A peer-reviewed study authored by Massey University scientists has claimed that worst-case scenario costs to society from environmental harm caused by farming could equal the economic benefits of the dairy industry, creating a "zero-sum" situation for the country.
However, the paper, titled NZ Dairy Farming -- Milking Our Environment for All Its Worth, has come under heavy criticism by economics academics approached by the New Zealand Herald today.
The authors of the paper, published over the weekend in the United States journal Environmental Management, argue a virtually uncontrolled intensification in dairying has led to exponential increases in pollution and costs to the community in the form of lost recreation opportunities and clean-up costs.
"These costs, known as externalities, are largely not borne by the industry but rather by society at large and these costs have, in the main, not been addressed and are accruing," said ecologist Dr Mike Joy, who wrote the paper alongside Professor Russel Death and Kyleisha Foote of the university's Institute of Agriculture and Environment.
"This paper describes the initial analysis of the externalities from dairy farming for which data was available"
Their analysis stated that in a worst case scenario, using the limited number of impacts valued, the costs to society were approximately equal to the export revenue and GDP.
"In other words, the industry is a zero-sum gain for New Zealand if the costs are included," Dr Joy said.
The authors reported that the estimated cost of some environmental externalities surpasses the 2012 dairy export revenue of $11.6 billion and almost reached the combined export revenue and dairy's contribution to GDP in 2010 of $5 billion.
In the study's conclusion, they noted that although detailed cost assessments had not been carried out for management techniques aimed at reducing dairy farming impacts, "from the preliminary investigation here, it is likely the cost to clean up effects will be far more than the costs of not polluting in the first place".
"This analysis indicates that it is likely that the environmental externalities from dairy farming may exceed the value of dairy's export revenue and the contribution to GDP (total of 16.6 billion)," the paper stated.
"This is not at present a cost for the dairy industry, but an estimate of the potential external cost to the public of New Zealand from dairy farming -- from having a degraded environment or paying to clean up.
"If the dairy industry is to continue to expand and intensify, accurate reporting of the real costs needs to be used in the evaluation of the true value of this industry."
Dr Joy said a strong message from the study was that avoiding pollution now was far cheaper than trying to clean it up later, "and there is now ample evidence that farmers can make more profit and pollute less when not myopically chasing increased production".
A four-fold increase in milk production had been driven mainly by increasing importation of fertiliser and animal feed, and unfortunately had been mirrored by a "massive" increase in pollution.
It came in the form of excess nutrients into freshwater, incurring large costs to the community in the form of damage to the life supporting capacity of the environment and the eventual economic costs of clean-up.
But Dr Joy said it was "pointless" to clean up waterways while the impacts were still occurring.
"This will only require ongoing implementation of these clean-up techniques," he said.
"On the other hand, many farmers may actually increase their profit by reducing pollution: as they reduce their production, their costs will also decrease with less reliance on outside inputs.
"Farmers can reduce their nutrient losses at a far lower cost than the price to remove nutrients once they reach freshwater.
"This raises questions about who should be paying for pollution -- the public or the polluters."
But academics have questioned the study's methodology and findings.
"The report does a good job in identifying some of the environmental harms from dairying, but, at least on a first reading, does not provide a reliable estimate of the value of those harms," said Dr Eric Crampton, head of research at the New Zealand Institute.
He believed some of the tallied costs used in the calculations -- such as harm a farmer might do to his or her own pasture through soil compaction where stocking rates were too high -- should have never been considered "external" costs, while other costs appeared "over-estimated".
"The high-end estimates of the costs of nitrogen leaching, estimated at over $10 billion, seem to assume we would need to remediate all water in New Zealand to a drinking water standard -- however, very few sites currently exceed nitrogen standards for drinking water."
Dr Crampton also took issue with the upper-bound cost of the second largest cost component factored into the report, national dairy greenhouse gas emissions, which was put at over $3 billion.
"But that figure cannot be relevant for policy without considering relative greenhouse-gas intensity of dairy production in different countries and without considering the alternative uses to which dairy land would be put if it were not in dairying -- and especially where the paper notes that dairy makes up half of New Zealand's agricultural emissions," he said.
"If every dairy cow in New Zealand disappeared, we would see more cows elsewhere and more beef and sheep production here. The net effect on greenhouse gas emissions is not particularly clear.
"Finally, the paper suggests that demand for New Zealand dairy product could be cut in half were New Zealand's agriculture viewed abroad as being less than clean and green.
"But estimated high-end costs of over $500 million should be accompanied by a clearer picture of how much worse things here would need to be before exports were really at risk."
Professor Frank Scrimgeour, director of the Institute for Business Research at Waikato University, slammed the research as "sloppy" and argued its bold claims could not be substantiated.
"The authors do not do any original data collection, estimation or modelling," he said.
"They synthesised existing data without ensuring that measurements are consistent through space or time.
"Foote, Joy and Death are right that there needs to be holistic conversation in New Zealand regarding performance of the dairy industry but papers like this do not enhance the conversation."
University of Waikato professor of agribusiness Jacqueline Rowarth said it was "naive" to expect water quality in waterways could be restored to pristine conditions when it was already safe to drink, and she noted people reading the study needed "to consider alternatives and relativities".
"This sort of research doesn't actually get us anywhere, and that's disappointing."
Responding to the study, Dairy NZ chief executive Tim Mackle said the National Policy Statement for Freshwater Management was having an impact on dairy farming already and will constrain growth.
"These kinds of discussions around costs versus benefits are going on at the community level," he said.
"I don't see much value in academic discussions about 'externalities' because you could argue forever about what's in and what's out."
Federated Farmers' dairy chair Andrew Hoggard claimed a large portion of the study's figures had been built off "assumption after assumption".
"The disappointing aspect is that the motivation was apparently to encourage accurate reporting of real costs and benefits."