THE N CAP IN TAUPO A FARMER PERSPECTIVE Deer Industry Conference 25 th May Mike Barton.

CONTENT An outline of the process leading to capping Nitrogen Emissions from farms in the Taupo catchment An outline of the process leading to capping Nitrogen Emissions from farms in the Taupo catchment A brief look at the current NZ farming business model and the interface with emissions capping A brief look at the current NZ farming business model and the interface with emissions capping What about your catchment? What about your catchment?

TAUPO CATCHMENT

THE HISTORY OF THE N CAP FROM A FARMERS PERSPECTIVE THE HISTORY OF THE N CAP FROM A FARMERS PERSPECTIVE We became aware of the issue in 2000 We became aware of the issue in 2000 Incorporated Society formed Taupo Lake Care (TLC) to represent farmer interests in negotiations with EW Incorporated Society formed Taupo Lake Care (TLC) to represent farmer interests in negotiations with EW Negotiated to balance Lake protection with economic viability Negotiated to balance Lake protection with economic viability Advocate for and participate in research Advocate for and participate in research Represented the majority of catchment farmers and Maori incorporations farms Represented the majority of catchment farmers and Maori incorporations farms

NITROGEN LEACHED Tussock, Native Forest - 3kgs/ha Tussock, Native Forest - 3kgs/ha Plantation Forest 3kgs/ha Plantation Forest 3kgs/ha Sheep Beef and Deer Farms17kgs/ha Sheep Beef and Deer Farms17kgs/ha Dairy Farms45kgs+/ha Dairy Farms45kgs+/ha Farming emits 93% of the Manageable Nitrogen entering the Lake Farming emits 93% of the Manageable Nitrogen entering the Lake 4 Dairy farms -101 Extensive Sheep, Beef and Deer farms 4 Dairy farms -101 Extensive Sheep, Beef and Deer farms

A NITROGEN CAP -THE REALITIES Is a cap on stock urine Is a cap on stock urine Essentially a cap on stocking rate/production Essentially a cap on stocking rate/production A production cap is an income cap under existing commodity regimes A production cap is an income cap under existing commodity regimes To remove 20% of manageable N we needed to covenant 35,000ha. To remove 20% of manageable N we needed to covenant 35,000ha.

CONSENTED FARMERS - CONSENTED FARMERS - Applying for a consent that limits our production in perpetuity-significant implications for farming business models and property values Applying for a consent that limits our production in perpetuity-significant implications for farming business models and property values Six farms modeled for Environment Court – insolvent in 5-9 years Six farms modeled for Environment Court – insolvent in 5-9 years Length of consent about the length of an average mortgage or less than one rotation of trees, but at least we know what we can do for 25 years Length of consent about the length of an average mortgage or less than one rotation of trees, but at least we know what we can do for 25 years

OUR FARM- THE IMPLICATIONS Discontinued with breeding cows based on gross margin per kg of N leached Discontinued with breeding cows based on gross margin per kg of N leached Need to grow young animals as rapidly as possible –no 2 nd wintering Need to grow young animals as rapidly as possible –no 2 nd wintering Spraying or cultivating for pasture renewal may not be viable/allowable (permanent pastures?) Spraying or cultivating for pasture renewal may not be viable/allowable (permanent pastures?) Top B+L quintile for beef production - can’t do any more Top B+L quintile for beef production - can’t do any more

LESSONS TO DATE Taupo farmers have had a ‘Clean Streams Accord’ since 1983 and have consistently won environmental awards yet we still have a problem! Taupo farmers have had a ‘Clean Streams Accord’ since 1983 and have consistently won environmental awards yet we still have a problem! Environmental impacts will likely define production limits for all farmers in the future Environmental impacts will likely define production limits for all farmers in the future We cannot rely solely on science to solve this We cannot rely solely on science to solve this

THE CURRENT SHEEP AND BEEF 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 Marlborough/Canterbury Farmland 1984/5 - $80.92/ha – ROI +ve 3% Profit before tax: B & L NZ Class 6 Marlborough/Canterbury Farmland 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% 2010/11 - $293.49/ha ROI +ve 1% 2010/11 - $293.49/ha ROI +ve 1%

BEEF FARM BUSINESS MODEL My current winter stocking rate is 3.5 cattle/ha. In animals/ha My current winter stocking rate is 3.5 cattle/ha. In animals/ha Farmers have taken up science driven production increases to counter static returns and rising costs yet look at ROI Farmers have taken up science driven production increases to counter static returns and rising costs yet look at ROI We have reached the limits of that business model under catchment nutrient caps We have reached the limits of that business model under catchment nutrient caps

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

TAUPO BEEF- WHAT IS IT? RADIO FREQUENCY TRACKED FROM THREE FARMS RADIO FREQUENCY TRACKED FROM THREE FARMS GROWN AND FINISHED QUICKLY GROWN AND FINISHED QUICKLY CHARLOLAISE/ANGUS CROSS CHARLOLAISE/ANGUS CROSS AGED FOR A MINIMUM OF 4 WEEKS AGED FOR A MINIMUM OF 4 WEEKS SOLD AT A PREMIUM IN TAUPO RESTAURANTS AND BUTCHERY SOLD AT A PREMIUM IN TAUPO RESTAURANTS AND BUTCHERY

Taupo Beef Certification

TAUPO BEEF – THE RESULTS CONSUMERS HAVE PAID A SIGNIFICANT PREMIUM CONSUMERS HAVE PAID A SIGNIFICANT PREMIUM OUTSTANDING FEEDBACK FROM CHEFS AND DINNERS OUTSTANDING FEEDBACK FROM CHEFS AND DINNERS DEMAND EXCEEDS OUR ABILITY TO SUPPLY DEMAND EXCEEDS OUR ABILITY TO SUPPLY NEED TO BUILD A BUSINESS MODEL THAT RETURNS A PREMIUM TO CAPPED FARMERS NEED TO BUILD A BUSINESS MODEL THAT RETURNS A PREMIUM TO CAPPED FARMERS

FARMING UNDER AN EMISSIONS CAP – THE FARMER’S CHALLENGE We can farm under emissions caps We can farm under emissions caps Livestock numbers and classes will need to be capped to do so Livestock numbers and classes will need to be capped to do so Do we accept a consequent cap on income or are we willing to invest to redefine the NZ Agricultural Business model? Do we accept a consequent cap on income or are we willing to invest to redefine the NZ Agricultural Business model?

FOOD AND WATER QUALITY- THE CONSUMER’S CHALLENGE Do you actively seek out food that is produced in a manner that protects water quality? Do you actively seek out food that is produced in a manner that protects 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 for that food? What premium are you prepared to pay for that food? Is this the real test of how much you value water quality? Is this the real test of how much you value water quality?

CONCLUSIONS As a Nation we cannot continue to have conversations about protecting water quality without having a parallel set of conversations that redefine the NZ Farming Business Model As a Nation we cannot continue to have conversations about protecting water quality without having a parallel set of conversations that redefine the NZ Farming Business Model We cannot continue to occupy the agricultural commodity market space and impose emissions caps at the same time We cannot continue to occupy the agricultural commodity market space and impose emissions caps at the same time

OPPORTUNITIES FOR THE DEER INDUSTRY Build on your significant brand advantage Build on your significant brand advantage Your target market is concerned about water quality anywhere in the world Your target market is concerned about water quality anywhere in the world Develop industry wide water quality protocols in conjunction with Regional Authorities Develop industry wide water quality protocols in conjunction with Regional Authorities Verifiable/robust water quality mark for deer Verifiable/robust water quality mark for deer Turn this into a brand value that allows you to grow income under constrained production Turn this into a brand value that allows you to grow income under constrained production