BEFORE THE BOARD OF INQUIRY TUKITUKI CATCHMENT PROPOSAL

IN THE MATTER of the Resource Management

Act 1991

AND

IN THE MATTER of submissions by HAWKES

BAY AND EASTERN FISH

AND GAME COUNCILS to a

Board of Inquiry appointed

under section 149J of the

Resource Management Act

1991 to consider a plan

change request, a notice of

requirement and applications

for resource consents made

by Hawke’s Bay Regional

Council and Hawke’s Bay

Regional Investment

Company Ltd in relation to

the Tukituki Catchment

Proposal

STATEMENT OF EVIDENCE OF ALISON MARY DEWES ON BEHALF OF

HAWKE’S BAY FISH AND GAME COUNCIL

October 2013

CONTENTS

INTRODUCTION 1

Qualifications and experience 1

SCOPE OF EVIDENCE 3

EXECUTIVE SUMMARY 3

ENVIRONMENTAL EXTERNALITIES – EFFECTS OF INTENSIVE AGRICULTURE 5

HBRC RATIONALE FOR PROPOSED APPROACH TO PRODUCTION LAND MANAGEMENT 7

PERMISSIVE POLICY REGIMES – THE CANTERBURY EXAMPLE 10

HBRC APPROACH RISKS NUTRIENT OVERALLOCATION 13

FEMP and PMP 15

DESIGNING SYSTEMS WITH THE FUTURE IN MIND & POTENTIAL OUTPUT CONTROLS 19

ADAPTIVE MANAGEMENT - DEVELOPING OUTPUT CONTROLS TO SUPPORT GOALS FOR PMPS 20

PHOSPHATE MITIGATIONS 27

Minimum practice standards 28

LAND USE CAPABILITY AS AN ALLOCATION REGIME TO PREVENT OVERSHOOT 29

GRANDPARENTING 31

NITROGEN CONVERSION EFFICIENCY AS A TARGET 32

USE OF OVERSEER FOR OUTPUT CONTROLS 33

INTENSIFICATION PARADIGM CORRELATES WITH INCREASING RISK 36

ECONOMICS OF THE RUATANIWHA IRRIGATION PROJECT 41

COMPARING RWSS WITH OPUHA DAM and PREVIOUS NZ DEVELOPMENTS 44

FARM SYSTEM MITIGATIONS TO IMPROVE RESOURCE USE EFFICIENCY AND

LOWER NUTRIENT LOSSES 45

FARMING WITHIN NUTRIENT LIMITS 49

SUMMARY of GSL COMPARATIVE ANALYSIS (economics and environmental effects of irrigation scheme) 51

THE NZ GROWTH AGENDA + WHAT IT MEANS FOR FARMING 53

CONCLUSIONS 55

Bibliography 57

Annexure 1 59

Annexure 2 60

Annexure 3 61

1

STATEMENT OF EVIDENCE OF Alison Dewes

INTRODUCTION

Qualifications and experience

1 My full name is Alison Mary DEWES

(a) I am Lead Consultant for Headlands, an agribusiness consultancy based in

Te Awamutu that assists farmers to achieve optimal profit while

minimising farming’s environmental footprint. Headlands are a subsidiary

of the Intelact group of companies. The group has 50 pastoral consultants

who work across NZ, Australia, Asia and South Africa. All are trained to

competently use UDDER, Farm Performance Analysis, and Nutritional

Models for on farm decision support. 30 have SNM training and 20 will

have ASNM training by end of 2013.

(b) I am a registered veterinarian and hold a practising certificate. I practised

as a large animal veterinarian in general practise in Queensland

(ranches&feedlots), Waikato and Taranaki for 11 years.

(c) I hold a BVSc from Massey University (1987). I am presently undertaking

a Masters in Biological Science (Ecology) at Waikato University.

(d) I hold the Nutrient Management (Massey 2009) and Advanced Nutrient

Management Course (Massey 2009) and I am also qualified in Farm Dairy

Effluent System Design and Management (Massey 2012).

(e) Other education in the past decade has included the following courses:

Financial advisory courses for Tier 111 registration for Agribusiness,

Commonwealth Bank of Australia 2007; Certified Adult Trainer, Melbourne

2004; Dairy Leadership Course Melbourne 2004; In Calf Training, Certified

2006; Advanced Dairy Nutrition, Australia 1999; Dairy Nutrition Course,

Lean, Massey 1990; Soils and Pastures Course, Massey 1993; and Milking

Machine Testers Course, Flockhouse, 1992.

(f) I am a fourth generation farmer I have spent twenty years dairy farming

with my family. My experience includes dairying in the Waikato region and

in Victoria, Australia.

2

(g) In the period from 1997-2001 I held a position in Milk Procurement for

Nestle in Victoria, Australia. During this time I was involved in technical

extension, and the development of the “on farm quality assurance

programme” for Nestle.

(h) In 2001 I took over as Business Development Manager for Intelact in

Australia. The business services were based on full farm analysis for

intensive pastoral farms, businesses faced with reconfiguration of systems

as they faced major constraints on surface and ground water allocations.

(i) In 2006 I became Agribusiness Lender for the Commonwealth Bank of

Australia and was involved in the appraisal and risk assessment of new

agribusiness for the bank.

(j) In 2009 I returned to New Zealand and was contracted to Agfirst and

undertook the Upper Waikato Nutrient Efficiency Study. I also analysed

more than 380 sheep, beef, and dairy overseer files for eco efficiencies for

MAF farm monitoring during 2009 and 2010. In 2011 I was contracted to

AgResearch to undertake farm system and economic modelling for farm

plans in Rerewhakaaitu and Waikato Peat Lakes Catchments.

(k) I act as a sustainable land use advisor for Raukawa Charitable Trust

(Upper Waikato Iwi).

(l) I am a professional member of the NZ Veterinary Association and NZ

Institute of Primary Industry Management.

(m) I have been an Expert Witness in Environment Court Hearings for the

Horizons One Plan, the Proposed Canterbury Land and Water Plan in 2013

and represented Raukawa for the South Waikato District Plan Change.

2 I have read the Environment Court’s Code of Conduct for Expert Witnesses,

and I agree to comply with it. My qualifications as an expert are set out above.

I confirm that the issues addressed in this brief of evidence are within my area

of expertise.

3 I have not omitted to consider material facts known to me that might alter or

detract from the opinions expressed.

3

SCOPE OF EVIDENCE

4 My evidence will deal with the following:

(a) The environmental effects of agricultural intensification, particularly the

effects of irrigated agricultural systems on water quality;

(b) The regime proposed by HBRC for farming

(c) The need to PMPs and FEMPs to be enforceable.

(d) The economics of intensified agriculture

(e) The importance of business having resource allocation certainty for both

design and planning

EXECUTIVE SUMMARY

5 It is well recognised that pastoral agriculture, dairy farming, and intensive

sheep beef and arable farming, are key contributors to water quality decline in

New Zealand, and contribute to issues of public health.

6 The externalities of concern include nutrient, faecal, and sediment discharges

to freshwater. Along with extraction of water for irrigation, operational

activities, and stock drinking water. In regards to human health discharges of

faecal microbes and pathogen contamination of freshwater is of concern, these

include coliforms, campylobacter and salmonella.

7 The Ruataniwha Irrigation Scheme is proposed to facilitate the development

and intensification of 42,000ha of land within the Tukituki catchment. It is

predicted that this intensification will occur on vulnerable soils which will

significantly increase nutrient and pathogen losses to the receiving

environment. The combination of these factors means that there is a very real

risk of a potential catastrophic environmental situation.

8 The proposed policy framework (plan change 6) does not have the capacity to

adequately respond to the risks posed by agricultural intensification. The

approaches proposed through PC6 are not adequate in terms of timeliness, in

that they will respond too slowly to head off irreversible changes or changes

that will have enormous costs to remedy or mitigate.

4

9 The policy framework proposed in PC6 does not provide sufficient certainty for

investors, or facilitate the adaptive management that may be necessary to

address environmental risk, and the costs of those adaptive management

measures.

10 I cover the aspects of both phosphate loss risk from a range of agricultural

practises, and the inability of the proposed plan to establish a base line of P

loss from land uses prior to intensification. Models to quantify this with relative

accuracy are still in development, and will contribute to adaptive management

in the future. How validation of all models is still required, and how uncertainty

in our ability to measure diffuse losses adds risk to an already permissive

development framework.

11 My evidence also assesses the economic risks associated with agricultural

intensification, and the lack of resilience this farming model is exposed to. I

cover the economic risks associated with highly geared agricultural systems. I

also identify that the proponents of the Ruataniwha project have used “blue

sky economics” which overstate the most likely long-term returns while

understating the risks from the intensive irrigated dairy models. I identify

where these should have been tested against wider sensitivities and considered

with caution.

12 I cover the inequity resulting from grandparenting approaches and how

Nitrogen conversion efficiency is not a valid metric to use for establishing the

environmental risk from a farming system.

13 I identify that while Overseer is a world-class model for nutrient budgeting, it

has some limitations that reduce its usefulness is assessing the value of some

management practices. These underplay the risks of some of the more

intensive systems and do not allow us to represent the range of environmental

benefits from some farming infrastructure particularly well.

14 Finally in association with Mr Ridler’s work, I calculate the true value of the

irrigated options, their marginal cost and marginal return. If it is economic

prosperity that the region is seeking then opportunities need to be weighted up

carefully against the risks. I find that the cost of the water (on a take or pay

basis), the cost to service, the infrastructure that irrigation required exceeded

the benefits from the added production from the irrigated feed. Much of this

was due to the mis-match of feed supply to the monthly lactation demands of

5

the increased herd required to consume this feed. This would create high

reliance on bought-in feed, and high reliance on support, cropping and

nitrogen. All of these have off-site environmental costs.

ENVIRONMENTAL EXTERNALITIES - EFFECTS OF INTENSIVE AGRICULTURE

15 It is well recognised that pastoral agriculture, dairy farming, and intensive

sheep beef and arable farming, are key contributors to water quality decline in

New Zealand due to the externalities associated with these activities (Allan

2004, Davies – Colley et al. 2004, Matthaei et al. 2006, Townsend et al. 2008).

16 The externalities of concern from pasture-based agriculture are

(a) effluent/pathogen runoff from the land, which contributes to the

contamination of waterbodies (both surface and ground);

(b) erosion and soil loss from the land leading to increased sediment loads to

surface waterbodies;

(c) loss of aquatic ecosystems, though loss of wetland habitats and riparian

vegetation;

(d) erosion of stream banks, leading to streambank instability;

(e) phosphate loss (effluent run off, soil loss and connectivity points);

(f) nitrate loss through the land and via run off (i.e. affecting both surface

and ground water quality); and

(g) Abstraction of water for irrigation, dairy shed wash down, and stock

drinking water also have adverse environmental effects.

17 These impacts are discussed further in the expert evidence of Associate

Professor Death, Dr Abell, Ms McArthur, and Ms Jordan.

18 Externalities contribute to declining aquatic ecosystem health (water quality

and habitat) and issues of public health. Coliforms, campylobacter,

cyanobacteria, and salmonella are among the potential pathogens. The

increase pathogenic loads to surface and ground waters from agricultural land

uses result in high rates of zoonotic and enteric disease and loss of public

amenity. (Mc Bride, 2011) (Larned, 2004)

6

19 I have read the evidence of Mr Mc Farlane and understand the proposed areas

for irrigation in the Ruataniwha basin are 25,000 Ha with the intent that the

land use is in this approximate breakdown: 37% dairy, 32% dairy support

integrated into mixed arable and arable, 9% orchard and vineyard, 13% a mix

of sheep and beef extensive, and 7% finishing enterprises. It is expected that a

further 17,000 ha of surrounding land will be developed to support the irrigated

land resulting in a total of 42,000 ha of land being intensified.

20 If agriculture production continues to increase, more stock per irrigated

hectare, more inputs to drive pasture growth, and a high degree of off farm

support, externalities and pressure on freshwater resources will worsen. When

this farm system configuration occurs on more vulnerable soils (coarse

textured soils) it results in proportionally higher rates of loss of nutrients and

pathogens to the receiving environments. The combination of these factors

means that there is a very real risk of a potential catastrophic environmental

situation.

21 Intensive farming on vulnerable soils results in an amplified amount of nitrate

nitrogen making its way to receiving waters and aquifers in the vicinity of

60kgN/ha/yr to 140kgN/ha/yr (up from around 20kgN/ha/yr to 30kgN/ha/yr).

Wheeler et al (2013) reports losses of 120kgN/ha/yr on coarse soils for dairy

(7B)1, and 134.8kgN/ha/yr for arable (5B)2.

22 Landcare Research suggests that intensive land use on stony(coarse textured)

soils is creating conditions with a high risk for leaching of soluble nutrients and

has the greatest risk of contaminant losses including microbes (Sam Carrick,

Landcare Research, pers comm.). Landcare Research clearly states their

concerns in a recent publication presented in February 2013, at FLRC by Sam

Carrick:

“The last 20 years has witnessed large-scale conversion of

alluvial soils into intensive dairy farming. In the South Island

most of the expansion of dairy farming has occurred on

irrigated stony soils that are vulnerable to nutrient leaching

1 Wheeler , D., Benson, M., Millner, I., & Watkins, N. (2013) OVERSEER Nutrient budgets modeling for

the Tukituki catchment. Reports prepared for Hawke’s Bay Regional Investment Company Ltd (appendix 1, table 12, page 32)

2 Wheeler , D., Benson, M., Millner, I., & Watkins, N. (2013) OVERSEER Nutrient budgets modeling for the Tukituki catchment. Reports prepared for Hawke’s Bay Regional Investment Company Ltd (appendix 1, table 10, page 30)

7

losses. This paper presents a stocktake of the distribution,

state of knowledge, and agricultural development on New

Zealand’s stony soils and highlights the urgent need for

research to be undertaken to determine the environmental

risks of intensive development on this land and to find land-

management solutions to these risks.” (Carrick.S, 2013)

HBRC RATIONALE FOR PROPOSED APPROACH TO PRODUCTION LAND

MANAGEMENT

23 While it is recognised by HBRC that productive land use within the Tukituki

catchment is impacting on aquatic ecosystem health, the approaches proposed

in PC6 fail to address all the externalities of concern or set in place a

management framework which will ensure that future land development is

sustainable. Instead it appears that based on the premise that only phosphorus

primarily needs to be managed to provide for ecological health, PC6 takes a

soft regulatory approach to land management, focussed on Management Plans,

some stock exclusion from waterbodies, and minimum output based standards

in regards to Nitrogen.

24 As stated in the Tukituki Catchment Implementation Plan3 “The under-

allocation of nitrogen (N) and over-allocation of phosphorus (P) (as reflected in

the instream nitrate – nitrogen (NO3-N) limits and the dissolved reactive

phosphorus (DRP) targets for the majority of the Tukituki catchment have led

to a preferred approach that is non regulatory focussed (stock exclusion

excepted) to manage P and a “lighter” regulatory approach to manage N”. The

premise is that P and only P needs to be managed down to the limits, to

protect ecosystem health. However, I note that the policies only require that

Point source discharges of P are reduced. This is despite HBRC accepting that P

is over allocated in the majority of their catchments (apart from WMZ4),

including upstream from the wastewater treatment plants.

25 Management approach taken by HBRC (Pol TT5) suggests that:

(a) Point sources do not increase loads, and that consent processes are used

to ensure loads are reduced

3 Tukituki Catchment Implementation Plan, HBRC Plan No. 4453. February 2013 (page 1)

8

(b) Where the DRP limits are currently met, to ensure that point source and

non point source loads do not allow them to be breached

(c) Where DRP limits are currently breached to not allow an increase in

current loads through diffuse discharges.

(d) Rule TT1 permitted does not require a reduction in P discharges from

existing farmers, nor does it grandparent existing P discharges, however,

it does exclude stock and requires a Phosphate Management Plan (PMP)

to be prepared for some catchments.

26 Thus the plan has no overall requirement for existing farmers to implement

specific or auditable actions in order to reduce their P loads from their historic

levels.

27 The justification for not establishing a more robust regulatory approach is set

out in the section 32 Evaluation which states that:

“With the Change 6 nitrate-nitrogen limits being set based on

nitrate toxicity, the catchment is in a largely under-allocated

state with regard to in-stream nitrogen and therefore does

not warrant a highly regulated environment. While the

allocation of allowable nitrogen catchment load limit to land

may provide certainty to landowners, there is a risk that too

much might be allocated and used, or the allocation may

need to change as the rolling average catchment load limit

changes. This creates uncertainty.4”

28 It appears that the basis of this plan relies on the establishment of in-river

nitrogen limits at toxicity thresholds which essentially creates the headroom for

further intensification of land use. The premise being that these limits will not

be reached in a short time frame, therefore intensification of land use can

occur in the absence of a nitrogen allocation regime. There is no requirement

for farm system design to mitigate this nutrient, apart from provision of a Farm

Environment Plan (FEP) (Pol TT4(1)g) for land use consented under rule TT2.

The FEP has no targets relating to the maximum N leaching allowable or the

degree of reduction required.5

4 Section 32 Evaluation Summary Report.SD 13/02. 9.7.6, page 43 5 S32 Evaluation Summary report (PC6) page 84

9

29 However, as the above statement from section 32 notes: there is a risk that

nutrient thresholds or triggers (80% of MAZL) may be reached at a point in the

future. Measures to manage that eventuality will require a more sophisticated

approach than the current allocation regime (first in first served approach) to

be implemented for nitrogen management. This lack of identification of a

management response “up front” in the plan creates uncertainty and risk for

farmers, businesses and investors.

30 A more robust approach to managing productive land use was originally

considered by HBRC and is laid out in the s32a report (section 9.7.6, pages 42

to 43). However, this approach was abandoned when it was decided that the

catchment was under allocated in regards to N which was set at toxicity limits.

31 Both nitrogen and phosphorus discharges to water bodies pose a risk to aquatic

health, and therefore both require management, to achieve periphyton limits

and protect ecological health, as discussed in the expert evidence of Ms

McArthur, Associate Professor Death and Dr Jonathan Abell. Olivier Ausseil

noted in a report in 20086:

‘If a management objective is to reduce the frequency and

duration of algal blooms in the Tukituki River, managing DRP

inputs to the system is an obvious priority target –this is

consistent with the RRMP which puts emphasis on DRP

management. It should be noted however, that managing

only one nutrient is fraught with risk (Wilcock et al. 2007),

particularly as some sites in the catchment appear to switch

to SIN-limited conditions during periods of low river flow. In

other words, SIN inputs to the Tukituki catchment waterways

should also be managed.” (Aussiel, 2008)

32 As such, Ms McArthur, Dr Abell, and Associate Professor Death propose that

instream dissolved inorganic nitrogen concentration limits should be set to

manage periphyton growths. Ms McArthur proposes DIN limits which are set

out in Appendix 4 of her EiC. Current water quality in the Tukituki catchment

was assessed agains these limits by Dr Abell (table 2, table 3, and table 4) who

concludes that in regards to the water management zones the Tukituki

catchment is on average 55% overallocated in regards to DIN (para 8.5).

6 Ausseil, O. (2008) Water Quality in the Tukituki catchment – State, trends and contaminant loads.

Report prepared for Hawkes Bay’s Regional Council

10

33 Failure to adequately account for the current degradation of freshwater

resources in the Tukituki catchment, and ensure that a robust regime is put in

place now which manages all externalities of concern including nitrogen and

phosphorus, will result in further risk to both businesses and the environment.

These costs will be borne not just by this generation but by future generations

as land and water resources are essentially managed in an unsustainable

manner.

PERMISSIVE POLICY REGIMES – THE CANTERBURY EXAMPLE

34 The Canterbury case provides us with a clear picture of how permissive

regimes can result in poor and declining water quality within a decade, where

there has been a significant and rapid increase of irrigated agriculture in

vulnerable landscapes. I characterise “vulnerable landscapes” as those for

which considerable inputs are required (e.g. fertiliser, water, soil conservation)

for them to be used for intensive farming. Worsening environmental trends are

evident, yet appropriate policy that will suitably protect the receiving water

bodies from continued decline is still being developed. This serious policy lag is

compounded by government proposals to irrigate a further 400-600,000 ha in

vulnerable areas in the South Island. In my view it is exceedingly dangerous

to proceed with intensification when the mechanisms to manage known serious

adverse environmental effects are not known or in place.

35 The key public health and ecosystem health challenges emerging from a couple

of decades of poorly governed and permissive resource allocation regimes are

evident. Across Canterbury, >25% of shallow wells show increasing nitrogen

concentrations. In some cases this is occurring within a decade of

development. Pathogen enrichment of shallow wells is increasing (Ford, 2012),

and algal blooms are appearing more frequently (CDHB, 2013). Seven of the

main rivers in Canterbury had algal blooms in the summer of 2013 rendering

them unswimmable (Dewes, 2013). Potentially toxic blue-green algae (benthic

cyanobacteria) has been found in several local lakes (CDHB, 2013).

36 Some sectors have requested lengthy adaptation periods for farming to

incorporate mitigations into their farm systems. Their reason for seeking

extended timeframes is that without such a long phase-in, the heavy

indebtedness of the industry makes a fast response economically unviable. In

other words they cannot cover the costs of the environmental externalities they

11

are presently creating, through unsustainable intensification of their farming

businesses, which are now exceeding environmental limits.

37 Ultimately a lack of adequate policy to guide resource use and intensification

behaviours will result in negative impacts on the farmers themselves and

ultimately their asset values. It is conceivable that the image of the industry

could decline also, which would affect both the sale of commodity products and

the source of labour.

38 The Crafar Farms media attention in 2010 which resulted in a significant

negative public reaction to the industry as a whole, is an example of this. This

is a case where a failure to manage intensification contributed to a higher

environmental risk and resulted in both national and global brand damage.

This component of the pastoral sector needs management, guidance and

coercion to meet clear targets. A soft approach in regards to reliance on farm

environment plans and phosphorus management plans, without clear output

based standards or clear management requirements (input based standards)

mandated through regulation, in my view will not be enough to engage nor

manage these farmers.

39 The issue with the Crafar farms (and a few of their cohort aside), is not

generally a lack of knowledge or understanding by farmers, but a lack of

leadership for farmers. Farmers generally want to do the right thing. They

want to invest their time and money into meaningful mitigations that will not

only improve their asset, and be fair to their colleagues, but those that will

effectively protect and enhance the overall health of the catchment.

Figure 1:Demographic of farmers and their response to change.

12

40 However, without clear goals strongly correlated to ecological improvements

and protection, farmers will be uncertain as to how much they need to do, and

within what time frame. Also, many farmers will not willingly change farming

practices or adopt mitigations which are seen to be costly, that they cannot

realise efficiencies from or where they see their costs are much higher than

their neighbours. Without a framework which is equitable across land uses and

land managers for the establishment of goal orientated standards, the risk is

that the early adopters will do more than their fair share, and “free riders” will

do less than their fair share effectively “grabbing and exploiting available

nutrient headroom from their unassuming colleagues”. This is the “tragedy of

the commons” in action.

41 The above situation results in inequitable outcomes for farmers, and further

degradation of resources. The biggest losers may end up being the farmers

that are longest standing residents, who are not choosing to intensify at this

time.

42 The Canterbury example provides an insight to New Zealand of the unforeseen

and now unaffordable costs of a permissive regime. Intensification occurring

under a permissive resource allocation framework has resulted in farmers

extended themselves financially with no plan on how to mitigate their impacts

or account for the costs of their externalities within their businesses.

43 In my view the experience in Canterbury should highlight the importance of

ensuring that planning for ecological limitations in waterbodies drives design in

our farm systems. With the Canterbury experience providing a region-wide

“field trial of land use intensification and effects” the planned Hawkes Bay

intensification process should be better placed to design and implement

planning provisions that avert similar consequences.

44 If appropriate and clear regulatory signals are sent to our agricultural sector,

then farmers are more likely to strategically plan to improve their output

without the corresponding increase in environmental effects, and configure

there businesses within environmental limits. It also ensures the development

occurs in a sustainable manner, and does not therefore impact on existing land

users.

13

45 In my opinion, clear and equitable resource allocation to prevent “nutrient limit

overshoot” at the outset of a plan would provide certainty and allow new

businesses to design their farm systems accordingly at “business start up”.

46 A new dairy farm for example should be configured with the best N and P and

effluent mitigations in place, so that it can meet land-based nutrient loss

thresholds. This enables them to operative a “no surprises” relationship with

their lenders with respect to requirements for further capital expenditure (debt)

to secure mitigations at a later date.

47 This may mean that a new irrigated dairy farm, for example, should be

designed with future constraints in mind. That is a system that either operates

in a less intensive manner (covered later in my evidence) or, it should be

designed with feeding, extensive effluent capacity and stand off infrastructure

in order to mitigate N, P and pathogen loss risks that are heightened by an

intensive system (i.e. if it is a system 4-5 farm7).

48 Where farmers themselves are unclear that their actions will result in improved

catchment outcomes and where the burden of responsibility is unable to be

allocated equitably, they will be unlikely to engage in soft regulatory or

management approaches in a meaningful way. As stated by Judge Thompson

in his recent decision8 on Horizons One Plan “(Voluntary approaches)… need

the reinforcement of a regulatory regime to set measureable standards and to

enforce compliance with them by those who will not do so simply because… it is

the right thing to do” (para 5-9). I concur with his statement.

HBRC APPROACH RISKS NUTRIENT OVERALLOCATION

49 The approach taken in Pol TT5 depends on the following criteria being met:

(a) Point sources do not increase loads, and consent processes ensure loads

are reduced.

(b) Where the DRP limits are currently met, to ensure that point source and

non-point source do not allow them to be breached.

7 System 4-5

System 4 - Feed imported and used at both ends of lactation and for dry cows Approx 20 - 30% of total feed is imported onto the farm.

System 5 - Imported feed used all year, throughout lactation & for dry cows Approx 25 - 40% (but can be up to 55%) of total feed is imported.

8 [2012] NZ EnvC 182

14

(c) Where DRP limits are currently breached to not allow any increase in

current loads through NPS discharges:

Rule TT2 consented farmers must not breach existing loads (Pol TT5).

I note that there is no overall requirement for existing farmers (as PA

rule) to reduce or not increase P discharges. Rule TT1 (permitted

activity) does not require a reduction in P discharges from existing

farmers, nor does it grandparent existing P discharges. It does require

that stock be excluded, and requires a P management plan to be

prepared for some catchments.

50 These approaches rely on use of the following encouragements:

(a) Farm Environment and Phosphate Management Plans (not bound by a

time bound action plan) that are largely self-management.

(b) Industry Good Practice (still to be derived).

(c) Nutrient Use Efficiency as a goal.

(d) Allowing farms leaching under 15kgN/ha/yr to intensify up to this limit.

(e) Grandparenting existing farms leaching over 15kgN/ha/yr.

(f) For (d) and (e) above allowing these farms to increase leaching by 10% or

an absolute value of 5kgN/ha/yr

51 It appears that the general approach being proposed by HBRC is to raise

awareness, gather information and implement good practice through farm

plans. However, the farm plans fail to establish clear time bound requirements

for improvement in management practice which are tied to quantifiable

environmental outcomes.

52 HBRC is largely supporting an Industry Self Management Approach with no

time-bound actions or enforcement. This “wait and see approach” is highly

risky and could result in stranded capital when over-allocation of diffuse loss

rights occur. It is also not clear what the industry self management requires

of a farmer. It is very hard to do audited self management without any

standards to perform to.

15

53 This loose “wait and see” approach will affect not only the new businesses

being established on the premise that they will not be constrained by nitrogen

limits, but also the established farmers in the region such as grape and pip fruit

growers who rely on an unadulterated water supply. Intensification of the

region’s agriculture under a permissive framework will allow new businesses to

grab and exploit the nutrient headroom taking it away from existing farmers

who may choose not to intensify in the short term.

54 Theoretical promises of meaningful self–policing practices may work, but only

when an industry has a history of demonstrating it understands the principles,

and has the capacity and interest to meet its own standards or rules. This not a

suitable framework to:

(a) Ensure precautionary management of “protection of the receiving

environment” occurs, especially in the face of high uncertainty as to the

effects of intensification on coarse and leaky soils; or

(b) Provide enough certainty to the community that industry oversight is

adequate. And that running such a regime will be managed to the level

required to achieve the desired outcomes that the community aspires to.

55 Any self-audited system must have at least these components:

(a) It must provide sufficient certainty to the regulatory authority and public

that it will achieve the desired environmental outcomes; and

(b) Reporting must not be subject to doubt. Any self-audited regime must

ensure the public is provided with the results of the auditing process, and

that the supporting audit information is freely available, and transparent.

It has to demonstrate that the body seeking self-audit can be trusted to

rigorously carry it out.

FEMP and PMP

56 The Farm Environment Plans (FEMP) that are proposed in Schedule XX11

encourages farmers to undertake a process of recording their current practices

on a range of management, irrigation and environmental practices.

57 Looking at farms with N loss rates under the threshold of 15-20 kg N/ha/yr and

not intensifying (TT1). They are permitted activities. There is no avenue for a

16

discussion between the farmer and the council and no opportunity for the

council to ensure that the FEMP or PMP is written in a certain and enforceable

way.

58 Confounding the enforceability issue is that councils do not have a good record

of “spot checking” permitted activities, so are unlikely to ever spot trouble

unless there is a complaint. This is a high risk approach. It will not allow

essential data on land use, risks of that use, and the monitoring of cumulative

effects to occur in a meaningful way. Council has no way of becoming alert to

impending issues. Farmers have no early alert system either.

59 For farmers seeking to intensify, it is a restricted discretionary activity

(requires resource consent under Rule TT2) and they must prepare a FEMP.

The proposed plans seem to lack specificity.

60 FEMP need to be clear, specific, quantifiable and enforceable, backed up with

the provision of sound, auditable data (such as actual overseer file, records of

fertiliser form and application rates to blocks, along with soil tests to validate

assumptions etc.). There is more likelihood of ecological integrity being

safeguarded through catchment wide land use monitoring being undertaken.

This will allow HBRC to closely monitor land use risks and effects and ensure

the thresholds for phosphate management in receiving water bodies is not

breached.

61 A requirement of Policy TT5 (1)(d) is that a P management plan (PMP) is

required for properties more than 4 ha in the Papanui, Porangahau,

Maharakeke, Tukipo, Kahahakuri and Upper Tukituki Corridor catchments. I

note that large parts of those catchments are within the RWSS command area

and therefore P management for properties covered by the RWSS consent will

need to be consistent with P management for the remainder of the catchments.

62 If a farm is not intensifying above the grandparent rate, it is a permitted

activity (rule TT1). One of the conditions of this rule is that they must do a

PMP. The most recent plan says the PMP must be prepared and 'implemented'.

The council will therefore technically not be able to enforce the conditions of

the permitted activity rule, including how that the PMP is prepared and

implemented. A similar requirement will be needed for FEMPs under the RWSS

consent because they relate to consent conditions that need to be enforceable.

17

63 Therefore a PMP and FEMP must be able to provide certainty and clarity with

respect to quantification of P loss both before and after intensification in order

to give proof of a P neutral position from land.

64 I concur with the sentiment of Dr. Mc Dowell in that all phosphate management

plans (and Farm Environment Plans within the RWSS command area) should

incorporate mandatory requirements to:

(a) Identify Critical Source Areas for P loss and highlight the most suitable

mitigations and model their effect.

(b) Use a full OVERSEER assessment to enable farms to manage their P loss

risk on a block by block basis (rather than just a simple whole farm

nutrient budget with no provision of the OVERSEER file).

(c) Incorporate time bound actions that are auditable by a third party to

deliver on mitigations and practises that do not increase the risk of P loss

to the receiving catchment.

65 As such I support the position of FG that input based standards as outlined

above should be mandated and enforced through regulation.

66 As Dr. Mc Dowell notes, there is much evidence to show that a high stocking

rate on vulnerable land adjacent to waterways and the use of intensive forage

crops and “hybrid” feedlot systems are high risk of loss to receiving water

bodies. This is relevant not just for P but for nitrogen and pathogens as well.

Dr. Mc Dowell also notes that these practises will be obvious candidates for

future regulation if HBRC water quality targets fail to be met.

18

67 An example of a typical “hybrid” feedlot is in the photo below:

FIGURE 2: Otane Feedlot (They are on the old Waipawa river bed which shifted direction

several hundred years ago and now flows down past Patanagata, with the Tuki Tuki. The

soils are light stoney gravels, as you would expect in a braided river. They are very free

draining.)

68 This feedlot above will not be captured by the feedlot rule, but will be required

to manage phosphate loss through a LEP (Beef and Lamb). The current

proposal would be that an operation such as this would only have to provide a

full farm nutrient budget and a farm plan with a response sheet that may have

recommendations that are general in nature. This lacks specificity,

quantification, spatial identification of risks, and furthermore, will be produced

using protocol methodology for OVERSEER finessing the actual P loss risk. In

the case of the above farm example, the “pugging” option would default to

“rare” for this block. This approach will not only understate the actual loss that

is likely but its performance is unauditable.

69 The risks from these farming configurations are:

(a) A high degree of soil disturbance (pugging) resulting in slugs of sediment,

P and pathogen loss to surface water. This will be exacerbated in

inclement weather events, especially in the most vulnerable areas

(erodible, sloping, saturated).

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(b) Compaction of soils where hybrid feed lotting occurs (in this case it is a

coarse textured soil (old river bed) subsequently resulting in loss of soil

integrity and elevated risk of nutrient and pathogen leaching to the sub

surface drainage water.

(c) These activities (figure 1) overwhelm the soil ecosystem services, leading

to topsoil disturbance and loss, and the assimilative capacity being

exceeded resulting in high risk of both surface and subsurface loss of P.

(d) Concentrations of animals and feed stores in “tight” areas create “hot

spots” (silage stacks) for surface (to surface water) and subsurface (to

groundwater) losses of N, P and pathogens.

DESIGNING SYSTEMS WITH THE FUTURE IN MIND & POTENTIAL OUTPUT

CONTROLS

70 The nutrient management approach proposed in PC 6 is based on benchmark

eg 15kgN/ha/yr or grandparenting with both being allowed to increase leaching

by either 10% or 30% (PA rule TT1). Rules TTI and TT2 bring in industry good

practice leaching rates. The industry practices are not provided in the rules, but

rather are going to be developed by 2018 in association with industry – after

the intensification has occurred.

71 Rule TT1 (implementing the Nitrate-Nitrogen limits) requests that records be

kept for Overseer files prior to July 2018 and provide if they are requested, and

also be in line with “industry good practise leaching rates”. Not only are these

practises or quantifiable thresholds not provided until 2018, but also by leaving

this responsibility to industry who will have self -interest at heart, rather than

linking them to ecological limits (which should by rights guide the N allocation

metric), the approach seems to be meaningless.

72 Although these mitigations were not included in McFarlane’s modelling, in point

5.16 to 5.20 of his evidence, he notes the effects of nutrient constraints and

mitigations would be unlikely to affect the returns of the business. (point 5.20)

inferring that nutrient (N) limits will not adversely affect farming profitability

because efficiencies will be gained through improved farm system design: ”I

would not expect such changes to impact negatively on ROC … and such

options will increase the total capital required, but invariably also increase the

productivity per cow in tandem with lowering nitrate leaching” (MCF pt 5.2).

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73 His statement is in stark contrast to a figure generated by his own business

(MRB) on the economics of nutrient mitigations 20129, which showed that a

significant drop in profitability would be incurred by a dairy farm having to

adapt to a subsequent N limit (drop operating profit by up to 29%).

ADAPTIVE MANAGEMENT - DEVELOPING OUTPUT CONTROLS TO SUPPORT

GOALS FOR PMPS

74 Ideally we should be taking a precautionary approach to our development in

part because of uncertainty of outcomes and because of environmental

response times. These response times can be better understood through good

long-term monitoring. Development of plans (over 10 years) should allow for

adaptive management of resources and policies should also be responsive to

change. Unfortunately we have violated each of these fundamental planning

pre-requisites increasing the risk of adverse environmental outcomes

(pers..comm., David Hamilton).

75 Therefore it is essential that clear base lines (quantification of N and P loss

from land use pre intensification is essential meaning earlier (2014) collection

of OVERSEER data rather than 2018(TT4) is desirable) and that detailed,

prescriptive, auditable, and quantifiable measures provided to the farmer

76 As models develop (to quantify phosphorus, sediment and pathogen loss risk

such as the MitAgator10), more appropriate output control methods may

emerge to allow better quantification of diffuse losses to complement the

output control relying on N and P loss from OVERSEER.

77 Similarly, good practises that a farmer may put in place such as a detainment

bund below critical risk areas for P loss, (to reduce surface phosphate runoff,)

such as the bund in Figure 1 below, which captures surface runoff water from

pastoral landscapes during inclement weather events and allows the sediment

to settle, thereby reducing the P load making their way to receiving water

bodies.

9 Ruataniwha Irrigation Scheme: Economics of N loss mitigations MRB report May 2012 page 11. 10 Evidence of Richard McDowell points 6.8 & 6.9

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FIGURE 3: (Photo: Dylan Clarke) A typical detainment bund, designed to temporarily

pond ephemeral stream water, Waiteti Stream catchment, Rotorua, March, 2012. This

photograph has been taken after a runoff event and the pond is still draining.

78 The simple definition of surface runoff is rain that runs off rather than

infiltrating into or remaining on the surface where it lands. During high

intensity rainfall, not all water will infiltrate through the soil. Excess water will

pond and runoff via overland flow.

79 There are three main mechanisms producing overland flow:

(a) Infiltration excess overland flow. This occurs when rain cannot infiltrate

through the soil fast enough. This is a function of soil permeability and

rainfall intensity (Horton, 1933) and usually occurs during short but

intense rainfall events (McDowell R. S., 2009).

(b) Localised infiltration excess overland flow. This occurs in specific areas

where soil is saturated, such as the base of hills where water accumulates

(Beston 1964). Livestock can exacerbate localised infiltration excess

overland flow through compaction around areas such water troughs,

races, and gateways (McDowell 2009).

(c) Saturation excess overland flow. This occurs where soil is saturated and

no infiltration is possible (Dunne, 1970). Runoff usually occurs by

saturation excess during large storms (McDowell 2009) (Clarke, 2013)

22

80 Overseer will not be able to model this, thereby reducing any beneficial effects

that may result from a mitigation such as figure 2. As a result, the net change

or the ability to truly reflect the effects of both farm system change or farm

system mitigations for phosphate loss risk is “muffled” by the lack of the ability

of the model to cope with these practises or mitigations, resulting in outputs

that lack both clarity and certainty.

81 Consider the following scenario: McFarlane Rural Business (MRB) suggest that

15.5 % of the region will go to mixed arable, integrating dairy support and

finishing. The farm systems that are detailed in economic scenarios include the

following high risk activities for P loss, on class 4-6 land.

82 These systems, will rely on a shift from what is presently a more extensive

sheep and beef configuration to that supporting the dairy industry (mixed

arable) through winter grazing of dairy cows and young stock, with the use of

cropping strategies. This move from extensive to more intensive such as farm

4B in the M2 Overseer report, results in P loss being reported to be around

20% greater, and N loss risk being anywhere from 50% to double the rate of

loss from the more extensive pastoral systems. Wintering higher stock

numbers, urine patches on saturated soils, and the use of forage cropping

significantly increases the diffuse loss risks from these intensifying support

farms.

83 In 10.3 of Dr. McDowell’s evidence – he also states that P neutrality or P

reduction did not occur under a voluntary regime in Taranaki – he notes the

following: “Subsequently the author has reported that due to 3-7 year climate

cycles, market forces (including intensification) and variable uptake of

mitigation practices there was no improvement in water quality during 10 years

of monitoring” and reinforces the requirement for legitimate, specific

monitoring and modelling in order for a P neutral or P reduction plan to be

effective: “Proof of being P neutral and decreasing P losses requires knowledge

of where P losses are occurring and that they can be mitigated. This requires

good modelling, but also emphasis on monitoring at the correct spatial scale to

detect changes in P loss from CSAs following the establishment of a baseline

and the initiation of a suitable mitigation strategy.”

84 If any modelling of Critical Source Areas (CSA’s) as noted by Dr. McDowell

occurs, they must also take into account farm system changes that are

23

proposed and likely to occur through intensification. Yet in this case (PC6), no

base line requirement is required prior to intensification.

85 The example of a LEP and PMP provided by Mr. Milner in his Statement of

Evidence (Exhibit 1) highlights the lack of specificity and detail in

recommendations, thus making auditing and follow up for any third party

auditor very difficult to ascertain whether suitable or meaningful mitigations

have been implemented to a measurable degree. Comments such as “direct

drill at high risk times” and “soil test” and “stock exclusion, begin installing

more permanent fencing” clearly lacks quantification, specificity and exact

location therefore is unable to be audited against a net modelled or measurable

drop in phosphate loss risk, due to the lack of clarity in the actions detailed for

2014 and 2015 in the exhibit. In order for a PMP to be legitimate and achieve

the desired intention of the rules (to maintain phosphate neutrality), then there

will need to be far more prescriptive, auditable, and quantifiable measures

provided to the farmer which are not only clear, but measurable and linked to

the farm system: present and proposed. These actions will need to be able to

show that a demonstrable reduction or neutrality of phosphate loss risk is

achieved in the overall farm system.

86 Dr. Mc Dowell also cited in his Statement of Evidence point 9.3 suggesting

there needs to be more detail in the farm monitoring programmes with regards

to specific soil sampling, siting and the provision of enough legitimate data in

order that the P loss in OVERSEER is both robust and useful. I concur with his

position.

87 Accurate, legitimate and quantifiable data providing enough detail will be

necessary to monitor the cumulative adverse effects that emerge from

intensifying over 42,000 Ha of land. The examples I have seen of FEMPs do not

provide one with enough certainty that this will occur- firstly the 5 year lag

present prior to collection of nutrient budgets and the lack of specificity

demonstrated in the response plans.

88 In addition, Dr. Mc Dowell cites in point 10.3 of his evidence, that some

submitters requested that the Dairy Industry Accord (“Accord”) type waterways

be sufficient to replace the P loss conditions in the FEP. I concur with Dr.

McDowell’s sentiment on this matter, that the Accord type waterways do not go

far enough to protect from the risk of cumulative P loss across the catchment,

24

and that intensive grazing and cropping practises around first order streams as

he notes, “contribute to a disproportionately large amount of the contaminant

load to larger (2nd order) streams”. Lack of protection on the smaller perennial

streams means they also provide very diminished aquatic habitat, especially for

diadramous fish species (many of NZ indigenous species) that require the

upper reaches for spawning.

89 I highlight examples in Figure 4 & 5 below of ephemeral streams that are not

captured by the Accord and do not require protective management under the

latest industry GAP yet would provide a significant contribution to both

phosphate, sediment and pathogen load to receiving water bodies during

inclement weather events.

90 Phosphorus transport in ephemeral streams through the following mechanisms

as noted by Clarke 2013: ”An ephemeral stream is essentially water travelling

as overland flow, but specifically refers to water discharge down a natural flow

path as a result of combined overland flow. Ephemeral streams flow over

otherwise dry land with flow durations lasting from minutes to days depending

on precipitation intensity and soil characteristics. Rainfall events can yield large

volumes of water over short periods of time, hence ephemeral streams can

have high discharge volumes and fast flow velocities. Ephemeral streams can

potentially transport a disproportionally large amount of sediment and

nutrients from a farmed catchment over a short period of time (Hart, 2004)

They are the main pathway for storm water transport from land (e.g.

paddocks) to receiving water bodies such as streams, rivers or lakes”. (Clarke,

2013). OVERSEER does not account for these events, the model assumes that

sediment, effluent and corresponding nutrient will have connectivity with

receiving water bodies, therefore is not able to quantify the contribution from

this source.

91 Water is a conduit for P transport (McKergow, 2007). Ephemeral streams

transport both dissolved and particulate forms of P, either through desorption

of soil P to overlying water, or direct transport of P-enriched soil (McDowell,

2001). Potential P loss in overland flow is directly related to the catchment

characteristics (e.g. geology, infiltration capacity, topography, climate), land

use (e.g. dry stock or dairy) (McDowell R. W., 2008) and management

practices (recent fertiliser application, soil P concentration, soil compaction/

25

disturbance) in the contributing catchment prior to the runoff event (McDowell

R. N., 2012)(Hart, 2004) (Clarke, 2013)

Figure 4: Ephemeral stream Wairarapa following intensive grazing pressure on saturated

soils. The stream fails to be protected by GAP. High risk of P loss to 2nd order streams. P

loss risk will not be quantified by OVERSEER in this case.

Figure 5: Ephemeral Stream Upper Waikato: Provided by J Quin (NIWA)

92 As mentioned earlier, the risk of diffuse loss (particularly to groundwater) is

greatest on light soil types. This was illustrated in the OVERSEER modelling

26

undertaken by Mr Wheeler in the M2 report in 2012 which he still stands by.

(pt 8.5 page 15)

93 Irrigation and agricultural discharges is the leakiest when on land with shallow

soils underlain by shingle or sand

94 A reasonable percentage of the soil types in the irrigable zones will fall into the

coarse or light category with low moisture holding capacity. These soils are

high risk for a number of reasons:

(a) There is no actual lysimeter data on coarse soil types under irrigation as

highlighted by Sam Carrick (Landcare Research). This is true for all of NZ.

(b) There is a dearth of information on how these soils attenuate pollution

when under intensive irrigated systems and how pathogen and nutrient

transport occurs through these soils, rendering any expert unable to

model accurately the effects of intensifying and irrigating these soil types.

(c) The only similar example we have for this is in Canterbury where 70% of

intensive, irrigated dairying is occurring on light/coarse soil types, and the

environmental effects such as elevating nitrate and pathogens in shallow

wells is occurring within a decade of intensification. (Ford.R., 2012)

(d) Dr. Mc Dowell notes in his response to Ngati Kahunungu’s concerns

regarding intensive irrigated agriculture on light soils: “I concur that these

areas need to be highlighted as potential CSAs for P loss. However, this is

only a hypothesis at the moment and there is a dearth of information to

confirm this. I suggest that tools such as the P matrix and MitAgator be

used to highlight these areas as potential CSAs and work be undertaken

to confirm this”

(e) Unfortunately this is not included in rule requirements, so the

intensification of light (high risk) soils will continue without the precaution

which is recommended by Dr. Mc Dowell: “I suggest that these areas are

avoided for practices such as grazing forage crops or intensive animal

feeding operations.”

95 On the basis of the above rationale, it would seem sensible therefore to ensure

that the greatest mitigations take place on the light or coarse soil types, where

some of the greatest risks of N, P and pathogen loss risk lies.

27

96 Thus the use of LUC allocation will mean that the lightest soils, which also

reflect the highest N loss soils, will be required to mitigate their effects to meet

their N loss target. This will, by default, reduce the risk of P loss risk and

pathogen loss risk, and offer precautionary management on these soils where

there is a dearth of information, but the highest risks.

97 I note that there is reference to a collaborative or group approach for sub

catchments in order to manage their phosphate loss. This is in the section 32

analysis. This is noted in response to Dairy NZ and Fonterra’s suggestion of

catchment action groups to address P, but in the evidence of Dr. Mc Dowell he

states the following:

“However, removing this condition and applying at a whole of

catchment or Scheme level may result in inactivity, via one land

user assuming that mitigation will be done by someone else, and

may result in increases in P losses in some sub-catchments”

98 I concur with Dr. McDowell and believe it is unlikely that an innovator farmer

will shoulder responsibility to mitigate on behalf of a free rider. I am unclear

why any farmer would make a voluntary change, when there is no degree of

certainty over the degree of change required from all other nutrient loss land

use activities or by other individuals, and whether reductions in contaminant

losses will eventually lead to a P neutral catchment.

99 A combination of: uncertainty in the ability to quantify losses or net P neutrality

accurately (between farm system changes), unclear guidance in regards to the

adoption of mitigation measures, failure to establish contaminant output

standards, coupled with an inability to enforce actions in plans by the council is

likely to result in worsening freshwater quality issues (both surface and

groundwater) and potential to breach the phosphate trigger zone in sensitive

sub-catchments. On this basis, I support output standards that are based on a

LUC allocation regime as proposed by Fish and Game.

PHOSPHATE MITIGATIONS

100 This has been covered extensively by Dr. McDowell who is the specialist in this

area. I concur with all of his approaches to both quantifying and managing the

risks of phosphate loss from farming systems.

28

101 The appendices have table is a summary of BMP’s for phosphate mitigations, a

summary of N loss mitigations

102 Phosphorus mitigations are generally low cost and should be encouraged and

utilised on farm whenever possible. They usually involve ensuring that

minimum practice is applied. These sorts of measures include ensuring that:

stock are excluded from waterbodies; that no direct run off of soil or

contaminants occur from the pasture, farm tracks, bridges or culverts; and that

effluent is managed appropriately.

103 I cover numerous examples later in my evidence (mitigations and farming

within limits) which support the fact that intensive farming systems can be

configured in a manner with advanced mitigation technologies that lead to high

efficiencies, improved productivity and profit while significantly lowering the

risk of diffuse losses to the environment.

104 I support the approach detailed by Mr. Tony Rhodes in his evidence where he

eludes to a sinking lid of NDA’s over time as the plan adapts to environmental

monitoring feedback.

105 It is on this basis that I support the approach proposed by Fish and Game

which establishes a long term plan for nutrient loss allocation using nitrogen

loss at the outset of this plan change. This approach will give all businesses a

degree of certainty in order to allow them to configure their farming system,

and capitalise accordingly. The greatest stress for any farming business is to

have to take on increased debt without a sound lead in time.

Minimum practice standards

106 The establishment of minimum practice standards, means that those

contaminants where an output control cannot be established are still managed

in order to reduce discharges. For example ensuring that:

(a) stock are excluded from waterbodies,

(b) best management practice is met in regards to fertilizer use and

(c) best practise effluent management,

29

(d) that highly efficient irrigation practises are used (resulting in negligible

drainage), and

(e) that the assumptions made by OVERSEER in regards to farm management

are in place11,. In my opinion, an appropriate management approach is

one that focuses on all the externalities of concern, including phosphorus,

nitrogen, sediment and pathogens.

107 I support the Fish and Game approach which is the use of output based

standards mandated through regulation.

108 For nutrient emission rights (pollution rights or nutrient discharge allowances

(NDAs)), the appropriate approach would be to establish output standards for

nitrogen loss (output controls) and ensure that minimum practice standards

are met on farm to minimise phosphorus loss, by mandating these through

regulation. Presently the model OVERSEER is used in planning instruments

(e.g. the Horizons One Plan and Taupo) to assist in providing a quantifiable

metric of a “farm’s relative nutrient loss risk” to the receiving environment.

OVERSEER, although not perfect, can provide relative risk data for N loss, but

is less appropriate for quantifying P loss risk from land uses.

109 Overseer provides a quantifiable and relative measure of N loss risk that can be

used to guide improvement, or “lowered risk of nutrient loss” in “relative

terms” as noted by Mr. Wheeler in his statement of evidence. It provides a

system whereby nutrient loss rights can be allocated on an “output based”

method, which is more favourable for farmers as it drives innovation to reduce

pollution as efficiently as possible.

LAND USE CAPABILITY AS AN ALLOCATION REGIME TO PREVENT OVERSHOOT

110 An LUC regime for allocation of nitrogen loss rights provides three fundamental

requirements for business over the ensuing decade. A) Improved certainty for

business to operate and plan within (new and established) thereby reducing

the risk of stranded capital12. B) provision of certainty for current farmers, in

11 OVERSEER assumes that there is no connectivity of effluent to surface or groundwater. That soil

damage is rare, that BMP occurs for cropping, fertiliser, effluent and irrigation. 12 Stranded capital is a term that denotes where a farm system is designed under a permissive policy

framework assuming that it can operate in a certain way in perpetuity. When rules change subsequently, and farm systems may reconfigure, this can render certain investments not applicable resulting in “stranded capital tied up infrastructure”

30

that the resources and ecosystem services (assimilative capacity of water

bodies) that they rely on will be managed through the allocation of pollution

rights being linked to the receiving environment and C) that nutrient headroom

(if there is any) in the receiving catchment will be allocated in a way that links

to the inherent productivity and vulnerabilities associated with the land

111 The approach to use a LUC regime for N allocation was noted as a favourable

and more equitable approach by Benson page 21 and 22 (Benson, 2012) :

“Once that zone allocation trigger was reached the initial LUC based NDAs (or a

farmer’s revised NDA if they had successfully gained a controlled activity

consent to leach more than the initial LUC based NDA) will subsequently be

locked in for each farming enterprise with greater regulatory certainty.

…….”This more certain regulatory approach will ensure over-allocation (a

breach of the MAZL) is avoided thereby giving effect to Policy A1 of the NPS

Freshwater Management 2011. (Benson, 2012) and ……….”As a further

safeguard, any exceedence of the MAZL could be categorised as a non-

complying activity or perhaps even a prohibited activity.”

112 One of the key strengths of Land Use Capability (LUC) as a natural capital

based approach for allocating nutrients, is that it brings to land ownership the

concept of moral hazard (“moral hazard occurs when a party insulated from

risk behaves differently than it would behave if it were fully exposed to the

risk. You don’t necessarily need to know your actual leaching rates at any

point in time but you need to know that in time you will be held to account for

your intensity relative to your share of the catchment allocation.” (Andrew

Day)). A LUC based allocation system essentially allocates Nitrogen allowances

across a catchment regardless of land use. In that respect, land uses that may

not be currently caught within the management framework can easily be

brought into the framework over time.

113 It is important to note that the LUC Nitrogen allocation system is not just about

setting a limit on nitrogen emissions. It is also about allocating a resource to

land uses. In this respect it should be viewed as the same as a water

permit/consent. It is an allocation of a resource to someone for their use. The

capital value of land, and often its productive capabilities are enhanced through

the ability of the land manager to access natural resources for example water

for irrigation, or through essentially pollution rights.

31

114 In my opinion, the LUC based standards are one of the more equitable

approaches to allocate nitrogen emissions. It offers a way to allocate a right to

emit that correlates well with the productive capacity and vulnerabilities of the

land. In most cases, the pasture harvested from various LUC classes is

typically closely correlated to the natural carrying capacity and the subsequent

suitability of that land to carrying a certain stocking rate. The LUC approach is

not linked to current land use but to the potential of the land resource for

sustainable production, it provides for continuous economic growth, on-going

flexibility of land use on the lowest risk soil types, and potentially most

importantly it does not penalise those farms on the most resilient soil types. An

allocation regime that is future-proofed and equitable is important for farmers.

Cycles of investment on farm mean that not all land is able used to its

maximum efficiency at the same time so farmers need to have long-term

surety that their ability to maximise the benefit from their land into the future

remains.

115 In the future, as our systems improve for quantifying P loss risk there is no

reason why P loss risk cannot be linked to the LUC. This allocation framework

could provide a proxy for more than just N loss risk.

GRANDPARENTING

116 Grandparenting rewards polluters for being less efficient with their nutrient

usage and losses while penalising the innovators. In my experience, there are

many farmers who have diffuse nutrient losses well below the average, running

efficient farm systems and have invested in mitigation for their externalities13.

Under the grandparenting system, these low-loss, often better farmers, would

be penalised by being allocated less resource than other less efficient farmers.

This approach also encourages what has been termed ‘super-grandparenting’,

where farmers anticipate a future regulatory loss cap based on current nutrient

loss so they intentionally run inefficient farm practices in the hope they may

gain a high allocation through a policy change.

117 The requirement of not having to provide data until 2018 may encourage some

farmers to amplify their losses in the hope that they will be awarded a higher

13 This years winners of NZ Dairy Business of the Year Awards (economic, environmental and social) in

both Otago and Central Plateau were not only the most profitable for their region, but also had significantly lower diffuse loss risks of their peers. The CP winner had N and P losses 50% lower than average.

32

pollution allocation should an allocation regime be introduced at some point in

the future.

118 With a grandparenting allocation approach, farmers are essentially rewarded

for poor management or choosing to operate high risk farming systems on

vulnerable landscapes, contributing to high externalities.

NITROGEN CONVERSION EFFICIENCY AS A TARGET

119 Improving Nitrogen Conversion Efficiency is a goal that is articulated in POL

TT4 and is being used as a target for farmers to assist with lowering their

environmental impact. There is a perception that if a farmer drives up the

Nitrogen Conversion Efficiency on their farm that there will be an economic

benefit to the farmer and a reduction in the loss to the environment. No

information has been provided on what this assumption is based on, and I have

not seen any literature to support this notion. My current understanding is that

there is essentially very little correlation between increased nitrogen

conversion efficiency and lowered N loss to the receiving environment.

120 This metric is nothing more than a distraction for farmers and confuses them in

my experience. All references to nitrogen conversion efficiency should be

removed. There is no link between this metric and lowering a farm’s

environmental risk profile. I note from Mr van Voorthusen’s evidence that it is

now proposed to delete all references to nitrogen conversion efficiency. I

agree with that position.

121 “Over the full range of N leaching values within the dataset, N conversion

efficiency was weakly correlated with calculated N leaching. N conversion

efficiency decreased as N leaching increased. However, within the normal

range of N leaching values typical of the majority of each farm type, there was

no relationship between N leaching and N conversion efficiency. In other words,

high N conversion efficiency did not always imply lower per ha discharges.”

(Wheeler, 2011)

33

122 Figure 6 below is from (Wheeler, 2011) and denotes the poor relationship

between N conversion efficiency and N loss.

123 The evidence of Mr. Wheeler reinforces this in point 11.17 where he states that

“across farms there is a poor relationship between N use efficiency and N

leaching loss.” I concur with this statement.

USE OF OVERSEER FOR OUTPUT CONTROLS

124 OVERSEER is a model developed by AgResearch initially for the purposes of

fertiliser recommendations. It is now extensively used by the Pastoral industry

as a nutrient budgeting tool, and for the estimation of nutrient losses from

farming systems. It is also currently used to benchmark pastoral industries for

nutrient loss and efficiency. There is a requirement that users of Overseer

should be competent, with at least 5 years experience, and have done the

Intermediate Nutrient Management and Advanced Sustainable Nutrient

Management Courses at Massey. The dairy industry is now using Overseer as

a tool to assist their farmers benchmark themselves against others in their new

sustainability accord. This will require that all farmers record enough

information to allow an up to date overseer file to be completed for their farm.

125 OVERSEER is the most appropriate tool to be used by both regulators and the

pastoral industry to manage land use within environmental constraints, as it

gives the comparative risks of a management activity to the receiving

environment. Without OVERSEER, farmers would be facing a regime of “input

controls” in order to minimise their effects on the environment.

126 OVERSEER enables the establishment of output controls in regards to nitrogen

leaching which gives pastoral agriculture the opportunity to manage its effects

34

to an “output based standard”. This fosters innovation and the implementation

of lower cost mitigations, rather than being constrained by an unwieldy input

controlled regulatory system.

127 Overseer is fit for purpose to indicate nitrogen loss risk from a land use activity

(dairy, dairy support, sheep and beef intensive, sheep and beef extensive,

deer) providing that the actual farm data is used and soil types and irrigation

methodology is able to be validated

128 Mr. Wheeler in his evidence notes in points 5.3 – 5.6 that OVERSEER assumes

that good agricultural practises are in place: no effluent connectivity with

ground or surface waters, no surface or point runoff from concentrated feeding

areas such as crops or hybrid feedlots to surface or ground waters and that

effluent is managed in accordance with the Code of Practise. Where these

things do not occur, the nutrient losses are likely to be higher than OVERSEER

predicts: OVERSEER will understate the actual losses.

129 Overseer assumes that the farm system is in “quasi–equilibrium”, that inputs

are commensurate with productivity, and users supply actual and reasonable

inputs, that the correct data is inputted, and that the farm data used is

“sensible”. OVERSEER also assumes that best management practises are

implemented on farm, such as stock are excluded from waterbodies and that

there are no direct discharges of contaminates to waterbodies, or discharges

from the base of effluent ponds, and that all codes of practise are implemented

in order to avoid adverse effects. These include assuming that the Fertiliser

Code of Practice is followed; that deferred effluent irrigation is used; and that

effluent is spread according to best management practises. Overseer

estimates nutrient losses based on long term annual average losses, rather

than those of a particular year.

130 The table 6 below highlights the mitigations that are available for best

management practise. Overseer assumes that points of connectivity (added

fertiliser, effluent, soil runoff etc.) are well managed and mitigated on any farm

when nitrogen and phosphate loss outputs are calculated. It assumes:

(a) That surface runoff of effluent from land to water is minimal;

35

(b) That connectivity of effluent with groundwater is not occurring through

irrigation of effluent to saturated soils, leakage from ponds, or holding

facilities, and that all stock are excluded from wetlands and waterways;

(c) Overseer assumes that stock crossings or tracks near waterways do not

provide any sort of connectivity from surface deposition or runoff to water

bodies;

(d) This is relevant to winter cropping practises. Overseer assumes there are

no critical risk areas (hot spots) where runoff from wintering practises

occurs, (i.e., – pugging is “rare") and that a buffer zone operates to break

points of connectivity.

131 Dr Wheeler also notes that the model has limitations, while OVERSEER is able

to model the effects of bad practises (or in some case actual practises) such as

over- irrigation and an increase in drainage water at the root zone resulting in

increased N loss to groundwater, or application of nitrogen in the winter

months, or increased pugging for example (which occurs in inclement weather

events with high stocking rates on forage crops), the accurate quantification of

these risks (noted above) will not be reflected accurately due to the compulsion

for Accredited Nutrient Advisors to use the Dairy NZ protocol.

132 Presently, the protocol requires the input data to be configured to reflect that

no overwatering occurs. This will result in an understated nutrient loss result, if

in fact poor irrigation practises are in place. This combined approach will result

in two detrimental effects in my view. 1) Understate the true extent of nutrient

loss and 2) Farms nutrient losses will be reported as lower than actual,

meaning they will see no nutrient loss reduction reported by OVERSEER if in

fact they invest in or upgrade to precision irrigation technology to mitigate

nutrient loss risk.

133 Overseer is appropriate for monitoring output controls with respect to N loss

risk. However it is important we reflect the practises on farm as accurately as

possible as the model and the protocol are developed.

134 Farm output results from Overseer 6 are dependent on input accuracy and the

protocol that is expected of the operator for desired outcome.

36

135 Expert users of overseer are faced with the challenge that overseer files may

be produced or populated using a range of input protocols. This is illustrated

well in a paper presented at FLRC in 2013. (Pellow.R, 2013). Overseer can

result in a range of different outputs depending on what the intended use of

the model is. Protocols are in place to ensure consistent methodology for

reporting for different benchmarking requirements.

INTENSIFICATION PARADIGM CORRELATES WITH INCREASING RISK

136 The key feature of New Zealand farming systems historically has been the

ability to maintain a ‘low cost’ production base, achieved mainly through

pasture based production and flexibility of systems. These pasture based

systems relied on the utilisation of home grown feeds and sound pasture

management as a perceived low cost way of increasing profitability. However,

the expanding use of nitrogen and phosphorus in the 1980s and 1990s resulted

in productive responses, which facilitated increases in stocking rates on a range

of land classes.

137 This increased use of fertiliser reflected an increase in pasture harvested per

hectare, largely through better feed quality, and more overall energy being

generated and utilised from the forage base. These historic linear

intensification models, for example of a dairy farm making a transition to high

levels of milk solids (MS) per hectare (Ha), has historically assumed that these

benefits would occur, by utilising more nitrogen per Ha, more stock per Ha and

potentially more high protein supplements per Ha (silage).

138 In the past decade, the operational profile of farming has changed significantly.

Responses to increased stocking rate and fertiliser use on intensive systems

have provided fewer production or profit gains, and in many cases the risk

profile has increased e.g. the fluctuations between good years and difficult

years have increased leading to less certainty on returns. To manage this risk,

more intensive farming systems have moved to importation of feeds to

decrease the threat of lowered production that can result from the combination

of difficult seasons, high stocking rates and impaired feed management. This

is a highly stressed system, with little margin for error. It is a fragile system.

139 In 2002, New Zealand began to import Palm Kernel Expeller (PKE) to

supplement locally sourced supplementary feeds in order to maintain milk

output and animal body condition, and reduce the risk feed deficits, and the

37

resultant lowered milk production, had on farms. New Zealand now imports

over 1.7 million tonnes of PKE annually.

140 The self-contained, pastoral based dairy farm is no longer the predominant

farming system in operation in New Zealand. The wide range of farming

systems in operation, include the Dairy NZ systems 1-5. System 1: All Self

Contained, System 2: 4-14% feed imported, System 3: 10-20% feeds

imported to extend lactation, System 4: 20-30% of overall feeds imported.

System 5: 25-50% of feeds imported, all year.

141 Nationally over the past decade, the most notable increase has been in the

system 3 and system 5 dairy farms (>40% feed imported). This is

predominately the direct result of increased pressure to meet and service their

financial obligations (debt).

142 More intensive farming systems inevitably lead to higher environmental,

financial and physical system risk. This occurs as a result of higher stocking

rates underpinned by feed availability and irrigation. The flip side of this

intensification however is that as stocking rate increases, the feed dearth

(shoulder periods) outside the pasture growth curve is amplified and requires

bought in feed or support land to meet requirements.

Figure 2 ABOVE: Graph of Pasture harvested tDM/Ha on an irrigated dairy farm

illustrating gaps requiring support or supplementary feeding.

38

Figure 3 showing the amount of supplement required for each cows diet to maintain milk

production as the pasture availability declines.

143 The feed deficit creates a need for increased winter cropping, out-of-season

and imported feed demand, increased nitrogen use to drive out-of-season

pasture growth, wintering off, support land and an amplification of the

cumulative diffuse pollution risks to the receiving catchment.

144 Dairy farm systems promoted by McFarlane Rural Business for 37% of the

designated irrigable area for the Ruataniwha Irrigation Scheme are more

intensive than what is seen at a national level. These proposed systems are

typical of Canterbury where 63% of farm systems were reported as importing

20-50% of their feed (via direct supplements or off farm grazing) (Agfirst

Waikato, 2009). This farm system is more intensive and specifically configured

to capitalise on the irrigation and utilise the peak growth appropriately.

145 These more intensive dairy systems also heavily rely on 50 to 75% additional

support land in order to meet their feed requirements for young stock,

wintering cows, and supplementation. This leads to intensification of the

extensive land uses (often in more vulnerable landscape features) in the

surrounding catchment in order to support this farm system configuration. Mr

Macfarlane (MRB) notes this may result in an additional 17,000 Ha of land that

may be influenced by the 25,000 Ha of irrigated land (pt4.1(e). The dairy

support model provides cashflow to the mixed and extensive businesses in the

region (MRB pt 5.9 + 5.11). However, the configuration also can be seen as a

pollution transfer to businesses that are less able to mitigate the effects.

146 Macfarlane (MRB) notes that wintering cows and cropping support can thus

occur in the “less N sensitive parts of the catchment”. However these activities

provide some of the highest risk of P and pathogen loss during higher rainfall

months as well. These extensive pastoral businesses offering dairy support not

only have a lower operating surplus and return on capital, but are less able to

39

invest in costly mitigations to offset the effects of winter cropping, topsoil loss

and P runoff risk. The true cost of the externalities have yet to be configured

into these pastoral systems. Canterbury dairy support farms are now facing

this challenge.

147 To date, a lot of economic analysis, including that of Mr. Mc Farlanes proposed

post dam configuration (Pt 4.2 page 18 of his Statement of Evidence), have not

costed in the mitigation of N and P loss to ensure a sustainable nutrient loss

level is achieved. This would be most notable for irrigated dairying on light

(Tukituki soil types: for example leaching 120kgN/ha/yr on light/coarse soils

for dairy (7B)14, and 134.8kgN/ha/yr for arable (5B)15 OVERSEER v6.

148 The optimum “spot” for a farming business is clearly articulated in Figure 4

below which shows reduced returns as a farm system intensifies beyond a

point commonly known as the “Sweet Spot” that is a point that is ideal for the

operator, their approach to risk, the landscape, the quality of the herd, and the

security of feed supply to the system.

149 The diagram below from David Beca where Red Sky and UDDER modelling

demonstrates that increasing milk solids and business intensity (blue line) from

increasing inputs is not linear, but a diminishing return on capital results

(green line). The risk within the business, as denoted by operating profit

margin becomes heightened as the farm system intensity increases (higher

operating profit margin –red line: denotes lower risk, and lower operating profit

margin denotes higher risk). Hence the minimum risk point denoted in the

graph below is at a point where the red line is highest.

14 Wheeler , D., Benson, M., Millner, I., & Watkins, N. (2013) OVERSEER Nutrient budgets modeling for

the Tukituki catchment. Reports prepared for Hawke’s Bay Regional Investment Company Ltd (appendix 1, table 12, page 32)

15 Wheeler , D., Benson, M., Millner, I., & Watkins, N. (2013) OVERSEER Nutrient budgets modeling for the Tukituki catchment. Reports prepared for Hawke’s Bay Regional Investment Company Ltd (appendix 1, table 10, page 30)

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Figure 4: the “Sweet Spot” for a farm: Milk Production versus Profit versus Risk Data

This was derived from a study for Dairy Australia which considered (modelled)

intensification of farm systems and resultant risks and returns. (Beca, 2004)

150 Conversely, if a stocking rate is too low the feed surplus is costly to manage.

Optimum stocking rate is best, which is matched to landscape strengths,

constraints and weaknesses. The GSL modelling16 (appendix 3) demonstrates

that in many cases profit can be optimised by adjusting the stocking rate on a

dairy farm to an optimum level. Section 2 of appendix 3 illustrates optimum

net profit with an 8% drop in stocking rate from average.

151 Increased business risk associated with higher farming intensity means that

any sort of volatility (i.e.; climatic, irrigation water constraints, commodity

prices) can result in a heightened vulnerability and increased risk of failure for

the business.

152 Common risks that make intensive irrigated agricultural business more

vulnerable may be as a result of large fluctuations in commodity prices (+/-

20%), resource constraints, dry years resulting in water restrictions, and

unstable and tight labour markets. These more intensive systems come at an

increased risk of diffuse losses to the environment.

16 GSL was used to establish a true comparative analysis to test the effects and benefits of irrigation on

dryland Central Hawkes Bay dairy farms. GSL was chosen because it is more efficient at finding optimal resource use allocations as it optimises rather than simulations. Simulation models such as Farmax, UDDER do not optimise and rely on the operator to direct the model. All models need valid base data and assumptions to be used, they require verification, and experienced operators to ensure the results are sensible and appropriate.

41

ECONOMICS OF THE RUATANIWHA IRRIGATION PROJECT

153 Projects such as the Ruataniwha dam scheme are based on farms being

operated beyond the “optimum point” (sweet spot). The economic assessments

are based on systems that are operating on the addition of a high cost input

(irrigation water that generates feed at 70+c/kg DM) which breaches the

“sweet spot” for both the farm business, but also NZ as a whole. The economic

models fail to account for internalising externalities, or constraints in the water

resource.

154 The high cost (and associated economic risk) of this RWSS irrigated feed at

70c/kg DM (twice that of average 33c/kg or $330/TDM consumed) is derived

from the work of Mr. Ridler (appendix 3) and is based on the following

premise: Basically all of additional infrastructure and extra machinery interest

and depreciation (depn), stock capital interest (no shares) required to intensify

and irrigate 220 hectares can be added up and is about $1650 to $1850/ha per

year cost depending on rate of depreciation and interest and what extra

changes to shed, houses, effluent ponds and system are seen as necessary /

required. Then add cost of 400mm water at 25 cents - a further $1000 whether

use or not so about $2650 to $2850/ha/yr COST (cost of running extra cow per

year in terms of an health, AI ,labour is added in model.) So this grows a net

(MRB) 4000kg extra DM consumed. Extra cost/ha $2650 for extra 4000 kg DM

consumed = 66 cents and $2850 for 4000kgDM = 71 cents/ kg DM

consumed.17

155 The MRB modelling derived its information on experiences in Canterbury. Mr.

Mc Farlane supports its credibility (pt 2.5) by relying on the following

assumptions outlined in table 1, alongside each one I highlight my concerns

below:

17 This 4000kg extra DM EVERY year is “speculative”and it is really more like 3000kg (or even less in

wetter year) extra the cost becomes 88 cents and 95 cents/kgDM. This shows how important these assumptions by MRB are. If we AVERAGE the kgDM required to produce a kgMS across the lactation period at about 10 kgDM/kgMS, the FEED cost alone if fed all irrigated pasture is between $7 and $9.50/kgMS. BUT in order to keep the cow managed and milked for that year (plus the winter period) about another $600/cow is required or about $1.50/kgMS.

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Table 1 Review and critique of Mc Farlane modelling assumptions and outcomes.

MRB Assumptions + Modelling Outcomes Considerations

Used pasture growth (gross) of 17.5 TDM (14.8TDM

harvested at 85% utilisation) from the irrigated dairy farms

on light soils and 17.3 TDM on the heavier soils.(Mc Farlane

pt 2.5 (f,g)

Feed conversion efficiency of the cows have been wrongly

calculated resulting in an overestimate of milk and gross

returns.

The modelling is based on a pasture harvest 15-20%

more than what is typical and proven. This will result

in feed costs likely being underestimated to the tune

of $600 per hectare per annum. If included, the EBIT

will be reduced by 15-20%.(average farm)

Feed conversion efficiency is typically 12.5-13 kg DM

per kg MS. (MRB used 7 kg for the additional milk

produced.)

No accounting for internalising externalities has been

factored in (assuming no likelihood of nutrient limit triggers

occurring in the future). On free draining soils, the irrigated

system 4 dairy farms are leaching around twice (60-130)

that of heavy soils (point 2.5 (h)) mitigations in point 5.7

do not address this issue and OVERSEER already assumes

the GAPs are in place. Intensifying support farms also

double N loss and increase P loss risk by 20+%.

The systems proposed by McFarlane on light

(coarser) soil, are likely to leach 2X kg N/ha/yr that

of heavier soils.

P loss risk under intensive irrigated systems on light

(course gravelly) soils is likely underestimated by

OVERSEER.

Soil disturbance and nutrient runoff from intensively

grazed forage crops and CSA’s are difficult to quantify

without better models. Mitigations for internalising

these risks have not been costed into extensive

farming models.

A long term average commodity price of $6.50 kg MS When sensitised at 15% lower MS price, the ROC is

6.6% (below cost of capital) – BUT post storage debt

will be required to fund development, thereby

rendering businesses vulnerable to water shortages,

commodity & feed price volatilities. Should have

been sensitised at +/- 20% milk price and a realistic

pasture harvest (15% lower) and dry years.

MRB assumes Year in Year out that there is a high

reliability and certainty of water (the models assume 100%

available, 100% of the time), at the maximum amount.

(point 2.5(d). MRB assumes this risk will be mitigated by

highly efficient water use technologies.

There is no buffer built in for dry years, or

constrained water availability which can result in +/-

30% lower pasture harvest and costly feed deficits if

they do occur. Effects of water shortages would be

most dramatic on endebted system 4 irrigated farm.

Potentially result in significant operating loss in 10-

15% of years. This is covered in the evidence of Mr.

Tony Rhodes.

43

Top 20% operator capability in all cases is required to

achieve the returns on capital of 6.7-8.4% in dairy at $6.50

milk price and top 20% operator skill base as noted by Mr.

Mc Farlane point 4.2 statement of Evidence. (driven by high

debt levels)

Best Operator Returns on dairy are only just enough

to meet the long term cost of capital. (8%) These

operators will likely carrying higher debt and are

driven to be more intensive. These farm

configurations are more vulnerable as well. (Socially,

economically and environmentally). Best operator

returns on extensive, mixed arable and support do

not meet cost of capital at long term averages,

therefore meaning conservative equity positions will

be required.

156 The above assumptions underpin the profitability predictions by MRB and are

critical and fundamental assumptions to have gotten right. The modelling work

prepared by Mr. Ridler (appendix 3) has used actual dryland and irrigated

measurements for pasture growth and harvested of an irrigated dairy farm on

a Takapau soil, and from there prepared a true comparative analysis of the

benefits of irrigation being added to the system. These were typically around

1-2 TDM (10% less) than those used by MRB.

157 I support Mr Ridler’s assumptions and findings. Both Mr Ridler’s work and my

own with clients in the region validates that the high levels of home grown feed

assumed by MRB are speculative leading to “blue sky returns” being proposed

as a result of the RWSS.

158 Monitoring data of our clients in the region for a series of years, irrigated dairy

farms are only harvesting (consuming) between 12-13TDM on light, irrigated

soils. Furthermore, my observations are supported by the measurements taken

by (Green 2012) on a fully irrigated farm in Tukikino. (between 14-15 TDM

grown, 12.3T Harvested (consumed) on average),

44

159 The discrepancy amounts to 15-20% difference in pasture consumed, but the

effect on the economic outcome is not insignificant.

160 The budgets and outcomes prepared by MRB relied on 14.5TDM being

consumed by the dairy herd year in year out (17.5T grown on all irrigated dairy

farms, light). MRB has assumed 1.5-2.5T above what is typically grown under

full irrigation in the region.

161 Consequently MRB has relied on this assumption and subsequently produced

speculative result with regards to the productivity and profitability of these

operations, and has under-estimated the “cost of production” by at least

$600-800 per Ha (cost of bought in feed to supplement fill the deficit). It is

unclear why MRB have used figures that have subsequently underpinned so

many other assumptions (Harris for example).

162 In my view, this is “blue sky economics” and overstates the most likely long

term returns while understating the risks from the intensive irrigated dairy

models and should have been tested against wider sensitivities and considered

with caution. Any subsequent reports that based their assumptions on these

will also be speculative in my view.

COMPARING RWSS WITH OPUHA DAM and PREVIOUS NZ DEVELOPMENTS

163 Mr McFarlane also cites the rationale for the intensification of the region in a

similar manner to what he has experienced following the Opuha Dam and in

Canterbury it is the “soft factors’ that are important rather than those of pure

economics. While I agree in part with his sentiment, I would also like to point

out that farmers invest where they perceive there is strong opportunity for

wealth creation over time.

164 In the case of Canterbury and previous irrigation developments, the water had

significantly lower” cost associated with it apart from the capital required for

water delivery. Essentially the water and the effects of using the water came

at little or no cost to the farms systems.

165 The Opuha dam provides water to irrigators at a cost of 4.2c per m3. The share

provides for around 5,600m3 per Ha.

166 This one sixth of the cost that is proposed for farmers to pay for water from the

Ruataniwha dam. In addition to this, the rainfall in South Canterbury is far

45

lower meaning that the gains from irrigating provide more for the investment

made. Conversely, and as illustrated by Mr. Rhodes, the irrigated farms in

Central Hawkes Bay appear only to grow 13.5 – 14.5 T/ha with irrigation yet

“dryland” farms can also reach 90% of those levels with rain from “cyclones”

over the summer months.

167 Furthermore, there has been no requirement for farm businesses in NZ

(historically) to operate within nutrient limits.

168 I discuss the ability of farmers to reduce their environmental impacts in the

section on mitigation and farming within limits below. However, the costs of

internalising their externalities are not necessarily extreme. A study conducted

in 2009 (Agfirst Waikato, 2009) investigated the impact of change to

profitability as a result of nutrient loss restrictions being placed on dairy

businesses in the Upper Waikato. In that study, the net impact on return on

capital of having to meet lower levels of nutrient loss (↓by 40%) reduced

profitability by a net 4-8%. However the impact of a $1.00 reduction in milk

solids pay out resulted in a far more significant (>50%) reduction in return on

capital for the businesses in the study.

169 McFarlane’s appears to share the same sentiment that mitigations (if well

chosen) for nitrogen on a system are unlikely to reduce the returns generated

from the dairy businesses that MRB analysed – see his evidence in point 5.20.

On that basis, it is unclear why the mitigations when tested and modelled by

MRB showed up to a 29% decline in operating profit18 (I discuss this later in

point 176).

FARM SYSTEM MITIGATIONS TO IMPROVE RESOURCE USE EFFICIENCY AND

LOWER NUTRIENT LOSSES

170 In my experience farms can reduce leaching by 10 to 40% or in some cases,

more with some farm system modifications, and time to adapt. Smeaton and

Ledgard have provided evidence that reductions of between 10 – 15% can be

achieved without any significant impact on farm profitability. Smeaton

(evidence 42a Horizons 2009) also notes that, in his experience in Rotorua

(dryland dairy farming), farmers were able to reduce nitrogen leaching by 5-

25% which had a minor negative to slightly positive effect on profit. He also

18 Ruataniwha Irrigation Scheme: Economics of N loss mitigations MRB report May 2012 page 11.

46

noted that case studies demonstrated that it would be possible to reduce

nitrogen leaching to the catchment by 12% without having a negative effect on

profit.

171 Irrigators have the potential to not only reduce their environmental effects, but

also reduce their overall water use, pumping cost by up to 30%, and

significantly reduce the amount of nutrients lost from the root zone, by

upgrading to precision irrigation systems. The OVERSEER model is still being

developed to accurately reflect this. However, the current reporting being used

reflects best practise. Mr. Rhodes covers this in his evidence.

172 There are a range of mitigations available to assist dairy and irrigated intensive

farms reduce the adverse effects of the nutrient and pathogen discharges from

their farms. Many of these mitigations, when integrated in to a whole farm

system do have initial capital costs to implement, however they also have

significant benefits including productivity gains, improved efficiencies and

corresponding profitability benefits.

173 Current research being undertaken at Scott Farm in Hamilton (dryland) looking

at an efficient low footprint farm system, leaching 40-50% less than the

conventional farm system, is now entering the second season of the trial. A

summary of the results are shown below (Clark, 2012).

174 The Scott Farm trial is attempting to lower the nutrient footprint from the

(dryland Waikato pastoral) system while retaining similar profitability. To do

this the farm system has dropped stocking rate and associated costs with

running more cows at lower productivity, and lifted the feed consumed per cow

per annum to close to 5 T DM of home grown feed eaten per cow. These

higher genetic merit cows have largely converted this to milk solids resulting in

a lower cost system with similar milk solid outputs, and a significant reduction

in nitrogen (approximately 50% lower) leached when compared with the

Waikato average. (MRB models use 4T eaten per cow/ high quality cows based

on speculative pasture growth figures: if HB regional growth figures were used

then the MRB cow intakes would be 20% lower at 3.6T per cow requiring

supplements to fill the deficit).

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Table 2: Lower Footprint Farm Systems Study: Presented by Dave Clark, Principal

Scientist, to Intelact Consultancy Conference Nov 2012 & updated by Chris Glassey in

March 2013.

SCOTT FARM : WAIKATO CURRENT EFFICIENT

Pasture Harvested 15.6 14.4

Stocking Rate 3.2 2.6

MS per Ha 1202 1207

Operating Profit/Ha $3109 $3004

Nitrogen Leached/Ha 50 22 (50% DROP)

175 The Lincoln University Dairy Farm is also looking at an “efficient farm model”

denoted as “Low Stocked Efficient” in the figure below. This farm system trial

is aiming to assess whether leaching can be reduced significantly through a

range of mitigations within the farm system. This is a positive move by the

dairy industry, and will be helpful in giving local information to farmers on what

combinations or approaches within an irrigated farm system can be adopted in

order to reduce the risk of N loss to the receiving environment by over 20%

without affecting profitability.

LINCOLN LUDF High Stocked Efficient Low Stocked Efficient

Pasture Harvested 17.3 18.8 15.7

Pasture % of total diet 92 85 99

MS per Ha 1860 2210 1810

Operating Profit/Ha $4850 $4590 $4810

Nitrogen Leached/Ha 23 43 18 (↓22% from base)

Table 2: “Low Footprint Farming Systems” Presented by Dave Clark, Principal Scientist, to

Intelact Consultancy Conference Nov 2012.

176 As we move intensive systems into more vulnerable landscapes it is probable

that NZ will need to consider more hybrid type farming systems, with a degree

of housing or infrastructure for stand-off and feeding purposes. There are

around 300 herd home or cow house and hybrid systems in NZ at present.

These offer a solution for containment of effluent, protection from adverse

climatic conditions, feeding infrastructure, and storage of the nutrient for use

at optimum times.

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177 Farm System and economic modelling undertaken by Intelact on behalf of Fish

and Game in Canterbury(version 6, May 2013) (Dewes, 2013) showed that

significant reductions in N and P loss risk was achieved through the

implementation of the following system changes to intensive, system 4,

irrigated dairy farms without adversely affecting return on capital:

(a) Install overhead, precision irrigation systems and best management to

achieve negligible drainage and therefore nutrient loss risk (↓N loss by 40-

60% from base farm model)

(b) Extend effluent from 15% of farm to 60 +% of farm and reduce soluble N

use to <100 kg N/ha/yr (↓ N loss by 10-15%)

(c) Lower SR by 15-20%,(de- stress system)19 reducing reliance on crops, N,

and supplements but achieve similar production per cow (↓ N loss by 10-

20%)

(d) Move to full cut and carry system or hybrid system with restricted grazing

and high per cow and per ha efficiencies (↓N loss by 30-50%)20.

178 To date there is scant economic data on the performance of these hybrid

systems and less on fully housed systems. However, in the most recent dairy

business of the year competition held in June 2013 by the Intelact consultancy

group, it was interesting to note the overall Surpreme winner in Otago,

(Korterwegs) also had a herd home, along with the winner for the Upper

Waikato (Parnwell –Mathis): this does not by any means suggest that herd

homes mean more profitable farms, but rather – these hybrid systems can be

profitable, and if managed well, the efficiencies and productivity can result in

strong economic performance with significantly lower environmental effects

and offer an option for mitigation of diffuse losses.

179 The associated sound infrastructure in place assists the farm to leach less than

the average. These cases illustrate that there is potential for further milk

solids to be produced per cow and per hectare with reduced nitrogen leached

from the system. There are many examples in Waikato where this is occurring.

19 This option incurs no detrimental economic effect where (500 kg) cows are stocked at a rate whereby

base models were achieving 3.5-3.8TDM home grown feed/yr based on historical actual data on three Canterbury farms:the change assumed 4.3T home grown feed consumed/cow and converted to milksolids.

20 This option required significant investment however and did increase farm business risk by lowering equity position.

49

These case studies involving actual farms, robust data collection, and ground

truthing of information, demonstrate that significant improvements in feed

conversion efficiency is able to be gained from the use of these mitigations

(covered feed pad, herd home, feeding infrastructure in place).

180 Feeding low protein feeds (cereals), can aid in enhancing rumen efficiency,

leading to improved feed conversion efficiency, and lowered urea production as

a by-product of protein from the gut, which subsequently “lowers the nitrogen

load” that the cow has to excrete. This was covered in detail in the section 42a

evidence of Dewes and Waldron 2012 (Horizons One Plan).

FARMING WITHIN NUTRIENT LIMITS

181 The philosophy of “de-stressing the system and improving efficiency” is being

demonstrated by the most recent “efficient dairy trials at Scott Farm and LUDF.

(It also means however, that the average New Zealand cow would need to lift

production by around 25% and consume more home grown feed in order to

achieve this sort of result. This can occur in a relatively short time frame (18

month period of altered management in my experience provided the cows are

high quality).

182 In my view, many NZ dairy farms are overstocked by 15-20% resulting in them

breaching the “sweet spot for their business21.

183 Where stocking rate is not well aligned to long term average pasture harvested

(overstocked) then there can be measurable lifts in productivity and efficiency

from adopting lower stocking rates. Mr. Ridlers modelling supports this notion

and showed that the greatest gains in profitability were to be gained from

optimising a dryland farm (S1 vs S2), rather than from “adding water though

irrigation, and being forced to intensify the system to both consume the spring

– summer pasture peak, but also to service additional debt.

184 Most NZ cows, consume considerably less home grown forage than 4.5-5.2 T

DM on average (3.2-3.6 T home grown feed/cow/year and <70% of

bodyweight as MS) due to poor matching of stocking rate to home grown feed.

As a result, ½-2 T DM/cow/year of externally sourced feed is required to satisfy

21 Headlands database of dairy farms (100+) supports this notion that lower stocked farms(↓15-20%

than average) are more resilient when their systems are tested against a range of typical year in, year out volatilities (↓20% milkprice, ↓ pasture yield of 20% between years)

50

cow health, welfare and productivity requirements in order to sustain heavily

stocked systems that cannot adequately feed cows.

185 In the case of the MRB models, the farm systems are configured so that the

alternative feed sources are provided in part from a heavy reliance on “dairy

support land and cropping” which is additional to the milking platforms. This

increases the environmental and economic risk of the production system and

pushes the pollution responsibility to the extensive/support farm systems who

are less able to fund mitigations.

186 There is usually no ‘one size fits all’ approach to mitigating nitrogen and

phosphorus losses from farms, as these factors need to be considered on a

farm-specific basis.

187 On this basis, I do not believe that robust conclusions can be made from

assessing the costs of one off farm system mitigations as has been presented

by many experts now, as this is not a fair representation of reality in my view.

Farmers use their intuition to adapt to change. They have been adapting to

various stimuli from their operating environment for centuries now.

Unfortunately models do not take account of this behavioural adaptation (risk

preferences) which largely dominates their decision making.

188 MRB tested the costs of implementing N loss mitigations for dairying (system 4

farm) using the following approach in the report “Economics of Nitrogen Loss

Mitigation: 2012”. The authors used a single mitigation step wise approach and

did not appear to use farm system reconfiguration options to address nutrient

limitations.

189 This is flawed in my view, and resulted in negative returns in response to

removing essential components of a system 4 farm: such as reducing fertiliser

N applications and lowering total feed available in an already “tight” system

thereby increasing the reliance on more feed being required driving up the cost

of production.

190 MRB reduced fertiliser N applications (150 kg N to 0 kg N) and replace with

maize silage (higher cost feed) without adjusting stocking rate thereby

increasing overall cost of production in the absence of efficiency gains. Eco N

was used and there was stand off using a feed pad, with benefits such as feed

utilisation change unclear, and as cows were already at very high production

51

levels and pasture production was also at speculative levels, the gains from

these mitigation would not have been seen as an economic benefit. Cows were

wintered off, also at a cost, with no benefit seen.

191 Therefore it is not surprising with this suite of options that the mitigations

came at a -29% reduction in profitability22 to a system 4 farm that had been

configured with no nutrient limits in mind. MRB’s approach and subsequent

conclusions were then relied on by Harris who concluded that N loss reduction

would cost the regional economy too much.

192 In my view, relying on speculative economics that both overstate returns and

understate risk, resulting from failure to correctly analyse and validate the

interdependency of the crucial levels of performance23 required for success,

means that the RWSS could result in lose/lose/lose for all components of the

scheme (farmers/investors/community ratepayers/environment).

SUMMARY of GSL COMPARATIVE ANALYSIS (economics and environmental

effects of irrigation scheme)

193 The report that I refer to in the subsequent section has been undertaken by Mr.

Ridler and Mr. McCallum “Comparative Analysis of Environmental and Economic

Impacts of Dairy Farm Systems Between Years: with and without the

intensification required for Irrigation (2013)” (Appendix 3)

194 The Ruataniwha is a basin with the Ruahines to the west producing cold air

which flows down and is trapped between these Ranges and the Raukawas to

the east. This lowers winter, spring and autumn temperatures (with late and

early frosts common) and pasture growth over these periods. Irrigated pasture

may then provide a large increase in feed grown from November to March. If a

dairy farm increases herd number to use this feed, the “shoulder period” feed

22 MRB Analysis for Ruataniwha Dam: Economics of Nitrogen Mitigations: 2012.(page 11) 23 Overstates income from MS arising from FCE and PH assumptions. 2. Overstated water

response/irrigated pasture consumed by 20% thereby underestimating feed costs by $600-$800 per Ha per annum on a dairy farm. 3. Share price at $4.20 not $7.20 thereby underestimating added encumbrance requirements for farms. 4.No buffers for internalising pollution. 5. No buffers for dry years 20% of time. 6. Max cow production on max pasture growth with 10-15% less water than required. 7. Cost of production results in $5.50 per kg MS when true comparative analysis done, and including debt servicing it will be $7.50 means that a $8.00 payout is required YIYO to break even. 8. The dairy support farms fail to yield cost of capital returns (4.5% vs 8%) 9. Long term returns on the dairy models are 6-8% which are overstated and therefore carry high risk. Claims that the “soft factors” will drive the change, citing experience from the Opuha Dam in South Canterbury with 3x the catchment area, half the area(16000 ha irrigated) and which charges farmers one sixth of the cost of the RWSS water. 12.Finally: The MRB model locks farmers into vulnerable(high risk) models of farming: intense, inflexible and high cost with a high reliance on debt

52

demands (those periods either side of the irrigated period) greatly exceed the

supply of feed grown from farm pasture at those times and supplements of

some form must be purchased and fed-out to meet demand. But this is at a

time when cows are calving and requiring peak intakes of high energy feed to

achieve the high production levels required to justify the cost of irrigation and

intensification. (Ridler, 2013)

195 This interdependency requires each component part of the overall system to

meet or exceed the prescribed standards in order to justify the costs. Yet even

then it can be shown that the costs of irrigation within this area are so

expensive that farmers can develop alternative more profitable farm production

systems. But conversely, without farmers completely taking up all available

stored water every year, the economics of the overall irrigation project are not

viable. (Ridler, 2013)

196 A correct comparative analysis requires that the existing resources be used

efficiently before adding new resources. If this is not done, the analysis

wrongly attributes all improvements solely to the new resources used. This

inflates the value of the change. (Ridler, 2013)

197 Mr Ridler’s report clearly showed in his comparative analysis there is more

money to be made when the average dryland dairy farm dropped stocking rate

by 8%.(S2) This change or comparative system yielded a higher profit than

any of the irrigated farm models provided. (S 3,4,6,8,10). On this basis, the

comparative analysis scenarios showed that irrigated dairying was no more

profitable than dryland farms, configured and run well. Yet the RWSS is being

promoted on the premise that more profitable and resilient businesses will

result. The analysis provided by Mr Ridler does not support that. Furthermore,

the comparative analysis of 9 scenarios to test the true economic benefit of

water provided by Mr Ridler also highlights the increased environmental and

economic risks especially on the light soils, using average, regionally

representative assumptions.

198 Irrigation provided no improvement to final farm profit at any of the milk solids

prices used. (Ridler, 2013)

199 Irrigation allowed more cows to be milked but only with large inputs of bought

in feeds to cover the “shoulder” periods when pasture growth in this region is

low due to climatic conditions. (Ridler, 2013)

53

200 Irrigated options produced more milksolids (up to almost 80% more) but at a

marginal cost that exceeded marginal return in all cases. Both the cost of the

water (on a take or pay basis every year whether required or not) and the cost

to service (interest, depreciation, additional repairs and maintenance) the

additional machinery and infrastructure of the upgrades that irrigation

required, exceeded the benefits from the added production from the irrigated

feed. Much of this was due to the subsequent feed supply profile of irrigated

pasture not fitting the monthly lactation demands of the increased herd

required to consume this feed. (Ridler, 2013)

201 The feed dearth that is created in the MRB models is understated in my view as

covered earlier. This has serious economic implications on any business. Not

only is there a high reliance on bought in feed, but also a high reliance on

support, cropping and nitrogen (transferring higher risk land uses to extensive

farms).

202 The interdependency inherent in any complex system breaks down due to the

specific components in this case not being capable of combining in an efficient

manner. This creates inefficiencies and unstable systems with the consequence

that risk is magnified. (Ridler, 2013)

203 The unlikely prospect of the irrigation becoming economically viable is

compounded by the far greater risk of systems collapse within the complex, yet

largely dysfunctional component interactions that irrigation brings into the

system mix in the Ruataniwha region. (Ridler, 2013)

THE NZ GROWTH AGENDA + WHAT IT MEANS FOR FARMING

204 As noted earlier in this Evidence, we are at a cross roads in NZ: where we are

faced with a government growth agenda that is facilitating a doubling of

agricultural output by 202524.

205 This case is different from previous irrigation schemes as NZ is faced with a

need to approach intensification of its lowlands in a resource efficient and

publicly responsible manner. The RWSS water comes at a price of 20-25c per

24 Business Growth Agenda (Ag Exports to lift by 30% by 2025) (KPMG, 2013)

Call to Arms for Agriculture Double rate of growth to 7% CAGR compared with 3% CAGR past 20 years. (Ridett Institute, 2010). Realising the Potential of 960000 Ha of Maori Owned Land(300,000 Ha class 4-6 land intensified to higher performance each year for next 3 years) (Price Waterhouse Coopers, 2013)Irrigation Infrastructure Fund (Govt + Crown Investment Schemes to Accelerate Water Storage + Irrigation: eg: 600,000 ha more Sth. Canterbury,)

54

cubic metre and there will need to be a requirement to internalise externalities

and operate within ecological limits.

206 Dairying has grown to become a major land use across NZ. Milk production

grew 47% in 10 years, to reach 1.69 billion kg of MS in 2012. Dairying now

accounts for 21% of NZ’s grasslands and 46% of stock units. (strategy for

sustainable dairying 2013)

207 Dairying in NZ has had a competitive advantage internationally and historically

however – many of these attributes are now being challenged.

208 Resilient low cost farming systems are now challenged by structural shifts in

operating costs coupled with high levels of debt.25 The career progression

system that developed experienced and motivated farmers is now challenged in

that the loss of the career pathway for sharemilkers, farm system

diversification and skills shortage in the industry.

209 Plentiful access to fresh water resources historically has been a strength

(opportunity), however now water provision will have costs and restrictions

associated with it., Farming within limits may become a new norm and farm

systems may require reconfiguration.

210 NZ is gradually losing competiveness in the cost of production: NZ is now

ranked 5th globally in cost of production (IFCN dairy report) . New milk is

coming with a significantly higher cost as it is develops on the base of take and

pay for water using highly priced assets combined with high levels of debt as

structural changes to the industry have occurred.

211 Internationally a strength has been the reputation for product integrity and

reliability: however moving forward a significant challenge will be that of

providing traceability from paddock to plate and to assure customers with

legitimate proof of branding claims for food safety, environmental integrity and

animal welfare.

212 The points above highlight some of the challenges faced by regional economies

and NZ as a nation. Intensive farming systems that breach the “optimum point

for businesses” that are built on resource hungry inputs that have failed to

25 These points of “historical competitive advantage were highlighted in the report “Strategy for

Sustainable Dairy Farming 2013-2020 page 3.

55

represent reality, nor allow for volatility in the accounting not only puts the

farm investors at risk, but also NZ as a whole as continued development of this

type (proposed) will only serve to erode our competitive position further.

213 Mr Ridlers modelling showed that the Cost of Milk Production (COP) in the

irrigated farm in the RWSS as compared with the dryland farm increased COP

from a range of $3.30-3.90 to a COP on the irrigated farms of $5.00 to $5.50.

This is a 50% increase in the cost of production from historical levels.

214 If future NZ growth is to be underpinned by these water storage scheme

configurations, global competitiveness could decline to being close to that of

the USA over time.

215 The international position in terms of competitiveness was based on an average

COP of $4.75 per kg MS (excl debt servicing).

216 When debt servicing is taken into account, then the total COP raises from

$5.50 to $7.00-$7.50

217 As a country we need to be clear on whether it is “growth and production at

any cost” that is being sought, or whether it is international resilience which

has a competitive advantage underpinned by financial and social wellbeing that

is designated by strong agricultural businesses, functioning in a legitimately

healthy NZ environment.

CONCLUSIONS

218 Permissive regimes that do not acknowledge off-site effects or cost them into

production have resulted in degradation of our resources, Canterbury provides

a good example of this for NZ.

219 HBRC is largely supporting an Industry Self Management Approach with no

clear goals nor time bound actions that provide enough detail to assess

performance, develop trend information or provide capacity to audit or require

adaptive management, should predictable risks eventuate. This therefore is a

“wait and see approach” which is highly risky and could result in stranded

capital if over allocation of diffuse loss rights occur. Intensification of the region

under a permissive framework will allow new businesses to grab and exploit

the nutrient headroom taking it away from existing farmers who may choose

not to intensify in the short term.

56

220 A culmination of: uncertainty in the ability to quantify losses or net P neutrality

accurately (between farm system changes), unclear guidance in regards to the

adoption of mitigation measures, failure to establish contaminant output

standards, coupled with an inability to enforce actions in plans by the council is

likely to result in worsening freshwater issues and potential to breach the

phosphate trigger zone in sensitive sub-catchments.

221 More intensive farming systems inevitably lead to higher environmental,

financial and physical system risk. This occurs as a result of higher stocking

rates underpinned by feed availability and irrigation. The flip side of this

intensification however is that as stocking rate increases, the feed dearth

outside the pasture growth curve is amplified and requires bought in feed or

support land to meet requirements.

222 NZ’s Global competitiveness has relied on low cost and flexible farming systems

with plentiful access to fresh water resources historically, however now water

provision will have cost and restrictions associated with it. Farming within limits

will be the new norm and farm systems may require reconfiguration.

223 This could lead to loss of competitiveness: NZ is now ranked 5th globally in

cost of production (IFCN report). New milk is coming with a significantly higher

cost as it is develops on the base of take and pay for water.

224 The modelling work from MRB should be relied on with caution as it has several

flawed assumptions that were relied on in the models:

225 Finally: The MRB model locks farmers into vulnerable (high risk) models of

farming: intense, inflexible and high cost with a high reliance on debt: all of

which are past the point of optimum for both farmers and NZ as a whole.

226 The unlikely prospect of the proposed irrigation scheme becoming economically

viable is compounded by the far greater risk of systems collapse within the

complex, yet largely dysfunctional, component interactions that irrigation

brings into the system mix in the Ruataniwha region. (Ridler, 2013)

57

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APPENDIX 1

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APPENDIX 2

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APPENDIX 3