DAIRY farms can be profitable while becoming carbon-neutral and cutting nitrogen losses but the profit depends on getting a premium for being environmentally friendly, AgResearch work has found.
Pastoral farmers are grappling with the prospect they have till 2024 to prove they are making progress in reducing greenhouse gas emissions while also meeting demands around water quality improvements and lower nitrogen losses.
AgResearch scientist Gina Lucci and her team’s research work for the Our Land and Water National Science Challenge provides some peace of mind for industry.
They examined straightforward, realistic steps for reducing carbon emissions then buying carbon credits to offset emissions that cannot be cut.
“Our aim was to ensure we did not seriously affect milk production or make changes as extreme as retiring part of the farm.”
The work was modelled on three different scenarios including an all-out scenario.
It involved dropping the stocking rate 17% to 2.4 cows a hectare, complete removal of nitrogen fertiliser and a 21% increase in bought-in feed.
The results surprised researchers.
They cut greenhouse gas emissions by 20% and reduced nitrogen losses by 42% compared to the average system 3 Waikato dairy farm.
The profit impact was a drop of 5% but researchers found that could reverse to a 15% increase in net profit against the base conventional farm when including a projected carbon-neutral price premium.
No price premium is offered yet so the researchers called on Lincoln University economics lecturer Dr Wei Yang to determine what such a premium could be valued at.
Yang combined the results of 32 existing studies to learn how much extra consumers are prepared to pay for dairy products with a strong environmental halo around them.
Environmentally friendly was used as a proxy for carbon-neutral products, for which little research has been done on consumers’ willingness to pay. That is likely to change because providing carbon information to consumers is seen as an important instrument for tackling climate change, Yang said.
Her work predicts overseas consumers will be prepared to pay a 26.4% premium on such products.
That’s sufficient to offset the 5% decline in net profit farmers can expect from enacting the carbon neutral steps.
She acknowledged farmers do not receive all of the premium gain and used historical United States data to calculate 30% of the premium could be returned to farmers.
However, New Zealand farmers are in a premium limbo, required to reduce carbon emissions and wear the associated costs but with no prospect yet of any premium being paid globally for their efforts.
Lucci expects there will be a need for an agency or government-sponsored certification scheme to validate any low-carbon claims.
“And it would have to be clearly defined. Even the term grass-fed, which is used in some labelling now, is quite a broad term.”
Researchers have relied on offsetting unavoidable farm carbon emissions including methane from cows by buying carbon credits valued at $25 a tonne.
Lucci acknowledged there is potential for that cost to rise, altering the economics of any profit gained through a premium.
Livestock methane emissions remain a significant part of the unavoidable gas losses from farm systems.
Lucci said any breakthrough in that area will make the results look even more positive.
“Less methane is good but you still want to be reducing your nitrogen losses from the farm too.”
She also questioned whether NZ risks consumer pushback on any methane treatments administered to animals, similar to the impact DCD nitrate inhibitor had some years ago.
The move to replace farm-grown grass with a 21% increase in bought-in feed in the form of maize could also raise the spectre of apparent exporting of the dairy farm’s nitrogen losses elsewhere.
“But we chose maize largely because it is a low-nitrogen-loss crop. As a percentage the greatest nitrogen losses are still happening on the dairy farm itself. We looked at other crops for Southland and the results were similar.”
Lucci said researchers are also excited by emerging technology, being used in Ireland, capable of bio-refining the high nitrogen content out of grass before it is fed to cattle in a significantly lower protein form, therefore resulting in lower nitrogen losses in urine.
“The resulting fibre cake has 40-60% of the original fresh pasture’s protein content and could be a valuable low-protein feed supplement.”
Earlier work by the researchers found harvesting a quarter of a Waikato dairy farm’s pasture and extracting the protein then feeding the lower protein feed to cows indicates an Overseer-modelled reduction in nitrogen losses of 30% compared to conventional grazing.
The researchers were guided by input from a reference group that included farmers, Fonterra and farm consultants to help ensure steps were realistic and manageable.
