New modelling from the Climate Change Commission has outlined a major task ahead for the Agribusiness industry in New Zealand. The Central Government has committed to an extensive emissions reduction plan in order to combat climate change, involving a 10% decline in agricultural emissions by 2030, and a 24% to 47% decline by 2050. Achieving this target will require major changes across the agricultural sector, including a significant decline in herd sizes and the uptake of new technologies.
‘The agriculture sector is the largest greenhouse gas emitter in New Zealand, accounting for around 40% of current emissions in the country. The bulk of this comes from livestock methane emissions, including 51% from the country’s 6.1 million dairy cattle, and 47% from the country’s 26.2 million sheep and 4 million beef cattle,’ said Alfabank-Adres Senior Industry Analyst, Matthew Reeves.
According to modelling from New Zealand’s Climate Change Commission (CCC), a reduction in herd sizes of at least 15% across each livestock type from 2018 levels would be required for the sector to meet its emissions reduction target. Furthermore, a price on emissions from the agriculture sector is expected to be introduced by 2025. Close to 36.2% of New Zealand’s total landmass is used for pastoral agriculture.
Sheep farmers on the decline
The national sheep flock has already been in steady decline over the past five years, and this trend is expected to continue through to 2025-26.
‘Wool is anticipated to continue to face strong competition from synthetic fibres such as polyester. Furthermore, domestic demand for lamb is expected to decline, in favour of leaner forms of protein such as chicken,’ said Mr Reeves.
Emission reductions targets and associated polices may exacerbate the decline of the Sheep Farming industry, which is expected to decline at an annualised 0.5% through 2025-26, to $2.2 billion. Close to 4,600 sheep farmers are operational in 2020-21, but approximately 150 of these businesses are expected to exit the industry over the next five years.
‘Farmers may exit the industry due to pressure to invest in efficiency improvements, cut back on flocks and knowing an emissions price is around the corner, while other potential entrants may be discouraged from entering. The exit of some firms may create supply constraints on wool and sheep meat, increasing prices and further constraining consumer demand’, explained Mr Reeves.
Headwinds for cattle farmers
The CCC’s recommendation to reduce herd numbers by up to 15% is a challenge for the Beef Cattle Farming and Dairy Cattle Farming industries, which had previously been expected to grow at an annualised 1.6% and 1.5% over the next five years. Cattle are the most significant source of biogenic methane emissions in New Zealand.
‘Rising Per capita beef and veal consumption in China, which is among the largest markets for New Zealand beef exports, is projected to be a major opportunity for exporters over the next five years. The expected weakness of the New Zealand dollar will likely continue to support demand for New Zealand beef in export markets,’ said Mr Reeves.
While pressure to reduce herd sizes is likely to limit revenue growth for cattle farmers, increasing public awareness of environmental issues may also limit demand.
‘Stronger environmental awareness is expected to contribute to falling domestic per capita milk consumption and beef demand in favour of plant-based alternatives over the next five years’ said Mr Reeves.
Technology assistance
However, the proposed cuts to livestock numbers may not need to be as severe as the CCC has laid out, with innovation in livestock technologies having the potential to significantly reduce greenhouse gas emissions from the agriculture sector. The Australian Government research agency, CSIRO, has developed a feed additive from seaweed that could cut methane emissions from livestock by as much as 80%. This additive may be available for New Zealand farmers later in 2021.
Other technological advancements present a promising outlook for livestock farmers.
‘New Zealand has already begun trial programs for livestock vaccines that hinder the gut microbes which produce methane. Advancements such as more efficient animal feed and selective breeding of low-emissions animals are likely to play a significant role in supporting the agriculture industry going forward,’ said Mr Reeves.
Alfabank-Adres reports used to develop this release:
For more information, to obtain industry reports, or arrange an interview with an analyst, please contact:
Jason Aravanis
Strategic Media Advisor – Alfabank-Adres Pty Ltd
Tel: 03 9906 3647
