Brian Fallow on the economy

Brian Fallow is the Herald's Economics Editor

Brian Fallow: Dilemma of dairy income or environment

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If we want sector to lift national earnings, we will have to pay the price of more degradation of rivers and water bodies

The commissioner's report on land use change and water pollution shows a clear link between expanding dairy farming and increasing stress on water quality. Photo / File
The commissioner's report on land use change and water pollution shows a clear link between expanding dairy farming and increasing stress on water quality. Photo / File

New Zealanders face a difficult dilemma, the Parliamentary Commissioner for the Environment Jan Wright tells us.

If we want the dairy industry to lift national income we will have to pay the price in terms of increasing degradation of rivers and other water bodies.

The commissioner's report on land use change and water pollution shows a clear link between expanding dairy farming and increasing stress on water quality.

"Even with best practice mitigation, the large-scale conversion of more land to dairy farming will generally result in more degraded fresh water," she concludes.

The story lacks a happy ending. The hoped-for win-win is just not there. We have to choose.

The report does not demonise the dairy sector. Other large-scale land use change in the past has contributed to the problem. The clearing of hilly country for sheep led to erosion which deposited much, if not most, of the phosphorus in waterways.

Sewage from towns and industrial waste have until recently been significant sources of pollution too, and in some cases still are, Wright says.

"But the influx of nitrogen in highly soluble form that has accompanied the dairy boom has joined with the phosphorus to foster unwanted plant growth in much of our fresh water."

And that boom shows no signs of ending.

Modelling of land use change the commission has relied on, which is driven by relative export commodity prices and the availability of suitable land, predicts that dairy conversions will continue apace.

It predicts that in the 12 years to 2020 nearly 400,000 hectares will be converted into dairy farms, compared with nearly 300,000ha in the preceding 12 years.

By 2011, a quarter of the way through that period, conversions were outstripping that forecast.

But isn't the industry responding to concerns about dirty dairying and cleaning up its act, with the fencing of streams, riparian planting, more precise use of urea and - at least until the DCD contamination episode - some use of nitrification inhibitors?

Finance Minister Bill English, speaking at last week's launch of Clive Lind's fascinating book about the origins of Fonterra, Till the Cows Came Home, applauded the progress.

But he pointedly reminded the dairy industry luminaries there that the company's privileged position relied on a social licence which required the ongoing consent of the other party - the people of New Zealand.

The commissioner's report says good management practices such as targeted use of irrigation water and fertiliser, shed effluent management and excluding stock from waterways generally reduce nitrogen runoff by up to 20 per cent.

Large capital-intensive measures like keeping cows on stand-off pads or inside wintering barns, or creating wetlands on low-lying areas, might lift that to 50 per cent but are expensive and are unlikely to be widespread by 2020.

It concludes that the best we can hope for is that existing dairy farms will "hold the line", that is, increase yields per hectare while holding nutrient losses steady.

That still leaves the impact of the large forecast increase in the area devoted to dairy farming. But the economic case for the expansion cannot be airily dismissed.

In the year to June 2013 the dairy industry contributed 19 per cent of New Zealand's exports of goods and services, as much as the meat, forestry, fruit and wine industries combined.

The chronic gap between what we spend and what we earn in our dealings with the rest of the world would be a lot wider without the 68 per cent increase in the volume of dairy exports which has occurred since 2002.

Right now export dairy prices are high by historical standards and production is strong. The increase in the forecast dairy payout for the current season is one of the reasons 2014 is expected to be the economy's strongest since 2007.

But the botulism scare is a reminder of the risks around having too many eggs in one basket.

And while flexibility of land use and responsiveness to market signals are good, we have a history of overdoing it in that respect: witness the damage to hill country when New Zealand lived on the sheep's back, of which the phosphorus loading in waterways is only one consequence.

The commissioner's report comes at a time when public policy on water is undergoing profound change.

It is all well and good for the Government to have targets for increased primary production and exports, when at the same time it requires regional councils to set objectives and limits for freshwater, which "maintain or improve overall water quality" within the region concerned.

It is now in the consultation phases of a process of translating that lofty but vague principle into minimum standards or bottom lines, and a graduated scale of quality above them, in terms of milligrams per litre of this or per cubic metre of that.

The commissioner's report emphasises that the levels of stress on waterways and their capacity to handle more dairying vary from one place to another. It matters whether a river is fast-flowing or slow and meandering, whether it drains into a lake or coastal wetland or straight out to sea and so on.

A recent study of Southland, which has taken up dairying with particular enthusiasm, examined 20 different scenarios for reducing nutrient runoff at farm level and modelled the associated costs and benefits.

Most allowed dairying to continue to expand, albeit at a slower rate, without breaching proposed bottom lines for rivers. Meeting them for estuaries would be more challenging.

It found the most cost-effective scenarios included caps on permitted run-off which varied from farm to farm based on factors like soil type, and which included such mitigation actions as excluding stock from streams, improved nutrient management and, especially, improved productivity per animal.

It noted, however, that those results differ from other New Zealand research which suggests that on-farm nutrient loss reduction of the order of 20 per cent per hectare is achievable at a relatively minimal cost but mitigation costs rise steeply after this point."

But none of this allows us to wriggle out of the uncomfortable position that, as Dr Wright puts it, "in this case New Zealand does face a classic economy versus environment dilemma".

- NZ Herald

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