Some External Costs of Dairy Farming in Canterbury
Peter Tait1
Ross Cullen2
Intensification of agricultural practices is occurring in Canterbury. Dairy farm
conversions continue with land use for dairying increasing 132% since 1995. Current
concerns emanate predominantly from issues of water quantity and quality, in
particular the degradation of lowland streams. These and other costs are not
transmitted through markets for dairy products, these negative externalities represent
allocation and equity concerns for regional policy makers. This study canvassed
regional policy administrators, assembled available valuation studies and performed
rudimentary calculations based on New Zealand research to form an estimate of the
external costs of dairy farming in Canterbury. External costs are estimated at $28.7 to
$45 million annually. Using 146,000 hectares of dairy in Canterbury, external costs
per hectare is calculated at $196.59 to $308.23. Damage to air resources from CO2
equivalent emissions is the largest category and is estimated to be $24.2 to $40.4
million per year.
Keywords: Negative externalities, dairy farming, valuation.
1 Commerce Division, Lincoln University, PO Box 84, Canterbury, New Zealand.
taitp1@lincoln.ac.nz Phone: (03) 325-3627 Fax: (03) 325-3847.
2 Commerce Division, Lincoln University, PO Box 84, Canterbury, New Zealand.
cullenr@lincoln.ac.nz Phone: (03) 325-3627 Fax: (03) 325-3847.
1. Introduction
Dairy stock unit numbers in Canterbury have increased far more rapidly than for other
stock types. From 1990 to 2003 dairy stock numbers increased 390% while sheep
numbers fell 24%, deer numbers rose 178% and beef numbers increased 73%. There
are approximately 700 dairy farms in Canterbury and MAF (2006) estimate the
Economic farm surplus of the Canterbury dairy model farm is $374,040. Canterbury
dairy farming generated a total surplus of approximately $260 million in 2004/05. It
also produces environment and health costs that are not transmitted through markets
for the goods produced, they are negative externalities. Runoff containing effluent and
fertiliser contaminates water resources. Methane and nitrous oxide emissions damage
air resources. Costs of environmental degradation and human health effects are borne
by society at large, they are not taken into consideration when farmers make profit
maximising decisions. The price of a litre of milk does not, for example include the
cost of mitigating faecal contamination of water resources, some of this cost is borne
by Canterbury ratepayers. A market in which external costs are identified produces
too much at too low a price relative to the efficient level and therefore represents a
misallocation of resources.
This paper focuses on externalities that are of public good nature. A good that is nonexcludable
and non-rival in consumption is defined to be a pure public good. There is
little or limited recourse for redress to those affected by these types of externalities.
Those affected by externalities of a private nature are far better positioned.
Externalities that exhibit public good characteristics therefore usually require public
mitigation programmes to be implemented. Damages to resources from non-point
sources are common in agriculture and present difficult challenges for policy makers.
In Canterbury this is a predominant problem for dairy farming in relation to damage
to water resources.
Equity concerns are also significant. Public expenditure mitigating these externalities
effectively subsidises the operation of dairy farmers. Bewsell and Kaine (2005) gather
data from dairy farmers in four New Zealand catchments to identify the factors that
influence dairy farmers’ propensity to adopt sustainable management practices. The
authors find that attitudes of dairy farmers to sustainability and the environment have
at best a limited role in influencing their propensity to adopt sustainable management
practices (Bewsell and Kaine, 2005).
2. Framework
The framework and methods used in this study draw on the work of Pretty et al.
(2000) who assessed the total external costs of UK agriculture, and Tegtmeier and
Duffy (2004) who completed similar research in the United Sates. Both papers
compiled data and available studies to estimate external costs for total agricultural
production categorised by damages to natural capital and human capital. Together the
two papers provided the basis for cost categories used here resulting in a framework
of four cost categories being used; Damage to Water resources, Damage to Air
Resources, Damage to Ecosystem Biodiversity and Damage to Human Health.
Pretty et al (2000) estimate total external costs of UK agriculture for 1996 to be £208
per hectare. Tegtmeier and Duffy (2004) calculate that in 2002 total external costs for
United States agriculture were US$29.44 to $95.68 per hectare. External costs per
hectare for dairy in Canterbury are calculated at $196.59 to $308.23 which falls
between the two estimated costs above.
3. Methods
Using Pretty et al (2000) and Tegtmeier and Duffy (2004) as a basis for international
literature on externalities of agriculture we reviewed New Zealand literature relevant
to dairy farming. Where no direct method of valuation of an externality is available
an accepted method is to use as a proxy the expenditure which society incurs in
dealing with that externality (Hill and Crabtree, 2000). In this instance the expenditure
is by Canterbury rate-payers. Expenditure data from earlier years has been adjusted
using the Consumers Price Index. Data and information were obtained from
Environment Canterbury (ECan), Ministry for the Environment (MfE), Ministry of
Agriculture and Forestry (MAF), Fish and Game, Animal Health Board (AHB) and
the Canterbury District Health Board (CDHB). Interviews with, and information
provided by, staff in these organisations formed the basis for estimates of damage to
water resources, damage to ecosystem biodiversity and Bovine Tb costs.
The cost categories provided in this paper are only those that were able to be valued
readily and do not represent the entire range of external costs of dairying. Table 1
presents our resulting Canterbury estimates.
Table 1: Annual external costs of Canterbury dairy farming, 2005.
Damage category $000’s
1 Damage to water resources
1a Surface water 115
1b Loss of angler values 9-16
1c Groundwater 40
2 Damage to air resources
2a CO2 equivalent emissions 24,269- 40,449
3 Damage to ecosystem biodiversity
3a Loss of shelterbelt 2,947
3b Sediment in surface water 18
4 Damage to human health
4a Cost of pathogen related illnesses 39 - 152
4b Bovine TB 1,265
Total 28,702 – 45,002
4. Damage to water resources
4.1 Surface water
Surface waterways are susceptible to contamination by runoff exacerbated by
increasing irrigation both of water and effluent, or directly through effluent discharge
or by the stock entering the waterway. The majority of waterways on farmland do not
incorporate riparian buffers and are not fenced off from stock.
Over the 2004/05 summer 71% of river sites monitored in Canterbury were not
suitable for contact recreation (ECan 2005b). This is made up of 57% having a ‘very
poor’ grading and 14% a ‘poor’ grading. Sites graded very poor have direct
discharges of faecal material and swimming should be avoided, permanent signage is
erected informing the public. These sites provided samples with E. coli concentrations
above the action mode guideline of <550 E. coli/100ml.
Davies-Colley et al. (2004) show how a dairy herd crossing a stream temporarily
raises E. coli concentrations by 100x the contact recreational guidelines. As well
appreciable mobilisation of nitrogen and fine suspended matter occurs causing
turbidity.
Inventory of recreational values of rivers and lakes in Canterbury are detailed and
show that there are diverse uses that are enjoyed by many people (ECan 2004). The
loss of these direct use values due to contact guideline breaches has not been
estimated and requires further research, and thus is not included in the costs estimated
in this paper.
The water quality of Canterbury lowland rivers is the lowest of all the river types and
is generally eutrophic (ECan 2002). Nitrogen and phosphorus concentrations are
generally in excess of Ministry for the Environment (2000) guidelines for the
management of biodiversity and for recreational and aesthetic values. Reduction of
phosphatic fertilisers leaching directly to waterways and prevention of phosphate rich
soil erosion are recommended.
Cameron and Di (2004) find that at similar rates of application nitrate leaching losses
are greatest for cow urine. When dairy farm effluent is applied to pasture that is
grazed (i.e. includes urine) leaching losses are significantly increased (Cameron and
Di 2002). Hamill and McBride (2003) compare water quality trends and changes in
stock numbers in Southland. These authors results indicate that increased dairy
farming has been associated with increasing concentrations of dissolved reactive
phosphorous.
Environment Canterbury’s Inventory of Instream Values for Rivers and Lakes (ECan
2004a) provides qualitative measure of biodiversity values that are at risk. The use of
the inventory could be extended if it had a quantitative aspect that could more readily
be used to form a monetary estimate of change in biodiversity value.
Environment Canterbury launched the Living Streams project in 2003 aimed at
encouraging sustainable land use and riparian management practices to improve the
quality of Canterbury’s streams. Stream care initiatives, education programmes in
schools and the Environment Enhancement Fund (EEF) support this work and the
protection of wetlands and bush habitat. Over 350 ha of wetland and bush, and 64 km
of riparian margin protection or enhancement work has been undertaken with support
from the EEF (ECan 2005a).
The Dairying and Clean Streams Accord is a cooperative agreement between Fonterra
Co-operative Group, Regional Councils, Ministry for the Environment and Ministry
of Agriculture and Forestry. The accord focuses on reducing the impacts of dairying
on the quality of New Zealand streams, rivers, lakes, groundwater and wetlands (MfE,
2003). Regional councils will be carrying out work to monitor the environmental
effects of implementing the targets of the Accord (MfE 2004). Estimates of public
expenditure under this accord are additional to that currently incurred and are not yet
available but are anticipated to be substantial.
Environment Canterbury spends approximately $100,000 per annum on investigation
of land use impact on water quality as direct result of dairy intensification (Hayward
pers. comm. 10/8/2005). Regional monitoring expenditure on water quality is
approximately $190,000 per annum. We attribute all of the $100,000 and 8%
(percentage of dairy stock numbers out of sheep, dairy, beef and deer in Canterbury)
of the $190,000 to dairy farming, yielding $115,200.
4.2 Loss of angling values
Water extraction for agricultural irrigation is considered to degrade fishing values of
rivers by lowering water levels and quality. Dairy farming requires larger amounts of
water than other agricultural activities to maintain the quality and quantity of pasture
(Memon and Selsky 2005). Fish and Game members have reported anecdotal
evidence of reduced flows in lowland rivers, particularly in the Selwyn area. This
reduction has been accompanied by a degradation of lowland streams flowing into
lake Ellesmere (Millichamp 2005).Declining angling quality of the Selwyn River is
perceived by anglers to be a result of low flows due to excessive water abstraction for
irrigation (Jellyman, Unwin and James 2003).
Between 1994/95 and 2001/02 there has been a 70% decline in the total number of
angler days for Lake Ellesmere and its tributaries (L2, Sewyn, Irwell, Harts Creek,
Halswell and Hororata). The total number of angler days for Lake Ellesmere and its
tributaries for the 1994/95 season was 12,619 and for the 2001/02 season was 3,749
this is a reduction of 8,870 days (Unwin and Brown 1998; Unwin and Image 2003).
Kerr, Sharp and Leathers (2004) estimate recreational values for the Rakaia river.
They provide a range of $11.33 - $21.81 per angler visit (2005 dollars). These values
are applied to the Lake Ellesmere and tributaries angler days data to provide an
estimate of the loss of angler value per year. Using the above figures an estimate of
the value of average annual losses is $21,000 - $39,000
To approximate the proportion of angling loss apportioned to dairying we use the
percentage of dairy land area out of total land irrigated. There are approximately
350,000 hectares of irrigated land in Canterbury (Dearnaley, 2001) and 146,000
hectares of land used for dairying (ECan, 2005c). Assuming that all dairy land is
irrigated, this is approximately 42% of the total irrigated area. Applying this
percentage yields an estimate of the loss of angler value at $8,820 - $16,380 per
annum.
4.3 Groundwater
The Canterbury Plains are particularly susceptible to aquifer intrusion over time due
to their physically flat nature exacerbating downward seepage of surface
contaminants. Currently there are few immediate contamination issues, however there
is evidence that nitrates are penetrating lower over time and it seems inevitable that
mitigation costs will be incurred into the future.
The Annual Ions Survey (ECan, 2002b) for 2001/02, shows that Maximum
Acceptable Values(MAV) (MoH, 2000) for the health-based standards were not met
for: faecal coliforms in 36 samples (15%); E. coli in 35 samples (14%); nitrate
nitrogen in 5 samples (2%) and manganese in 6 samples (2%). There is evidence of an
increasing long term trend of nitrate in groundwater. Trend analysis tests conducted
on nitrate concentrations from 255 wells in Canterbury identified long-term increasing
trends in 43 wells. These wells were distributed across the Canterbury Plains and in
most other areas of Canterbury where groundwater quality is Monitored (ECan
2002a). Approximately 5% of 151 wells monitored in 2003/04 had nitrate levels
above the MAV. A contaminated well can be made deeper to avoid nitrate at
considerable cost to the owner. Reverse osmosis is a treatment that is employed at
around $1000 per unit. These costs to private individuals are not recorded in analysis
of groundwater surveys.
Four wells in the Levels Plain area between Timaru and the Opihi River have been
sampled for pesticides approximately quarterly since 1996. In 2001/02 Simazine and
terbuthylazine were detected in at least one sample from each of the four wells. Other
pesticides detected included atrazine, MCPA, MCPP, 2, 4-D, and chlorsulfuron. All
detections were at concentrations less than 1 microgram per litre, there were no
transgressions of drinking-water standards (MoH, 2000). Close and Flintoft (2004)
provide a national survey of pesticides in groundwater in New Zealand for 2002.
Pesticides were detected in 2 of the 8 wells surveyed in Canterbury, with 3 pesticides
detected in one and 4 in the other. None of the wells surveyed had pesticides at levels
above the maximum acceptable value for drinking water (MoH 2000).
Environment Canterbury spends approximately $500,000 of rate payers money per
annum on groundwater monitoring and management (Hanson pers. comm. 28/7/05).
This includes costs of specific investigations, education (e.g. nutrient budgets) and
monitoring. Nutrient budgeting educational programmes are currently in their infancy,
as they are developed and implemented costs will be incurred. Using the percentage
of dairy stock unit numbers out of sheep, dairy, beef and deer, approximately 8% as a
proxy of expenditure on dairy. This yields $40,000 per annum. This assumes that
expenditure is equal for each stock type.
5. Damage to air resources
5.1 CO2 equivalent emissions
Agricultural sector emissions comprised 49.4% of all New Zealand greenhouse gas
emissions in 2003 (MfE 2005). Emissions of methane from enteric fermentation
dominate the sector producing 63.4% of carbon dioxide equivalent emissions in the
sector. Methane emissions from dairy cattle have increased 70.3% since 1990. Nitrous
oxide emissions from agricultural soils are the other major component at 34.9% of
agricultural emissions.
Dairy farming emissions fall into several components of New Zealand’s greenhouse
gas inventory that are submitted to the United Nations Framework Convention on
Climate Change. Dairy falls into the methane from enteric fermentation, methane
from manure management, nitrous oxide from lagoons applied to soil, nitrous oxide
from dung and urine deposited on the soil and fertiliser emissions (Brown pers.comm.
2005).
This paper employs the Implied Emission Factor (IEF) approach to estimate
emissions for dairy farming in Canterbury. There has been a gradual increase in the
IEF for dairy cattle from 1990 to 2003. Increases in animal performance (milk yield)
require increased feed intake by the animal to meet energy demands. Increased feed
intake produces increased methane emissions per animal.
The dairy implied emission factor (kg CO2 equivalent per animal) calculated up to
2002 is estimated at 2406.192 per year (Brown, pers.comm. 2005). A charge of $15
per tonne CO2 equivalent has been proposed with a $25 maximum for the first
commitment period (IRD, 2005). This proposed charge is used here as a proxy for
damage to air resources. Multiplying the dairy IEF by the number of dairy stock
units, approximately 600,000 (MAF, 2005) yields 1,443,715 tonnes of CO2
equivalent. At $15 per tonne this equates to $21,655,725 at $25 per tonne this equates
to $36,092,875.
Fertiliser use also produces emissions. The fertiliser implied emission factor (kg CO2
equivalent per tonne of fertiliser) is estimated at 6819.487(Brown pers.comm. 2005).
The rate of fertiliser use is assumed to be 175 kg N/ha annually (Ledgard and
Thorrold 2003). With 146,000 hectares of dairy (ECan 2005c) this gives 25,550
tonnes of fertiliser. Applying the IEF approach yields 174,238 tonnes of CO2
equivalent. At $15 per tonne this equates to $2,613,570 at $25 per tonne this equates
to $4,355,950.
6. Damage to ecosystem biodiversity
6.1 Loss of shelterbelts
The pattern of land use change in Canterbury is particularly evident in the upper
Selwyn District, west of State Highway one in a region called Te Pirita, in which
Environment Canterbury has been actively monitoring for some time. Early work on
shelter construction in the Te Pirita region was carried out by the North Canterbury
Catchment Board and Regional Water Board. Wethey (1984) reviews the Canterbury
Regional Windbreak Scheme that had been running since 1949 and had led to
significant increases in shelterbelts. The scheme offered subsidies for shelterbelt
construction, primarily on the basis of demonstrating erosion vulnerability, however
the report also stressed the importance of recognising the value of shelterbelts as
wildlife habitat and as pollen sources for bees. As part of Wethey’s report a survey of
the Te Pirita region was undertaken. This provides aerial photography of shelterbelts
constructed with the aid of the windbreak scheme public subsidy.
In 2004 Environment Canterbury carried out a survey of Te Pirita using field
inspections and aerial photography to identify and measure the amount of land
protected by shelterbelts (Hill 2005). The survey clearly shows that dairy conversions
have had a negative impact on the number of shelterbelts in parts of Te Pirita.
Shelterbelts that had been constructed under the old scheme had been removed to
allow favourable access to pastures for irrigation.
This report uses the data from 1984 and 2004 to form a quantitative measure of the
amount of shelterbelt lost per hectare, as a result of a dairy conversion at Te Pirita.
This rate is then applied to regional land use data to form an approximation of the
total amount of shelterbelts lost in Canterbury. A subsidy per metre of shelterbelt is
derived from Wethey (1984) and multiplied by the amount lost to provide an estimate
of the cost of shelterbelt losses.
Comparison of the measured shelterbelts in both surveys showed that there had been a
46% reduction in shelterbelts on converted land within one dairy farm. The rate of
decrease was calculated to be 6.7 metres per hectare (m/ha). The rural land use change
report prepared by Environment Canterbury (ECan, 2005c) shows that the amount of
land used by dairying has increased from 63,000 ha in 1995 to 146,000 ha in 2004,
while total agricultural land used has remained relatively constant. With this in mind
the 6.7m/ha rate is applied to the difference between the 1995 and 2004 values i.e.
83,000 ha; 6.7m/ha multiplied by 83,000 ha yields 556,100 metres lost.
Using data on completed shelterbelts and costs for 1983/84 a subsidy rate of $2.11 per
metre was calculated, converted to 2005 dollars this is $5.30 per metre. This
amounted to a subsidy of approximately 65% of total costs for that year. Subsidy rates
differed across years but all were above 65% (Wethey, 1984). Multiplying the
subsidy rate and metres loss provides an estimate of the cost of shelterbelt losses and
is equal to $2,947,330.
6.2 Sediment in surface water
Sediment in streams is a major concern for water resource mangers in Canterbury.
There are two main problems; 1: fine sediment stops photosynthesis in turbid waters
and subsequently kills plants and starves those dependent on them for food; 2: streams
with inadequate flow have sediment fall to the bottom filling up the gaps in the gravel
bed and killing the eggs of fish. There are two main contributing factors in
Canterbury, large animals eroding river banks and drain cleaning (McGuigan
pers.comm. 2005). Consider Figure 1 of a cross section of a river illustrating a typical
stream clearing practice. The bucket scoops in the motion indicated by the arrows.
The far bank becomes sloped while the near bank becomes vertical as the bucket is
drawn up. It is near bank that is prone to erosion by large animals. The bank falls in
widening the river, the river slows, and sediment falls to the stream bed relatively
easily.
Environment Canterbury manages the Living Streams project which aims to improve
the health and life-giving qualities of Canterbury’s many rivers, creeks and streams.
This will be achieved by helping to keep the water clean and protecting stream beds
and banks. Implementation of the Living Streams project is based on a framework of
Integrated Catchment Management (ICM) in which the focus is on involving all
participants of the communities involved. The Living Streams project has an annual
budget of approximately $350,000 with dairy farms being instigators about 5% of the
time (McGuigan pers.comm., 2005) inferring that approx $17,500 can be attributed to
dairy farming. This is used as an approximation of the external costs of sediment
damage to streams by dairy farming.
7. Damages to human health
In 2003, 2% of deaths and 12% of hospital admitted patients from chemical injuries
were caused by agrichemicals. Agrichemicals include all pesticides and licensed
animal remedies (from MAF registration list), and 20% of all substances detected in
injury events were agrichemicals (ESR 2004).
The National Poison Centre is a service unit within the Department of Preventive and
Social Medicine at the Dunedin School of Medicine, University of Otago. Currently,
the Centre is funded predominantly by contracts with the Ministry of Health and the
ACC, with support from the University and other agencies. The NPC answers
enquiries both from health professionals and from the general public concerning acute
poisoning and the toxic effects of chemicals, which may be encountered in
emergencies of any sort (NPC, 2001). This service operates 24 hour per day 365 days
per year. In 2003, 6 % of enquiries concerned agricultural agents (ESR 2004).
Far bank Near bank
Figure: 1. Typical stream clearing practice
Spray drift events have the potential to cause health effects and have been monitored
and evaluated in New Zealand since 1998 through the surveillance system, Driftnet.
Averaging only 14 events per annum it has been considered that such small numbers
do not warrant maintenance and support of Driftnet software in each public health
service provider (ESR, 2004a). Of the four events in 2003, health problems were
claimed to have been experienced on two occasions, however there were no exposure
or illness reports associated with the complaints. One of the four complaints was in
Canterbury.
7.1 Costs of pathogen related illnesses
Withington and Chambers (1997) estimate the cost of notified Campylobacteriosis in
New Zealand in 1995. The authors used records of Canterbury Health Laboratories
and hospital notes to locate all patients admitted with Campylobacteriosis in
Christchurch in 1995 and to determine the costs involved. They form an estimate of
$596 per notification. However Withington and Chambers paper does not attempt to
estimate costs of cases not notified, and so is used here only for comparison.
Scott et al. (2000) estimate the annual cost to New Zealand of 10 foodborne infectious
pathogens, these are; campylobacteriosis; salmonellosis; shigellosis; yersiniosis;
listereiosis; verotoxigenic Escherichia coli (VTEC) infection; typhoid fever; hepatitas
A infection; illness caused by toxins produced by Clostridium perfringens, Bacillus
spp., or Staphylococcus aureus, as well as unspecified food poisoning; and small
round structured virus (SRSV) infection.
The authors estimated a cost range, first at a minimum infection rate of 32 cases per
1000 population yielding a cost of $462 per case, and then at a highest likely
infection rate of 224 cases per 1000 population resulting in $261 per case (Scott et al.
2005; Lake et al. 2005). The upper bound estimate includes pathogens that are more
typically associated with non-foodborne transmission such as waterborne Giardia.
Giardia is the most commonly notified waterborne disease in New Zealand which has
high incidence rates compared to other developed countries (Ekramul et al. 2004).
When the total costs of the individual pathogens were analysed the authors found that
campylobacteriosis was responsible for 72.9% of the total costs with the cost of days
lost being the single largest component of total cost.
Tegtmeier and Duffy (2004) attribute 3% of the total costs of pathogens to
agricultural production. Applying this yields a range of $256,824 - $1,015,627. This
leaves the problem of what portion to attribute to dairy farming. Multidrug-resistant
Salmonella has been liked to dairy herds (Olsen et al. 2004). In New Zealand
epidemic type outbreaks of campylobacter have been attributed to both contaminated
drinking water, and to consumption of raw milk (Brieseman 1984; Anon 1991).
Studies in New Zealand have demonstrated that campylobacter are frequently present
in rural waterways (Till et al. 2000). Ross and Donnison (2003) studied farm
irrigation with effluent as a mechanism for introducing campylobacter into the
environment, and the authors demonstrated a consistent presence of campylobacter in
farm dairy effluent. The same authors concluded in another study that grazing of
irrigated pasture with effluent without an adequate withholding period may contribute
to the high level of campylobacter in New Zealand dairy herds and promote ongoing
cycles of infection (Ross and Donnison, 2004). The rate of incidence of
campylobacter infection notification in New Zealand has risen from 14 cases per
100,000 in 1981 to a high of 396 cases in 2003 (ERS 2005). In light of the above
discussion it is considered that 15% of total agricultural cost may be attributable to
dairy farming, resulting in a range of $38,523 - $152,344.
New Zealand has recently adopted international practice in an attempt to control food
borne disease. Internationally it is recognised that the ideal tool to give assurance of
food safety is the Hazard Analysis Critical Control Point (HACCP) system (NZFSA
2003). There is a cost to food industries and private providers to comply with this rule
but that has not yet been measured.
7.2 Bovine TB
Bovine tuberculosis (Tb) is one of New Zealand’s most serious animal health
problems, affecting domestic cattle and deer herds throughout the country. It is
possible for humans to become infected with Tb, mainly through the consumption of
milk or handling infected animals or carcasses. Tb causes thousands of human deaths
annually in developing nations, however the probability of contracting Tb in
developed nations is very low due to high standards of meat hygiene and milk
pasteurisation. Nevertheless, bovine Tb is still regarded as an unwanted disease
because of the negative consumer perceptions and adverse market reactions it could
generate (AHB 2005).
Regulators have set an international standard of Tb freedom, which is reached when
99.8% of domestic cattle and deer herds have been free of bovine Tb for three years.
The Animal Health Board (AHB) is responsible for managing the implementation of
the National Pest Management Strategy for Bovine Tb (NPMS), with the aim of
achieving Tb freedom in New Zealand by 2013. The key functions of the AHB
include: vector control – the major cause of Tb in cattle and deer herds in New
Zealand is contact with wild vectors of the disease, mainly possums and ferrets;
disease control, and research and communications.
Environment Canterbury manages the vector control programme in Canterbury for the
AHB. For the 2003/04 year $7,395,000 was spent on the Bovine Tb management
programme in Canterbury (ECan 2005). Some of this funding comes from agricultural
industries and some from rate payers. AHB financial statements for year ending June
2004 (AHB, 2004) show that total national expenditure was $78,884,000 of which
$9,945,000 was a Dairy Insight grant, $2,031,000 was contributed by Deer Industry
New Zealand and $31,710,000 came from beef cattle levies. This leaves 45% of
funding coming from outside these industries, from rate payers. If we apply this
proportion to the Canterbury expenditure the result is $3,327,750 (0.45(7,395,000)).
The Ministry for Agriculture and Forestry (MAF) reports that in 2004 there were
600,000 dairy cattle, 532,000 beef cattle and 453,000 deer in Canterbury (MAF,
2005) this equates to dairy cattle making up approximately 38% of total bovine stock
units in Canterbury. Looking at the numbers we can see that contributions per stockunit
for each type (dairy, beef, and deer) are not equal. However, expenditure on Tb
control does not discriminate between stock types, benefits are non-excludable and
non-rival in consumption and so are assumed to be equal across stock types. With this
in mind, taking 38% of Canterbury rate payer contributions results in an estimate of
external costs of Bovine Tb control of $1,264,545 (0.38(3327750)). Table 2
summarizes the above information.
Vector control of possums and ferrets has positive externalities for native forest assets
and many species. This has been a significant consideration in the decision to
contribute rate payer funds.
Table 2: Bovine Tb expenditure summary
Scalars and calculations Item 000’s
a Total AHB national expenditure $78884
b ECan expenditure $7395
c1 Dairy Insight grant $9945
c2 Deer Industry N.Z. $2031
c3 Beef levies $31710
Sc Total industry contribution $43686
(1- ((Sc)/a))b Total public Canterbury expenditure $3328
d1 Dairy stock units 600
d2 Beef stock units 532
d3 Deer stock units 453
(d1/(Sd)) ((1- ((Sc)/a))b) External cost of Bovine Tb $1265
8. Conclusions
Dairy production in Canterbury negatively impacts surface and groundwater, air,
biodiversity and human health at an estimated cost of $28.7 to $45 million per annum.
These figures present a broad preliminary view and the relative scale of dairying’s
negative impacts in Canterbury. This estimate can be compared with an estimate of
the total Economic farm surplus of $260 million.
There are many reasons why the estimates presented here can be considered
conservative. Expenditure incurred in mitigating externalities constitutes only part of
the full value of damages done. Estimates using this method therefore underestimate
damage incurred. Many damages are irreversible and no level of expenditure will
correct the problem. The consequences of the environmental risks of industrial
agriculture are not entirely known or understood. Complex ecosystem behaviours are
difficult for experts to model and are often not included in political debate. Many
damages have non-point and large temporal characteristics making attributing
causation a problematic task.
Problems surrounding water use and allocation were identified as key issues going
forward. With increasing demand for water allocation for irrigation, water resource
values across differing uses and users are going to be impacted.
This study, although brief, acts as a scoping paper for ongoing research into
agricultural externalities in Canterbury. Policy debate focusing on internalising
external costs of dairy farming is essential to provide incentives for adoption of
sustainable practice and achieving protection of environmental and human health.
Acknowledgements
We are very appreciative of information and critique provided by many people in
particular the following, in no particular order; Dr Len Brown (Ministry for the
Environment), Dr Melvin Briesman (Canterbury District Health Board), Zach Hill
(Environment Canterbury), Rob Phillips (Environment Canterbury), Carl Hanson
(Environment Canterbury), Jason Holland (Fish and Game Canterbury), Andrew
Barton (Environment Canterbury), George Griffiths (Environment Canterbury), Phil
McGuigan (Environment Canterbury), Shirley Hayward (Environment Canterbury).
This research is part of the Ecosystem Services project LINX 0303, funded by the
Foundation for Research Science and Technology.
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