GHG Emissions–the Last Major Agricultural Subsidy in New Zealand

Posted on June 1, 2010 by

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This is part 2 of a 2-part essay series on agriculture and subsidies. Part 1 featured in the May edition of Smacademia, titled ‘New Zealand’s Removal of Agricultural Subsidies in the 1980s’.

In part one of this series, I described the removal of the bulk of New Zealand’s agricultural subsidies in the 1980’s, subsidies which are still pervasive in much of the developed world today. On account of this, New Zealand’s subsidies are now given as around a few percent of the producer surplus equivalent. But is this figure correct? Subsidies come in many forms and calculating accurate figures that can be compared globally is not easy. It is not just cash payments or discounted land rates or tax breaks. A subsidy should include any negative externality created in production – a negative externality being an impact on the wider community whose cost is not borne by the producer responsible. So if we now consider farming, there are often several of these. There may be minor ones, such as bad smells coming across neighbouring properties. Larger ones include water pollution issues, which are becoming a larger issue in New Zealand as farming intensifies creating more silt, manure, urine and fertiliser nutrient run off into neighbouring rivers and lakes. Soil loss or land erosion issues are other examples. But perhaps the largest of all is invisible; agricultural greenhouse gases (GHG’s).

Considering few would have even thought of factories emitting visible smoke into the atmosphere as a subsidy just a few decades back, it is not surprising that to conceive invisible gases from farm animals as a major subsidy is somewhat difficult. But as our population has grown and spread, and become richer, we are consuming greater amounts of meat than ever before. Furthermore, as climate change threatens our wellbeing, we need to look at all sources of emissions and mitigate them where possible. Pricing them correctly can play a major role in this. Agriculture should not be excluded from this, because it is a major source of GHG’s, some 18% (according to the FAO, although other sources suggest much higher), accounting for a larger share than the global transport sector. In New Zealand, the figure is close to 50%. Furthermore, global meat and dairy consumption is expected to roughly double in the first half of this century.

Firstly, a brief description of the two main sources of New Zealand’s agricultural emissions. The largest of these is methane emissions from the stomachs of ruminant animals (about 65%) and the second major part comes from nitrous oxide gases (33%) which are released from the soil. There are methods for mitigating both of these, including changing livestock types and breeds, feeds, more careful application of nitrogen fertilisers, nitrification inhibitors and more; however the science is still rather uncertain.

So how much are these subsidies actually worth? It’s not a simple calculation but here are some rough numbers. For the methane (CH4) emissions, dairy cattle emit 77kg CH4/year, beef cattle – 71kg, a sheep – 11kg and a deer emits 22kg. But these are for methane, so when converted to carbon dioxide equivalent (CO2-e) look much higher (methane is about 23 times more powerful than CO2). For example, one dairy cow emits the equivalent of 1.7 tonnes of CO2. But then factor that up an average 35% more to account for the other nitrogen sources and that would become 2.4 tonnes for one animal, which is more than the carbon footprint of most humans in the developing world. Based on a carbon price of around 12 Euro’s per tonne, this would be 29 euro’s per dairy cow per year and we have around 5.3 million dairy cows in New Zealand (more than New Zealanders), so the total cost for dairy cattle alone would be 154 million euro’s each year. If the full cost of emissions were to be borne by the farmer, then obviously they would be passed on to the consumer further down the line. Looking at the impact on consumers, it may mean an increase in price of 30 (euro) cents per kilo of sheep meat and 15 cents per kilo of beef. Of course it is easily argued that the real price of carbon should and will be much higher than a figure of 12 euro’s.

While the end figures on meat at the supermarket don’t seem so drastic, they would add up, and add a small disincentive to excessive meat consumption. My purpose for writing this was not an attack on meat, and certainly not an attack on New Zealand farming. Indeed, there are positive externalities to farming too, such as providing beautiful scenery and a New Zealand identity; it is a way of life and we would be poorer if it was lost. New Zealand’s farming methods are unique and in many ways more sustainable, for example using all year grazing and without annual tilling of the soil, thus helping to prevent erosion and minimising fuel consumption. No, the point was just to say that it is time we include this subsidy with the many other subsidies provided, and recognise that the atmospheric tip is filling up. In 2015, New Zealand is set to become the first country in the world to include agriculture within an emissions trading scheme, although initially only 10% of the cost will be covered by the farmer, with the other 90% covered by the tax payer. This is because it is an export industry and unless the rest of the world follows (it is argued) our farmers would not be able to compete. Regardless, I believe it is a step in the right direction. We should not require the larger (and poorer) global society to bear the cost of this subsidy to provide unreasonably cheap meat to western consumers.

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