Studies: water reforms could have $6b impact

Rabobank New Zealand says the proposed new freshwater regulations proposals will have a...
Rabobank New Zealand says the proposed new freshwater regulations proposals will have a detrimental effect on the rural sector. PHOTO: GREGOR RICHARDSON
Economic modelling by DairyNZ has shown proposed new freshwater regulations could lead to a fall in New Zealand's GDP of $6billion by 2050, Southland being one of the hardest hit regions.

Submissions on the Essential Freshwater package, which outlined the Government's plans to improve the quality and quantity of freshwater in New Zealand, closed yesterday.

Following the release of the proposals in September, DairyNZ initiated three studies into the potential economic effects; two were independent and all three had been peer-reviewed.

In a statement, chief executive Dr Tim Mackle said the analysis showed potential "significant" effect.

By 2050, total milk production was forecast to fall by 24% and all national exports by 5.2% or $8.1 billion.

Tax revenue from dairy was also forecast to more than halve by 2050 with an annual loss of $540million at the national level.

The proposed changes constituted substantial business risk for dairy farms, with the number of insolvent farms forecast to jump from 2% to 11% by 2050, Dr Mackle said.

A Sense Partners report combined modelling of on-farm and community impacts of the proposed regulations and the added effects of proposed climate change policies.

With the Zero Carbon Bill and its assumed reductions in methane considered alongside the freshwater reforms, the forecast showed an additional $1billion loss (bringing it to $7billion) and another 4% reduction in milk production (28%).

The more moderate freshwater reforms, in isolation, were not expected to have the same degree of economic impact.

"Four scenarios were modelled and scenarios one and two, which include actions around fencing, farm plans, capital expenditure, consented stand-off pads and nitrogen caps in priority catchments, had less financial impact for farmers and therefore the economy.

"In contrast, the consideration of proposed nutrient limits under scenario three was forecast to impose a significant financial burden on the dairy sector. Research by DairyNZ also shows that these limits - broadscale introduction of phosphorus and nitrogen leaching reductions in monitored catchments - are based on overly simplistic relationships and not supported by robust science.

"It is under these more stringent reforms that dairy will struggle to contribute as significantly to the national economy as it does now," Dr Mackle said.

The flow-on effects of less milk production were particularly severe for Southland, Taranaki, Marlborough and West Coast.

By 2050, GDP could fall in Southland by up to 3.6%, Marlborough by up to 3.2%, and West Coast and Taranaki by up to 2.9%.

The dairy stronghold of Waikato would also be significantly affected, while Otago could be affected by up to 1.4%.

The proposed changes potentially comprised the vitality of regional communities, due to the importance of processing jobs as well as farm profits and expenses being a key source of revenue for other businesses, Dr Mackle said.

"Less milk means 15-20% [fewer] jobs and reduced competitiveness in global markets. This is an issue because nearly one-third of exported goods and 46,000 jobs are associated with dairy production in New Zealand," he said.

Rabobank New Zealand said the proposals were "unnecessarily harsh" and would have a detrimental impact on the rural sector which was already facing pressures from regulatory change.

Chief executive Todd Charteris said the bank supported the Government's goals on improving the quality of New Zealand's freshwater and reducing pollution entering waterways from cities and farms.

It also supported the relevant ministers' stated goals of ensuring the pace of change was manageable and that appropriate transitional support was in place.

However, it was not confident the proposed reforms, in their current form, would achieve those goals in a fair and balanced way.

Rabobank also encouraged the Government to ensure implementation of the proposed reforms did not lead to a substantial land use shift away from farming and horticulture, and towards non-food producing forms of land use such as forestry.

 

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