2022 will be tumultuous for New Zealand’s primary industries

This year is not going to be just any year for the food and fibre industries. On the prices front, things should go well for most products. However, on the policy front, it is the second year of the three-year political cycle, and that has implications.

This is the year when key implementation decisions must be made on multiple political issues. It is all about setting up the glide path for the next election.

For the food and fibre industries, and this includes carbon farming, these key decisions have potential to determine the path for the next decade. I reckon there is going to be quite some heat, and I am not referring here to the weather.

First of all, the good news.

There is no obvious reason why the current excellent prices for dairy, sheep and beef should not be retained.  The next six months are going to be complex as Omicron works its way across the world, but pastoral agriculture has shown that it can prosper in COVID-dominated times.

The biggest COVID challenge this year for New Zealand at home is going to be having Omicron spread through the community. There is also a high likelihood that China will have an Omicron epidemic this year.

One way or another, I expect that the cows will still get milked in New Zealand despite whatever disruptions are upon us. But how Omicron will affect China is going to be of some importance. I consider it unlikely that the Chinese authorities will be able to keep Omicron at bay the way they have with other variants.  Also, their existing vaccines are unlikely to be particularly effective. It is going to be a challenging year for our most important trading partner.

The food and fibre product with the greatest short-term risk is lumber. Remember, China is the dominant export market for New Zealand’s forestry products and most of that is unprocessed logs. Those logs are primarily used in construction, providing the formwork that holds wet concrete in place.

On the policy front, this is the year when the Government will have to be explicit as to what the long-term nitrogen-leaching rules are going to be. Last year’s requirement to reduce nitrogen applications to no more than 190 kg per hectare will not to be the last that we hear on that front.

When it comes to nitrogen leaching, the science tells us much of what has to be done.  The big answers come from duration-controlled grazing, with cows off-paddock except when they are eating during winter and the second half of autumn. We know how to achieve that in a cow-friendly and economic way using ‘composting mootels’ and ‘composting shelters’.  But a small number of farmers are having to lead the way, with the research, development, extension and education (RDE&E) elements of the industry yet to seriously engage.

Last year, with support from AGMARDT, I brought together in one document what we know and what we need to learn about these farming systems from an RDE&E perspective. Now we need some action.  One of my challenges is to try and bring that about. Progress is not as fast as I had hoped.

Greenhouse gases are another key issue. There is no easy way around this. Given the politics, the greenhouse-gas issue will not go away.

The best way for agriculture to achieve science-based outcomes is for agricultural methane and nitrous oxide to remain outside of the Emission Trading Scheme (ETS). But let there be no doubt, one way or another there is going to be a charging system for agricultural methane and nitrous oxide.

The Government has indicated that it is open to a methane and nitrous oxide charging system whereby all charges are recycled within the industry so as to reward innovations and develop new emission-reduction technologies. That will not be the case if agriculture is inside the ETS. These decisions will have to be made this year, with He Waka Eke Noa playing the leading role on behalf of industry, but with support, albeit grudging, from farmers.

Carbon farming is another issue where big decisions will need to be made both by Government and farmers. There is talk that the Government might restrict who can and who cannot farm for carbon.

The National Party has yet to decide where it sits in relation to the specifics of carbon farming. I remain to be convinced that there is an appropriate level of expertise in any of the political parties, or within government departments.

There is no doubt that carbon farming is currently a more economic land-use than sheep and beef. The first worry is that it is an artificial market controlled by Government and so anything can happen.

Putting restrictions on carbon farming is not in the personal interests of many existing pastoral farmers, despite this apparently being advocated by Beef+Lamb.  It is carbon farming that is driving pastoral land values. Also, there is a lot of land that could be better off in forest. Converting two million hectares of the harder hill country to permanent radiata pine forests would more than balance all of the emissions from pasture-based land uses for the next 80 years.

Once again, I see carbon farming as generating great heat within the community as the year progresses.  I reckon I will be writing a lot more about it this year.  All decisions are going to require trade-offs between competing objectives.

Despite all of these issues and challenges, food and fibre are where New Zealand’s future lies.  Agri-food is the key sector where New Zealand has an international competitive advantage, particularly for pastoral agriculture but also some specific areas of horticulture. The latest figures from MPI are that food and fibre comprise 82.4 percent of physical exports, with this figure increasing over the last ten years.

In particular, New Zealand cannot afford to destroy its pastoral industries, with these alone earning $NZ30 billion of foreign exchange per annum.  But strategies for emission reduction will be needed, and there are ways that this can be achieved.

I am hugely frustrated that most of the urban community, and many of the politicians, do not understand that it is food and fibre exports that provide the overseas funds that allow New Zealand to purchase the fuel, vehicles, machinery, computers, medical equipment and pharmaceuticals that make our lifestyles sustainable.  They simply do not ‘get it’.

Just tonight, I heard for the umpteenth time on television how ‘agriculture has to pay its way’.  The idea was that agriculture has to contract. I could only sigh and shake my head, because there was no point in screaming at the box that food and fibre is how all of New Zealand ‘pays it way’.

In recent weeks, I have written at interest.co.nz and also here about the strategic issues that New Zealand faces. For the last 12-month period to September 2021, New Zealand ran a record deficit on its external current account with the rest of the world of $15.9 billion. This is in part because earnings from export services, largely tourism and the education of foreigners, have crashed. Conversely imports have ballooned to record levels.

This deficit has been financed by capital flows from overseas. At some stage the rest of the world is likely to question the economic sustainability of New Zealand. If that occurs then the exchange rate will crash.

If the exchange rate crashes, then that will be very bad for most New Zealanders. The exception will be for those New Zealanders who produce products for export.

A significant decline in the exchange rate may be what is needed to convince New Zealanders that export industries lie at the heart of our national well-being.