Fonterra to reward farmers for sustainability, move faster to exit coal

Wednesday, 31 March 2021

Fonterra farmers will receive higher milk payments for sustainable farming.

Fonterra is introducing incentive payments for farmers who meet its sustainability goals, and pledging to move quicker to replace coal boilers at its factories in a raft of measures to help the country meet its zero emissions goal by 2050.

“We are deeply cognisant that our business produces 20 per cent of New Zealand’s greenhouse gas emissions,” Fonterra said in its submission to the Climate Change Commission’s draft report on reducing greenhouse gas emissions. Some 90 per cent of those emissions are generated by its farmers, 9 per cent from manufacturing and 1 per cent from transport.

From June, the dairy cooperative will reward its farmers who meet sustainability and milk quality measures, with 10 cents of each farm’s milk payment a kilogram at stake. Dairy companies Synlait and Miraka already operate schemes giving farmers extra payments for meeting criteria.

“The new payment recognises farmers who are already going above and beyond because they’ve innovated and invested early, and it also offers farmers more encouragement for taking the steps required to meet the changing expectations of customers and communities,” Fonterra said.

In February, the Climate Change Commission recommended ending new connections to the gas network in 2025.

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New Zealand dairy farmers have a carbon footprint about one third of the world average, with a litre of milk creating 0.91kg of CO2 emissions compared to the global average of 2.5kg of CO2 emissions, the company said.

Significant investment in research and development was required from the Government and industry for farmers to meet their 2030 and 2050 methane responsibilities, Fonterra said, noting it is already looking into innovations such as seaweed feed and methane inhibitor Bovaer.

Fonterra is the country’s largest exporter with 27 manufacturing sites spread across the country, and the company said while it had made “significant progress” in reducing emissions, “substantial challenges remain”.

The cooperative is the second-biggest user of coal nationwide and committed in 2019 to not install any new coal boilers to run its factories as it transitions to renewable energy in line with its target for net zero emissions at manufacturing sites by 2050. It was criticised by the Coal Action Network Aotearoa for not moving fast enough to switch out its coal boilers.

In its 28-page submission released on Wednesday, Fonterra accepted the commission’s recommendation to end coal use for industrial heat by 2037, and to retire natural gas from 2037.

“We are looking to move to a future without coal,” chief operating officer Fraser Whineray told reporters.

Fonterra is speeding up its plans to move out of coal.

The goal was “ambitious” and would be “challenging” to meet, Fonterra said. Nine of its manufacturing sites rely on coal as the primary source of energy, and seven are in the South Island where there is no reticulated natural gas.

Disruptions to gas supply could mean the cooperative had to transition from its 76 gas boilers and air heaters sooner, which would slow its move away from coal, it said.

“We strongly recommend that the commission focuses on the interdependency of coal and gas and the impact that the scarcity of gas could have on the dependence on coal for security of supply,” Fonterra said.

The cooperative said it was constrained in its ability to switch boilers at multiple sites.

Work on plants could only be done in a three-month period after cows had dried off at the end of the season, and before calving began when the amount of milk collected ramped up exponentially from about 4 million litres a day to about 82 million litres a day over a six to eight week period.

“We are unable to have too many boilers under transition at the same time,” the company said.

“If there are too many boilers being converted or new boilers being installed during one maintenance season, then the chance of a delay or an issue occuring which delays the boiler going back into service puts our ability to process our famers’ milk at serious risk.”

That could lead to farmers having to spill milk on their land, the company said.

Fonterra’s ability to decarbonise its manufacturing sites is based on competing funding priorities including health and safety upgrades, environmental initiatives such as wastewater upgrades, plant maintenance and installing new innovative product lines for customers, it said.

Whineray said the plan to convert coal boilers would have a “relatively modest” financial impact.

The company ruled out switching its boilers to electricity, saying the operational and capital costs were too high and Transpower would have to upgrade its capacity to meet demand, which would take several years. Instead, it favoured a switch to wood biomass boilers, alongside moves to improve energy efficiency.

Increased demand for biomass from Fonterra and other organisations would stoke expansion in the wood and biomass industries, it said.

Among other measures, Fonterra is also transitioning a third of its light fleet to EVs, installing charging stations at its sites, and investigating fuel options for its trucks.