ETS costs demand an extra 88,000 + dairy cows
Released 03 Jun 2010
Using the Minister of Agriculture & Forestry's own cost figures for the Emissions Trading Scheme (ETS), the national dairy herd will need to expand by 88,000 cows just to offset the $44.46 million ($3,900 per farm) in ETS costs from 1 July.
"Dairy farmers will need to increase intensification on-farm just in order to stand still under the ETS," says Don Nicolson, Federated Farmers President.
"Based on the current payout forecast, our calculations using the Minister's own figures, tells us that it will take the profit from an additional seven dairy cows per farm just to cover the ETS cost per farm.
"If you multiply that over 11,800 farms it adds up to a substantial expansion in the national herd over and above any natural growth.
"Collectively, those seven cows will produce an extra 2,686 kilograms of milksolids (kg/MS), the profit of which is needed just to cover the $3,900 the ETS lands farmers with. This is a cost that comes straight out of a farmer's pre-tax profit too.
"Given Federated Farmers factors in seasonal volatility upwards of $2 kg/MS, the ETS becomes a flat tax on production with business critical implications.
"While next season is looking bright it must not be forgotten that the current season opened with a forecast of $4.55 kg/MS. The Ministry of Agriculture & Forestry's (MAF) own modeling puts the breakeven point for the bottom ten percent of dairy farms at $6.06 kg/MS and even for the leading ten percent, it's at least $4.26 kg/MS.
"Translated into livestock, a $4.55 kg/MS payout under the ETS would need the national dairy herd to expand by some 590,000 dairy cows. That's just to allow dairy farmers to breakeven on the ETS at a low payout figure.
"I feel it demonstrates the potential devastating economic effect of a blunt emissions trading policy. It's no wonder why such polices have fallen off the political radar in Greece, Spain, Portugal and Iceland. Even the European Union's ETS excludes 57 percent of Europe's emissions.
"There's nothing sneaky in the way we're presenting these figures. They're based on the Minister of Agriculture's own figures plotted against his own Ministry's national dairy model budget. All we've done is factored in the effect of the current season's payout.
"So it wouldn't surprise me if the ETS actually leads to increased intensification as dairy farmers seek to reduce the business risk the ETS looks set to impose.
"All I hope is that the general public will finally put two and two together and realise the extra ETS costs are neither small nor palatable," Mr Nicolson concluded.
For further comment:
Don Nicolson, Federated Farmers President, 027 226 6331, 04 494 9190
Lachlan McKenzie, Federated Farmers dairy chairperson, 021 382 442, 07 332 3440
Background tables
ETS impacts in the first year (from 1 July 2010) upon dairy farming
|
1-Jul-10 |
Pre-tax profit off $6.10 kg/MS |
Pre-tax profit off $4.77 kg/MS~ |
|
|||||
|
Profit per cow |
$522 ($1.45 kg/MS) |
$72 (##5609f3ea-72ee-4fe2-af69-051f61e98d9b##.20 kg/MS) |
|
|||||
|
Extra cows per farm needed to generate $3,900 per annum |
7.47 |
50 |
|
|||||
|
National herd increase (over 11,800 dairy farms (2007 SNZ Census of Agricultural holdings)) |
88,161 |
590,000 |
|
|||||
|
|
~ The National Dairy Model Budget (Table 2) can be accessed by following this link from MAF's website: Download Excel format [134KB XLS]. The Model assumes 392 cows milked on a farm of 135 hectares generating 140,941 kg/MS. Please also see MAF's Pastoral Sector Overview.
ETS impacts in the first year (from 1 July 2010) upon the dairy industry |
|||||||
|
|
Sector |
Per Farm^ |
Total Farms |
Total Costs^^ |
||||
|
|
Dairy |
$3,900 |
11,800 |
$46,020,000 |
||||
^ Minister of Agriculture cost estimates
^^ Does not apparently include processor costs of $38 million pa (1 July 2010-31 December 2014)
|
ETS impacts (from 1 January 2015) upon the dairy industry |
||||
|
Sector |
Per Farm^ |
Total Farms |
Farm Costs^^ |
|
|
Dairy |
$6,312.18^ |
11,800 |
$ 71,961,872 |
|
^ Minister of Agriculture cost estimates calculated but using 2010 dollars
^^ Does not apparently include processor costs of $107 million from 1 January 2015.
