Bird flu presents lots of uncertainty for both animals and humans

My knowledge about bird flu was very little until I received a request to find someone who could assess the risks within a New Zealand context, including a suggestion that I might, if necessary, self-nominate.

 I could not identify anyone who would want to stick their head up on this one, so I decided to go on a journey of self-exploration. Here, I share what I learned.

Bird flu is the term for a large family of viruses, with avian influenza being the more formal name. These viruses have been around since at least the 1880s, but my bet is they have been around since birds evolved. In the last 30 years, a particular category of bird flu, called H5N1, has come to human attention.

H5N1 viruses are always evolving through ongoing mutations and we now have variants that can transfer between both bird species and many animal species.  The mammal species include seals, sea lions, cats, foxes and cattle. In all likelihood they can transmit and multiply in other species.

Different viruses also have the ability to swap DNA, referred to as reassortment, something that I very loosely refer to as ‘viral sex’. This is how they can take evolutionary jumps. For example, type A viruses, which include both bird flu and some human flu viruses, are sufficiently closely related for this to occur  if they infect the same person or animal at approximately the same time.

Farm forestry options in a world of imponderables

In early April I spoke to the New Zealand Farm Forestry Conference in Napier about farm forestry options as I saw them.  Most of the farmers I was talking to have had many years of experience in farm forestry, so I was certainly not going to tell them how to grow trees. Rather, I explored how to find a pathway through some of the challenging and at times imponderable issues that farm foresters currently face.

Many of my forestry presentations have focused on flaws in the Emission Trading Scheme (ETS). This presentation was different. I simply took the rules as they are and looked at how farm foresters could best respond in their own interests, be they economic interests or broader issues coming from the heart.

My starting point was to briefly look at the journey New Zealand’s production forestry has taken in recent decades. I used three graphs published in November 2023 in a USDA GAIM Report, where GAIN stands for Global Agricultural Information Network. GAIN reports are a great source of current and historical facts with not political messaging.

The first graph below demonstrates two key points. The lower dark-coloured area shows how New Zealand production forests were sold off in the 1990s from public to private ownership. The upper light blue area demonstrates the big uptake in forest planting in the 1990s.

The second graph demonstrates that processed-wood volumes have bounced around but there has been no overall growth in recent years. In contrast, the log trade has grown from almost nothing thirty years ago, reaching a maximum in 2023. What the graph does not show is that export volumes are declining this year.  This is not because there is less timber to be harvested, but because decreasing returns and increasing costs mean that the economics of harvesting no longer stack up on land that is steep or distant from ports.

The third graph demonstrates the wall of wood aged 26 to 30 years waiting to be harvested from the big plantings in the 1990s. if it were not for economic issues that threaten harvest operations, the next five years would see more exports than ever before.

I then observed to my audience that timber is where we are more dependent on China than for any other export product, with almost 90 percent of log exports going there. I also observed that China now has less need for our timber than in the past. This is in part because China’s big infrastructure years are now behind us. Our logs are largely used for concrete formwork rather than products with higher value-add.

New Zealand is now the only country that exports significant volumes of softwood logs to China. Countries like Russia now only export lumber, not logs. Also, China is becoming increasingly self-sufficient in timber, with big eucalyptus plantings in the south of China. However, China’s timber markets are obscure and it is hard to confidently take an overall positive or negative stance about the future.

I then looked at the economics of sheep and beef farming relative to various farm-forestry options.

There is no doubt that most sheep and beef farmers are doing it tough right now. Profits in the last ten years have typically been in the range of one to two percent return on capital and slipping below that in the last three years. Right now, many farmers are cash-flow negative, with land values also dropping precipitously.

This also means that many farmers lack cash right now to convert some of the rougher country to trees.

When preparing the talk to farm foresters, I ran lots of spreadsheet models of net present values and internal rates of return for various production forestry scenarios.  The big message was that using prices and costs from two to five years ago told a story of nice returns for radiata pine. But that story now belongs to history.  Looking forward, the big message relating to production returns is lots of uncertainty and high economic risk.

This aligns with the current attitude of the big forestry companies.  Whereas until about 18 months ago there was a mad dash to buy land for its potential timber value, that interest has disappeared.  Almost no-one is interested in buying land for production timber by itself.

I then looked at what happens if land is developed out of pasture for new radiata pine production based on harvesting at 25-30 years and at the same time earning carbon credits through to 16 years under the Emission Trading Scheme (ETS)) averaging regime.

I used a conservative price of $60 per tonne of carbon (NZU) whereas the minimum prices for which the Government currently auctions carbon is $64 this year, with this price having been officially set to rise in each of the coming years.

In doing these calculations, I used the official look-up tables for radiata pine growth in different parts of New Zealand. These tables are used for assessing carbon credits for all forests of less than 100 ha and are generally considered to be conservative. Forests of more than 100 hectares are measured on actual growth.

The big message here was that carbon credits are the business to be in if converting pasture to trees. They can rapidly turn a likely unprofitable timber-production business into a profitable dual business.  It did not matter what scenario I looked at, as long I used a carbon price of $60 then the internal return was acceptable, and in many cases much more than acceptable. In a typical example, it raised the IRR from around 2% to about 9% even with these low carbon prices and an inbuilt land value. It also brought the payback period including land value as a cost back to around ten years or slightly less.

These projected returns raise questions as to why the big investment companies are not doing this right now. The most important reason is that confidence has been knocked around so much over the last two years, with Governments changing the regulatory rules of the game multiple times, that commercial investors lack confidence that the rules won’t be changed again. Forestry is a long game.

I then looked at growing so-called permanent forests, where new forests are registered in the permanent scheme and then not harvested for at least 50 years. I compared this to two cycles of production timber harvested at 25 and 50 years combined with carbon credits under the averaging scheme limited to the first 16 years.

The results showed that both systems were profitable but the economics of the permanent scheme were superior under almost all realistic scenarios that I could envisage.   Of course, pine forests can grow for much more than fifty years.  There are radiata pines in the Wellington Botanic Gardens that are more than 160 years old. They are believed to be the first radiata pines ever brought to New Zealand

Some farm foresters are not keen on the idea of non-harvested pine forests. The reasons are generally unrelated to economics. Also, some farm foresters, who have been committed to both production and environmental forests for much of their lives, are suspicious of the whole concept of carbon farming.

Subsequent discussions went on well into the night, as we not only talked about radiata pines but also discussed eucalypts, redwoods and poplars. Within the farm forestry association there are groups of farm foresters strongly supportive of each of these other introduced species and with sound reasons developed from experience.

My own perspective is that all of these other species are underutilised within the New Zealand forestry landscape. I plan to say more about them on the coming months, and what we need to do about this.

There is also the issue of indigenous species and the role they can play. I had long discussions about this with both nursery providers and farm foresters, including the monumental issue of establishment costs. Many of the farm foresters are absolutely committed to using indigenous species, particularly for riparian plantings, but the cost of establishing indigenous woodlots at scale is so much more than for introduced species.  Also, the introduced animal-pest species absolutely love indigenous trees.  Introduced species are much more pest resistant.

The biggest message from all of this is that carbon credits lie at the heart of forestry economics. But it is not a simple story.

Synlait cannot survive without major asset sales plus major new equity

Synlait’s announcements to the NZX on 2 April 2024 make it clear that it is battling for survival. Notes to the half-yearly accounts confirm that there are big doubts as to whether it will be able to continue as a going concern beyond the end of this year.

Potentially, the final crash could occur even earlier, with the support of its bankers having been renewed only through to July and highly conditional on new outside funds becoming available.

Can kiwifruit help fill the gap?

• New Zealand has an unbalanced economy and desperately needs more exports. Kiwifruit is one of the few industries with potential to help fill the gap. ***

  New Zealand’s economy is in trouble. It is not just inflation and the cost of living. It is something much more fundamental.

  New Zealand has for a long time imported more than it exports. MPI data show that 80 percent of the exports come from food and fibre industries. There is no easy solution to the problem of too many imports and too few exports.

  We also have a problem that New Zealand is running big deficits on international services payments. This means that the income we receive from tourists, overseas students and interest payments from overseas, is considerably less than what we currently pay out for international services.  The big-ticket service expenditure items are our own international holidays, plus interest and dividend payments to overseas investors for all those previous investments they have made.

  The overall foreign-exchange balance on trade in the combined categories of goods and services is called the current-account balance. If we earn more than what we spend then there is a surplus. If we earn less than what we earn there is a current-account deficit.

  In New Zealand, we have tended to run current-account deficits for many years. However, in the post-COVID world those deficits have increased greatly, with the ratio of current-account deficit to national GDP now higher than any other country in the OECD.

  In an open economy, any current-account deficit has to be balanced by an equal inflow of overseas capital. For many years we achieved this by encouraging overseas investors to send their funds to New Zealand. To a large extent, that was to buy our manufacturing companies, develop our tourist industries, buy our retirement villages and also buy forests. We also encouraged foreigners to fund internal Government deficits by the purchase of Treasury bonds.

  The problem right now is that the current account-deficits have become much bigger in the last four years, and are currently bouncing around from about 25 billion to over 30 billion per annum. Can we continue to suck in more and more capital to balance those deficits?  How much of New Zealand’s future productive capacity will we ourselves own?

  The answer is that something has to give.  And that is why New Zealand’s medium and long-term future is now grim. We have got ourselves into a pickle for which there is no painless answer.

  Speaking in general terms, we have to export more and import less, but that is easier said than done. My own judgment is that in the medium term our New Zealand dollar must fall in value. That will make imports more expensive and exports more valuable.

  As to when the dollar might fall, that is harder to estimate. Ironically, it will come when foreign investors get scared that it is going to happen. Then, by their actions of declining to invest in New Zealand, they will collectively make it happen.  It might be in six months or a year, or perhaps in two years. It may even take longer, but it will happen.

  Now, I come to the issue of how kiwifruit enters into the story. The reason is that kiwifruit is one of the few export categories with significant potential to increase in scale. A focus on increased exports is the only way we can reduce the pain that lies ahead.

  Right now, the 2024 kiwifruit harvest season is just beginning. In my household, the fruit bowl contains some of the new Zespri RubyRed variety.  The flavour is good if the fruit is eaten at the right stage of softness. This is the third year of limited RubyRed sales, but at this stage they are less than one percent of total kiwifruit volume.

  Within days, the SunGold kiwifruit should be in the local market with exports already under way. Then will come the new season Zespri Green.

  The last two seasons have been very difficult for Zespri, which, with the exception of Australian destinations, has a global monopoly licence to export all New Zealand kiwifruit.  In 2022 it was serious post-harvest quality issues, which led to fruit of unacceptable quality arriving in export markets. Then, the 2023 season was disrupted by a series of storms including Gabrielle just before and during harvest.

  However, the future in coming years is promising. Zespri expects New Zealand production of kiwifruit to increase 50 percent by 2028. China has become the biggest growth market with 26 percent of sales being made there in the June 2023 year. This is likely to increase further. Japan is the second biggest market. Then comes the EU, Korea and the USA.

  Most of the growth will be in the SunGold variety, but RubyRed could become increasingly important once Zespri develops experience in the logistics and storage requirements. This is because RubyRed requires different post-harvest management than either SunGold or green kiwifruit. There is more to learn.

  The production of the less profitable green varieties will further decrease as existing growers seek licences to convert across to SunGold.

  The most challenging issue for Zespri to manage is provision of Sungold licences for Northern Hemisphere countries. This is needed to get a 12-month supply of Zespri product. This is essential to maintain continuity of shelf space in supermarkets and avoid the need to crank-up consumer marketing each year, with consumers having become used to not eating kiwifruit for about five months.

  There is another key reason why continuous market supply of SunGold is essential. Greece and possibly other countries now have their own varieties of gold kiwifruit. Hence, a lack of SunGold from New Zealand in the northern autumn and winter creates space that others will start to fill.

  Zespri has already sold nearly 5000 hectares of grower licences in France, Italy, Japan and Korea for growers there to produce SunGold, which Zespri will then market under the Zespri brand. Within a few years this will produce about 48 million trays of SunGold per annum but more will be needed.

  The most controversial issue is what to do in China. Back in 2021, Zespri sought approval from New Zealand growers for Sungold kiwifruit licences to be sold to approved Chinese growers but just failed to get the necessary 75 percent support. That failure was a great pity.

  Given that China is the largest market for SunGold, there is a need for off-season production in that country. This is much more efficient than having to transport expensive product from Europe.

  The problem is that China apparently already has over 8000 hectares of SunGold kiwifruit vines. However, the growers have no licences for this variety, given that Zespri holds the international plant variety rights.  That means the growers currently have no legal right to grow or market the fruit.

  The first challenge is that this has to be dealt with in the civil courts and not the criminal courts. So, it is not up to the Chinese Government to prosecute these farmers, some of whom have very large-scale operations, probably bigger than those of any New Zealand grower. There are also some thousands of other growers with very small operations. It is up to Zespri to take the court cases across China.

  Zespri is in the process of litigation, but even if Zespri wins, and it probably will, it does not have the resources to ensure follow-up across China. It would be much more feasible if Zespri had Chinese partners to keep non-licensed competitors of scale at bay.

  Rumour has it that Zespri will soon go again to its growers to obtain support for a China operation that should be a win-win for both sides, with the big Chinese growers already having the capacity to grow quality fruit and manage associated logistics.

  If New Zealand fails to develop a local Chinese industry in partnership with the locals, then China always has the option of breeding its own gold kiwifruit from the native varieties that are already there. I am a little surprised this has not already happened. Perhaps it is happening but away from the glare of publicity. One thing for sure is that China has all of the necessary breeding expertise to achieve this, just as New Zealand did.

  Of course, kiwifruit alone is not going to solve the economic problems that New Zealand faces. Even if the kiwifruit industry doubled its export earnings, these earnings would only be 20 percent of the dairy-industry export earnings. And those additional earnings would cover less than 10 percent of the current-account deficits we have been running in the most recent years. But we have to start somewhere.

  Coming back to those greater problems, and with the New Zealand population growing rapidly at the highest rate in the OECD, there has to be a much greater focus on exports. What are some other export industries for which New Zealand can claim a comparative advantage and which have capacity to grow here in New Zealand?  It is going to be a huge challenge.

The A2 milk journey is just beginning

I have been involved with the A2 milk journey since 2004 when I first started writing about A1 and A2 beta-casein. Then in 2007 I wrote the book ‘Devil in the Milk’ about A1 and A2 beta-casein and the associated milk politics. That caused quite some controversy. An American edition followed in 2009, then a New Zealand update was published in 2010, and then in 2018 there was a Russian language edition. There were also requests more recently for an edition in other languages, but I turned those down because I knew that a totally new version was required to bring things up to date.

I had planned for that to be written in 2023, but my own health issues got in the way and it is still sitting on the back burner. Time will tell.

In the meantime, my recent article on Synlait and its problems, including the disagreements between Synlait and The a2 Milk Company, has led to email correspondence with readers asking: what is happening within the overarching A2 milk category? It seems to have gone quiet, they say.

Yes, it has gone relatively quiet, but it is far from dead. The supermarket where my family buys milk sells three brands of A2 milk, sourced from three different suppliers, these being Fonterra, Lewis Road and Fresha Valley. There is also a broad range of micro brands at regional level. There are at least three brands of A2 infant formula sold in New Zealand, and there is A2 ice cream from Appleby in both my supermarket and in my fridge.

Where does Synlait’s future lie?

For much of the last 20 years, Synlait was an entrepreneurial player in the New Zealand dairy industry, with a strong focus on growth. For a long time, Synlait seemed to be doing everything right.

Alas, after remarkable growth through to 2019, the wheels have progressively fallen off over the last four years. Synlait now faces an existential threat. Where did things go wrong and where does the path now lie?

Methane’s path to the future

Taxing methane is not the answer. But we cannot walk away from the need to reduce methane-intensity in pastoral products.

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In recent articles,  I have attempted to explain some of the global warming complexities of methane. I did that in the hope that the ongoing debate might at least have elements of genuine communication and debate, rather than the two-way throwing of verbal missiles. In this article I discuss a path to the future.

I have also recently begun the process, together with academic colleagues, of writing about global pastoral systems from a transdisciplinary perspective, recognising that no single scientific discipline can hope to answer the big questions that span food production, the environment, climate change, economics and more than a billion livelihoods across the world. Our work there is ongoing.

That work has led me back to the idea of a ‘wicked problem’ which by definition has no easy answer.  With wicked problems, if people think there are easy answers, then they don’t understand the problem. An ‘easy-answers’ perspective leads quickly to verbal missiles, often personalised, where the other side is assumed to comprise ignorant people.

In moving forward with this article, I need to lay out the specific wicked problem that we are dealing with here in New Zealand.

Finding firm ground for the methane debate

In my recent article on methane, criticisms that I made of the proposed GWP*metric, pronounced ‘GWP-star’, stirred up responses from some of my agricultural friends and colleagues. Many farmers and also important farmer organisations would like to see GWP*used as the methane accounting metric. I received some long emails setting out where they thought I had gone wrong.

My response here is first to emphasise a point I have made many times: a prosperous agriculture is fundamental to new Zealand’s economic future. Primary industries are what pays for the majority of our imports. So, we have to get things right.

My second point is to acknowledge that there are sound arguments why the concept of carbon dioxide equivalence (CO2e), at least as currently used with the metric GWP100, is seriously flawed. But it is important to focus on proposals that will stand widespread scrutiny, and not live in an echo chamber.

The key argument put forward for GWP* to replace the widely used GWP100 (without the star), is that it accounts more accurately for the warming caused by methane. But the answer is not quite as straight forward as many of my friends think.

How should methane emissions be calculated?

In 2006, I wrote a paper that was published in the journal ‘Primary Industry Management’ titled “Agriculture’s Greenhouse Gases: how should they be calculated”. Eighteen years later I am returning to that topic.

In the intervening years both I and others have been on a learning curve as to the science. But the answers depend not only on the science. This is because greenhouse gas policies also depend on value judgements.

When it comes to value judgments, there is genuine scope for differences of opinion, with no perspective being fundamentally right or wrong.

The important value judgement relating to methane emissions is the time horizon over which comparisons should be made when comparing short-lived and long-lived gases.  Methane is the key short-lived gas and carbon dioxide is the key long-lived gas, but with nitrous oxide also important.

Here in New Zealand, we are regularly told that agriculture creates half of the greenhouse gases that the country produces. It is unusual for an important caveat to be added pointing out that this is based on a value judgement of a 100-year time horizon.

This caveat is important because we would get a totally different answer if we compared methane and carbon dioxide based on their heating effects over 500 years rather than just 100 years. This is because for the relatively short-lived methane, well over 99 percent of the warming effects are captured within a time horizon of 100 years. However, the currently accepted science in relation to carbon dioxide is that only about one quarter of the warming effects of carbon dioxide emissions occur within this 100-year timeframe.

Carbon farming needs long-term rules

I wrote recently about the need for big decisions by Government to sort out the rules for carbon farming. In that context, I was more than a little interested to see what the Coalition Agreement would come up with.

The answer is that it only needed one sentence to set the cat among the pigeons, so to speak. That sentence, actually a dot point initiated by NZ First but agreed to by all three coalition partners in the overall agreement, was to “Stop the current review of the ETS system to restore confidence and certainty to the carbon trading market”.

The mainstream media has yet to pick up on the significance of what has been agreed. I am also unsure whether the Coalition Government itself understands the implications.

First, what was the purpose of this review that is now to stop?