Farmers' greenhouse gas emissions bill will lead to higher food prices

Thursday, 18 July 2019

Here's how you can help fight climate change by paying to neutralise the carbon emissions you create (video published October 2020).

Food prices will rise when farmers start paying for their greenhouse gas emissions and reduce production, an economist warns.

ASB economist Nathan Penny said the effect of falling agricultural production was already being felt, and some of that was related to tougher regulations over farm pollution.

'One of the things we're seeing now, even before the climate change legislation comes into effect, is that the environmental costs farmers are incurring are increasing, and that is impacting on production,' Penny said.

'We're seeing pretty flat to falling production in some cases, especially in dairy and meat, and what that means is higher prices.'

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Over the last year food prices have increased 1.1 per cent, with restaurant meals and ready-to-eat food up 3.3 per cent.

This week the Government announced its Action on Agricultural Emissions plan, and the Zero Carbon Bill is making its way through Parliament.

Farmers will not have to pay much for their emissions while the carbon price remains low, but they could significantly rise.

Dairy NZ estimates that under the emissions plan, dairy farmers with the average herd size of 431 will pay about $2000 a year, if the carbon price remains at $25 a tonne. Sheep and beef farmers may incur a cost of about $1000 a year.

However most commentators agree the carbon price will lift substantially above that. The Productivity Commission envisages it could go above $200, making the per dairy farm cost a hefty $20,000 a year.

Penny agrees that $25 is 'on the low side', and said he would not be surprised if it reached in the hundreds of dollars in two or three decades.

While farmers will not be charged for their individual farm emissions until 2025, processors such as Fonterra and Silver Fern Farms may be charged from next year, which might feed into higher costs for farmers.

ASB rural economist Nathan Penny says food price rises are likely if production falls.

Federated Farmers dairy chairman Chris Lewis said one of the unintended consequences of the lower agricultural emissions would be a drop in production.

'It means the NZ consumer will pay more. It's all very well for wealthy people but not for struggling people who are on minimum wage or benefits. They will be hit in the pocket as farmers will be.'

Primary sector groups are opposed to an interim charge on processors, as the Interim Climate Change Committee has recommended. Lewis said too much of the funds raised would go into bureaucracy, rather than effective research and development.

'There will be higher compliance costs. Farmers know they need to do their bit, we need to look at our farms and see where we can do better. The immediate focus should be on farm, and getting quick gains.'

Penny agreed, saying some things were easier to mitigate than others.

'We'll be able to knock off the low hanging fruit easily but as we get beyond the costs will rise at a non-linear rate.'