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New Zealand Is Awesome — Just Don’t Look Too Closely.

It was such big news when the British High Commissioner to New Zealand Laura Clarke called New Zealand out on its environmental record.

“There is a gap … between ambition and reality,” Mrs Clarke said. “You have Scandinavian ambitions in terms of quality of life and public services, but a US attitude to tax. The brand 100% Pure New Zealand lulled many into a false sense of security when the environmental reality is far more challenging.”

Personally, my first reaction upon reading Mrs Clarke's statement was that she must have her facts wrong. I mean, who can trust politicians at all these days, right? They sensationalise and lie for their own agendas. This must be no different.

The problem, however, is that she is right. New Zealand had a net 57.16% increase in carbon emissions between 1990–2018. Proportionally, that is the 2nd greatest increase in greenhouse emissions out of any industrialised nations.

So what’s happened? Why haven’t we as a country been able to do as we have been saying? In fact, in the land of 100% pure, why haven’t we done much at all?

Within the last few days (likely in response to Mrs Clarke’s remarks) New Zealand has declared a climate emergency, re-affirmed its goal for 100% renewable energy by 2030 and reignited it's on again off again flirtation with the idea of regulating vehicles. All ‘positive’ steps but again, all talk.

Even taking the optimists view on the governments response to Mrs Clarke's tongue lashing, these goals (if achieved) still only address at most 25% of our total emissions. They also only address CO2. Roughly 50% of New Zealand's carbon emissions are methane, which has 28 times the warming effects of CO2. So, why isn’t this the government's focus?

Even a tiny reduction in methane will have a far bigger proportional impact on New Zealand global warming contributions than a corresponding reduction in CO2. This should be an EASY target for any government; the lowest of low hanging fruit; the quickest of wins. But, methane is NEVER talked about, and its certainly not a part of any major government climate initiative. Why is that?

My guess? It has something to do with the big dairy cow-shaped elephant in the room…

It’s pretty simple, really. Since 1994, there has been a 10% net increase in methane from the Agriculture sector and dairy makes up approximately 30% of our agriculture sector. Agriculture is the primary cause of New Zealand’s methane emissions and the dairy industry is at the heart of the agriculture sector.

That’s the environmental story but there’s an economic issue at play here too.

In the mid to late ’90s, a large proportion of our farmers converted their farms from wool to dairy in response to both the decline in global wool demand and an increase in global dairy demand. This resulted in a major shift in land use. The agriculture sector saw a 70% increase in dairy production and a 44% decline in wool production between 1994 — 2018. Importantly, and why this matters, is that farmers took on massive levels of debt to so. The latest Reserve Bank statistics (S31 series) show dairy-farm bank debt reached $40.8 billion as of November 2019.

This simple fact alone means that no government can really do anything about methane. Not only have a majority of our farmers literally bet their homes on a product that generates poor cash flow, is completely reliant on commodity pricing from export markets, and just so happens to be one of the main contributing factors polluting our water, air and land, but they also don’t have the balance sheet strength to pivot into anything better.

New Zealand's economic and environmental path is completely intertwined with dairy-farm debt. With such a powerful sector now so heavily indebted there has been no choice for any government but to support dairy and ensure it’s survival. In the same way that successive governments have refused to address the housing market for fear of creating a proportion of homeowners with negative equity, so too are they afraid of doing the same for indebted dairy farmers.

The government, banks and farmers all bet big on dairy and the economy has since geared itself to make this work. This has locked us into the environmental conundrum we now find ourselves. We can’t move away from dairy as it will tank our economy, yet we can’t continue with dairy long term as it is ruining our environment. It is for this very reason that no politician wants to (or will ever) discuss methane emissions. It’s political and potentially economic suicide.

Objectively, what are the real alternatives for politicians? Regulate sustainable practises? Good luck. The margin pressures on farmers are immense. Forcing more cost onto farmers isn’t going to solve the environmental problems they create and it’s likely to drive many bankrupt. Encourage tech to ‘innovate the industry’ to help reduce emissions? Again, what farmer will sacrifice margin for feedstock that reduces cow farts, or invests capital they don’t have into technology that improves their environmental footprint but doesn’t improve the farm gate price? Certainly not the majority. So, do we prop them up with subsidies and tariffs to help them find the capital to ‘transform’? Asking taxpayers to support this long term isn’t viable as such measures only ever work in the short term and would likely ruin long term demand for NZ dairy.

Holistically, the dairy industry is at a point where it can’t be both economically and environmentally sustainable. So, it begs another question; If we can’t transform dairy, either through innovation or subsidy, then what can we do?

The answer is as simple as it is hard to hear. We need another major shift in land use, similar to the ’90s.

Just as farmers shifted to dairy from wool because it made economic sense, now we need farmers to shift from dairy to something better for the environment. And, thus the real answer isn’t to transform dairy or make it more efficient. The real answer is to work towards creating the economic environment that encourages another fundamental shift in land use to something that is both economically and environmentally sustainable. And, it is possible, with a team effort.

To start, let's look at where the government can really have an impact.

First, they can signal intent by outlining a desire to transform our economy away from dairy. This gives us all certainty that dairy isn’t the future and that we should start to allocate capital into new areas.

Second, they can regulate. They can impose (and enforce) regulations that make dairy even less viable that at the same time improve the economics for other crops. Think taxing nitrogen-based fertilisers or baning topdressing fertilisation techniques whilst also providing incentives for the use of nitrogen restoring crops. Farmers will naturally turn to legumes over grass, irrespective of land use under such a policy.

Third, the government can initiate a focused programme to invest in research and technology that seeds a new ‘value add’ alternative protein industry in New Zealand. Think Sun Fed, Beyond Meat, and Impossible Foods. By fostering such an industry through focused R&D investment the government will not only steer New Zealand towards an economy that utilises its land for higher-value manufactured goods but it will also improve the economics for the crops that form the raw materials for plant-based protein alternatives as a consequence.

Then there's what we can do in the private sector.

First, we need a mainstream pivot in consumer demand away from dairy and beef and towards an alternative protein source. As the theory goes, shifting consumer habits towards meat alternatives naturally has a second-order effect in inflating the farm gate price of ‘plant-based’ staples, which act as the raw materials for such products. Just look at the inflation we’ve seen in cauliflower prices as people have started using it as a rice alternative and cheese sauce substitute. Think that but on a far bigger scale.

To achieve such a pivot in demand, we can double down on what has been the most fundamentally important brand pivot for humanity, which is the pivot of veganism to ‘plant-based’ (all the positives without the militant loudness), and encourage the first, second, and third-order consumer behaviours that generate demand for vegetable consumption and the consumption of processed plant-based products.

Before we get too upset at this idea, there are plenty of commercial examples of plant-based meat substitutes that provide an identical, if not better, consumer experience to their meat counterparts. As an example, Burger King validated that plant-based ‘beef’ and ‘chicken’ patties are indistinguishable from their beef and chicken alternatives this year with their Reble Burgers.

The technology exists, now we need to double down and produce (in New Zealand) at a scale that brings price parity to the equation.

Finally, private venture capital can also start backing such a vision and start prioritising investments that move us in this direction. Investing into industries that in the short term may not generate the returns of a speculative SaaS copy but long term will have not only the economic returns but will also have the societal and environmental ‘profits’ too is the final bit that will make this work.

An economy that produces high protein meat alternative consumer products is an economy that relies on consistent, high yield, high-quality crops. Such crops that just so happen to add nitrogen to the soil rather than strip it and removes the methane-producing biological energy sink ‘middle-men’ that is the cow from the equation. As such, a government lead focus to foster innovation in alternative protein and provide the economic environment to encourage this to happen starts to provide the economic certainty need for dairy farmers to move into a viable alternative to dairy and beef.

Now, none of this thinking is rocket science but it is a conversation that we need to be having. If we are to live up to our Paris Agreement commitments we need to address our methane emissions. We can’t do this without addressing the economics of dairy and how we utilise our land.

No one wants to put farmers out of business and I’m not suggesting we completely eradicate dairy from our economy. I’m simply looking to connect the dots for people. A focused effort to tip the business case in favour of nitrogen restoring crops and away from dairy is the answer to solving our methane issue. Create the demand for plant-based alternatives, give farmers an economically sound and stable reason to move away from dairy and into better crops, improve the long term viability of our major national advantage that is our farmable land, and reduce our methane emissions as a consequence.

We discuss all of this, and more in the latest episode of the SUPERTILT podcast.

Professional startup advisor for founders of high growth startups. More details @ https://aidankenealy.com/

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