Who needs Landcorp and its dairy conversions – economically shaky, environmentally disastrous and treaty breaching?

Should Landcorp continue with its planned conversions in the central north island? 

Over the weekend the Government admitted it was watching the issue closely in light of the downfall of Solid Energy, while Landcorp insists that the long-term prospects of dairy remain rosy. The economics of the conversions may be finely balanced, but when the environmental impacts are considered it looks like sheer madness. 

Colossal Conversions 
Since the turn of the century, huge tracts of land in the central North Island have been converted to dairy farming.

Most of this has been converted from pine forest. One of the big players is our own Landcorp – a State Owned Enterprise (SOE) of questionable merit. Their Wairakei Estate is forecast to be one of the biggest milk producers in the southern hemisphere. 

According to the Parliamentary Commissioner for the Environment, nearly 28,000 hectares were converted to dairy between 2008-2012 – the vast majority from pine forest.

This was the entire amount that was forecast to be converted out to 2020. According to the Waikato Regional Council another 21,000 hectares of pine forest were converted from pine to pasture between 2001 and 2008. 

What has driven these conversions? 
The first wave of conversions (before 2008) was in preparation for the previous Labour government’s Emissions Trading Scheme (ETS).

Basically, people wanted to convert their forests before it began to cost them money. Labour was annoyed about it at the time, but it figured once there was a price on carbon, people would plant more forest rather than cutting them down (as they would have to pay for the emissions as a result). 

So much for that idea. We got the Global Financial Crisis and a National government, combining to drop carbon prices to almost nothing.

The forests Labour hoped would be planted – the forests that our wood processing industry needs if we ever get other countries to remove the barriers to us exporting any processed forest products (TPP anyone?) – never eventuated. 

Instead, with milk prices over $7 there was every incentive to pile into dairy – and quickly before the government started to regulate water quality.

Sound familiar? Every time we bring in new environmental regulations we create a gold rush of people hoping to squeeze the last dollar out of hurting the environment. Luckily for them the government passed the water quality buck on to regional councils – so it should take years before regulations are in place. 

Impact on water quality and carbon emissions
It is hard to know, but it can’t be good.

Since the turn of the century, over 43,000 hectares have been converted from pine to pasture in the Waikato catchment alone. We know for certain that is a massive hit on our carbon emissions. With roughly 1,000 tonnes of carbon dioxide tied up in each hectare of forestry, this equates to 40 million tonnes overall. That means 10 tonnes for every person in the entire country – about what the average Kiwi emits over an entire year. 

It doesn’t stop there. These conversions will have an impact on water quality also.

It may take some time to see the full extent depending on the converted land. The most obvious initial impacts will be drawing water from the river for irrigation, and the appearance of sediment and phosphorus lost from deforested slopes.

However, in the longer term the biggest impact will come from increased nitrogen leached as a result of having more animals using the land. Eventually this nitrogen will appear in our rivers and lakes, increasing the risk of algal blooms that are already plaguing the Waikato River.

We don’t doubt the environmental credentials of Landcorp for a moment. From what we have heard its conversions are state of the art, its farming is best practice and will have the minimum environmental impact possible.

However, that doesn’t mean it will have zero environmental impact. It is impossible to stop nitrogen passing from animals into our waterways, so some negative impact seems inevitable. This is particularly so given the highly porous pumice soils of the central North Island. 

Is it even legal?
Under the Treaty settlement with Tainui, the government has a statutory obligation to ensure the Waikato River is swimmable.

It certainly isn’t in that state at the moment – you’d be a brave person to join the kids bombing off the bridge at Mercer. Conversions happening at this scale cannot be helping to achieve this goal, and could turn out to tip the Waikato River over the edge from its already precarious state.

The Waikato Regional Council warned the government of this exact point back in 2012. 

If ultimately we need fewer cows on the land to achieve the vision of a swimmable Waikato River, who will pay? Will Landcorp and other recent converters have to wear the impact?

After all you could argue it should have seen this coming. Or will farmers who have worked the land for generations take the hit? Maybe the taxpayer will have to dip into their pockets once again to pay for the pollution caused in pursuit of profit.

This isn’t Landcorp’s fault – it is the government’s
We can’t expect more from Landcorp – an SOE programmed to chase profit – than any other farmer or business owner in the country.

It is just playing the cards is has been dealt and doing the best job it can. It is the government’s job to regulate and ensure economic activity makes us all better off (in this case by not damaging the environment in the process).

In the case of the central Waikato it has failed us three times over: by weakening the ETS; by failing to prevent ongoing conversions while water quality limits are being set; and by contravening the Treaty settlement to keep the Waikato River swimmable. 

This is a good example of why governments need a very good reason to own a business. Government owning Landcorp impedes its interests as a regulator of our environment – it is nothing more than a conflict of interest. It is afraid to regulate as that might hit its own bottom line. 

Shall we have that discussion?

What is the point of Landcorp anyway? Is there a market failure in the farm sector that means we must have this thing out there competing with other farmers? Does it seem a real oddball indulgence by the state anyway – what’s the harm in selling it off?

Gareth Morgan is a New Zealand economist and commentator who in previous lives has been an investment manager. This post first appeared on Gareth's World.