Saturday, 28 June 2014

Taxing cows

The Feds seem quite chuffed with their argument against the Greens' carbon tax proposal. They need to revise that position I reckon.

Stripping away the smoky trimmings, the argument can be summed up in this set of quotes
"even the Greens' report acknowledges 10 per cent of our dairy farms would be vulnerable, making our dairy industry less competitive"
"we would need to slash production. With current technologies, that is achievable only by cutting livestock numbers" but "our lost production would be replaced by others"
"the United Nations Food and Agriculture Organisation (FAO) believes we have the most carbon-efficient dairy farmers on Earth"
so "Given our carbon efficiency in dairy is almost twice the world average, if we transferred our dairy production overseas, net global emissions would increase by a staggering 13 million tonnes per year."
If you hated the carbon tax already you might quite readily fall for this argument, so the Feds love for it is perhaps understandable.

But look: those dairy farmers (10% of 'em) are financially vulnerable, so a carbon tax is (from a vulnerability angle) no different to a hike in interest rates or fertiliser prices.

A big enough cost increase might cause some kind of financial restructure at some farms, but would dairy farming stop altogether at those locations? I reckon it'd be far more likely to continue under new ownership. And this is the central question: would this financial impost on dairy farmers actually lead to less dairy farming than we have now?

The Feds assume so - that's their mirror/twinkle/twist, the key to their killer argument. This is the assumption they need to believe in order to claim that a carbon tax will increase emissions.

So the Feds underlying claim is that the proposed carbon tax will cause a material change in land-use in New Zealand: a moderately large number of dairy farmers will look at the tax, look at their dairy operation, and say: "yeah, nah, lets do sheep and beef instead".

This is just not going to happen. The proposed tax is far too small to force many farmers to convert from dairying to sheep & beef.  A top performing sheep beef farm is said to have similar returns on capital to dairy, but there is a lot more capital in the dairy farm. Reverting to the lower value land use strands the capital you are abandoning such as the cowshed - it won't be earning anything at all.

I reckon the Feds should take themselves off somewhere quiet, have a good long think, and then dispose of this silly argument in a suitable receptacle.

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