THE N CAP IN TAUPOTHE N CAP IN TAUPOA FARMER PERSPECTIVEA FARMER PERSPECTIVE

Deer Industry ConferenceDeer Industry Conference2525thth May May

Mike Barton.Mike Barton.

CONTENTCONTENT

• An outline of the process leading to An outline of the process leading to capping Nitrogen Emissions from capping Nitrogen Emissions from farms in the Taupo catchmentfarms in the Taupo catchment

• A brief look at the current NZ farming A brief look at the current NZ farming business model and the interface business model and the interface with emissions cappingwith emissions capping

• What about your catchment?What about your catchment?

TAUPO CATCHMENTTAUPO CATCHMENT

THE HISTORY OF THE N CAP THE HISTORY OF THE N CAP FROM A FARMERS FROM A FARMERS PERSPECTIVEPERSPECTIVE • We became aware of the issue in 2000We became aware of the issue in 2000• Incorporated Society formed Taupo Lake Incorporated Society formed Taupo Lake

Care (TLC) to represent farmer interests in Care (TLC) to represent farmer interests in negotiations with EWnegotiations with EW

• Negotiated to balance Lake protection with Negotiated to balance Lake protection with economic viabilityeconomic viability

• Advocate for and participate in researchAdvocate for and participate in research• Represented the majority of catchment Represented the majority of catchment

farmers and Maori incorporations - 105 farmers and Maori incorporations - 105 farmsfarms

NITROGEN LEACHEDNITROGEN LEACHED

• Tussock, Native Forest -Tussock, Native Forest - 3kgs/ha 3kgs/ha• Plantation ForestPlantation Forest 3kgs/ha 3kgs/ha• Sheep Beef and Deer FarmsSheep Beef and Deer Farms 17kgs/ha17kgs/ha• Dairy FarmsDairy Farms 45kgs+/ha45kgs+/ha

• Farming emits 93% of the Manageable Farming emits 93% of the Manageable Nitrogen entering the Lake Nitrogen entering the Lake

• 4 Dairy farms -101 Extensive Sheep, Beef 4 Dairy farms -101 Extensive Sheep, Beef and Deer farmsand Deer farms

A NITROGEN CAP -THE A NITROGEN CAP -THE REALITIESREALITIES

• Is a cap on stock urine Is a cap on stock urine

• Essentially a cap on stocking Essentially a cap on stocking rate/productionrate/production

• A production cap is an income cap A production cap is an income cap under existing commodity regimesunder existing commodity regimes

• To remove 20% of manageable N we To remove 20% of manageable N we needed to covenant 35,000ha.needed to covenant 35,000ha.

CONSENTED FARMERS -CONSENTED FARMERS -

• Applying for a consent that limits our Applying for a consent that limits our production in perpetuity-significant production in perpetuity-significant implications for farming business models and implications for farming business models and property valuesproperty values

• Six farms modeled for Environment Court – Six farms modeled for Environment Court – insolvent in 5-9 yearsinsolvent in 5-9 years

• Length of consent about the length of an Length of consent about the length of an average mortgage or less than one rotation of average mortgage or less than one rotation of trees, but at least we know what we can do trees, but at least we know what we can do for 25 years for 25 years

OUR FARM- THE OUR FARM- THE IMPLICATIONSIMPLICATIONS• Discontinued with breeding cows based on Discontinued with breeding cows based on

gross margin per kg of N leachedgross margin per kg of N leached

• Need to grow young animals as rapidly as Need to grow young animals as rapidly as possible –no 2possible –no 2ndnd wintering wintering

• Spraying or cultivating for pasture renewal Spraying or cultivating for pasture renewal may not be viable/allowable (permanent may not be viable/allowable (permanent pastures?)pastures?)

• Top B+L quintile for beef production - Top B+L quintile for beef production - can’t do any morecan’t do any more

LESSONS TO DATELESSONS TO DATE

• Taupo farmers have had a ‘Clean Streams Taupo farmers have had a ‘Clean Streams Accord’ since 1983 and have consistently Accord’ since 1983 and have consistently won environmental awards yet we still won environmental awards yet we still have a problem!have a problem!

• Environmental impacts will likely define Environmental impacts will likely define production limits for all farmers in the production limits for all farmers in the futurefuture

• We cannot rely solely on science to solve We cannot rely solely on science to solve thisthis

THE CURRENT SHEEP AND THE CURRENT SHEEP AND BEEF FARM BUSINESS MODELBEEF FARM BUSINESS MODEL

• Declining returns for the last 25 years- Declining returns for the last 25 years-

• Profit before tax: B & L NZ Class 6 Profit before tax: B & L NZ Class 6 Marlborough/Canterbury Farmland Marlborough/Canterbury Farmland 1984/5 - $80.92/ha – ROI +ve 3% 1984/5 - $80.92/ha – ROI +ve 3%

2007/8 - $21.36/ha – ROI -ve 0.4% 2007/8 - $21.36/ha – ROI -ve 0.4%

2009/10 - $128.78/ha- ROI +ve 0.3%2009/10 - $128.78/ha- ROI +ve 0.3%

2010/11 - $293.49/ha ROI +ve 1% 2010/11 - $293.49/ha ROI +ve 1%

BEEF FARM BUSINESS BEEF FARM BUSINESS MODELMODEL• My current winter stocking rate is 3.5 My current winter stocking rate is 3.5

cattle/ha. In 1985 - 2 animals/hacattle/ha. In 1985 - 2 animals/ha• Farmers have taken up science Farmers have taken up science

driven production increases to driven production increases to counter static returns and rising counter static returns and rising costs yet look at ROIcosts yet look at ROI

• We have reached the limits of that We have reached the limits of that business model under catchment business model under catchment nutrient capsnutrient caps

DO CONSUMERS PAY A PREMIUM FOR BEEF DO CONSUMERS PAY A PREMIUM FOR BEEF PRODUCED UNDER A CATCHMENT PRODUCED UNDER A CATCHMENT MANAGEMENT PLAN THAT PROTECTS LAKE MANAGEMENT PLAN THAT PROTECTS LAKE

TAUPOTAUPO??

TAUPO BEEF- WHAT IS IT?TAUPO BEEF- WHAT IS IT?

• RADIO FREQUENCY TRACKED FROM RADIO FREQUENCY TRACKED FROM THREE FARMSTHREE FARMS

• GROWN AND FINISHED QUICKLYGROWN AND FINISHED QUICKLY

• CHARLOLAISE/ANGUS CROSSCHARLOLAISE/ANGUS CROSS

• AGED FOR A MINIMUM OF 4 WEEKSAGED FOR A MINIMUM OF 4 WEEKS

• SOLD AT A PREMIUM IN TAUPO SOLD AT A PREMIUM IN TAUPO RESTAURANTS AND BUTCHERYRESTAURANTS AND BUTCHERY

Taupo Beef CertificationTaupo Beef Certification

TAUPO BEEF – THE RESULTSTAUPO BEEF – THE RESULTS

• CONSUMERS HAVE PAID A SIGNIFICANT CONSUMERS HAVE PAID A SIGNIFICANT PREMIUMPREMIUM

• OUTSTANDING FEEDBACK FROM CHEFS OUTSTANDING FEEDBACK FROM CHEFS AND DINNERSAND DINNERS

• DEMAND EXCEEDS OUR ABILITY TO DEMAND EXCEEDS OUR ABILITY TO SUPPLYSUPPLY

• NEED TO BUILD A BUSINESS MODEL THAT NEED TO BUILD A BUSINESS MODEL THAT RETURNS A PREMIUM TO CAPPED RETURNS A PREMIUM TO CAPPED FARMERSFARMERS

FARMING UNDER AN FARMING UNDER AN EMISSIONS CAP – THE EMISSIONS CAP – THE FARMER’S CHALLENGEFARMER’S CHALLENGE• We can farm under emissions capsWe can farm under emissions caps

• Livestock numbers and classes will Livestock numbers and classes will need to be capped to do soneed to be capped to do so

• Do we accept a consequent cap on Do we accept a consequent cap on income or are we willing to invest to income or are we willing to invest to redefine the NZ Agricultural Business redefine the NZ Agricultural Business model?model?

FOOD AND WATER QUALITY- FOOD AND WATER QUALITY- THE CONSUMER’S CHALLENGETHE CONSUMER’S CHALLENGE

• Do you actively seek out food that is Do you actively seek out food that is produced in a manner that protects produced in a manner that protects water quality?water quality?

• Do you know where to source such food?Do you know where to source such food?

• What premium are you prepared to pay What premium are you prepared to pay for that food?for that food?

• Is this the real test of how much you Is this the real test of how much you value water quality?value water quality?

CONCLUSIONSCONCLUSIONS

• As a Nation we cannot continue to have As a Nation we cannot continue to have conversations about protecting water conversations about protecting water quality without having a parallel set of quality without having a parallel set of conversations that redefine the NZ conversations that redefine the NZ Farming Business ModelFarming Business Model

• We cannot continue to occupy the We cannot continue to occupy the agricultural commodity market space agricultural commodity market space and impose emissions caps at the same and impose emissions caps at the same timetime

OPPORTUNITIES FOR THE DEER OPPORTUNITIES FOR THE DEER INDUSTRY INDUSTRY

• Build on your significant brand advantageBuild on your significant brand advantage

• Your target market is concerned about water Your target market is concerned about water quality anywhere in the worldquality anywhere in the world

• Develop industry wide water quality protocols Develop industry wide water quality protocols in conjunction with Regional Authoritiesin conjunction with Regional Authorities

• Verifiable/robust water quality mark for deerVerifiable/robust water quality mark for deer

• Turn this into a brand value that allows you to Turn this into a brand value that allows you to grow income under constrained productiongrow income under constrained production