Most industry groups welcomed the Government's announcement today that it will make a livestock tracing scheme compulsory - and pay for it.

Agriculture Minister David Carter said the Government would fund establishment and operation of the National Animal Identification and Tracing (Nait) system.

It will make it compulsory for all cattle and deer farmers to take part.

Meat and Wool New Zealand, the Meat Industry Association, DairyNZ and the Dairy Companies Association of New Zealand (DCANZ) applauded the move, but Federated Farmers, whose members will be stung for the cost of the tags, was lukewarm.

The development of the Nait system and supporting infrastructure requires up to $7 million capital and $8.67m operating expenditure.

The Government will fund the capital costs and cover most of the operational funding for the development period. Continuing annual operating costs of about $6 million will be paid by the Ministry of Agriculture and Forestry (MAF) and by cattle and deer farmers levies.

The main cost to farmers would be Nait-compliant ear tags, costing about $2 or $3 more than farmers were paying now for non-electronic ear tags.

Livestock industries were vitally important to the economy and Nait would help maintain confidence of export markets in the safety and disease-free status of New Zealand's livestock products, while boosting preparedness for disease outbreaks, Mr Carter said.

"Despite concerns about compliance costs, the majority of farmers I have spoken to can see the necessity of having a robust and internationally credible traceability scheme."

Mr Carter said Nait needed to be compulsory for all cattle and deer farmers because complete records of individual animal movements were needed to ensure effective biosecurity responses.

"It is what our trading partners are increasingly demanding from us."

The aim is for the scheme to be compulsory for cattle farmers from October 2011 and for deer farmers a year later.

Treasury estimates benefits of around $38m a year.

Meat and Wool New Zealand chairman Mike Petersen said the project was now at the stage where New Zealand could finally move ahead with some certainty to implement what would be a cost effective and robust cattle traceability system to ensure continued access to world markets.

His group and the Meat Industry Association believed Nait would help maintain the confidence of New Zealand's meat products in export markets.

Said DairyNZ chairman John Luxton, "Given the importance of the dairy industry to the New Zealand economy, it is vital that we have the best biosecurity protection and response in the world. This includes being able to rapidly and effectively manage and contain any animal health outbreak to minimise the negative economic impacts on farmers and the industry."

DCANZ chairman Malcolm Bailey said consumers wanted to know their food was safe.

"The dairy industry can trace back when, how and where a product is produced, but it hasn't been able to pin it to a particular cow, and consumers want to know that now. A comprehensive identification and traceability system will enable us to do this," he said.

Federated Farmers said the final business case document failed to provide sufficient confidence that real on-farm value would be generated as a result of Nait.

It said biosecurity claims were an illusion.

"If the Government truly believes in a biosecurity basis to Nait, then the Government must disclose to New Zealand's hard-pressed sheep farmers that it intends to enrol all cloven hoof animals into the Nait scheme and when.

"If it does not, it confirms the biosecurity basis to Nait is without merit."

Federated Farmers said Nait's application must apply to wherever target livestock was kept and this must include lifestyle blocks/small holdings and in urban centres, which would place an additional compliance burden onto local authorities.

Right now no market was demanding such a scheme.

The organisation said it didn't think the system should be compulsorily introduced now.

"Instead, a tracing scheme should be a voluntary, market-led system with price signals from the processors to drive stock enrolment.