Damien O’Connor: Agriculture, emissions, and the tectonic shift in export markets

Damien O’Connor. Photo / Supplied

OPINION

I recently read through a chart that listed the climate commitments made by more than 50 multinational companies in recent years.

A number of them are customers of our biggest exporters.

Nestle aims for 50 per cent reduction of scope 1, 2 and 3 emissions by 2030; Mars has set out to lower emissions across scopes 1, 2 and 3 by 67 per cent by 2050 and has said 38 per cent of its emissions come from agriculture; Tesco wants a 17 per cent drop in scope 3 emissions by 2030; and Danone targets a 47.2 per cent reduction for scopes 1 and 2, and 42 per cent for scope 3 emissions by 2030.

For the uninitiated, “scope” relates to the aspect of the business that produces emissions. Scope 3 emissions’ relates to emissions from the entire value chain, which includes suppliers like farmers and growers.

The list was published by a group encouraging consumers to make sure these companies stick to their commitments and not use them to “window-dress” or “greenwash”.

These two pieces of information should make any farmer, grower or exporter sit up and pay attention.

While there’s broad consensus that climate change is real and its effects are testing our production systems and infrastructure, what is also real is that our customers (and their customers) are focusing on reducing the emissions from farmer suppliers.

This is a tectonic shift in our export markets.

I’ve encountered people in the industry who scoff at this, regarding it as the government and big business putting an onerous task on them. Then there are others who look at this as an opportunity to create value and be ahead of competitors as the markets shift.

Obviously, I’m in the latter camp. I have confidence in our producers because we have a long history of adapting to our markets and understanding our customers.

Our success at adapting and innovating has formed the foundation of our standard of living. The importance of food and fibre to New Zealand was starkly shown during the Covid-19 pandemic when farmers and growers buttered our bread and kept our economy running.

However, in order to keep delivering for Kiwis, our food and fibre sector needs to stay ahead of the curve on climate and listen to the growing market signals. Only then can we maintain export growth.

This year, once again, the sector has hit record export revenue of $56.2 billion at June 30, 2023.

This is a remarkable achievement, given the headwinds of the global economy.

The Situation and Outlook for Primary Industries report is forecasting exports to climb to $62b by 2027. Indeed, exports have grown 47 per cent since 2017, when the Labour-led Government was elected.

In supporting this growth, we’ve signed or upgraded seven free trade agreements (FTAs) since 2017 to open more market opportunities for exporters.

This means that 74 per cent of our exports will be covered by an FTA — up from around 50 per cent six years ago — giving businesses the certainty of international treaties with legally enforceable rules. For example, the Government is going into bat for our dairy farmers against Canada on the issue of our tariff quota access through the Comprehensive and Progressive Trans-Pacific Partnership Agreement (CPTPP).

I acknowledge there are significant challenges. The recently announced 2024 forecast farmgate payout for milk is disappointing for all. Cost pressures on-farm have been the highest in decades following spikes in international fertiliser and fuel prices as a result of Russia’s war on Ukraine and the log jam that the pandemic created on supply chains.

Many farmers will be concerned about margins and this is reflected in a recent survey of farmer confidence.

There’s some welcome news though.

Fertiliser costs are now dropping significantly, with on-farm inflation trending down along with headline inflation easing. Interest rates should follow.

We all know there are lean years in farming and there are good years. What is important is that we have strategic direction. I read a quote that defined strategy as being able to look at distant things as though they’re close and to be able to take a distanced view of close things.

New Zealand’s primary export growth strategy must involve positioning ourselves on sustainability and targeting high-value markets. We have to be able to demonstrate our sustainability credentials to ever more discerning consumers. Their values are driving their purchasing decisions. Our production story must align with those values. “From volume to values”, as many would have heard me say.

Reducing agricultural emissions is a critical part of this in response to the market signals outlined earlier.

We simply cannot put our heads in the sand on this.

With that goal in mind, the Government continues our work with the He Waka Eke Noa farming partnership to develop a sensible pricing and sequestration recognition system for agricultural emissions — and I thank the sector for their efforts so far. The revenue raised through this system will be ring-fenced to drive the product development of tools for farmers to reduce emissions.

The Government already has projects underway in a joint venture called AgriZeroNZ. That partnership was formed last year and has already secured $170 million of investment over the next four years. The partners are Anzco, Fonterra, Rabobank, Ravensdown, Silver Fern Farms, and Synlait and we welcome their vision in tackling climate.

The AgrZeroNZ partnership comes under a larger investment by the Government in Budget 2022 of $338m to help farmers tackle emissions through the Centre for Climate Action on Agricultural Emissions.

It’s an example of the work being done with the sector to meet our changing markets.

It dovetails with a range of initiatives to back our farmers and growers.

Our Sustainable Food and Fibre Futures Fund has now seen $566m co-invested with business across 267 innovative projects. These projects include work to have spray-free apples, reduce nutrient loss to benefit freshwater, breed lower methane livestock, develop robotic asparagus picking, ramp up the medicinal cannabis sector, and scientifically validate regenerative production. Just to name a few.

We’ve also invested over $47m into more than 200 catchment groups across the country.

The work of these farmer and grower-led groups is critical in restoring our rivers, lakes and wetlands and keeping our social licence in an increasingly urbanised New Zealand.

Furthermore, we’re on track to eradicate Mycoplasma bovis, having just announced no known infections and no current investigations either. We are now five years into a 10-year programme that had nearly $900m committed to it in 2018. Cattle productivity and welfare would be badly knocked if the disease were to become endemic and it would have undermined the efficiency of our production systems.

At each step, the Government has worked with, and backed, the sector. We will continue to do so because we understand how important our primary industries are to New Zealand.

There’s another reason that I’m optimistic for our sector — our people. We have a well-educated population. That mean ideas and new technology evolve quickly and can, in turn, be transmitted from farmer to farmer and grower to grower; with a healthy amount of cross pollination in the process.

I spoke to soil science students at Lincoln University recently and was pleased to learn that the agriculture faculty has its highest number of students ever. That’s a very positive sign.

I don’t want to diminish the challenges being felt out there, but I would also encourage people to step back and consider the opportunities we can capture.

New Zealand is well-positioned to supply these high-value markets and to share new technology and knowledge. We’re known as world leaders in food and fibre. In demonstrating our credentials we can aspire to be the best farmers and growers for the world.

● Damien O’ Connor is Minister of Agriculture and Minister for Trade and Export Growth. He also holds the portfolios for Biosecurity, Land Information and Rural Communities.