Modelling the impact of policies to reduce environmental impacts in the New Zealand dairy sector

Agriculture remains a major sector of the New Zealand economy, with the vast majority of farm and food production exported. The accelerating intensification of farming in New Zealand over recent decades raises concern over the current sustainability of New Zealand farming, and whether it can remain so in the future. In this study, we focus on the impacts of policies to reduce environmental impacts of dairy farming, with a particular focus on nitrogen pollution and greenhouse gases (GHG) emissions. We use a modified version of the Global Trade Analysis Project (GTAP) model and database, with improved specification of the agricultural sector and land-use. We augment the model with environmental indicators for New Zealand, including nitrogen balances and GHG emissions. We simulate a range of scenarios involving reductions in fertiliser use and stocking rates on dairy farms, from an updated 2010 database. In particular, we consider seven scenarios, with the objective of exploring reductions in the dairy stocking rate and the application of nitrogenous fertiliser to dairy farms to target reductions in the dairy sector’s nitrogen balance of 10%, 20% and 30%. Reducing fertiliser use and stocking rates are two of the approaches that dairy farmers can take in order to reduce their emissions of nitrogen and GHGs. Our results suggest that the nitrogen balance could be reduced by 10% with a 16% cut in nitrogenous fertiliser and a 5% fall in the stocking rate. Reducing fertiliser use and stocking rate by 31% and 11% respectively could result in a 20% cut to the dairy sector’s nitrogen balance. To achieve a 30% reduction in the nitrogen balance, our results suggest that the cut back in fertiliser use would need to be 45%, with the stocking rate reduced by 19%. Across these scenarios, our results indicate that value added in the dairy farm sector could fall by between 2% and 13%, while export earnings from dairy products may fall by between US$269 million and US$1,145 million