4.7 million more lambs needed to cover ETS costs

4.7 million more lambs needed to cover ETS costs

Using the Minister of Agriculture's costing for the Emissions Trading Scheme (ETS), Federated Farmers estimates it will take the profit from 4.7 million lambs to offset the $42,973,476 ($1,475 per sheep and beef farm) of ETS costs from 1 July 2010.

"The ETS is a massive risk to on-farm profitability and this sum actually doubles what Federated Farmers had projected only two weeks ago," says Don Nicolson, Federated Farmers President.

"Given these are the Minister's own figures it doesn't seem to account for the $10 million in extra costs the processors also face. Costs that will be passed back to farmers.

"We know from Meat & Wool NZ's Sheep & Beef Mid Season Update, released in February, that the estimated before tax profit for a sheep and beef farmer this season is a mere $39,800. $1,475 in new costs is almost four percent of that average pre-tax profit.

"Given the MAF model projects a per-lamb profit of $9.06, it will take the profit from 4.7 million lambs just for us to break even as an industry. That requires a massive 20 percent increase in the number of lambs produced over the year ended September 2009.

"Given the Minister of Agriculture is a sheep farmer, I was hoping he'd be attune to just how wafer thin our margins really are. It's not like we haven't embraced efficiency either. That's how come we're producing seven percent more lamb meat but on half the number of capital stock.

"Sheep and beef farmers cannot sustain cost increases like this with new schemes like animal identification for our beef cattle. We simply don't have much financial freeboard. I'm alarmed to see from the Minister's own figures that by 2015, the ETS could erode almost 10 percent of our current pre-tax profit.

"Using the current value of money, by 2015, the ETS will take at least $112 million out of sheep and beef farms pre-tax profits. With processing costs the real effect is $132 million plus.

"Those figures would need farmers to produce an extra 12 million lambs - 53 percent more than today. That's a massive ask of farmers since we won't benefit one jot from such a major lift in production. The ETS becomes a disincentive to on-farm efficiency.

"I am calling on the Government to fulfill its pledge it gave us last year that our ETS will be harmonised with Australia's and that we would be a fast follower.

"If we are to have a ETS disbenefit, then let's make it an equal opportunity disbenefit with our largest competitor," Mr Nicolson concluded.

ENDS

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