Farmers risk sales without sustainability

Fonterra has warned farmers that it risks losing customers and facing trade barriers in its overseas markets if it doesn’t meet sustainability expectations.

At its annual meeting in Rotorua, chairperson Peter McBride and chief executive Miles Hurrell told farmer shareholders that the co-operative was likely to set a target for Scope 3 carbon emissions, which would encompass emissions the company is indirectly responsible for, including farmers.

Fonterra would meet with farmers before the end of the year to discuss the target and what the flow-on effect for farmers might mean, Hurrell said.

‘‘In short, it comes down to us collectively meeting the climate change expectations of our stakeholders, and the risk if we don’t,’’ he said. ‘‘The subject that dominates conversations with our customers and debt capital providers is sustainability.’’

According to Fonterra, 73% of global consumers found sustainability pledges important when buying dairy products.

Fonterra’s high-value customers were setting emissions reduction targets and if the company could not give them confidence on helping them achieve their targets they would look to competitors, including using alternatives to milk, Hurrell said.

While New Zealand dairy farmers had a carbon footprint less than one-third of the global average, ‘‘we can’t sit back’’, Hurrell said. ‘‘Customers and consumers expect more, and doing nothing simply isn’t an option. We need to maintain this advantage and keep pace with their expectations,’’ he said.

McBride said setting a Scope 3 target would help Fonterra maintain competitive access to some of its key international markets.

He noted the European Union had proposed a carbon border adjustment tax on some carbonintensive goods that were subject to a carbon emissions price via the EU’s Emissions Trading Scheme.

Agriculture was not currently in scope but could be brought into the scheme, and other markets would follow, he said.

‘‘I expect these types of trade barriers to become more frequent as international governments respond to their own climate commitments,’’ McBride said. ‘‘It’s important we get ahead of them early.’’

He said it was an opportunity for Fonterra, the world’s largest dairy exporter, to leverage its natural advantages, noting New Zealand dairy farmers already had the world’s lowest carbon footprint.

‘‘If we can maintain that advantage, we have an excellent opportunity to build mutually beneficial relationships with our premium customers,’’ he said.