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Increased research and innovation in farming systems will be needed to achieve compliance with environmental regulations while maintaining farmers' profitability, a report from Rabobank has warned.
While regulation was essential to protect the environment, the report showed it had implications for international competitiveness in agriculture, Rabobank New Zealand chief executive Ben Russell said.
Increasing environmental regulations were a challenge for agricultural exporters around the world, impacting competitiveness by increasing costs and restraining production growth.
The report examined the regulatory approaches taken to protect the environment in New Zealand, California and the Netherlands and the impact on their respective dairy industries.
For New Zealand, where regional councils were at varying stages in the regulatory process relating to water quality under the National Policy Statement for Freshwater Management, the full impact on agricultural production and competitiveness was yet to be quantified, Mr Russell said.
However, it was clear that environmental regulation affecting agriculture in New Zealand was at an earlier stage and the costs of compliance had yet to be fully built into the cost structure of the country's dairy industry.
More research and innovation about how to retain and use nutrients within farming systems in cost-effective ways was essential for New Zealand to maintain its competitiveness, he said.
Hayley Moynihan, Rabobank director of dairy research, New Zealand and Asia, said the New Zealand approach to environmental regulation brought both challenges and opportunities for dairy farmers.
The effects-based model being implemented could create ''considerable uncertainty'' for producers because they were unsure exactly what changes needed to be made to meet standards.
''The great opportunity, though, is that controlling effects rather than inputs creates incentives for innovation. Farmers ... have the opportunity to determine the most efficient, cost-effective means of meeting or exceeding requirements,'' she said.