Opinion: Impact of reforms on economic viability
By: David Bennett
The government recently released its document “Action for healthy waterways”. This document details proposals for the reform of water management in our region and also throughout New Zealand.
There are substantial reforms that will have significant impacts on our region’s economic viability and potential so much so that Waikato Regional Council visited Wellington in the weeks leading up the release of the report.
The Waikato Regional Council has its own controversial water reform in the Plan Change One. This plan change has been delayed for a few years from its original inception as the Regional Council has found it very difficult to implement. That plan had an 80 year programme to achieve its goals. The new government plan has even more ambitious water quality targets and they are to be achieved over one generation, being only 30 years.
The new action plan sets targets of fencing, nitrogen limits and land use change restrictions. The plan estimates that a standard low level dairy farm would include $93,500 in estimated costs for 10 years. However, these costs don’t include any reductions in nitrogen use and hence production. These costs could be very significant for certain high output farms as they reduce their nitrogen usage by 25-30% over future years. One option is to cap nitrogen loss in high nitrate-nitrogen catchments.
The nitrogen rules propose a set per hectare cap for nitrogen leeching. This is analogous with quotas we see in the fishing industry. Depending on what threshold is set for the catchment it will dictate how many farmers have to reduce their nitrogen usage e.g. a 75% percentile would mean the 25% high users would have to reduce their impacts to the 75% percentile.
“The economic impact of these proposals cannot be underestimated... the affect is much more widely felt than just the farming sector.”
This will have a significant impact on the Waikato as the Piako and Waihou Rivers have been signalled out as catchments having high nitrogen levels, and so will be subject to some of the most significant reductions.
Recent research published by Local Government NZ also takes into account a Waikato case model option. This modelling shows sheep and beef farming in the region to fall by 68% and Dairy by 13%. All while forestry is estimated to grow by 160%. This land use change is another substantial effect of the water reforms.
The economic impact of these proposals cannot be underestimated. Many will argue that Dairy is only a small fraction of the total economy so don’t worry. The reality would be the opposite. Dairy and primary production have been the backbone of the NZ economy for generations. We are a food producer – previously for Europe, but now for Asia.
The nitrogen reforms are the most substantial part of the action plan and yet their financial impact has not been modelled. This leaves a gaping hole in the analysis. The nitrogen reductions will mean less production per farm and this will affect the financial viability of farms. Combined with other Government land based reforms which have already seen a reduction in farm values by some 20-30% in outlying areas and especially the South Island, this a recipe for negative equity in many NZ Dairy farms.
Such a situation does affect the financial viability of service towns like Morrinsville and Te Awamutu. This then leads to major food processors like Fonterra having to shed staff in places like Hamilton and also the associated rural professionals and suppliers. So the affect is much more widely felt than just the farming sector.
The other impact and probably the more important one is that the new rules will limit the growth of the Waikato region. The Waikato’s future is in using our valuable water resources and fertile lands to grow high value horticultural and agricultural products. The limits on land use change will detrimentally affect our region’s future growth. This coupled with an emphasis on moving to forestry will result in a handbrake on our region’s economic potential.
David Bennett, National MP for Hamilton East
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