Big farming payouts should be invested in going green - expert

Farmers are being urged to use their upcoming windfall to invest in decarbonisation and making better products. 

Co-op Fonterra's forecast payout for this season is going to be somewhere around $8 per kilogram of milk solids, one of the highest on record. 

Milford Asset Management portfolio manager Frances Sweetman says that's going to put $12 billion into the economy, a "very healthy level of profit".

But this week a landmark new climate report described as a "code red for humanity" by the UN said we're running out of time to cut emissions and stop runaway global warming. Agriculture accounts for nearly half of New Zealand's total emissions, the Ministry for the Environment said in April, and methane is 42 percent of our total emissions - most of it from agriculture. 

Emissions reduction targets for farmers in New Zealand are much lower than for other sectors of the economy, and they're currently exempt from the emissions trading scheme. 

"We have got targets for our transport, for our electricity… but to be fair, we've also got to be able to look at our farming sector," Oxfam executive director Rachael Le Mesurier told The AM Show on Tuesday.

"There are many, many good things happening in our farming sector, but at the moment we've got a real soft target for them." 

Sweetman said many farmers had "done a lot of good work towards decarbonising", but more is needed.

"In these high payout years, this is the time to invest," she said. "Dairy is a big emitter in New Zealand, and it's a big part of the issue that we need to solve."

Around about 40 percent of dairy exports go to China, where demand has been softening, driving prices on the global market down. 

"It surprised forecasters and the market because that global demand environment is still really strong - the global economy is still really strong," said Sweetman. 

"I think there's a couple of factors at play - first with some of the global shipping issues, some buyers have stockpiled, so some of that [previous] demand was a bit false. And also there is some price sensitivity - particularly in China, dairy can still be quite a luxury product."

Frances Sweetman.
Frances Sweetman. Photo credit: The AM Show

China is also growing its domestic production, she said - but this, combined with the climate report, should be seen as an opportunity. 

"Sentiment is shifting in China - not only in dairy, but all food imports - towards more nationalism and more 'buy domestic' sentiment... China has put a huge amount of investment and a huge amount of technology into their dairy sector. It's one of the fastest-growing dairy sectors in the world. 

"How does New Zealand compete in that environment? Not shipping milk powder to China. It is differentiating. How do we do that in New Zealand? We work on our green image. My view is in these high payout years, farmers should be pushing to reduce emissions further. 

"Then of course you have to have to create high-value products on the other side because it's going to cost you a lot more. How do you do it? We need to be smaller, higher-value, better products and cleaner."