Advice on Agricultural Assistance

Agriculture is a major part of the economy and landscape of Aotearoa New Zealand.

Our analysis in Ināia tonu nei: a low emissions future for Aotearoa shows that even without new technologies, Aotearoa can reduce agricultural emissions through efficiencies on farms, and by switching some pastoral land to forestry and horticulture.

Farmers have already made progress in reducing emissions, but further changes can lower emissions on farm while maintaining, or even improving, productivity.

By the end of 2022, the Government will need to decide how emissions from agriculture should be priced.

The Climate Change Response Act requires the Government to publicly report on a system to price agricultural emissions by 31 December 2022.

The He Waka Eke Noa partnership has developed a system for pricing agricultural emissions outside of the New Zealand Emissions Trading Scheme (NZ ETS), and its advice has been developed at the same time as this advice.

The Government can choose to adopt what He Waka Eke Noa put forward, or to bring agricultural emissions into the NZ ETS at the farm level if it believes insufficient progress has been made in preparing the farming sector for emissions pricing. Government can also choose to provide an alternate option.

At the end of June 2022, we will deliver advice on how ready we think farmers are for farm-level emissions pricing. We will provide an assessment of the progress that has been made through the He Waka Eke Noa partnership to prepare farmers and the sector for a farm-level pricing system, and advise if more work needs to be done.

What – if any – financial assistance is necessary or appropriate?

As part of its decision making, the Government has asked the Commission to advise on what financial assistance – if any – should be provided to farmers participating in a farm-level emissions pricing system.

We have judged that some form of financial assistance should be considered to enable the agricultural sector to transition to emissions pricing and contribute to statutory targets, while limiting disruptive changes to farmers.

An effective pricing policy needs to achieve emissions reductions from agriculture. It should create strong incentives for farmers to reduce their emissions while managing the economic and social impacts of emissions pricing. Giving assistance to farmers can help to manage negative impacts, while still getting the climate outcomes needed through pricing agricultural emissions.

Our view is that the Government should give assistance to all farmers if it expects material financial hardship to be widespread as the sector transitions to low emissions practices, and could also chose to give targeted assistance based on certain criteria to manage more specific impacts.

Without having information about what the pricing system will be, or what level emissions prices will be set at, it’s difficult to provide advice on whether there are any specific groups that will require targeted assistance. However, we reiterate our position from Ināia tonu nei that any pricing policy implemented must not disproportionately disadvantage or compound historical grievances for Iwi/Māori and must factor in the unique characteristics of Māori collectively-owned land and Māori-collectives.

This is particularly important in the design of any methods for providing assistance to participants.

Our analysis shows the most effective way to determine assistance is based on a farm’s output.

Basing assistance on a farm’s output means a farmer pays for all their emissions, but they get assistance with that cost based on their rate of production. This results in farmers being incentivised to reduce their emissions while maintaining or improving productivity.

If emissions are priced and assistance is given at the processor level, our analysis shows the proportional discount and output-based assistance options would both provide the same incentives for emissions reductions.

Providing certainty about when and how emissions from agriculture will be priced, and what assistance could be provided, will give farmers the information and confidence they need to plan for lower emissions practices.

Alongside other policies, emissions pricing should support emissions reductions from agriculture to enable Aotearoa to meet its emissions budgets, targets, and international commitments.

A smart, well-designed pricing policy will ensure Aotearoa maintains access to high value markets, while reducing emissions from agriculture.

The Government’s report in December should provide clarity on what emissions pricing farmers will face, to avoid ongoing uncertainty and give farmers a clear and consistent way forward, with more certainty on what the future will look like for the sector.