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Responsibility Without Regulation: a Dilemma for the Dairy Industry

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Responsibility Without Regulation: a Dilemma for the Dairy Industry CASE PROGRAM 2014-159.1 Responsibility without regulation: a dilemma for the dairy industry (A) At parliament on 9 July 2013, New Zealand’s Primary Industries Minister Nathan Guy launched the dairy industry’s new Strategy for Sustainable Dairying 2013-2020: Making Dairy Farming Work for Everyone. It was designed to capitalise fully on the global opportunities presented by the world demand for dairy products, and to “show everyone how world-class we are as dairy farmers and caring custodians of the land…responsible at a catchment and community level for building sustainable businesses, delivering local and national prosperity.” Handed out at the same time was the cornerstone document for environmental stewardship, the Sustainable Dairying: Water Accord. The 16-page publication was subtitled “A commitment to New Zealand by the Dairy Sector.” It replaced the Dairy and Clean Streams Accord (CSA), launched at parliament in May 2003, with high hopes that the industry could demonstrate it could voluntarily manage its environmental impact, without need for regulation. But early in its existence the CSA was criticised as “toothless”. Only one of its five targets had been reached by the end date of June 2012, while an increasing amount of scientific data was showing water quality deteriorating in many places associated with pastoral agriculture. With the new accord, Dairy Companies Association of New Zealand Chairperson John Luxton said, “We’re stepping up as an industry …to take responsibility for driving change and measuring progress towards our environmental goals.” 1 It was a broader and more This case was written by Janet Tyson for Professor John Alford, Australia and New Zealand School of Government. It has been designed to prompt class discussion not to pass judgement on any management decisions or direction. The case updates information detailed in the ANZSOG case study A voluntary environmental accord for the dairy industry 2004-7, available from http://casestudies.anzsog.edu.au. The assistance of Neil Deans, Kim Drummond, John Hutchings, Mike Scarsbrook and Bernie Walsh is appreciated, but responsibility for the final content rests with the author. Cases are not necessarily intended as a complete account of the events described. While every reasonable effort has been made to ensure accuracy at the time of publication, subsequent developments may mean that certain details have since changed. This work is licensed under Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International Licence, except for logos, trademarks, photographs and other content marked as supplied by third parties. No licence is given in relation to third party material. Version 20052014. Distributed by the Case Program, The Australia and New Zealand School of Government, www.anzsog.edu.au . 1 Dairy NZ press release: Dairy industry steps up with new water quality agreement. Posted 20 February 2013. Downloaded from http:www.dairynz.co.nz/news/pageid/214587996 on 07-01-2014. comprehensive commitment, he said. But could it be more effective than its predecessor in managing the environmental footprint of dairying? Sustainable Dairying was quite a different document from the CSA, with different signatories, different responsibilities and industry-wide yet more specific commitments. The industry itself was very different. After a decade of phenomenal growth, dairying accounted for 21 percent of all New Zealand grasslands. By 2012, 4.6 million dairy cows on 11,500 farms were producing 1.6 million kilogram of milk solids. The export value of dairy had grown by 83 percent, from $7.4 billion2 to $13.6 billion, and dairy’s contribution to total merchandise exports increased from 23 to 29 percent.3 The CSA, which had its origins in a chance airport lounge meeting in late 2002, was in part prompted by the “dirty dairying” campaign being run by the environmental group Fish and Game. The CSA set targets to exclude cattle from waterways, control the release of effluent and reduce the run-off of fertilisers and other agricultural nutrients into lakes and streams. Another goal was to identify and protect significant wetlands. There were four parties to the Accord: Fonterra, the co-operative dairy export company; Local Government New Zealand, representing the regional and unitary councils; and the Ministries for the Environment (MfE) and of Agriculture and Forestry (MAF), which had monitoring roles, including publishing an annual “snapshot” of achievement against targets. Although farmers were consulted in the development of the Accord, their industry body, Federated Farmers, had no role in it and its official dairy spokespeople were highly critical. Fonterra, which represented 96 percent of New Zealand’s dairy farmers, would use advice and education to encourage compliance by its suppliers, having limited sanctions to apply. Conditions attached to its legislative establishment in 20014 included a requirement that it must take all milk offered to it by suppliers, and that it should make available a designated amount for small competitor companies. The compliance power lay with the regional councils, which used the Resource Management Act 1990 (RMA) to set and enforce a range of locally-developed environmental standards. These mainly applied to the treatment of the effluent created by the twice-daily wash-down of milking sheds. Although, a prime purpose of the RMA was the allocation of resources such as water and air, no resource consent was needed to establish a dairy farm. There was no charge to use water, although, some councils required permits to take it. Liquid gold for lush pastures MfE’s annual snapshot reports of the CSA’s first years showed encouraging progress being made against targets. There was a rise in regional council-issued infringement and abatement notices as well as prosecutions of up to $25,000 for breaches of effluent consent.5 2 All currency in New Zealand dollars. 3 Making dairy farming work for everyone; Strategy for Sustainable Dairy Farming 2013-2020 p 15. Published July 2013 by Dairy NZ, Federated Farmers Dairy Industry Group, DCANZ, and the Dairy Women’s Network. 4 The legislation deregulated the dairy industry, removing the statutory Dairy Board, and made possible the merger of two major dairy companies to create Fonterra. 5 At the time penalties were a maximum of two years imprisonment and up to $200,000 fine with $10,000 for continuing offences. Applicable sanctions under the RMA ranged from verbal warnings and monitoring visits to infringement notices, abatement notices and enforcement orders as well as prosecutions. (Ministry for the 2 At the same time, “dairy conversions” were increasingly taking over from other land uses such as sheep and beef farming (Exhibit 2). Many of the fundamentals of dairy farming were changing as the industry led the charge towards the government’s goal of doubling pastoral exports by the year 2025. Massive irrigation schemes and winter grazing on support farms made it possible for water-hungry dairying to expand in areas previously seen as impossible like Southland with its severe winters, and parts of Canterbury with bone-dry summers. Existing dairy businesses were becoming more intensive, able to support more cows per hectare on pastures enriched with large amounts of fertiliser.6 Large-scale operations were appearing, some with herds as large as 3000 cows. Most were in corporate ownership, although individuals were also building portfolios of farms. “Sharemilking”7, the traditional path to farm ownership, was becoming increasingly impossible. The typical farm business, once a family operation with one or two labourers, was becoming a larger entity with a dozen or more staff to manage, an increasing number of them immigrant or temporary workers. New niche dairy companies were being established, slightly diluting Fonterra’s dominance of the supply base. Newcomers included the Māori-owned Miraka in the King Country and Canterbury-based Synlait, each building its own processing plant. The greatest area of dairy expansion was in the South Island (Exhibit 3), especially Canterbury. When the CSA was signed, only five percent of New Zealand’s dairy herd was based in Canterbury. By 2012, it was 15.4 percent, or nearly 700,000 cows. Seventy percent of all irrigated water in New Zealand was being drawn from Canterbury’s rivers and groundwater, and the region was facing shortages and over-allocation. While most regional authorities had developed a single Regional Action Plan to manage water issues, the Canterbury Regional Council, known as Environment Canterbury or ECan, was attempting something more ambitious. It was working with ten territorial local authorities to develop a non-statutory approach – the Canterbury Water Management Strategy (CWMS).8 The intention was to involve communities of interest in developing “second generation” plans that would establish environmental bottom lines and best practice, for each of 10 catchment-based water management zones. Protecting a priceless asset As dairy industry leaders were well aware, and an increasing number of their own farmers were reminding them, New Zealand’s “clean green” and “pure” image was a priceless asset in export markets. John Hutchings joined Fonterra as its General Manager for Sustainable Production in 2007. 9 His first priority, he said, was to increase the “farming-facing” advisory services to help Environment (2013) A study into the use of prosecutions under the Resource Management Act 1991, 1 July 2008-30 September 2012). 6 As early as 2004, the then Parliamentary Commissioner for the Environment warned of the potential impact this would have in a report ‘Growing for Good’. 7 By which young farmers, owning their cows, could run them on land leased on an annual basis. 8 In 2008, a report commissioned by the Ministers for Local Government and the Environment criticised the lack of progress being made in resolving water management issues in Canterbury, with allocations being granted subject to impossible conditions. Its recommendations led, in 2010, the government dismissing the elected regional council and replacing it with commissioners.
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