Lessons of skinny sheep days still relevant today

Decades of governmentsponsored development and farm subsidies were once aimed at increasing the productivity of New Zealand land, and, in turn, generating revenue for the national economy. The devil in this detail only emerged as the willingness of farmers to respond to these incentives became apparent.

What ensued was a period now referred to as the “skinny sheep” days. Farm profitability was influenced not by farm stewardship, good animal husbandry and resulting productivity, but rather by government payments made to farmers for the number of sheep they carried which, unsurprisingly, led to the distortion of market behaviour.

Farms became overstocked and vulnerable to drought, and genuine market signals were obscured leading to a mismatch between what consumers wanted and what farmers were producing.

There should be some familiar themes emerging here: A government hellbent on a particular outcome, a willingness to fund whatever resources are needed to get it and an inability to foresee the likely result.

So let’s explore some likely results, in the context of the current environment.

The Government has committed to the Paris Accord and has enshrined these commitments in law. Naturally, once you have a law you require a mechanism with which to apply that law. In the case of the Net Zero Carbon Act, this mechanism is the Emissions Trading Scheme (ETS).

The ETS is complex, containing obligations for emitting sectors and the process by which they must surrender New Zealand units in order to satisfy their emissions liabilities. They have no say in this matter; those that have liabilities must buy (or earn) and surrender units (carbon credits) or face significant penalties. This is where it gets ugly. The only way to generate units is by planting trees — on clear farmland.

With the ETS reforms having passed their third reading in parliament, foresters who own qualifying forests will now have a government-backed guarantee of income irrespective of their silvicultural practices, their land stewardship or market prices for wood products — all these aspects become secondary in a market which will respond much like the farmers of the 70s did — by reorienting their business around a governmentsponsored scheme which takes little account of economic, environmental or social outcomes.

Ironically, we will embark on this “transition” during a period when our trade receipts will be of unparalleled importance to our economy as it attempts to haul us all from the mire of a Covid-19 wasteland. It seems cavalier to be leaning so heavily on a sector whose ownership interests are largely foreign, whose exposure to a single market (China) is greater than any comparable sector and is somewhat reliant on the subsidisation of foreign wood processing on a massive scale.

These observations should also be considered in light of many counties having planting millions of hectares to mitigate their own respective emissions on landscapes with vastly more scope than our own limited land resources. Any idea that the world might need our wood in future may be muted by the fact that with ETS incentives, increasingly our wood is likely to be unpruned, unthinned and potentially too far removed from exporting ports to be harvested economically. There are only so many farms within one hour of a port or processing mill. Foresters alone will not be responsible for these trends, as if incentives are high enough, farmers themselves will do doubt join the fray.

So finally, we come back to the skinny sheep days and what we can learn from the past. As a small nation in the middle of the ocean, we will always be at the mercy of our markets — and we need to listen to them very closely. We can ill afford to drift into the politics of land use, the results are invariably bad and long-lasting, leaving a legacy to burden future generations to come.

We are good at growing trees and at growing food but ultimately, we are good at both because we have had to be. The slippery slope into landuse subsidies looms large over both the forest sector and farming sector alike, albeit for different reasons. We would do well to remember the lessons of our past.

As a small nation in

the middle of the ocean, we will always be at the mercy of our

markets — and we need to listen to them

very closely.