Identifying complementarities for the dairy and forestry industries in the central North Island

This study was commissioned by Oji Fibre Solutions (OjiFS) 1 and the Waikato Regional Council to provide sound evidence about the effects of land use in New Zealand using the dairy and forestry industries in the Central North Island (CNI) as a case study. The study was independently reviewed by the New Zealand Institute of Economic Research (NZIER) to confirm its validity. The aim of the study is to provoke and promote constructive discussion on how complementarity opportunities can be generated at a land enterprise (farm or forest) and catchment level to create beneficial scenarios for both industries. In that regard the study is deliberately simple in its approach: other sectors of the economy are excluded to keep the scenarios easy to understand and focused. Such a discussion will help stakeholders: comply with current national environmental policies such as the National Policy Statement for Freshwater Management (NPS-FM) and the Emissions Trading Scheme (ETS); inform pathways for achieving regional economic growth within environmental limits; and indicate how the integration of land-uses at different scales can be achieved more effectively than in the past. Initially motivated by the interest created by Warren Parker‟s “back of the envelope” contrast of dairy and forestry value chains (Appendix 1), this study has reinforced such calculations through a more extensive economic assessment. The “back of the envelope” comparison was developed with the objective of expanding the “narrow enterprise-only” perspective of land-use change to a wider conversation about environmental and social dimensions as well as financial returns. This study backs-up this analysis through a comprehensive literature review on the environmental externalities and ecosystem services generated by both industries, policies addressing them, and the market and non-market values assigned to them; a regional analysis of the relative profitability and value-added created by both industries; and upstream and downstream complementarity examples. The following table summarises the main findings from the study applied to the 28,000 hectares initially used in the “back of the envelope” contrast. It incorporates local yield figures at the land use and manufacturing levels. Review of environmental externalities and ecosystem services Relevant literature concerning national and local environmental policies addressing the externalities generated by both land uses (positive and negative) provided a range of prices and limits used as regulation avenues. The Emissions Trading Scheme (ETS) was established to provide an economic incentive to reduce greenhouse gas emissions including forest-based carbon sequestration. However, modifications to the ETS, such as the exclusion of emitting sectors (e.g. farming) and allowance of international units in the domestic market, have reduced the barrier for land-use change from forestry (such as in the CNI and Canterbury), resulting in high rates of deforestation to establish dairy farms in particular. The National Policy Statement for Freshwater Management (NPS-FM), introduced in 2011 and updated in 2014, has created an opportunity to internalise the externalities caused by excessive nutrient leaching from intensive land-use systems (e.g. high input dairy farms) and, potentially, to reach a regional development outcome where land use is within environmental limits and the economy is diversified and resilient