saying that one reaps what one sows.

*Keith Woodford was Professor of Farm Management and Agribusiness at Lincoln University for 15 years through to 2015. He is now Principal Consultant at AgriFood Systems Ltd. You can contact him directly here.

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