Emissions reduction targets to add to milk price. Who pays?

Meeting methane reduction targets will cost the dairy sector at least $35m. The question is, who pays?

Meeting methane reduction targets will cost the dairy sector at least $35m. The question is, who pays? Picture: Zoe Phillips

Reducing the carbon footprint of the country’s milk sector is expected to cost the industry at least $35m a year, sparking questions about who will bear the brunt of the financial toll.

Under pressure from all sides, dairy farmers are looking at ways to cut their emissions to meet the targets laid down by the organisations that buy and sell their milk.

But premiums for low-emission products are yet to eventuate, raising concerns about how the products and altered farming methods required to lower emissions will be paid for.

New analysis by agribusiness lender Rabobank suggests methane emissions from dairy cattle could be reduced to meet corporate and industry targets for about 2.5c a litre.

For a farmer, that is equivalent to about 13 per cent of their annual income in an industry that is already being squeezed by tight margins.

Major companies have committed to reducing their greenhouse gas emissions, but they are yet to offer real incentives to their suppliers to cover the cost of implementing necessary methods.

RaboResearch sustainability analyst Anna Drake found the additional cost of introducing methane-suppressing additives in dairy cattle feed in order to reduce emissions by 226,000 tonnes of carbon dioxide equivalent would cost the industry $35.1m annually.

“Recognising that costs are likely to be faced in order to achieve emission-reduction targets raises questions about who pays,” Ms Drake said.

“Discussions within the supply chain about how potential costs might be distributed are still in their early stages.”

Ms Drake said even small price changes on milk products were particularly sensitive to consumers, especially amid tough economic circumstances.

“Even quite a small price change is perceived as having a detrimental impact in terms of ­attracting consumers, especially when it is a staple,” she said.

“General sentiment from ­supermarkets is that they wouldn’t be looking to pass this on to consumers, especially given the competitive and economic environment.”

Dairy farms account for about 3 per cent of national greenhouse gas emissions. Pressure on them to reduce their footprint is coming from local retailers, including Coles and Woolworths, domestic processors and global processors.

Industry body Dairy Australia has also set a target to reduce the intensity of their greenhouse gas emissions, dated at a 2015 benchmark, by 30 per cent by 2030.

The federal government has also signed up to the global methane pledge to reduce emissions of the gas by 30 per cent by 2030.

While most major food companies have set targets to reduce their operational and indirect emissions, many are yet to detail how they will be achieved. This is particularly the case with indirect emissions, often called scope three, from their dairy farm suppliers, which make up the vast majority of supply chain emissions in the dairy sector.

The greatest contributor to on-farm emissions is through the expulsion of methane from livestock as plant matter breaks down in their stomachs.

Significant research is being done into developing commercially viable products that can be fed to livestock to reduce the amount of methane they expel.

RaboResearch focused on the additive 3-nitrooxypropanol (sold as Bovaer) to model the industry-wide cost of meeting emissions reduction targets. 3NOP reduces methane emissions from dairy cattle by an average of 30 per cent.

Ms Drake said the solution to who bears the cost was likely to be spread along the supply chain and among the stakeholders – including industry, government, processors, retailers and financial – advocating for change.

“In an ideal world, sharing the 2.5c-a-litre cost would be ideal,” she said.

“The overall estimated cost, in terms of the volumes of money that exists within the industry, is really quite small.

“I think the conversation about how it could be broken down is front and centre. It is achievable if everyone can get their act together.”