The primary industry climate action partnership – He Waka Eke Noa – has proposed options for pricing greenhouse gas emissions in farming. By Lynda Gray.

He Waka Eke Noa was released in November last year, a 29-page discussion document detailing two proposed pricing options for greenhouse gas emissions: the Farm-level levy and the Processor-level levy.
The document also explained the ‘backstop’ option if the agricultural sector is included in the Emissions Trading Scheme. This option will come into force if the government doesn’t agree with the pricing proposals put forward by He Waka.

The Options
1. The ‘Backstop’ – Agriculture in the NZ ETS
Emissions calculated at meat, milk and fertiliser processor-level based on the quantity of product supplied by farms, or fertiliser sold to farms.
Cost would be passed on to farmers based on the quantity of product processed/fertiliser bought.
Initially farmers would pay for 5% of emissions, this would increase by one percentage point a year.
Nitrous oxide (N2O) and methane (CH4) would be priced at the same rate per tonne of carbon dioxide equivalent (CO2e).
Only sequestration (carbon removals from vegetation) is eligible for the New Zealand ETS.
Revenue raised will be invested back into the agricultural sector on emission reducing efforts.
Pros/Cons

  • Blunt pricing mechanism
  • Low admin costs: $10 million p.a.
  • Doesn’t recognise the onfarm mitigations and actions to reduce emissions such as riparian plantings.
  • Does not differentiate between CH4 (a short-lived gas) and N2O and carbon CO2 long-lived gases emissions.
  • Only applies to farms who supply directly to processors.

2) Farm-Level levy
Emissions calculated at farm level using farm-specific data. The farm then pays a price for its net emissions.
A split-gas approach to pricing; less for CH4 which is short-lived and more for N2O and CO2 longer-lived gases.
Rewards ‘eligible’ on-farm sequestration which can offset some of the cost of the emissions levy.

Pros/Cons

  • Farm-level calculation of emissions recognizes efficiency and mitigations taken on-farm.
  • Farmers who have taken action – that meets He Waka requirements – to maintain and increase sequestration are rewarded.
  • High admin costs: an estimated $113million a year ($63m to farmers in time spent reporting, $50m for operational costs).

Onfarm sequestration

The farm-level and processor-level hybrid options are a lot more inclusive of vegetation types eligible for on-farm sequestration. This includes permanent indigenous/native vegetation that will not be harvested; cyclical vegetation that is felled and re-established; riparian plantings; indigenous regenerating/planted forests; shelter belts; perennial cropland; non NZ ETS-eligible woodlots/tree lots, and scattered exotics.

The HWEN options would also look at other forms of sequestration such as soil carbon, tussock grasslands when there is sufficient evidence of measurement techniques.
Also, different methods would be used to calculate sequestration according to vegetation type. Farmers would be liable if permanent vegetation categories were cleared, or cyclical vegetation categories were cleared and not replanted if it is cyclical use different methods to calculate emissions according to vegetation type, generally exotic species.

Recap

  • In October 2019, the Government announced the establishment of He Waka Eke Noa, a five-year partnership between the Government, primary sector and Maori to:
  • implement a framework to reduce GHG emissions and build the agriculture sector’s resilience to climate change.
  • incentivise farmers/growers to reduce GHG emissions through an appropriate pricing system.

The name ‘He Waka Eke Noa’ is a Maori proverb that translates to “We are all in this canoe together.”

Timeline and targets

DECEMBER 31, 2021

That 25% of all farms must know their total onfarm GHG emissions.

As of August 31, 2021 57% of farms knew their GHG emissions number. He Waka estimated that 60% of farms would know their GHG number by December 31, 2021.

JANUARY 1, 2022

A total of 25% of NZ farms have a written plan to measure and manage emissions.

As of August 31, 2021 9% of farms had a written plan. He Waka estimates that 23% of farms would have a written plan by January 1, 2022 (He Waka six month progress report, October 2021).

FEBRUARY 2022

Nationwide engagement with farmers and growers on pricing options for GHG emissions discussion document.

DECEMBER 31, 2022

All farms must have a person responsible for documenting total on-farm GHG emissions.

APRIL 2022

Delivery of a report to the government on a recommended pricing system for agricultural emissions, as an alternative to inclusion in the NZ ETS.

JANUARY 1, 2024

A pilot of a farm-level emissions accounting and reporting system across a range of farm systems to be completed.

DECEMBER 31, 2024

All farms to have a written plan to measure and manage their GHG emissions.

JANUARY 1, 2025

All farms are using the accounting and reporting system to report their 2024 emissions.

What’s behind He Waka

The primary industry climate action partnership - He Waka Eke Noa - has proposed options for pricing greenhouse gas emissions in farming. By Lynda Gray.

In Business, Environment15 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.