New Zealand Celsias

New Zealand needs another 5 million odd lambs at once – and hold the jokes thanks.

Federated Farmers say the national animal population will need to expand by 4.7 million lambs and 88,000 cows to offset the costs imposed by the ETS in its first year.

Basing its calculations on Minister of Agriculture & Forestry annual cost figures for the ETS, the rural lobby group says the estimated profits from such an expansion would be needed cover the $3,900 per dairy farm and $1,475 per sheep and beef farm from 1 July to reach a break-even scenario. MAF have estimated that by 2015, the annual ETS-related costs will be $6,312 for dairy farms and $3,863 for sheep and beef farms.

The situation appears most dire for sheep and beef sector which has struggled for profitability in recent years. Federated Farmers’ president Don Nicolson says that by 2015 ETS costs will require the profit from an extra 12 million lambs nationally  – 53 percent more than the current national herd - to reach the break even point.

"We know from Meat & Wool NZ's Sheep & Beef Mid Season Update, released in February, that the estimated before tax profit for a sheep and beef farmer this season is a mere $39,800.  $1,475 in new costs is almost four percent of that average pre-tax profit. Given the MAF model projects a per-lamb profit of $9.06, it will take the profit from 4.7 million lambs just for us to break even as an industry. That requires a massive 20 percent increase in the number of lambs produced over the year ended September 2009.

"Sheep and beef farmers cannot sustain cost increases like this with new schemes like animal identification for our beef cattle.  We simply don't have much financial freeboard.  I'm alarmed to see from the Minister's own figures that by 2015, the ETS could erode almost 10 percent of our current pre-tax profit.

With good payouts in recent years, the dairy industry is in somewhat of a different situation. However, Nicolson says the seasonally volatility of dairy prices means the ETS becomes a “flat tax on production with business critical implications.”

"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. While next season is looking bright it must not be forgotten that the current season opened with a forecast of $4.55 kg of milksolids...Translated into livestock, a $4.55 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 break even on the ETS at a low payout figure.”

Methane and nitrous oxide emissions from agriculture comprise 47 percent of New Zealand’s total greenhouse gas emissions. It’s thus no surprise that due to the user-pays costs imposed by the ETS on the sector, Federated Farmers has been dead set against the scheme from day one. In this latest appeal to sway public opinion and the Government, Nicolson says that by using MAF’s own calculations – but factoring in estimated payout - there’s “nothing sneaky” about the way the figures are presented.

"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.”

The calculation tables can be viewed here on Federated Farmers’ website.

Image: Flickr - Neil MacKinder