Charlie Pedersen - Emissions Trading
Released 20 Apr 2008
Address to the Australian Farm Institute - Maroochydore
Introduction
Thank you for the opportunity to address you today on the very complex and vexed question of Emissions Trading and New Zealand agriculture. When I began farming 30 years ago I envisaged that my lifetime focus would be on increasing production and profitability, managing adverse events such as floods and droughts and probably having some concerns about the marketing of the products that my cows, cattle and sheep produce. I never thought that I'd end up trading in emissions from my livestock or having to deal with the myriad of threats from non-food producers that I currently face. I'm sure you're exactly the same.
As food producers we are faced with a huge dilemma. On the one hand we're expected to feed a world population that will increase from around 6 billion to 8.3 billion by the year 2030. In that same period standards of living will rise and developing countries will become more dependent on imports of food from developed nations such as us. For example the United Nations Food and Agricultural Organisation predicts that by 2030, these developing nations will only be able to produce 86% of their cereal needs. That gap has to be filled. At the same time land use is coming under pressure from the subsidised production of biofuels, and the fact there are no vast tracts of land available to develop for food production. I often wonder if the answer to the problem of environmental pressure is to develop systems of producing potatoes on the moon.
This is the executive summary of where the world is at, and now and on top of this, we have this new concept of emissions trading. Another challenge or perhaps, impediment to food production. But whether we like it or not, the New Zealand government has signed up to the Kyoto Protocol and has made a conscious decision to include farm biological emissions in its Emissions Trading Scheme or ETS.
About us as food producers
New Zealand is almost totally dependant in its primary sector for its economic growth. Last year the sector earned $17.2 billion dollars or 47% of our export returns came from agriculture. Around 40% of New Zealanders are employed in the food industry and many of our high valued export manufactured goods are primary sector related which clearly shows how important food production is in New Zealand
In food we export 90% of what we produce, whereas Australia exports about a quarter of what it produces. The average dairy herd size in New Zealand is 337 whereas it's 125 in the UK and 225 in Australia. Our animals are farmed outside throughout the year unlike those in Europe and some in North America.
Our technology which supports our primary sector is world class. So is our science. We're a nation that is renowned for the excellence of our scientific institutes. Other nations have unashamedly bought and copied our technologies and practices. It's fascinating to travel overseas and see an electric fence made by Gallaghers - a home grown business that's a major player internationally. Kiwi's like Aussies are innovative and resourceful by nature and we have never shirked away from hard work and investment into their industries. It's no accident that we have a dairy company like Fonterra, that has become a world leader.
Aside from agriculture, our tourism industry owes much of it value to the way that farmers have preserved the landscape. Australia provides the bulk of our tourists so it must be good.
Where are we
If you were ask me where we are as food producers on Australia's most western island, I would say somewhere between a rock and hard place. I think our government has made a decision in principle on the ETS in the hope that the details will eventually justify their move. This is ‘Hail Mary' or hope and pray policy making.
Going back some years the New Zealand government mooted the idea of a carbon tax. It was a blunt instrument to deal with a complex problem which failed to see the light of day because of that. What we have now is a highly complex and confusing instrument.
New Zealand is proposing to establish an emissions trading scheme that covers all sectors and all gases. Different sectors of the economy will be phased in over a five-year period in recognition of the ability of sectors to reduce emissions arising from their activities.
The ETS is included in a Climate Change Bill which is currently before parliament The Bill provides for a phased approach which saw forestry and land-use change brought into the ETS immediately, liquid fuels which affect transport next year, industrial processing and energy generation from 2010 and agriculture - including methane and nitrous oxide from 1 January 2013. On the face of it, we as food producers get a break, but in actual fact, in 9 months time liquid fuel which covers transportation will be included and this will have an immediate impact on us. The following year energy generation which also impacts hugely on farming will also be included. So we are very quick to remind our government that the deal is by no means as sweet as the spin doctors would paint it. What makes this worse is that 2005 was the baseline year for the allocation of units to the sector which effectively means the scheme is back dated and we will need to account for any development since then come 2013. This just adds to the pressure on us as the costs are already accruing.
So every time I drive my tractor out of the shed or turn on the machines at the dairy shed I'm also trading in emissions. And of course whenever I see my cows performing a natural act of nature the same applies. This certainly beats worrying about the drought and floods and other adverse events that used to concern me in my younger days.
It's no longer ‘acts of god' that worry me - it's 'acts of bureaucrats', some of whom, it seems, have precious little else to do but write rules to impede my business.
It's also important to note that the decision to delay bringing agriculture into the ETS until 2013, was the result of a deal which would see agriculture put $12.5 million of farmers money over the next five years into the Pastoral Greenhouse Gas Research Consortium to try to find a solution to the methane emissions from ruminants.
The other difficulty we as food producers face is public opinion. There is simmering resentment in the public arena against food producers and climate change and there is a perception in New Zealand that we are getting off Scot free. Al Gore, the man who preaches, but fails to practice environmental ideals, produced the documentary, An Inconvenient Truth, and this along with other advocates for climate change has helped sway public opinion. On top of the ETS we are facing real pressures to restrict how we can farm. The environmental zealots have captured the bureaucrats and that's leading to an unpalatable outcome for us.
So what have we been doing - In a word - our best! We put together a detailed, well researched and reasoned submission to the parliamentary select committee that was seeking public input on the Climate Change Bill earlier this year. We have worked with the Climate Change Leaders Forum and Peak Group where I think we have done a lot to keep other stakeholders honest. We have worked collaboratively with other pastoral sector interests to ensure that the system actually works for farmers. We have also made clear our opposition to our government signing the Kyoto Protocol. I acknowledge that you have a different view to us on this, but at the end of the day our loyalties lie with our own producers and that's fine. From our perspective we saw no reason for this move which will impose economic hardship on our food producers for little environmental benefit.
Having said that, and knowing that the government would ignore our request, we asked that it should revise its ETS policies to better reflect those of our trading partners such as Australia. We have also met with officials from Australia because they were keen to learn from some of the obvious mistakes that New Zealand has made.
We asked for a climate change policy that that is practical, cost-effective and allows New Zealand farming to be economically viable and internationally competitive.
We also contended that there was a need for better economic analysis of the costs and benefits of the ETS and pointed to the Garnaut Report which is due to be delivered to your government around September this year. Our Federation wants to get a better understanding of the implications of the ETS because we think it could be as great as the economic reforms of the late 1980's which had a profound effect on the primary sector in New Zealand.
Our view is that the process in New Zealand is rushed and not properly thought through, especially in the light of the importance that agriculture plays in our economy.
What also worries us is the way that rules for the ETS will be written. It seems that our government is going to define the detail by a system of ‘regulations' which means that the detail of the ETS is not up for open debate in our parliament. Rather it's a ‘back door' method of law making with minimal public debate.
Without going into the technical detail of the Bill before our parliament, I would make the observation that the present New Zealand government is taking a very ‘pure, absolute and inflexible' approach to Kyoto that we believe is unnecessary. What's more, they are saying that in the future, if there is no Kyoto Protocol, then the Emissions Trading Scheme will continue on regardless. This would have the effect of our sector being exposed to an international price of carbon, with decreasing free allocation of credits no matter what the rest of the world does. I question the smartness of this move.
One of the fundamental ‘unknowns' about the bill is where exactly the ETS will be transacted. Will it be at on farm or when the produce from the farm arrives at the processing facility This is something the government is still grappling with as it weighs two essential prerogatives: the administrative efficiency for the government of the scheme dealing with 40-odd companies as opposed to 30,000 farmers, and the clarity of price signals to affect behaviour change at the farm-level. The government's decision on point of obligation has an enormous impact on the workability of the ETS for farmers. For farmers to be left facing a cost with no means of reducing their exposure except to reduce production simply isn't smart for a country that relies so heavily on food production to drive the economy. Our preference therefore is that the point of obligation should be at the farm-level, and we are doing what we can to see that this is where the government ends up.
In our view domestic policy should support New Zealand businesses meeting their obligations and not lock us into international rules which disadvantage us, and make it easier for our competitors.
There is a real risk that farming for carbon credits will overtake farming to feed the world. The legislation that is before the New Zealand Parliament must be framed in such a way that it allows for the flexible use of land. Land use efficiency must be maximised to take into account land capability. We believe if adopted around the world, a scheme like New Zealand farmers are facing could not only force up the price of food by a quantum but also see food shortages occur and many more people go more hungry than today.
Some kiwis fail to see what's before them. If, the unthinkable occurred and there was an out-break of foot and mouth disease, a lot more New Zealanders would realize the value of food production to our economy.
Where to from here
As I see it, food producers are having to negotiate an environmental minefield. We are being tested like no other group in the community. Water consumption in towns and cities can rise willy nilly, but when farmers bring out the irrigators, panic seems to set in. We know that most cities in New Zealand significantly exceed the World Health Organisation's per person desirable quota of water use by about three fold, but little is done to change behaviours. The cynic in me would say, there are no votes in taking an equitable approach.
I accept that the ETS has bipartisan support in New Zealand so its probably there to stay. But it's yet another modern day impediment that's being put in the way of producing food sustainably and efficiently. Food producers must be more vigilant world wide to those who want to impose unreasonable controls on those of us who are just trying to do a job and do it well.
Food producers in New Zealand are as keen as anyone to protect the environment and we have a history of doing this. We take climate change seriously and we will do all we can do to mitigate against the adverse impacts of this phenomenon. We will work with our government, but cannot be expected to accept solutions that are impractical and affect our livelihoods to the degree of making New Zealand produced food more expensive than that of our competitors.
Thank you
