Climate Commission picks it

The Government’s proposals for an agricultural emissions scheme have largely followed the independent Climate Change Commission’s suggestions. By Joanna Grigg.

In Business22 Minutes

The Government’s proposals for an agricultural emissions scheme have largely followed the independent Climate Change Commission’s suggestions. By Joanna Grigg.

If farmers want a crystal ball on the Government’s decision as to the shape of the proposed emissions scheme, they had best listen to the Climate Change Commission. When it talks, the Government usually listens.

In July, the independent commission suggested a more restricted (simpler) sequestration list for the ag scheme. It said the sequestration approach by He Waka Eke Noa (He Waka) would “likely be expensive, complex, inequitable, and difficult to audit and enforce – without significantly improving emissions reduction outcomes”. It said farmers should look to the Emissions Trading Scheme (ETS) to get recognition for trees.

This pruned sequestration list was duly adopted in the October Government proposal (e.g. exclusion of shelter belts).

The Government also followed the commission’s suggestion to align freshwater goals with sequestration – rewarding riparian plantings but not similar-style plantings away from waterways.

The commission made it clear that pricing policy must not “disproportionately disadvantage or compound historical grievances for Iwi/Maori and must factor in the unique characteristics of Maori collectively owned land and Maori collectives”.

The Government has, once again, adopted this approach, with the proposal to ring-fence sequestration income for Maori and to top it up.

In May 2022 the commission advised on why financial assistance to agriculture might be needed and how it could be done. It said assistance should be given to all farmers, if the Government expects “material financial hardship to be widespread”. They couldn’t come up with any concrete numbers or plans here, as the scheme hadn’t been designed.

The resulting Government proposal was also wishy-washy; an aspirin for a broken leg. It suggests farm support of $55 million to help farmers and growers “navigate requirements around biosecurity, climate, water, and the environment”. This is just consultancy advice, not alleviation of the levy cost. Discretionary relief in case of adverse events was suggested, but would only help a few farms short term.

National MP beats drum

Farmers feel abandoned by the Government on the proposed agricultural pricing scheme, National Party associate agriculture spokesperson Nicola Grigg says.

The Selwyn MP says the two big issues for farmers in her electorate are feeling abandoned after the floods, and the pricing scheme.

Grigg’s speech to Parliament on the agricultural greenhouse gas scheme in October, circulated on social media, has become one of her most-watched speeches, with 26,000 views. In November, she rolled out a social media campaign on the topic to rally submissions from farmers.

She said National leader Christopher Luxon and the party’s primary production spokesman Todd Muller have made it clear that the National Party will support an emissions pricing scheme for agriculture, like for other sectors.

“I’m working closely with the leadership to push for a slow down, to wait until the mitigation technology has arrived, and to include all reasonable on-farm sequestration,” Grigg said.

“The National Party wants a wider sequestration model and the bottom line is we won’t support a model that sees 20% of sheep and beef farms and 5% of dairy impacted.”

Grigg said she opposed methane pricing being set by Ministers, rather than the He Waka proposal of a committee including agricultural representatives.

When asked whether collecting and measuring smaller areas of on-farm sequestration will be difficult, costly and not worth it, Grigg said this is where farmers should submit and put their opinions across.

“What alternatives are there?”

Grigg sits on the Primary Production Committee and fears it is a done deal.

“But the Government bowed to public pressure on Kiwisaver and did a U-turn – the strength of numbers can do it.”

Editor note: Joanna Grigg and Nicola Grigg are related (by marriage) through a shared ancestor John Grigg of Longbeach, Ashburton, who was great-great grandfather of Joanna’s husband David, and Nicola.

Meat industry already using climate drivers

While Government cooks up an agriculture emissions scheme and farmers anticipate a belly ache, the meat industry carries on. The industry already has marketing programmes built around emission reductions. Signals are being sent back to farmers. An example is Silver Fern Farms’ Net Carbon Zero Certified Beef.

In July, a joint venture was announced between MPI and ANZCO Foods, Fonterra, Ngai Tahu Holdings, Ravensdown, Silver Fern Farms (SFF) and Synlait.

It will include funding on-farm mitigation research. This will be run within the Centre for Climate Action on Agricultural Emissions, set up by the Government in 2022. Initial commitments are for $172 million invested over four years by industry and Government to develop and commercialise practical tools and technologies for farmers. It includes $7.75m by industry in year one.

As well as on-farm mitigation research, plants are cutting factory emissions. In July 2021, SFF announced a plan to eliminate coal in its plants by 2030. SFF is co-funding projects, with the Energy Efficiency and Conservation Authority, to halve SFF coal consumption by 2023 and reduce by two-thirds by 2025. In August 2022, SFF officially opened a project in Belfast, Canterbury, to build a high-temperature heat pump. This is expected to significantly reduce coal use at the site.

Alliance Group general manager manufacturing Willie Wiese said they have a goal of ending the use of coal at their plants within 10 years. A high-temperature heat pump has been installed at the Pukeuri plant near Oamaru. It provides about five megawatts of hot water heating, which is nearly 50% of the plant’s requirement. A heat pump has also been installed at the Lorneville plant.

In 2024, an electrode boiler will be commissioned at Lorneville. This will reduce the use of existing coal-fired boilers, saving almost 12,000 tonnes of carbon a year.

The existing main coal-fired boiler at Mataura will be replaced with a high-temperature heat pump system, and a small diesel-boiler used only for peaking. This will save 6400t of carbon each year and significantly improve air quality for local residents, Wiese said.

In a third project, Alliance will capture waste heat from the refrigeration plant at Smithfield to replace coal use for process heat. This will save almost 4000t of carbon a year.

Meat industry weighs in

When a meat industry worth $12 billion submits on proposed greenhouse gas emissions pricing, hopefully the Government will listen.

In November,the Meat Industry Association (MIA) as a collective voice made a submission on the Government proposal. Chief concerns were the single-minded focus on a methane target to set the levy price (not socio-economic aspects) and the possible impact on rural New Zealand, and food prices. A deep-seated fear is haemorrhaging livestock numbers affecting plant viability.

MIA chief executive Sirma Karapeeva said the organisation was keen to look at how a mechanism could be developed to broaden the pricing criteria, and how the sector could contribute to price-setting. There’s a concern that a processor levy, once in, will be here to stay.

“We are deeply concerned about the proposed interim processor-level levy. While it was an option considered as part of the development of the He Waka proposal, it didn’t meet the requirements for equity, effectiveness and practicality.”

The concern is this back-stop will be used as an excuse to slow or delay implementation of a farm-level system.

“We do not consider there to be a genuine incentive to move to a farm-level system,” Karapeeva said.

The MIA also predicted there’d be severe disruption and uncertainty caused by moving from one system to another within a short time.

Alliance Group chief executive David Surveyor said they would be pressing the Government for changes to the proposal.

Job loss, inequity and the fact that the meat industry was already making positive progress on improving its environmental footprint were the key reasons.

“We employ almost 5000 people, the vast majority in rural communities in New Zealand where we are often the largest employer.”

In terms of reducing sequestration options, Surveyor said it was baffling that while the Government’s own modelling showed that the sheep and beef sector was most heavily impacted by a price on emissions, it diminished the value of the one tool many farmers could use to mitigate.

In the October Market report, Silver Fern Farms’ Simon Limmer said Prime Minister Jacinda Ardern signalled she wanted to hear directly from red-meat processors, and SFF will take up this opportunity.

“We do see some positive signals that the consultation period will be a genuine opportunity to reshape some elements of the proposals and Silver Fern Farms will be working hard to secure a better outcome for our farmers.

“Our position through the consultation will be the same as the one we’ve had throughout the He Waka process: Silver Fern Farms supports a fair and equitable farm-level system for emissions pricing and we’ll continue to bring a firmly market-led perspective to the issue. What’s on the table currently is clearly not equitable for sheep and beef farmers, so let’s work together to change that.”

Limmer noted some global headlines heralded He Waka as a positive ‘world-first’ and this did illustrate the role that sensible emissions pricing could play in supporting positive customer sentiment.

“While there’s much more work to do to land a workable farm-level system, the world and our consumers continue to look to New Zealand Inc to lead the way in low emissions food production.”

Climate Commission picks it

The Government’s proposals for an agricultural emissions scheme have largely followed the independent Climate Change Commission’s suggestions. By Joanna Grigg.

In Business22 Minutes

According to Beef + Lamb New Zealand, last year the top three NZ beef export markets were Japan ($349m), United States ($1.3b) and China ($2.1b). The Chinese beef market is significant to NZ, but what do you know or understand about this market?

The Chinese beef market is massive and continually growing. But like most things in China, it is very complex. I do not understand all of what goes on with beef here, but selling NZ venison within China’s high-end food service channels for the past seven years gives me a special market perspective.

Is NZ beef seen as a “premium product” in China? This is the million (actually billion) dollar question. It is tough to find evidence by looking at the market and consumer preferences that NZ beef is seen as a premium product. More likely, NZ beef sits in the middle of the road. It’s not cheap compared to some South American products, but nor is it expensive compared to the top-end brands from Australia or USA. You can see this in supermarkets, restaurants and on wholesale price lists. This position might change in future if there is a big enough market segment to move to grass-fed beef.

You often hear that there’s a long-term Chinese consumer trend to eat more beef, and this is true. This is positive for the entire beef industry worldwide. According to a recently released McKinsey report, there were nine million tonnes of beef consumed in China in 2021, ranking it third behind poultry (25 million tonnes) and pork (67 million tonnes). Furthermore, the report predicts the growth rate of beef (to 2026) to be about 2% a year. So there is plenty of upside within this large and complex market.

There are plenty of high-profile Australian beef brands that dominate the premium end of the market, and since 2017 US beef has been allowed back into the market where it competes in the top end with the Aussie brands. There are many reasons why this is the case, but consistency is important. Consistent product quality is of utmost importance to the end user, and a constant supply or availability is also essential. Inconsistent supply (of all products) is a significant challenge for many food service operations in China.

You often hear about the long-term focus or planning happening in China by Chinese companies. This is a great myth as most Chinese companies only focus on today and don’t worry about tomorrow. Though the Chinese government and some companies plan longer term, most do not. NZ beef is not immune from these challenges. Unfortunately, I have heard of many issues in the past about supplying NZ beef to NZ chefs (who want to use it) in China. Hopefully, this has improved.

It is clear what Chinese consumers of the premium beef market are after:

  • Brand – There are some influential and well-known brands.
  • Breed – Wagyu leads the market, but Angus has its place. The exception to the rule with bread is USDA prime beef. This grading system is well known in China and actually means something to many consumers.
  • Grain-fed beef – just about always clearly sold as a premium over grass-fed.
  • Country of origin is important, but it has become less so in recent years.

NZ beef falls short on just about all of these at the top-end space, especially within restaurants. Finding any NZ beef in many of the top steak houses and/or high-end around China is very difficult. I know many people who have opened restaurants in China and NZ beef (and unfortunately, NZ venison) never seems to be at the top of their list of must-have items.

This is a major challenge, as promoting yourself as a premium product at a retail level is difficult if your products do not sit within any of the top restaurants. Retail and restaurants are linked, as many of these restaurants’ clientele are also looking to cook quality meat at home.

Connecting allows many brands to build and maintain credibility in that premium space. The Australian brands do this very well. Unfortunately, Taste Pure Nature marketing only focuses on retail, which is a long-term strategic mistake.

As a side note, NZ lamb (and some venison) sits on menus within many of the top-end restaurants all over China and it’s fantastic to see.

Dry ageing of beef has only expanded from a couple of years ago, found in a few places in major cities such as Shanghai, Shenzhen and Beijing. Many restaurants now have their own dry-ageing facilities and run their own programmes.

I have yet to see or hear of NZ grass-fed beef dry aged in a restaurant (hopefully, it is happening somewhere in China), but it is often grain-fed beef from the US or Australia. Some grain-fed South American brands/products are doing very well in many restaurants and are also sold as dry-aged finished product.

Another long-term trend across everything in China is consumers moving to locally produced brands or items. I think this started with electronic items and has now spread to food and drink brands.

The Chinese government has been working hard to increase local standards and reputations, and consumers are responding positively to this. In the past, imported food items were always considered superior and premium to locally produced products. This has now changed, and you now see more and more Chinese products on the menus of the top restaurants. Locally produced beef is slightly behind their lamb, seafood and poultry items at the moment, but it is improving.

As the Chinese beef market and consumer demand continue to change, there is a lot of potential and upside for NZ beef. It is going to be challenging because there is a lot of competition, but it has been good to see some of the moves by NZ beef companies here lately. Long may it last.