Thursday, 24 November 2016

C, E, F & P

Rachel Stewart is at it again, criticising the dairy industry. And here I am again, basically agreeing with her despite being a dairy farmer. Dairying is indeed a very powerful industry in NZ, to the point where the 'C' word (cow) just was never mentioned by officials commenting on the water contamination in Havelock North.

The power of the dairy industry & Fonterra in particular is sometimes useful. Fonterra is currently helping to repel the mad scientists who want NZ to embrace GMOs for example. It has also been strong on excluding stock from waterways (sheep & beef farmers are waay behind on this) and is ramping up efforts to limit the use of palm kernel as a feed. These are market-driven positions of course.

But you will never catch Fonterra advocating a massive reduction in dairying in NZ, which is Rachel's position.

My own view is that from long-run perspectives on the environment and the economy, the output of NZ's agriculture is less important than the inputs. As an agricultural exporter, NZ has comparative advantages in our climate, our land/population ratio and our isolation. As a country, we have never really thought strategically about how we should exploit these assets, because that way lies communism, we're told. The markets will guide efficient investments, right?

No. They won't. Markets are socially defined constructs. We make the rules that give the incentives that are acted on in the markets. John Key's first pile of do$h was made by the *government* changing the rules.

This is why, while I applaud Rachel's focus on the 'C' word, I think we also need to address the 'E' word, the 'F' word, and the 'P' word, where

E = externalities;
F = fertilisers; and
P = pesticides.

To understand the point, imagine a world in which NZ dairying was massively reduced as Rachel suggests. The replacement land-uses will still damage our environment unless we force farmers to internalise pollution and rewarded them sequestering carbon (E). Done properly, that can lead to highly efficient changes in the way we use fertilisers (F) and pesticides (P).

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