• Nick Smith sets out the Government's "comprehensive plan for improving New Zealand’s management of freshwater"

    By Nick Smith*

    [This is a speech to an audience at Lincoln University.]

    Thank you for the privilege of giving this 2016 Lincoln Environment lecture. I’d like to acknowledge Lincoln University Chancellor Tony Hall distinguished guests, fellow MPs, and the Centre for Nature Conservation staff who are hosting us tonight.

    Most of my communications are in 30 second soundbites or one page press releases, so it is invaluable to have the opportunity to set out our comprehensive plan for improving New Zealand’s management of freshwater.

    I had a beaut entree for this presentation when renowned British Science Communicator and Analyst, Alok Jha, gave the 2016 Cawthron lecture in Nelson on water last Wednesday His book, the extraordinary story of our most ordinary substance, tells the origins of water from the Big Bang, and the shaping of our planet during the past 4000 million years. Three points from this presentation stand out.

    First, water has been pivotal to the creation of life, is more than 60 per cent of what we are made from and is the key marker in our search for life in our solar system and beyond.

    Secondly, water has shaped civilisation for the past 10,000 years. It is the presence or absence of freshwater across the globe that is the best predictor of human populations - more than any other substance or geographical feature.

    Thirdly, 97 per cent of the water is in the oceans, 2 per cent is ice in places such as Greenland and Antarctica, and the real issues are about the 1 per cent of freshwater.

    It is this freshwater that is the focus of this lecture.

    New Zealand has plentiful freshwater

    In this regard, New Zealand is richly blessed. We have more freshwater per capita than pretty much any nation. The average 2.3m of rain falling nationwide each year equates to 145 million litres per person per year. That’s enough for every one of us to have a bath every 30 seconds, for every minute of every hour of every day. It is seven times as much as Australia, 16 times as much as the United States and 70 times as much per person as the UK or China.

    This abundance can have the downside of us not appreciating how important it is to our economy, our lifestyle and our health, albeit we have just had a harsh reminder in Havelock North of why we must not take it for granted.

    So many of our major export industries depend on freshwater.

    It takes about 800 litres of water to produce a litre of milk. A kilogram of beef takes about 400 litres of water to produce. A litre of wine takes about 200 litres of water. These industries are effectively exporting virtual water with a good dose of kiwi ingenuity. This same freshwater is the source of 60 per cent of our renewable electricity and the only reason we earn more than $1 billion a year from manufacturing aluminium.

    Our rivers and lakes are equally pivotal to our tourism industry – think Huka Falls; Mt Cook reflecting in Lake Pukaki, jet boating the Shotover or trout fishing on Lake Taupo.

    You can connect over 60 per cent of our external earnings as a country to this abundance of freshwater. It is core to New Zealand’s competitive advantage and quality of life.

    Let me give some context to the major issues over allocation and water quality.

    On allocation, our water shortage problems are in quite distinct areas and only for specific times of the year.

    The total New Zealand freshwater resource is 600 trillion litres and we use 11 trillion - or only 1.8 per cent. Six trillion of that, or more than half, is for irrigation. Two and a half trillion litres a year is used by industry. Two trillion litres is used each year by town municipal supplies and about half a trillion is used for stock water.

    Some communities have been getting in a lather about bottled drinking water. Numbers such as 100 million litres of water being consented sounds big. Some parties have been calling for a moratorium of such consents for fear bottled water exports will have our rivers and aquifers run dry. But these consents are minute. This is about as logical as suggesting we solve Auckland’s traffic problems by banning bikes!

    The main game is agriculture. It is not only the biggest user by far, but where the use is growing. It is significant that during the past 25 years, the area of irrigated land in New Zealand has more than trebled from 250,000 hectares to 800,000 hectares. This is by far the fastest rate of growth in irrigation of any OECD country.

    This growth reflects our abundance of water, the strength of our agriculture sector and the huge productivity gains available in New Zealand from adding a reliable water supply to fertile soils and our temperate climate. The problem, though, is that our systems for allocating freshwater are blunt and unsophisticated.

    New Zealand river condition trends

    We have challenges, too, with water quality but I caution those who exaggerate the problem at the expense of New Zealand’s reputation.

    Our water quality is generally good by international standards. If you compare our biggest river in the South Island, the Clutha, and the biggest in the North Island, the Waikato, both would compare significantly better than waterways such as the Murray/Darling in Australia, the Thames in the UK, the Seine in France, the Rhine in Germany or the Mississippi in the United States.

    It is difficult from the hard data to draw simple overall conclusions on freshwater quality. The first problem is that the trends vary significantly from one river to the next.

    The second problem is you need several years of data to make comparisons meaningful because water quality varies dramatically seasonally and from a dry year to a wet one.

    The third problem is that it depends on what you are measuring. The best summary I would give of the data on overall fresh water quality throughout New Zealand is that bacterial contamination and macroinvertebrates are unchanged during the past 25 years, dissolved phosphorus is improving and nitrate levels are generally deteriorating.

    The broad conclusions I draw are this. The worst water quality is in urban areas but these are comparatively small in total area. The most significant declines are in more intensively farmed areas and are caused by minimum flows being too low and levels of nutrients or sediment being too high.

    The good news on water quality is that our systems for dealing with point sources of pollution under the Resource Management Act (RMA) are generally working well. There has been a huge reduction in pollution entering our lakes and rivers from dairy sheds, factories and town effluent systems, and billions has been spent on upgrades. These are easier to regulate because they require a consent, they come up regularly for review and councils are able to set standards and monitor performance.

    The bad news is that our systems have not been working in addressing diffuse pollution. In some catchments the growth in diffuse pollution has exceeded the gains from dealing to point source discharges to the degree that water quality is going backwards.

    Diffuse pollution is much more challenging to regulate. It is difficult to measure as it is small amounts of runoff over large areas that just seeps into the drains and aquifers and which gradually accumulate. The activities that cause diffuse pollution - increased stock numbers and fertiliser application in rural areas or leaking pipes, road runoff and pet poo in urban areas - are not activities anybody expects to require a consent for.

    The biggest policy challenge in improving freshwater quality is finding credible and workable ways of reducing this diffuse pollution.

    Government’s freshwater objectives

    So that is the context of New Zealand’s freshwater environment. What are the Government’s objectives?

    The number one priority is improving freshwater quality. It is just too important to our quality of life, our national identity and our economic wellbeing to allow the standard of our water to go backwards.

    The second objective is maximising the economic opportunity for jobs and wealth creation from our freshwater resources.

    The third is we want to improve the involvement of Maori in freshwater decision making, consistent with our Treaty settlements and obligations.

    There are those who question the objective of improved Maori participation in freshwater management. It is not just that the obligation arises from Treaty settlements.

    My practical experience here in Canterbury with Ngai Tahu, in the Waikato with Tainui, in Lake Taupo with Tuwharetoa and in the Rotorua Lakes with Te Arawa is that iwi bring a constructive and helpful dimension enabling real momentum to improve our freshwater.

    Water issues often come down to a clash of values between environmentalists and land owners. Maori have a foot in both camps and are proving to be valuable bridge builders over these troubled waters.

    I also want to drive home the fact that we can achieve both these first and second objectives. There are some who believe our nation’s water choices are binary – it is either water quality or growing the economy. We disagree. We clearly need limits and not all irrigation projects, for example, will pass sustainability tests. But there are many water projects that can deliver both environmental and economic dividends.

    Let me reinforce this point with three examples.

    Few people appreciate that water storage and irrigation can enable land use changes that actually reduce nutrient run-off. The Lee Valley Dam in Nelson will enable about 2000 hectares of dry land farming to be converted into horticultural crops. Irrigated apple orchards leach substantially less nitrate than the existing farming.

    Water storage projects can also enable higher minimum flows in summer, as has become obvious in the Opihi River in South Canterbury with the Opuha scheme. Enhanced minimum flows improve the ecological health of rivers, enhances recreation and can reduce nutrient concentrations and the risk of algal build up. A further benefit is water storage schemes can be used to stop the build-up of harmful algae with high freshening flows.

    The final big opportunity for water storage projects to contribute positively to water quality is particularly pertinent to Canterbury. Ninety per cent of the water here is in the big alpine rivers but the bulk of the huge water takes for irrigation are from the groundwater and vulnerable lowland rivers. The infrastructure costs to farms of storing and using the alpine river flows is much greater, but the environmental impacts and ongoing energy costs can be much less. One of the difficult public policy challenges is to engineer this switch from groundwater to stored alpine river water.

    Stronger national direction

    We have six clear policy views on how we can best deliver on these improvements in freshwater management.

    The first is that stronger national direction is required. My first job as an undergraduate civil engineer was with the National Water and Soil Conservation Authority here in Canterbury, just before its abolition in 1987. The view then, which dominated public policy for 20 years, was that the regional authorities could do the job.

    The problem with this approach was it ignored the broader national interest, it wasn’t particularly efficient to re-litigate the same issues 16 times over and regional councils have struggled to confront the hard political choices over water.

    We have sought to step central government involvement up a few notches. We have expanded the water directorate from 10 to 50 in the Ministry for the Environment. We supported and funded the Land and Water Forum to enable a national conversation on freshwater management. And we have made greater use of national direction under the RMA than any previous Government.

    There is a balance to be found. The very nature of water problems varies significantly nationwide, and local knowledge and solutions are needed. On issues such as nutrient limits, what constitutes good management practice, stock exclusion and swimmability, we need to find the right mix of national consistency and local flexibility to get the best outcome for New Zealand.

    The second driver to our reform programme is a strong belief in a more collaborative approach to resolving water policy problems.

    We have a bad habit in New Zealand of turning environmental issues into polarised battlegrounds of winners and losers, and the litigious architecture of the RMA does not help.

    I do not buy the rhetoric that farmers are environmental vandals and environmentalists and recreationists are economic imbeciles.

    I have been trying to lead a culture change at both a national and local level where different water users and interests work together on finding solutions that will work for the environment and the economy. I am indebted to the commitment and work of all the participants in the Land and Water Forum and I acknowledge their new Chair, Hugh Logan, here tonight. They have broken down barriers and navigated a pathway in which substantive reform has become possible.

    I remember being told by a stroppy southern farmer shortly after my appointment as Minister that the day a landowner needed a consent to change to dairying would be the same day hell froze over. In Southland, and now in many parts of New Zealand, a consent is required and, significantly, consents have been declined without a riot over property rights.

    This national collaborative approach pioneered by the Land and Water Forum is being replicated at a local level throughout the country, with Canterbury in the vanguard.

    An important part of the Government’s RMA reform this year is supporting this new approach. This does take longer at the front end. The problem is that even when a consensus is found, this can easily be unstitched through the drawn out appeals process and there is a risk of groups gaming the system.

    The RMA Bill currently before Parliament formally recognises these collaborative processes and limits appeals where a consensus is agreed. This provides an added incentive for Councils and water stakeholders to find solutions.

    Consistent reporting

    A third important dimension to our reform is more consistent and open reporting.

    This sounds a bit nerdy, but reporting regimes can change outcomes for the better. I would rate the best Bill of hundreds passed during my 26 years as an MP as the Fiscal Responsibility Act that requires independent reports by Treasury on the state of our public finances. It was preceded by 20 years of New Zealand having some of the worst public books in the OECD, but the disclosure requirements under Governments of various political persuasions now has us amongst the best.

    My objective in advancing the Environmental Reporting Act with the independent auditing role of the Parliamentary Commissioner for the Environment is to achieve a similar outcome for the environment.

    A real problem with water management is the lack of consistent data to make meaningful comparisons.

    Only 20 per cent of water takes were measured in 2008. The national water metering regulations I introduced in 2009 phase in a requirement to meter and report, starting with large takes. We are at 80 per cent of water taken and on target to get to 98 per cent by next year, with the last tranche of water takes required to report from November this year.

    We also have a real problem with the consistency of measurement of water quality. We are proposing a national requirement to measure the ecological health of rivers with the macroinvertebrate community index.

    I also am working with regional councils on assembling national maps on swimmability. These will show which rivers and lakes have water quality suitable for swimming, under what conditions. This information will complement the open data of LAWA, a website launched in March 2014, run by my Ministry with the support of Regional Councils and the Cawthron Institute.

    Not only will it let people know where and when they can safely swim in our rivers, lakes and beaches, but it will also put a real focus on improving water quality.

    We are also exploring additional regulations to achieve consistency in the way we measure and report water quality. This work will support the publication next autumn of the first report on freshwater under the Environmental Reporting Act.

    Tighter regulation and compliance

    A fourth dimension is tighter regulation, compliance and enforcement.

    The strongest and loudest message from the Land and Water Forum is that we must set limits. Limits on water takes are meaningless without measurement, and that is why the water metering requirements are so important.

    Here in Canterbury, critics have been keen to highlight the fact that some water takes have exceeded consent conditions. I welcome the fact that the information is now there to give some meaning to these much needed limits.

    Limits on nutrients are also rolling out nationwide. There was not a single catchment a decade ago that had caps on the amount of nutrients allowed.

    They are now in place in Taupo, in four of the 10 catchments in Canterbury, two in Southland and in the Manawatu. There are a further 15 in the pipeline.

    The national regulations on stock exclusion is a further example of where the work of the Forum has been pivotal.

    The adverse effects of stock in waterways has been known for decades, but only four of our 16 regional councils have been able to advance rules to address the problem. I have spoken to a dozen regional councillors who have tried in good faith to make progress but the local backlash has made it too hard. That the 64 member organisations of the Land and Water Forum has reached a consensus on definitions and a timetable for progress is a tribute to their work that we are translating into national regulations over the next year.

    Noting this requirement comes with a $500 million cost to the farming sector during the next 14 years, and that this is being achieved with farmers’ support, shows a genuine commitment from the sector to water quality improvements.

    These limits on water takes, nutrients and requirements for stock exclusion are backed up by our changes to the RMA that upped the fines for serious non-compliance and which enable instant fines for lesser offences. There is a cost to farmers, industry and communities from these greater requirements to protect water quality but the Government is also sharing the cost burden through increased investment.

    The investment in water quality initiatives in our first two terms of Government has been a seven-fold increase on our predecessors. We are getting earlier positive improvements in water quality than I expected given the long hydrological cycles on these water bodies. Lakes Brunner and Rotoiti are just two examples of real success.

    During the next 10 years we have $250 million in initiatives already committed on rivers like the Waikato, Manawatu, Whanganui, Buller and Maraetotara. Budget 2016 committed another $100 million, for which we will be calling for proposals for later this year.

    Science and innovation

    The last but critical part of our water management programme is the focus on science and innovation to deliver new tools for limiting pollution and improving efficiency in water use.

    The work that has gone into developing Overseer is world leading. It is an imperfect model that is going to require ongoing investment and innovation, but is an essential tool if we are to get on top of diffuse nutrient pollution. We also have a power of work to do on developing the tools for Good Management Practice and Technical Efficiency Standards.

    It is also entirely appropriate that one of MBIE’s 10 National Science Challenges is focussed on land and water management.

    Havelock North

    I want to conclude on four topical and current issues. The Havelock North drinking water failure, the debate on swimmability, the work on allocation and the upcoming governance transition at Environment Canterbury.

    The Campylobacter outbreak in Havelock North’s water supply affecting more than 4000 residents was a serious failure on which there are many tough questions that will need to be answered. The GNS data showing the infected water was less than a year old in an aquifer source where it should be more than 50 suggests a localised surface water breach of the well’s integrity, but we should be cautious of drawing conclusions ahead of the independent inquiry.

    I am reminded of the long debate in Nelson on E. coli contamination of the lower reaches of the Maitai River. The finger was first pointed to the few upstream farmers, then it was assumed the problem was from birds and waterfowl. When microbial source tracking confirmed the human source we pointed the finger at seepage from old sewer pipes. It was embarrassingly found that most of the problem was toilets from the Council’s library having been wrongly plumbed into the stormwater rather than the sewerage system.

    The lesson is to be cautious of jumping to a conclusion too soon, and sometimes it is the most basic of failures that are the cause of the problem.


    The second topical issue has been the strong public submissions on the Government’s proposals to improve the National Policy Statement on Freshwater Management to strengthen the swimming requirements.

    I’m working on options to address this.

    The Government is totally committed to improving freshwater quality and swimmability but is cautious of regulatory requirements that are unworkable.

    A national requirement for all water bodies to be swimmable all of the time is impractical. Most of our rivers breach the 540 E. coli count required for swimming during heavy rainfall.

    We’ve got water bodies like the Washdyke Lagoon here in Canterbury and Lake Papaitonga in the Manawatu which are home to many birds whose E. coli make it impossible to meet the swimming standard without a massive bird cull.

    There are also rivers associated with geothermal activity that makes water quality unsuitable for swimming.

    We also need to be open about the cost of our regulatory requirements on communities and the fact that many water bodies have long hydrological cycles that mean it is a long time before we see improvement.

    The Government is open to strengthening the national requirements on swimmability and has the Land and Water Forum working on options. A lot of work is going into understanding the proportion of time our waterbodies meet the E. coli standards for swimming and how we can ensure it is improved.


    One of the most challenging issues in our freshwater programme is improving our systems for allocation.

    The current system of ‘first in, first served’ is fine when the resource is plentiful, but provides the wrong incentives when we start to approach natural limits.

    This is an issue that the Land and Water Forum struggled to reach consensus on, and which requires a great deal of care and caution.

    The next step in this process has been establishing the Technical Advisory Group, which is reviewing international best practice. I look forward to its first thoughts later this year.

    Environment Canterbury

    This brings me to my thoughts on Environment Canterbury. I acknowledge the decision in 2010 to replace the elected Councillors with Commissioners was a big call.

    It reflected that Canterbury is the fulcrum of water management issues in New Zealand having more water used than the rest of the country combined and more than half the country’s hydro-electric storage.

    The decision was motivated by an ambition to get progress on water reform and a lack of confidence by Government and the 10 territorial councils across Canterbury that the status quo could address the size of the challenge.

    The decision proved futuristic in that only four months later the Canterbury Earthquakes started. The dysfunctional relationship between ECan and the City and District Councils would have made the emergency and recovery phases since much more challenging.

    I have been hugely encouraged by the progress achieved by the Commissioners. Canterbury now has an operative Natural Resources plan and it is no long possible to apply for water consents in over-allocated areas. The number of new consents for water has halved from about 200 a year to about 100.

    The work on limits for water quality outcomes in Canterbury is now further advanced than any other part of New Zealand. They are operative in five of the 10 zones, and at the proposed stage in a further four.

    Only 9 per cent of the surface water taken was metered then as compared with 78 per cent today. And the lift in groundwater consents metered has increased from 27 per cent to 86 per cent.

    And I also have to acknowledge Canterbury’s leadership in developing Good Management Practice and leading the way with Farm Environmental Plans, with more than 2000 now completed compared with none when their work began in 2010.

    I cannot pay tribute loudly enough to the Commissioners led by Dame Margaret Bazley for the progress they have achieved.

    Water remains one of the most important strategic issues for the future of this region. I urge Canterbury-wide voters to take a strong interest in the election of the seven councillors in October. I am encouraged by the strong calibre of candidates who have put their names forward. An important ingredient for the ongoing success of ECan will be Councillors who recognise both the environment and economic importance of water to the region; and the collective will to ensure the momentum of reform is maintained.


    So can I conclude by saying what success for me from these freshwater reforms would look like in 2030:

    • Consistent data showing our rivers, lakes and aquifers are cleaner and healthier.

    • A vibrant agricultural sector using smart technology to use water and nutrients more efficiently, and where farmers take as much pride in the quality of their local waterways as they do in the success of their NPC teams.

    • A community that better understands the value of its rivers and lakes, is more cautious about what they put down their drains and where iwi involvement is not a novelty but the norm.

    • And a country where we are not just admired for our abundance of freshwater, but for how well we manage it.

    Dr Nick Smith is the Minister for the Environment.

  • The Sheep Deer and Cattle Report: Chilled venison export volumes grow as supply tightens and early lamb areas have good survival


    More lamb schedules lifts this week, as supply tightens and processors desperately try to satisfy regular customer requirements.

    Chilled negotiations are having to cover exchange rate lifts and how much will be returned to the farm gate is yet to be seen.

    Some analysts are predicting early lamb prices of $6-$6.20/kg but only briefly, with values falling to an unsustainable $5.10-$5.25 in January 17.

    With so much farm profitability dairy focused, the sheep sectors demise has gone under the radar, but if these levels do eventuate in a year where Beef and Lamb NZ predicts 700,000 fewer lambs, the financial pressures will shift to sheep farmers.

    Many of the early lambing areas in the south and east of both islands are still dry but report good survival at lambing although are concerned how they will feed them.

    Local trade prices are rising faster in the north than in the south, but average Canterbury saleyard values for prime lambs are now in the $123-$127 range.


    This week’s South Island wool sale was again weaker and vendors only sold 78% of the sale, in spite of offering some of the best pre lamb fleece of the season

    The European buyers continue to dominate the sale and the lack of Chinese activity is a worrying trend.

    Fine wools also eased back in price to now sit at Australian levels, although the offering of high tensile strength Merino wools, attracted good premiums.



    Beef schedules were stable again this week, as Rabobank predicts that US beef prices at retail will fall 22% this year.

    Analysts suggest some readjustment of the manufacturing grades could occur on the back of easing US demand as processors look to recover profits after earlier margins looked thin.

    Firstlight Foods have been promoting grass fed wagyu beef calves as an alternative option for beef farmers in the region to fill the gaps from reduced dairy support.

    Store stock that is available is receiving strong demand with some young animals selling for more than $3/kg in southern saleyards, and early bobby calf sales seem to be well ahead of last year’s prices.

    Local trade schedules in the north have now made $6/kg cwt are are 30c/kg ahead of the south as demand for quality animals builds.



    More stable venison schedules again this week, as demand remains strong but farm gate returns are hampered by the strong Euro against the Kiwi.

    Servicing existing programmes and new market initiatives are the focus of all processors as the industry realigns with a reducing supply due to a reinvestment into female breeding stock.

    Chilled exports are growing with the shortages with Belgium being where the biggest volumes were sold but the Swiss pay the most per kg.

    Velvet production is predicted to grow to 600 tonnes this year with China being the main destination of the product, although industry officials are hopeful the tariff concessions achieved via the NZ- Korea free trade deal will increase the competion between the purchasing countries.

  • Fonterra reduces time from NZ farm to Chinese breakfast table from 100+ days to 34, in bid to claim "freshest imported UHT milk in China"

    Content supplied by Fonterra

    Consumers across China are getting a taste of the freshest imported UHT milk thanks to a Fonterra programme aimed at delivering UHT to the Co-operative’s biggest market at world-leading speed.

    Fonterra’s project to align and enhance its supply chain from New Zealand to mainland China has seen a dramatic reduction in the time it takes to get UHT products to market from more than 100 days to just 34. This makes Fonterra UHT the freshest imported UHT milk in China.

    Robert Spurway, Chief Operating Officer Global Operations, says time spent shipping and transporting products can be the difference between good and great tasting dairy nutrition. 

    “When it comes to dairy, there is no substitute for freshness and this is something Fonterra takes great pride in. We produce some of the purest dairy in the world, from grass-fed cows living on quality pasture and you can taste that quality in our milk.

    “From a supply chain perspective, reducing the window between the farm and the breakfast table is about preserving the natural freshness and purity of our milk – this is one of Fonterra’s competitive advantages globally.”

    The 70 per cent reduction in lead-time took the team just under four months from start to finish, with every aspect of the supply chain streamlined from production, sailing time and schedules to customs clearance.

    “We’ve put all facets of our supply chain under the microscope to shave off every additional hour,” says Mr Spurway.

    “Processes that delayed products from leaving our site have been analysed and refined, resulting not only in our UHT reaching port sooner, but also an improvement in our consistency and quality. Waiting time at port has also been minimised, with all production now aligned with shipping schedules between Tauranga and Shanghai,” he says.

    Freeing up the final leg of the journey, Fonterra has worked closely with regulators in China to get a deeper understanding of how it can better meet customs requirements to make sure there is no hold up on arrival.

    With UHT becoming increasingly popular in China, Mr Spurway says the improvement in delivery times and freshness has been well received by customers.

    “We have had good feedback from our customers that their consumers show a growing preference towards fresher UHT products. We’re able to deliver that freshness through our focus on performance and quality to help give customers of Anchor Food Professionals the edge.”

  • William Rolleston challenges the many claims that point the finger of blame for the Havelock North water contamination and system failure; calls for science-based evidence gathering

    Content supplied by Federated Farmers

    Federated Farmers urges the public to apply some good old-fashioned common sense and scrutinise the statements of activists as they push their anti-farming agendas in the wake of the Havelock North water-borne gastrointestinal disease outbreak.

    Top of the list would be Dr Mike Joy’s statements on The Nation last Sunday where he said:

    "’Central and local government had allowed massive intensification [of dairying] that had caused the problem’ when in fact the closest dairy farm we can find is some 40 kilometres away", Federated Farmers president Dr William Rolleston says.

    Or his statement that "animals have to come out of agriculture".

    The sanity of this statement for New Zealand can stand on its own merits.

    In the context of this bacterial episode he said that ‘over time you find it deeper and deeper and deeper [in the groundwater]’ when it is known that as water penetrates the ground, bacteria are progressively filtered out and their survival diminishes.

    Greenpeace have waded in with a rant about the Ruataniwha dam and the evils of water storage, but didn’t mention Timaru in South Canterbury derives a significant percentage of its town water supply from the successful Opuha Dam.

    Others have used the episode to have a go at Overseer, claiming councils are relying on it to manage bacterial risk, when the computer programme models the flow of nutrients in the root zone of soil, not bacterial flow into underground aquifers.

    Photographs in the media this week of beef cattle standing in the Tukituki river failed to mention the site was downstream from the Havelock North bores.

    "Unless the theory of gravity has changed this is unlikely to be the source. It is worth noting that Waipukurau’s treated sewage water outflow is in the catchment above the bores but this somehow doesn’t fit the activist agenda," Dr Rolleston says.

    There is no question that animals and birds, both wild and on farm, create an opportunity for pathogens in the environment. So do humans for that matter.

    Councils have a responsibility to assess and mitigate credible risks which exist in the environment when it comes to drinking water.

    There has been a systems failure and 4,000 people got sick.

    "The only way to re-establish confidence in the Havelock North water supply is with good factual, science-based evidence gathering. That’s what the councils, the Ministry of Health and the local community are trying to do.

    "Distracting rants about building dams, wandering stock and activist theories do nothing to fix the system faster," Dr Rolleston says.

    William Rolleston is the President of Federated Farmers.

  • Allan Barber notes that the Russia’s meat industry could face a tsunami of bankruptcies across its poultry and red meat processing sectors within the next two years

    By Allan Barber*

    Just in case we think our meat industry has problems, they would appear to be nothing like as bad as those predicted for Russian meat companies.

    An article which first appeared in March, but has only just been picked up by the Global Meat News website, notes that the Meat Council of the Eurasian Economic Union has predicted a quarter of pig producers, 15% of poultry producers and 20% of red meat processing companies could go bankrupt within two years.

    The economic crisis which hit Russia three years ago has seen imports drop from 2.3 million tonnes in 2013 to 700,000 tonnes in 2015 because the market was unwilling or unable to pay the price for imported products. But the declining economy has also seen total meat consumption drop from 10.8 million tonnes to 10 mt over the same period with a further decline to 9.4 mt forecast for the current year. The impact of reduced imports will have worked its way through the system by 2018.

    The outcome of these changes means domestic producers and processors will be competing for an ever lower volume of meat with the inevitable result of company failures.

    The normal response to a lower volume of domestic sales would be to export, but for obvious reasons Russia is restricted from developing larger export markets because of trade embargos which have closed a number of desirable markets.

    Russian consumers are spending less on food purchases, turning to lower priced products, which means the meat producers and processors must compete with cheaper products in an attempt to hang on to their share of the market.

    What has been sustainable during the period of adjustment from lower import volumes will no longer be possible in a period of strong competition for the declining consumer rouble.

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    *Allan Barber is a commentator on agribusiness, especially the meat industry, and lives in the Matakana Wine Country. He is chairman of the Warkworth A&P Show Committee. You can contact him by email at or read his blog here ».

  • Fonterra increases 2016/17 forecast Farmgate Milk Price by 50 cents to $4.75 per kgMS

    Fonterra is increasing its 2016/17 forecast Farmgate Milk Price by 50 cents to $4.75 per kgMS. 

    When combined with the forecast earnings per share range for the 2017 financial year of 50 to 60 cents, the total payout available to farmers in the current season is forecast to be $5.25 to $5.35 before retentions.

    Chairman John Wilson says current global milk prices remain at unrealistically low levels, but have started to improve as global demand and supply continue to rebalance.

    “Milk production is reducing in most dairying regions globally in response to low milk prices and this is bringing the world’s milk supply and demand back into balance. Milk production in the EU is now in decline and our New Zealand milk collection at this early stage is around 4 per cent lower for the year to date.

    “Prices have increased on GlobalDairyTrade but the increasing NZD/USD exchange rate continues to offset some of these gains. 

    “We expect the dairy market to be volatile over the coming months and will continue to keep our forecast updated for our farmers as we move into the season,” he says.

    Westpac acting chief economist, Michael Gordon, says that while Fonterra's announcement wasn't scheduled, "it comes as no surprise given the extent of the improvement in world dairy prices in recent weeks. Dairy prices have risen by more than 20% in the last two GlobalDairyTrade auctions. 

    "We recently revised up our milk price forecast to $5.00/kg, which we regard as a cautious estimate. It's still early in the season, and there was a similar surge of buying around this time last year which proved to be short-lived. Global milk production has fallen in recent months in response to low prices, but it remains at elevated levels."

    ASB is more bullish on the matter, sticking to its expectation for the milk price to hit $6.00/kg.

    Its senior rural economist, Nathan Penny, says: "First up, the NZ dollar movements are small relative to the surge in the dairy prices, and are not enough to offset the gains. For example, the NZD (currently trading at US$0.7307) has lifted around 2 cents or 3% over dairy price surge outlined above.

    "In addition, we expect the global supply correction to accelerate, and for this to lift dairy prices further this year. For example, we estimate that the NZ dairy herd has shrunk an unprecedented 5% or 300,000 cows on top of the 3% fall last season. This heavy slaughtering is irreversible and we expect this to translate into a 5% fall in NZ production this season.

    "Similarly, our view is that the EU production slowdown is more advanced than most other analysts are currently factoring in."

    Noting that Fonterra has also lifted its advance payment, Penny says: "With most of the lift in payments allocated to later in the season, farm cashflows will remain tight until mid-2017. So while this revision will boost farmer confidence levels, we don’t expect much, if any, change in farming practises over coming over the remainder of 2016."

    Fonterra is required to forecast its Farmgate Milk Price every quarter under the Dairy Industry Restructuring Act (DIRA).

    See this page for more on the dairy industry payout history. 

  • Lower demand from China of pruned logs sees export prices fall. Unpruned log prices stabilise. Strong domestic demand gets more pruned logs at stable prices

    By Peter Weblin*

    Unpruned export log prices stabilised in August after their big $8-$15/JAS m3 fall in July. Pruned export logs fell a further $5-10/JAS m3 on the back of weak demand and high stocks in China.

    The domestic market remained steady with stable pricing and strong demand. Pruned logs became more plentiful in the domestic market as exporters tried to reduce pruned logs being supplied into China.

    Export Log Market

    Three years ago pruned Radiata pine logs were so unpopular in China that you had to make supply of unpruned export logs conditional upon purchase of pruned logs. Export log purchaser’s reluctantly acquiesced. Then pruned logs became popular in China as massive investments were made in clearwood processing and wood remanufacturing.

    Since 2015 the pruned log price has risen dramatically increasing the pruned log premium (the price difference between pruned logs and A-grade unpruned logs) from $35 to $70 m3. This, along with a downward trend in forestry discount rate, started to make pruning financially viable again on selected sites.

    However, it is suspected that the ramp up in export pruned log price was unsustainable as export pruned logs prices got well ahead of domestic pruned logs for a period last year, despite being of lower average quality, and often suffering from sapstain which degrades the visual appearance of the wood. For a period this was overlooked in the market as demand for pruned logs remained high to feed the new processing capacity coming on stream in China.

    It now appears the market is “taking a breath” and pruned logs in China are again unpopular. Most commentators don’t think the price will fall much further but in two months the export pruned log prices have fallen $50/JAS m3. Time will tell whether the current price will rekindle demand.

    Log stocks in China have fallen steadily from 3.2 m m3 in late February of this year to 2.3m m3 in early August. Offtake/demand from the ports is reported at a healthy 56,000 m3 per day. This stock level of 41 days [of demand] is considered reasonably tight and lower than average.

    The Indian market is continuing its strong run and Korea and Japan are steady. The chart below shows the relative importance of the various log markets.

    Market/Destination for NZ Radiata pine logs

    China and India are rapidly growing markets for NZ Radiata pine logs. Korea is steady. Japan, once the predominant destination, is now a very small part of the market.

    The US$:NZ$ cross rate increased just 0.5% from the beginning of July to the beginning of August but traded in a much wider 5% range during the month. As such, it had little impact on at-wharf-gate export log pricing from July to August. Log vessel charter rates, on the other hand have firmed a few US$/JAS m3 with a slight positive offset from lower bunker costs (fuel oil for log vessels).

    China log imports

    Chart courtesy Pacific Forest Products

    Domestic Log Market

    The strong NZ housing market and high levels of residential construction are buoying the market. The BNZ reports that in the June quarter the number of consents issued for new houses around the country was ahead in seasonally adjusted terms by 10% from the March quarter and 18% from a year ago.

    Australia has seen a slowdown in dwelling approvals in the past few months, but the full year figures are still strong. Forest and Wood Products Australia reports year-end May 2016 approvals totaled 231,081 dwellings, up 3.0% on the year prior. The Reserve Bank of Australia’s decision to lower interest rates by a further 25 basis points to a record low of 1.50% will likely prolong the long-running strong housing boom, especially the “hot” Sydney and Melbourne housing markets. This will maintain strong demand for wood products, including those imported from New Zealand.

    However, whilst Australia has formerly been the most important single market for NZ’s wood products, its importance has waned considerably over the past 10 years. The chart below shows market share for NZ sawn timber exports (June 2016 year-to-date). Compared to the prior year, the value of timber exports to the USA is up 26% (recovering economy and housing market) and to Australia is down 13% (competition from Europe).

    Export Destination of Sawn Timber, June 2016 YTD, FOB Value

    Export destination of sawn timber

    Chart courtesy Champion Freight

    Domestic log price and demand has been stable, supported by predominantly quarterly vs monthly pricing. While there could be some easing of domestic pruned log prices based on more supply with the soft export market, good prices are still expected to be paid for quality logs. It could be that a bigger price differential for pruned log quality develops, which is probably a good thing.

    Unfortunately, Selwyn Sawmills announced in July that it was closing its doors. The sawmill has been operated by the Halliday family since 1938. Some of the reasons mentioned for the closure were prohibitive health and safety compliance costs, the need to invest large amount of capital into the enterprise and a shortage of suitable quality logs.

    PF Olsen Log Price Index to August 2016

    The PF Olsen log price index fell in August to $116 mainly due to falls in the export pruned log price. It is still $29 higher than its 6-year low of $87 in July 2014 and $11 above the two-year average and $13 above the five-year average.

    Log price index

    Basis of Index: This Index is based on prices in the table below weighted in proportions that represent a broad average of log grades produced from a typical pruned forest with an approximate mix of 40% domestic and 60% export supply.

    Indicative Average Current Log Prices - August

    Log Grade $/tonne at mill $/JAS m3 at wharf
      Aug-16 Jul-16 Jun-16 May-16 Apr-16 Aug-16 Jul-16 Jun-16 May-16 Apr-16
    Pruned (P40) 192 192 196 196 196 165 172 195 195 195
    Structural (S30) 110 111 113 112 112          
    Structural (S20) 100 99 98 98 98          
    Export A           120 120 131 131 124
    Export K           115 116 124 124 118
    Export KI           102 102 112 114 106
    Pulp 50 51 51 50 50          

    Note: Actual prices will vary according to regional supply/demand balances, varying cost structures and grade variation. These prices should be used as a guide only.

    Market Outlook

    Despite the big fall in unpruned export log prices in July and the July/August falls in pruned export logs, the prevailing sentiment is for stable pricing and slight increases in export log prices for the remainder of the year. This is underwritten by relatively low log stocks in China and steady demand. The housing market in the big five coastal super-cities (Shenzhen, Guangzhou, Shanghai, Qingdao and Beijing) is strong with good demand for new houses/apartments. This is supporting demand for construction plywood and lumber. It is widely believed that the government restrictions on harvesting in China are now significantly constraining domestic log supply, creating more demand for wood imports.

    The Indian export log market is continuing with strong demand and pricing and Korea and Japan are steady.

    The domestic market’s strong run is expected to continue into the foreseeable future on the back of the strong NZ economy in general and housing market in particular and solid demand for our wood products in key export markets.

    This article is reproduced from PF Olsen's Wood Matters, with permission.

  • Theo Spierings explains why Fonterra is in China in the way it is, reveals its focus, and sets out its strategy in the world's largest dairy import market

    Theo Spierings, Chief Executive, Fonterra Group

    Here is an extract of an interview with Fonterra CEO, Theo Spierings, published in China Daily.

    As the biggest dairy producer in the world, what's your role in China?

    We're the biggest producer in terms of liters. We have indeed collected about 25 billion liters of milk this year. We have an integrated strategy in China, which means we supply China from different milk pools in the world.

    What are your competitive advantages over other international and Chinese brands?

    From different milk pools in the world, and our Chinese farms, we provide safe nutrition to consumers and we control end-to-end. We really control from the cows.

    In New Zealand, we have our own farmers, so we control it from farmers to consumers.

    Compared with the farms in New Zealand, what's the difference with farms in China?

    They produce the same quality milk. We run global food safety and quality standards. In New Zealand, we have a different climate, so our cows can be outdoors 12 months a year.

    They eat fresh grass and they are in the open air. In China, we have a feed law system. The cows are inside in bars, and we feed them certain diets and nutrition, which is more like the American system.

    Do you plan to add to your R&D efforts in China?

    We should consider it, because China is such an important market. We will make more efforts in research, product development and applications, and we are looking for more partnership in China as well. If a company wants to develop new products and apply them to consumer markets, it needs to be in big markets like China.

    How confident are you about the Chinese market?

    I see huge opportunities in China and trends are favorable for us. There are big trends in the baby food sector, following the new second-child policy.

    There will also be strong growth from the middle class, and then there's a large aging group who need safe protein and dairy products.

    Besides, China is the biggest e-commerce market in the world, and it is growing extremely fast, as people have money and they want convenience.

    Just to launch products alone on e-commerce platforms is not good enough. We need to create social media, easy payment systems and fast delivery solutions.

    Do you mainly target middle-to-high income consumers?

    At this point of time, yes. We are more in the higher-tier cities. But with our partnership with Beingmate, for example, we specifically target 3rd-4th-tier cities.

    I believe that with rural e-commerce solutions, there are massive opportunities, as not many foreign brands really reach China's rural areas.

    In those areas, there is purchasing power, but there's no strong offerings of products.

    Do you have any plans for new investments in China in the next few years?

    We have not stopped investing, even if though the growth might be slowing down. We will continue to invest in brands, our farms, and expand our food services business. Besides, we invest a lot in people. We have around 1,500 staff employed in China.

    Do milk products popular in Asia have any flavor difference with those in Western markets?

    In Asian markets, people tend to like sweet flavors. But in China especially, mums don't like to see their children consuming sweet products, so that trend is actually declining.

    Most of the markets in Asia are used to cooked milk, because of limited refrigeration solutions, so the fresh products and chilled products are always small in Asia (but it's driving up fast now).

    Why did you join Fonterra?

    Fonterra is a cooperative. We have extremely good farmers with very good farming systems. What I also see in Fonterra is that it has strong brands.

    It presents products in around 140 countries in the ingredient business, and we have opportunities to invest in many value-added products. We have a very strong and still growing milk base, and we are able to expand it to all the regions to collect milk.

    It's a big challenge to be the largest dairy nutrition provider to consumers in the world: the challenge of making a difference to the lives of 2 billion people.

    What's your greatest achievement in your career at Fonterra?

    We wrote a very compelling strategy in the first three months when I arrived in the company. We moved the company from being four divisions to one company with one strategy. We are trying to make the most revenue from every liter of milk in markets where we operate. Alongside that, we re-organized our capital structure and launched an IPO. The innovation and the execution of the strategy is my greatest achievement.

    What's your management style like?

    I'm a storyteller. I'm very strict and focus on strategy. If things are not in line with the strategy, I can be very black-and-white.

    But there are choices. I'm trying to tell people why we are doing things and why not. Sometimes people think they have a good idea, but it doesn't fit to the strategy.

    Once we've made our choices, I give a lot of freedom to the staff to execute them, and we share stories on the journey to execution. I talk to people and really appreciate what they have done.

    Have you been to any Chinese cities? What's your favorite one?

    My favorite city is Chengdu. I like the heritage and beauty there. My first time in China was in 1995, 20 years ago. When I come to China, I only focus on where we operate. Traveling in China would be nice, but I need to have a little more time.

    How do you break ice with Chinese businessmen?

    I've met a lot of Chinese businessmen. We need to work very hard because Chinese people do. In the Chinese context, if one is not seen to be working very hard or making full energy to make it happen, then he or she would be seen as failing, in my opinion.

    Chinese like good ideas and people with good knowledge. And we need to go fast. In China, people go fast.

    How do you spend your weekend?

    I don't have a weekend. I'm based in Auckland now. If I ever have time, I like sailing and doing sports, such as swimming and going to the gym in my free hours.

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