Betting the farm on it – how rural land use (may) change with recent commodity prices and land sales

By Zack Dorner

Farming is a risky business, as is forestry. You are at the whim of the weather and international commodity prices which, as we have been reminded by recent dairy prices, can drop rapidly without much warning. Meanwhile, farmers have to make long term decisions about capital investments, or decide whether to convert from one type of a farm to another. Foresters must plant trees which won’t pay off for several decades. Given the importance of rural land use for New Zealand’s economy and environment, it is important that we understand better how land use changes in response to economic drivers.

For my honours thesis last year I decided to look into recent rural land use changes in New Zealand and whether changes may be associated with recent commodity prices and land sales. I’m very happy that my thesis has now taken the form of a Motu Working paper, which has just been released. In lieu of you having to read the full paper (though of course I encourage you to do so!), here is a quick summary of some things I learnt along the way.

Land use models do work (at least sort of)

By Corey Allan and Suzi Kerr

Land-use models are used to explore possible futures, anticipate and diagnose problems, and simulate the effects of different policies. ‘All models are wrong but some are useful’ and more carefully developed and rigorously tested models are more useful. If you are interested in how land-use models are and should be used, our recent paper on land-use modelling provides a non-technical overview of the land-use models currently used in New Zealand. 

If you are interested in the more nitty-gritty detail of modelling, Motu has recently released a working paper that documents and validates the Land Use in Rural New Zealand (LURNZ) model. LURNZ is used to simulate the impacts of climate change policies (such as the inclusion of agriculture in the NZ ETS) on rural land use in New Zealand. The paper tests the projections of the model against reality.  The Land Use in Rural New Zealand model (LURNZ) is based on a heuristic model of dynamic land-use optimisation with conversion costs. It allocates land-use changes to each pixel using a combination of pixel probabilities in a deterministic algorithm and calibration to national-level changes. We simulated land-use change out of sample between 2002 and 2008 and compared the simulated changes to observed land-use change. We show that the allocation algorithm assigns changes in land use to pixels with similar characteristics to those where land-use changes are observed. We also show there is a strong positive relationship between actual territorial-authority-level dairy changes and simulated changes in dairy area. As a result of the model construction, we underestimate the “churn” in land use. You can see the most recent simulations from the model on the LURNZ website.

Food and beverage industry must act on climate change

By Sarah Meads, Senior Policy Advisor, Oxfam New Zealand

The world is dangerously unprepared for climate impacts on food - yet food companies are major contributors to greenhouse gas emissions and deforestation. Here Sarah Meads explains why food and beverage companies need to clean up their act. 

What has climate change got to do with food and beverage companies? In brief, agriculture and deforestation (largely driven by the expansion of agricultural land) are responsible for around 25% of global emissions. At the same time, climate change presents a major risk to food supply chains and ultimately to the profitability of the 10 biggest food and beverage companies and to the food industry worldwide. 

Oxfam’s new report, Standing on the Sidelines: Why the food and beverage companies must do more to tackle climate change, calls on food and beverage companies to dramatically step up action on climate change by using their influence to reduce agricultural emissions and to emerge as leaders by speaking out on the need for climate action from other industries and governments.

The “Big 10” global food and beverage companies (Associated British Foods, Coca-Cola, Danone, General Mills, Kellogg, Mars, Mondelez International, Nestlé, PepsiCo and Unilever) are both highly vulnerable to climate change and major contributors to the problem. If the ‘Big 10’ was a single country, their combined greenhouse gas emissions would make them the 25th most polluting in the world – and yet they’re not doing nearly enough to tackle it.

The report is part of Oxfam’s “Behind the Brands” campaign looking at the social and environmental policies of the world’s biggest ten food and beverage companies. Previous “Behind the Brands” campaigns have convinced some of the biggest food companies on the planet to adopt stronger policies against land grabs and to improve women’s rights.

Climate change is damaging food production

The Intergovernmental Panel on Climate Change (IPCC) recently warned that climate change will lead to declines in global agricultural yields of up to 2 per cent each decade. At the same time demand for food is expected to rise by 14% percent over the same period – hitting harder and sooner on global hunger than previously thought. It also warns of higher and more volatile food prices - Oxfam estimates world cereal prices could double by 2030, with half of this rise driven by climate change.

The IPCC also warned of reaching a global temperature threshold of three to four degrees, beyond which there will be little we can do to avoid severe damage to food production in many areas of our world. Above this threshold we could face runaway food crises. We are currently on track to cross this threshold in the second half of this century. 

Food price volatility not only hits poor households in developed countries, it can lead to riots in poorer countries, triggering insecurity and more volatile markets that affect us all. The global food industry, including in New Zealand, cannot afford to be complacent on tackling climate change by assuming global markets will be business-as-usual by 2030 in its analysis of global climate change impacts on food production.  

The cost of inaction is now greater than action

In April 2014, Paul Polman, CEO of Unilever, spoke out about the need for action on climate change, stating that, "the cost of inaction is now greater than the cost of action: in the last decade, the world spent $2.7 trillion [NZD$3.21 trillion] more on natural disasters than usual; the same disasters are costing Unilever around €300 million [NZD$485 million] a year." Climate change is already costing these companies vast sums of money. Oxfam’s report is a call to reason; a demonstration that tackling climate change is in everyone’s interest.

There is still time to fix the problem. What companies and governments do today to prepare for climate change – and the degree to which the poorest countries are supported – will, to a large extent, determine the sustainability and profitability of the food industry as well as how many people go hungry over the next two decades. And how far and fast companies and governments cut their emissions will determine whether our food systems can continue to support us in the second half of the century.

Read the full report here: http://www.oxfam.org.nz/reports/standing-sidelines-why-food-and-beverage-companies-must-do-more-tackle-climate-change

Note: This blog was also published on Motu's blog "New Zealand's Low-Emission Future."

Z Energy Biodiesel Press Release

This post is syndicated from Motu’s new Shaping New Zealand’s Low-Emission future blog

By Luke Harrington

A press release by Z Energy on 3^rd April 2014 marks the next step in alternative fuel developments in New Zealand. CEO Mike Bennetts announced a plan to invest $21 million toward a biodiesel manufacturing plant in Auckland, with a particular focus on tallow as the organic derivative of choice. Previous large-scale biofuel generation schemes have been met with varying levels of success in New Zealand (particularly the foray by Solid Energy in 2007) - this is actually acknowledged by Bennetts in the statement. Though this latest proposed operation will only make a small dent in the goliath that is fossil fuel demands for domestic transport, it is a promising step in the right direction – Z should be applauded for taking a leadership role in such an area.

The key ingredient to this proposal is the utilisation of tallow in the biodiesel production process. In essence, tallow is a rendered form of beef or mutton fat, and simply a by-product of the meat slaughter process.  Like the use of woody waste biomass to meet the energy demands of the industrial sector, this method of utilising a by-product is a great way of maximising the efficiency of current industrial operations. In my opinion, such an initiative is analogous to car pooling in a city centre; a great way to reduce emissions without any detrimental trade-offs. 

A key issue has afflicted the large scale production of biofuel in the past: feedstock crops would be grown on land that could otherwise provide food, leading to food supply reductions, price rises, increased pressure to clear land and higher rates of deforestation. Such problems are not applicable in this circumstance, which is fantastic. Motu was also involved in Scion research in 2009 on the potential for producing biofuel from wood – this technology is still evolving.  

In the press release, Bennetts suggests the company will look to incorporate the biodiesel as five to twenty per cent blends, and some commercial customers have already expressed interest to take volume from Z’s initial production outputs. As of 2009, approximately 150,000 tonnes of tallow were produced annually in New Zealand, and could be converted easily and economically into high quality biodiesel (von Tunzelman, 2009). The 20 million litres of annual production proposed by the Z initiative will contribute only 0.5% to the estimated 4 billion litres of diesel used in New Zealand each year (MED estimates, 2013). However, it represents an important first step in encroaching on the high carbon emissions attributed to vehicle transport in New Zealand.

I am interested to see the energy requirements associated with the biodiesel production process. In order for this type of operation to be beneficial in the long term, the energy demands (and associated emissions) at the processing plant cannot exceed the benefits from using less mineral diesel. These numbers are not yet available, owing to the early stages of the project, but needs to remain a consideration. Furthermore, the economic impacts of the production process should not make the biodiesel too expensive for consumers to actually want to buy – it is estimated that a five per cent blend will increase the price by less than 2 cents a litre. Given that only commercial operators are the target consumers in the medium term, I don’t think this is a significant issue right now.

All in all, this initiative represents a positive step by a member of the transport industry – one that demonstrates the innovation and forethought needed by all stakeholders to help reduce our collective emissions profile.

Food and Greenhouse Gases: Climate change, agricultural production and food demand.

Post written by C.Will

Our recent blogs have been discussing food security, and the role agricultural production has to play in ensuring a sustainable future. Below are two recently published papers that incorporate the effects of climate change into this discussion.

“Climate change effects on agriculture: Economic responses to biophysical shocks”. By Nelson et al. 2013. Published in Proceedings of the National Academy of Sciences (PNAS).

Abstract:

“Agricultural production is sensitive to weather and thus directly affected by climate change. Plausible estimates of these climate change impacts require combined use of climate, crop, and economic models. Results from previous studies vary substantially due to differences in models, scenarios, and data. This paper is part of a collective effort to systematically integrate these three types of models. We focus on the economic component of the assessment, investigating how nine global economic models of agriculture represent endogenous responses to seven standardized climate change scenarios produced by two climate and five crop models. These responses include adjustments in yields, area, consumption, and international trade. We apply biophysical shocks derived from the Intergovernmental Panel on Climate Change’s representative concentration pathway with end-of-century radiative forcing of 8.5 W/m2. The mean biophysical yield effect with no incremental CO2 fertilization is a 17% reduction globally by 2050 relative to a scenario with unchanging climate. Endogenous economic responses reduce yield loss to 11%, increase area of major crops by 11%, and reduce consumption by 3%. Agricultural production, cropland area, trade, and prices show the greatest degree of variability in response to climate change, and consumption the lowest. The sources of these differences include model structure and specification; in particular, model assumptions about ease of land use conversion, intensification, and trade. This study identifies where models disagree on the relative responses to climate shocks and highlights research activities needed to improve the representation of agricultural adaptation responses to climate change.”

“The future of food demand: understanding differences in global economic models”. By Valin et al. 2013. Published in Agricultural Economics.

Abstract:

“Understanding the capacity of agricultural systems to feed the world population under climate change requires projecting future food demand. This article reviews demand modeling approaches from 10 global economic models participating in the Agricultural Model Intercomparison and Improvement Project (AgMIP). We compare food demand projections in 2050 for various regions and agricultural products under harmonized scenarios of socioeconomic development, climate change, and bioenergy expansion. In the reference scenario (SSP2), food demand increases by 59–98% between 2005 and 2050, slightly higher than the most recent FAO projection of 54% from 2005/2007. The range of results is large, in particular for animal calories (between 61% and 144%), caused by differences in demand systems specifications, and in income and price elasticities. The results are more sensitive to socioeconomic assumptions than to climate change or bio-energy scenarios. When considering a world with higher population and lower economic growth (SSP3), consumption per capita drops on average by 9% for crops and 18% for livestock. The maximum effect of climate change on calorie availability is −6% at the global level, and the effect of bio-fuel production on calorie availability is even smaller.”

Food and Greenhouse Gases: Emissions Intensity of Nutrition Sources

Post written by C.Will

New research published in Nature Climate Change argues that reducing the number of ruminant livestock, especially cattle, could significantly reduce greenhouse gas (GHG) emissions.  They find the GHG emissions from ruminants are 19-48 times higher than emissions from high protein foods obtained from plants. This comparison is based on full life cycle analysis including both direct and indirect environmental effects from ‘farm to fork’ (enteric fermentation, manure, feed, fertilizer, processing, transportation and land-use change are considered).

This offers a compelling argument for significantly reducing our consumption of animal protein to reduce our GHG emissions. However, it is important to consider the nutritional differences between animal protein and high protein foods obtained from plants.

A previous blog of ours discussed studies that look into the debate about GHG emissions from animal protein products and the nutritional difference between animal protein and other high protein sources. To get a comparable amount of energy from fruit and vegetables, larger portions are needed because animal protein products are a rich source of energy. Therefore, when comparing animal protein products and fruit and vegetables on a measure of GHG emissions per unit of energy (in kilocalories), the difference is much smaller.

The problem is complicated and the solution is not clear, but it is important to understand that the food choices we make as individuals do have an impact on the environment. Together we can improve the food security problem by making better informed decisions about our consumption.

Food and Greenhouse Gases: An Ominous Future?

Post written by C. Will

In a world increasing in population and wealth, food production needs to be steadily increasing to meet the growing demand. However, a recent study in Nature Communications (discussed here) argues the rate of yield gains in wheat and rice production have plateaued, despite increased investment in R&D and education. Other studies (for example Ray et al. (2013)) have also found evidence that the current yield gain in major crops is insufficient to reach the estimated 60% increase in production required by 2050. If wheat and rice production have approached a yield ceiling it provides an ominous future for food security.

Previous increases in yield gain have been driven by investment in technologies that were largely one-time innovations and cannot be repeated. For example, innovations in genetically modified grains, major investment in irrigation infrastructure and increased use of fertilisers and pesticides saw steady increases in grain production.

Is livestock agriculture also at risk of approaching a yield ceiling?

New Zealand has experienced significant annual increases in livestock productivity for more than 20 years.  As we discussed in a previous post even with existing technology there is room for significant ongoing improvement as less efficient farmers catch up with those who are more efficient. In the short term, constraints on yield per hectare (intensity) are likely to be environmental (water quantity and quality) rather than technological (as noted by the Parliamentary Commissioner for the Environment’s report on water quality). Internationally, the enormous differences in livestock productivity suggested by differences in emissions per unit of output suggest space for considerable yield gains.  

Globally we need to be making all the efficiency gains that we can to resolve the food security problem and New Zealand has an important role to play in this through the livestock sector.