Economic Trading Sense!

The Government's decison to exclude agriculture from the ETS until technology and trading partners catch up is sensible

The Government has plumped for commonsense rather than economic suicide by deferring the agriculture sector’s entry into the controversial Emission Trading Scheme (ETS).
Farmers and climate change critics have consistently argued for a longer delay and/or for agriculture to be left out altogether – until the necessary technologies are available to reduce on-farm greenhouse gases.
A recent review of the ETS called for a slowdown of its implementation, but left unchanged controversial plans to introduce agriculture into the scheme from 2015. The review panel, chaired by former Finance Minister David Caygill, had recommended that the agricultural gases methane and nitrous oxide be brought into the scheme in 2015, as the current legislation requires.
In the panel’s model, farmers, rather than processors like the meat and dairy companies, would be accountable for those emissions, which make up nearly half the national total. They would get a free allocation of carbon credits covering 95 per cent of their emissions for the first two years, which would fall to 90 per cent over the following three years and by 1.3 per cent a year thereafter.
However, Climate Change Minister Nick Smith has sensibly ruled that agricultural emissions will only be included if “practical technologies are available to enable farmers to reduce their emissions and more progress is made by our trading partners to reduce their emissions”.
Federated Farmers is understandably delighted with the Government’s move. It has always argued that it’s crazy for New Zealand farmers to be hit with the costs of an ETS when they had no way of mitigating these and when other farmers around the world were not being penalised accordingly.
“Farmers are extremely pleased that Minister Smith has reaffirmed a pledge the Government has given to Federated Farmers, that biological emissions will not be included in the ETS if our trading partners do not follow suit,” its vice-president and climate change spokesman, William Rolleston, said.
Meanwhile, critics and environmental doomsayers like the Green Party’s Russel Norman are not so happy. He has even had used recent Reserve Bank forecasts that expect current export commodity prices to remain high as proof that farmers can afford to pay any costs imposed by agriculture’s introduction into an ETS.
“It means that greenhouse-intensive industries like dairy are in a strong position to pay their way. But this Government will continue to give them a handout.”
But Smith has dismissed Norman’s predicable whining by saying the Government’s primary objective with the ETS is to drive investment into more efficient production.
“We are not interested in simply including agriculture in the ETS to impose a cost when there are not practical technologies through which they can reduce emissions, in contrast to a sector like electricity where there are really good opportunities.”
Now there will be the invariable calls from Norman and his ilk of eco-Nazis that New Zealand farmers are getting a free ride, but again this is selective reporting. There is already evidence – which is also noted by Caygill’s Review Panel – that the agriculture sector is reducing its greenhouse gases. Emissions per unit of product from agriculture had fallen by about 1.3 per cent a year over the past 20 years – due to improved management practices, animal genetics, pasture and crop genetics and technological changes.
The Government’s view that it won’t support the introduction of agricultural emissions into the ETS is smart, sensible and economically prudent.

More proof why Lange was wrong

Former PM David Lange and his Finance Minister Roger Douglas believed agriculture was a sunset industry

Just in case any New Zealanders don’t understand why the agriculture sector is so important to our country’s future they should take a quick look at the latest terms of trade figures.

The terms of trade refer to the value of the country’s exports relative to that of its imports.

These show that strong dairy prices and rocketing wool prices helped lift the country’s terms of trade to a 37-year high in the June quarter – up 2.3 per cent in the three month period.  

Export volumes were also at their highest levels since 1990 when the statistics. That means 2.3 per cent more imports could be paid for by a fixed amount of exports than in the March quarter.

The key gains in export prices were dairy up 4.5 per cent; meat up almost 3 per cent; wool up more than 12 per cent.

In fact, wool prices have risen more than 58 per cent in the past year to their best levels since 1989. The annual rise in wool prices is the biggest since the mid-1970s.

It was more than 20 years ago that former Prime Minister David Lange infamously boasted that agriculture was a sunset industry, but these latest figures show that farming is New Zealand’s sunrise.

The latest quarterly terms of trade data coincides with a season in which Fonterra is paying its farmer shareholders a record $8 to $8.10 before retentions for the milk and share of other earnings. Global commodity prices have been soaring on demand and reached a record high in May, based on the ANZ Commodity Price index, which has edged lower in the past two months.

“We have a positive medium-term outlook for the terms of trade and see it remaining high relative to history,” said Philip Borkin, economist at Goldman Sachs. Borkin says there are signs the rural sector is starting to spend and invest more rather than simply paying down debt, which should yield “positive growth multipliers” for the wider economy.

David Lange’s prediction about the demise of agriculture proved about as accurate as his desire to hold on to the top job. While the great orator went on to become a big, fat, quitter – agriculture has continued to prop up New Zealand’s economy.

Figure s show that in 1999, exports from the entire agricultural sector (excluding fisheries) generated $13.1 billion of export revenue or 60 per cent of all NZ’s exports. Fast forward to 2008, and exports from the entire agricultural sector (excluding fisheries) generated $23.4 billion in revenue or 61 per cent of all the country’s exports.

These figures – and the latest terms of trade – show that agriculture really does underpin the New Zealand economy.