No-one has yet found an alternative to dairy for New Zealand’s export-led economy
The New Zealand economy is export-led. That is the way it has to be for a small mountainous country in the South Pacific, largely bereft of mineral resources and with minimal manufacturing, but blessed with a temperate maritime climate and lots of rain.
Alas, both history and current realities tell us that New Zealand has limited international competitive advantage in relation to technology-based engineering. That statement will be offensive to some, but the hard reality is that we cannot be considered world-leading in relation to chemical, electrical or mechanical engineering beyond small niche areas. Nor are we internationally competitive in relation to manufacture of pharmaceuticals. And when we do develop new technologies, it is not long before the owners typically set up manufacturing closer to the big international markets, using international equity to finance that move.
The painful reality is that pharmaceuticals, computers, televisions, cars, trucks, fuel and even much of our food comes from overseas. That includes rice, bananas, apricots and most bread-making wheat. Open the pantry door and have a look at the small print as to where most of the tinned food comes from. Most of it comes from Australia, China and Thailand.
To the extent that we have a steel industry, it is overseas-owned by Bluescope, restructured historically from BHP and operating in New Zealand as NZ Steel. This company has been receiving a little over two million free NZU credits each year under the ‘Emissions Intensive and Trade Exposed’ (EITE) support scheme, with this support valued on current carbon pricing at around $130 million per annum. Without this support, NZ Steel would be loss making. On top of this, we typically spend about $800 million per annum on imported steel.
As for aluminium, we currently export aluminium worth about $1.2 billion using approximately $400 million of imported alumina and with the profits also going overseas. The smelter receives free NZU credits currently worth about $100 million per year and it also gets very cheap power. Despite this, the $1.2 billion of aluminium exports appear destined to cease in the coming years.
Another significant non-primary source of exports in the past has been oil, largely coming from offshore Taranaki. That too is currently in major decline, with no prospect of that being reversed.
The ‘big picture’ message from all of this is that something over 80% of our total exports come from primary industries including agriculture, horticulture, timber and fish. This dependence on primary industries has been increasing rather than decreasing. There are no significant investments occurring focused on manufactured exports that will turn this around.
If we dig a little deeper into the primary industries, here are the sector components as reported for 2020 and also forecast for 2025 by MPI in their June 2021 ‘State of Primary Industries’ report.
Table 1. New Zealand’s actual 2020 and predicted 2025 primary industry exports
| Sector | 2020 Actual (June year, $NZ billions) | 2025 Forecast by MPI (June year, $NZ billions) |
| Dairy | 20.1 | 22.0 |
| Meat and wool | 10.7 | 11.2 |
| Forestry | 5.5 | 6.8 |
| Horticulture | 6.5 | 8.0 |
| Seafood | 1.9 | 1.9 |
| Arable | 0.3 | 0.3 |
| Processed food and other | 3.0 | 2.9 |
| TOTAL | 48.0 | 53.1 |
The stand-out figure here is that dairy comprises over 40% of primary-industry exports.
Also notable is that arable exports are minor with no forecast increase. That will come as no surprise to those who understand the implications of a mountainous land, generally low fertility soils, and a maritime climate.
Horticulture is expected to increase, with kiwifruit continuing as the big mover. Subtropical fruit and vegetables, plus temperate apples, will also continue to contribute. The wine industry, which is largely overseas-owned, is not expected to expand greatly.
The expected increase in earnings from forestry is based on an expected increase in harvesting, with this being a short to medium-term consequence of heavy plantings in the early and mid-1990s. However, I am nervous about pricing, with this heavily dependent on Chinese infrastructure projects.
Seafood is heavily resource constrained. Processed foods are constrained by cost competition.
Following the first ‘big-picture message’ earlier in this article about the dominance of primary-sector exports, the follow-up message is that the New Zealand export-led economy would be in huge trouble without the dairy industry. Dairy currently comprises 33% of total exports. There is nothing with potential to replace it.
However, if people think this article is leading towards the notion that dairy must be allowed to continue along its present path, then they are mistaken. The dairy industry will have to change in big ways.
The first key issue where dairy has to further engage is in relation to nitrogen leaching and phosphorus runoff. The second issue relates to greenhouse gases. The third area relates to animal welfare. The fourth relates to staff welfare.
The dairy industry has been working for some time on all of these issues. But much more has to be done. Some of the changes will be revolutionary rather than evolutionary. They will involve new farming systems rather than marginal changes that chip away at the edges.
For the last four years, I have been learning and exploring about the potential to use composting technologies and associated shelters, which we sometimes call ‘mootels’, to transform New Zealand dairy while staying within a pasture-grazing system. The fundamental technology is that if cows ‘piss and poo’ into bedding that is protected from the rain, and if this bedding is then tilled to induce aerobic fermentation, then the bedding heats up, stays dry, and converts over time to compost. If the system is working well then there is no smell and there are very happy cows.
Spanning out from the specific technology, there is a range of pasture-based systems that can be employed. Some farmers are using the shelters mainly in winter including through calving. Others are also using them in summer, particularly on hot days.
The science of nitrogen leaching from urine is well understood, with winter and the second half of autumn the critical times during which every load of urine collected in the bedding reduces leaching.
Cow comfort relates to cows being out of the wind and rain. This flows through to less feed required and also less feed wastage, less mud, and avoidance of pasture pugging. The cows give thanks by producing more milk.
Both I and the people I work with are also confident these systems can considerably reduce nitrous oxide emissions compared to standard New Zealand dairy systems. Nitrous oxide is the key greenhouse gas that often gets forgotten about in public discourse. Work is needed to measure this. I am also working with a team from Canterbury University who are seeking funding for work to reduce methane emissions through use of biofilters within the shelters.
Composting shelter systems don’t come cheap. However, the farmers I am learning alongside are happy with their investments, and I am confident these shelters can pay their way when used efficiently. In contrast, most banks frown as soon as they hear of plans that sound like ‘building a barn’. Some education of banks is needed. These shelters and ‘mootels’ are very different to what most people think of as a ‘barn’.
Recently I completed a project for AGMARDT bringing together what I have learned about these systems over the last four years, and setting out the R&D programmes that are now needed if these systems are to become mainstream. That report is in the public domain and can be obtained by emailing me at kbwoodford@gmail.com
The ‘bottom line’ is that these systems need to become mainstream, but we won’t get there unless they are embedded within formal research, development, extension and education systems.
Posts from Keith Woodford 
Keith, I’ve enjoyed and learned a lot from your blog for several years. Thank you! I believe the traditional dairy industry is in terminal decline. We are on the verge of being able to produce dairy products without the use of animals at scale through precision fermentation techniques. Take a look at a company called Perfect Day that was recently valued at $1.5 billion in a series D round. They are a leader but there are many others. Cell-based meat companies are somewhat further down the road but coming also. The book “Moo’s Law” by Jim Mellon is a good one to read. What are the secondary effects in a world with abundant cheap protein? Land use patterns will change a lot over time too.
Best,
Charlie
Charlie,
Clearly these and related technologies are a threat to the dairy industry. However, all of these technologies require a source of energy, typically sugar cane or something similar, and people often fail to acknowledge this.
I am aware there are important people in Wellington who believe that artificial milk based on cell culture will take over, but once again there will need to be an energy source. It is not as simple as some people think.
Also, it is a big step from producing simple proteins to producing foods that are nutrient dense including the micro as well as macro nutrients.
Pastoral systems are a remarkable way of capturing energy through photosynthesis, converting that into complex high density products, and also returning key nutrients to the soil. in contrast, cropping sequences are highly depletive on NZ’s soils which are inherently low fertility.
But all of that is not meant to be a defence of many of the things that we currently do within pastoral systems in NZ.
Keith
Hi Keith, I’d be keen to support further trials on adding biochar to compost bedding. The previous anecdotal trial failed at the final fence, needing data on the ensuing compost & soil application.
On a different tack… what would happen to our economy if we sold carbon credits internationally. Our soils & biomass stock banking carbon and we take the overseas cash. We sell plenty of other assets to foreign buyers so why not one restocked continuously by the sun.
Hi Trevor,
The challenges with the biochar were that it did not seem to heat as much as the other materials and therefore tended to have lower absorbence capacity. I would be nervous about repeating that exercise with a commercial farmer. It would need to be in a more controlled environment in which the research agency was carrying any costs from performance issues. But I do agree there is more to learn. One of the key research programmes that we need is to learn a lot more about the composting processes.
Keith
Keith
Keith, I agree that things need to change in the way we manage our herd and the implications of animal welfare. Having seen the way they farm in the Netherlands I believe we should be protecting cows from the extreme cold and heat. In Victoria, Australia the temperature ranges from 0 Degrees in winter to 40 Degrees in summer. Surely some protection for the cows from these extremes is going to benefit the cow. And provides the opportunity to collect the urine and faeces and treat this on farm maybe to produce methane gas which can then be used to produce electricity when burnt.
Will the cows be more content and happy? Time will tell.
A major problem for in-vitro fermentation based dairy and meat production is that they need pharmaceutical grade inputs and process control, but the product can only be sold at food prices. Pharma plants are expensive to build and expensive to run.
There is more of a “threat” from plant-based substitutes, which continue to improve both in their resemblance to the real thing, and in cost and scale of production.
In reality the threat is small, because the demand for protein is only going up.
Having said that, NZ needs to counteract the cost of its distance from markets. Going up-market is the obvious strategy, but this requires being seen to be doing the soil conservation, emission reduction, and animal welfare/comfort things that Keith advocates so ably.
I think a key problem, perhaps the key problem, is going to be banks’ understanding and their attitude to financing the necessary changes.