Clarky's Comment

On 15th October MPI released its regular update on the outlook for our primary sector exports. The Situation Outlook for Primary Industries (SOPI) has become an essential service of the now well -functioning Economic Intelligence Unit (EIU) within MPI. At a time when financial markets worldwide are volatile it is comforting to read that the primary sectors are in good shape, with nearly a 12% rise in the year to 30 June 2018 and further growth forecast in the next two years. This matters for all NZ residents because together the primary sectors comprise 77% of New Zealand’s total export receipts.

The fastest growth in export receipts for the 2018 year was horticulture, with increased kiwifruit volumes being the main driver but apples and avocados are also in strong growth mode. Strong dairy prices and increased milk production were the next highest contributors to growth.

The EIU is forecasting steady milk solids production over the next two years, albeit from a declining cow herd. The forecast suggests higher productivity per cow. But how will such increased productivity per cow be achieved? Surely not by more irrigation or fertiliser application given the government’s commitment to rapid progress towards swimmable rivers? Dairy farmers are facing increasing limitations on diffuse nitrogen discharges as well as probable costs from at least a part of their biological greenhouse gas emissions. The good news is that a range of horticulture crop options are emerging as strong contenders for parts of dairy farms. And for some of the hilly sections or dairy runoff, the ETS review should make forestry an attractive option. A more diverse use of parts of a stock farm can only provide financial resilience for any pastoral farming business.

Also coming to its conclusion is the review of the forestry provisions of the ETS, with consultation on the draft proposals now being considered by officials. The key point I’d make is that making the ETS simpler and more attractive for forestry will not, on its own, be enough to get new planting under way at the scale required to make a meaningful impact on NZ’s greenhouse gas emissions profile. The changes made with the introduction of the Overseas Investment Amendment Act on 22nd October will make it much easier to bring in foreign capital for forestry. That is positive. But forestry can only buy us some time. Until emitters, including agriculture, are really motivated to reduce emissions New Zealand will be fighting an uphill battle.