Fitch Group expects marginal livestock producers to exit the New Zealand market in the coming years as government greenhouse gas (GHG) emission pricing starts to bite behind the farm gate.
In its outlook for the NZ agriculture sector, Fitch Solutions says that while it expects the livestock and milk production sectors to adapt to planned GHG pricing from 2025, methane reduction targets will be a greater challenge to farms, with rising on-farm costs hitting less profitable farmers harder.
But some farms may benefit from selling carbon credits through emissions trading, as well as the ability to sell meat at a premium to environmentally-conscious consumers.
Fitch notes while NZ will be the first country to introduce compulsory emissions pricing for the agriculture sector, it expects most farms to adapt to emission regulations – outside of methane – without having to reduce livestock numbers.
As a result, Fitch has retained its forecasts out to 2025, with beef production expected to reach 713,270 tonnes and milk production of 24 million tonnes.
Still, with those high levels of production, a hurdle for farmers will be how they measure on-farm emissions.
A 2019 report by the Ministry for Primary Industries (MPI) suggested only 2% of farmers knew what their GHG emissions were.
Farmers, however, could better understand their emissions through the development of a GHG emissions calculator developed under the NZ Agricultural Greenhouse Gas Research Centre (NZAGRC).
That calculator also provides a model to alter farm strategies to measure the effect on emissions and farm profitability.
But Fitch suggests how methane emissions are priced still represents the biggest risk for NZ farms.
“Unlike other GHG emissions, which can be offset to reach net zero, gross methane emissions targets will be the greatest downside risk to NZ livestock and milk production, although this will depend on how the pricing mechanism works,” it said.
According to NZAGRC data, more than 80% of the country’s total methane emissions come from the digestive systems of ruminant animals like cattle and sheep.
Fitch suggests if methane is priced for agricultural producers in the same way as other GHGs from 2025, without the ability to offset these emissions through carbon sequestration, farms “will struggle to reduce emissions without reducing livestock numbers.”
One option to reduce methane emissions is to feed nitrates to beef cattle, an accepted system in Australia where it can also be used to claim carbon credits. Other, longer-term options include deliberate livestock breeding for low emissions and the development of a vaccine.
The Fitch report suggests that while genetic modification could allow low methane emitting cows to become a reality sooner, “it is very unlikely to be permitted in NZ, which doesn’t produce any GM fresh products, including meat, and would likely lead to consumer concerns.”
The NZAGRC is expected to run vaccine development trials this year. This is aimed at stimulating animals to produce antibodies to suppress key methane generating microbes in their rumen.
Unlike the fast-track covid vaccine, this approach is expected to take many years to develop and distribute.