Some External Costs of
Dairy Farming in
Canterbury
Peter Tait and Ross Cullen,
Economics Group, Lincoln University, New Zealand
Ecosystem Services (ES)
FRST funded research project ‘Ecosystem
Services’
 ES are crucial for life on earth, but human
activities sometimes enhance ES, often
degrade ES
 Objective 1, analyse and value ecosystem
services in New Zealand arable, pastoral,
horticulture
 Objective 2, enhance ES and natural
capital to improve biological control of
pests and diseases

Ecosystem Services: The benefits people obtain from
ecosystems (Source, Millennium Ecosystem Assessment)
Focus: Consequences of Ecosystem Change for Human
Well-being. (Source, Millennium Ecosystem Assessment)
Canterbury Dairy Farming
390% dairy stock increase 1990-2003, and
≈10% of NZ total
 About 700 dairy farms 2006

– 729, 2010, 15.3% NZ milk solids
2004/05 Economic farm surplus $374,040
 Total farm surplus ≈ $260 million
 Current concerns emanate predominantly
from issues of water quantity and quality
 Dairy farm conversions continue with land
use increasing 132% since 1995

Purpose



External costs associated with production are not
transmitted through markets for goods produced
External costs represent allocation and equity concerns
for society and policy makers
Studies of external costs provide data that can aid in
identifying policy priorities
Precedents




Pretty et al. (2000) estimated external
environmental & health costs of UK agriculture
– Identify effects
– Assemble available valuation studies
– Calculate values using available data
Total value of UK external costs, ₤2243 million
Tegtmeier & Duffy (2004) estimated external
costs of agriculture in USA.
Total US external costs US$5.7- 16.9 billion
Method




Literature review identifying externalities
– Canvassed regional policy administrators
– Assembled available valuation studies
– Calculations employing available data
A proxy used is the expenditure which society
incurs in dealing with that externality
Contributors include – MfE, MAF, ECan, CDHB.
Values not included
– Antibiotic resistance
Damage to Water Resources
Damage to Water Resources
Surface Water


71% of river sites monitored in Canterbury were
not suitable for contact recreation 2004/05
summer
These sites provided samples with E. coli
concentrations above the action mode guideline
of <550 E. coli/100ml

The water quality of lowland rivers is the lowest
of all the river types and is generally eutrophic

Nitrogen and phosphorus concentrations generally
exceed MfE guidelines
Surface Water cont’d



Increased dairy farming has been associated
with increasing concentrations of dissolved
reactive phosphorous in Southland
Nitrate leaching losses are greatest for cow
urine
A dairy herd crossing a stream temporarily
raises E. coli concentrations by 100x the
contact recreational guidelines
Surface Water cont’d

Other expenditure programmes enhancing
surface water
– Environment Enhancement Fund
– Living Streams
– Dairying and Clean Streams Accord

$100,000 on investigation of land use
effects on water quality as direct result of
dairy intensification
plus 8% of the $190,000 spent on water
quality monitoring
Damage to Water Resources
Groundwater

Trend analysis tests conducted on nitrate
concentrations from 255 wells in Canterbury
identified long-term increasing trends in 43 wells

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

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
Groundwater cont’d
 Environment
Canterbury spends
approximately $500,000 of
ratepayers money per annum on
groundwater monitoring and
management
 Using
the percentage of dairy stock
unit numbers, approx 8% as a
proxy of expenditure on dairy yields
$40,000 per annum
Loss of Angler Values
Loss of Angler Values




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
Dairy farming requires larger amounts of
water than other agricultural activities to
maintain the quality and quantity of
pasture
Benefit Transfer $11.33 - $21.81 per
angler visit
$8,820 - $16,380 per annum
Damage to Air Resources
Damage to Air Resources



Agricultural sector 49.4% of all emissions
Methane from enteric fermentation
dominates the sector producing 63.4% of
total carbon dioxide equivalent emissions
Emissions from dairy
–
–
–
–
Methane from enteric fermentation
Methane from manure management
Nitrous oxide from lagoons applied to soil
Nitrous oxide from dung/urine deposited on
the soil
– Nitrous fertiliser emissions
Air Resources cont’d


Methane emissions from dairy cattle have
increased 70.3% since 1990
Increase in the Implied Emission Factor
– 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.

Proposed Carbon tax was $15 - $25 per tonne

$24.3m - $40.5m per annum
Damage to Biodiversity
Loss of Shelterbelts
Sediment in Surface Water
Damage to Biodiversity
Shelterbelts

Dairy conversions have had a negative impact
on the number of shelterbelts
– Shelterbelts removed to allow favourable access to
pastures for irrigation

Combine data from two surveys
– Canterbury Regional Windbreak Scheme (1984)
– Environment Canterbury survey (2004)

Quantitative measure of the amount of
shelterbelt lost per hectare, as a result of a
dairy conversion at Te Pirita
Shelterbelts Cont’d


Subsidy rate combined with shelterbelt per
hectare loss rate and land use change data
Multiplying the subsidy rate and metres loss
provides an estimate of the cost of shelterbelt
losses and is equal to $2,947,330
Damage to Biodiversity
Sediment in Surface water


Fine sediment stops photosynthesis in turbid
waters and subsequently kills plants and
starves those dependent on them for food
Streams with inadequate flow have sediment
fall to the bottom filling up the gaps in the
gravel bed and killing the eggs of fish

Main Causes are animals eroding river banks
and Drain cleaning

A proportion of expenditure under the Living
Streams project is used as a proxy - $17,500
Damage to Human Health
Pathogen Related Illnesses
Bovine Tb
Damage to Human Health
Pathogen Related Illnesses




Campylobacter rate of incidence 14 cases per
100,000 in 1981 to a high of 396 cases in 2003
Campylobacter frequently present in rural
waterways
Demonstrated consistent presence of
campylobacter in farm dairy effluent
Effluent irrigation introduces campylobacter
into the environment
Pathogen Related Illnesses Cont’d


NZ study found campylobacteriosis was
responsible for 72.9% of the total costs
Cost attributable to dairy $38,523 - $152,344
Bovine Tb




Negative consumer perceptions and
adverse market reactions
45% of funding comes from rate payers
Vector control of possums and ferrets has
positive externalities for native forest
assets and many species
External costs of Bovine Tb control of
$1,264,545
Damage estimates
Category
Water
16
$000’s
Surface water
Groundwater
Angler values
Air
CO2 equivalent
Biodiversity
Shelterbelts
Sediment
Human Health
Total
115
40
9-
24,269 - 40,449
2,947
18
Pathogen related illness
Bovine TB
39 - 152
1,265
$28,702 - $45,002
Comparisons…

External costs of UK agriculture for 1996
estimated to be ₤208 per hectare - NZ$ 516
– Damage to Air resources largest

External costs of United States agriculture
for 2002 estimated to be $29.44 to $95.68
per hectare – NZ$42.42 to NZ$137.87
– Damage to soil resources largest

Costs per hectare for dairy in Canterbury for
2005 estimated at $196.59 to $308.23
– Damage to Air resources largest