The law on the restructuring of Fonterra risks increasing emissions and decreasing the quality of fresh water, warns the councilor for the environment

A proposed amendment to the law that strengthens Fonterra’s market dominance risks increasing climate and freshwater pollution, the environmental watchdog says, and should be suspended until further analyzes are carried out.

The government appears to be indifferent to these concerns, however, and says it does not plan to look into potential environmental impacts before the law change is brought to parliament.

An amendment tabled to Parliament on Tuesday would allow Fonterra to change its capital structure, including easing capital requirements for its farmer shareholders. This would make it easier for new farmers to join the cooperative and incentivize existing farmers to stay, strengthening its already dominant market position.

It would also close a link between Fonterra shares traded between farmers and those traded in an external unit fund, substantially increasing farmers’ control over the cooperative.

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* Why Fonterra needs to change its capital structure

The changes, supported by the vast majority of Fonterra farmers, are a response to an expected decline in national milk production, largely due to environmental regulations.

While Fonterra could restructure without a change in the law, this would risk a legal challenge. The government decided to change the law for Fonterra, while adding more control over Fonterra’s milk pricing agreements.

“Long-term sustainability, fair prices in the internal market and value creation in New Zealand’s dairy sector are part of the balance we aim for,” Agriculture Minister Damien O’Connor said Tuesday.

“The past two decades have seen new entrants bring competitive innovation to the industry and we want it to continue.

“The continued success of our dairy industry is vital to both New Zealand’s ongoing economic recovery and to protect New Zealanders from the sharp edges of a global economic downturn.”

Some environmentalists and officials have pointed to what may be unintended environmental consequences that would undermine government policies on tackling climate change and canceling freshwater pollution.

Because Fonterra’s footprint is so large – it processes around 80% of New Zealand’s milk – even a modest incentive for its farmers to increase production would risk increasing the size of the national dairy herd, resulting in climate impacts. and on fresh water.

A Cabinet document for the bill noted this concern, saying it was “likely to support an increase in emissions.” However, no climate impact analysis was undertaken, as climate effects were found to be indirect and difficult to quantify.

Any increase in climate pollution would be “a secondary and marginal impact that will likely be more than offset by the government’s current and planned policies, as well as Fonterra’s investment intentions,” concludes the Cabinet. Fonterra has committed to spending approximately $ 1 billion on sustainability initiatives by 2030.

STUFF

Fonterra takes into account the levels of fat and protein in milk when buying it from farmers.

The bill attracted the scrutiny of the Parliamentary Commissioner for the Environment (PCE), Simon Upton, who called for a greater analysis of the environmental consequences.

“I’m worried [the changes] they have the potential for negative environmental consequences and these must be properly understood before any amendment proceeds, ”he wrote in a letter to O’Connor.

“The environmental risks lie in the possibility that the changes increase the overall profitability of the company, thus encouraging an increase in the size of the national dairy herd. A larger dairy herd would increase greenhouse gas emissions and put more pressure on fresh water resources ”.

The huge size of the current dairy herd meant that even small increases in its footprint “could have significant negative environmental effects,” Upton said.

It did not accept the logic of the Cabinet document that “current and planned policies” would offset any increase in emissions.

“Even if that were true, emissions reductions from ‘current and planned policies’ would happen regardless of whether [the law] is modified, ”he wrote.

“Put simply, the increase in emissions would cancel out the currently planned emissions reductions. Fonterra would do less than possible and shift the burden of reducing emissions to other sectors of the economy “.

He recommended O’Connor’s direct officials to prepare a climate impact assessment and also undertake a separate freshwater assessment, which should be publicly released before the amending bill proceeds. Even if they didn’t change the outcome, he said, they would provide parliamentarians with important information to understand the consequences of their decisions: “It’s about transparency.”

The plea appears to have been rejected.

In response to Upton’s letter, O’Connor acknowledged his concerns, but said the environmental effects would be too difficult to model in advance.

“The government is aware that the restructuring of Fonterra’s capital could have flow impacts on greenhouse gas emissions and fresh water quality,” he wrote.

“However, the extent and likelihood of any impacts are highly uncertain. They depend on a series of factors, interactions and other variables which in combination can, at any time, combine or compensate for each other. “

Any modeling would require the making of assumptions about many variables, including global demand for dairy products, social licensing, and investments in the dairy sector, all of which presented significant uncertainty.

“I am not convinced that the results of such modeling would be solid enough to separate (and attribute causation to) the potential effects of Fonterra’s capital restructuring on the environment with certainty,” O’Connor wrote.

O’Connor noted that the amendment would increase transparency on Fonterra’s milk pricing agreements and said the government has allocated nearly $ 339 million to develop technologies to reduce agricultural emissions. The law would also be periodically reviewed.

The amendment is likely to have its first reading in the coming weeks, with a select committee process later in the year.

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