Australia’s dairy sector faces greenhouse gas emissions challenges, Rabobank reports

AUSTRALIA – As key players in the food supply chain set ambitious targets to reduce greenhouse gas (GHG) emissions, Australia’s dairy sector is navigating a complex transition to lower-emissions production, a new report by Rabobank reveals.

According to the agribusiness banking specialist’s RaboResearch division, the dairy industry must tackle “enteric” methane production from cattle, particularly through the use of feed additives, as the primary strategy to reduce emissions.

However, this approach is expected to come at a cost.

The report, titled “Who Pays for GHG Emissions Reductions in Australian Drinking Milk Markets?”, highlights the significant potential for feed additives, such as methane-reducing products, to decrease emissions.

The cost of implementing these technologies is estimated at US$35.1 million annually, which represents less than 2% (or 2.5 cents per litre) of the retail value of milk.

However, Rabobank suggests that this cost could be shared across various stakeholders, including farmers, processors, retailers, and consumers.

The emissions reductions achieved could be substantial, with an estimated 226,000 tonnes of CO2 emissions eliminated per year — equivalent to taking 103,000 cars off the road.

The report’s author, Anna Drake, a sustainability analyst at RaboResearch, noted that the key challenge for the dairy sector is determining who will bear the cost of emissions reductions.

“While progress has been made within the Australian dairy industry on engagement around emissions, the economic realities of putting the most impactful emissions-reduction technologies into practice are yet to be fully addressed,” she said.

With no clear market signals to incentivize on-farm reductions, the path towards achieving a lower-emissions footprint remains uncertain.

The report also points out that many major companies in the dairy supply chain have committed to reducing their GHG emissions by setting targets for both their operational and indirect value-chain emissions.

These efforts are part of a broader global trend where large dairy companies take a comprehensive approach to managing emissions within their business operations.

In Australia, both major supermarkets have set emissions reduction targets that will require them to address agriculture-related emissions in their value chains.

Dairy Australia, the national industry body, has also set a target to reduce GHG emissions intensity by 30% by 2030, compared to 2015 levels.

The Australian dairy sector is responsible for approximately 3% of the nation’s total GHG emissions, with 30% of the country’s milk production entering the domestic drinking milk market. As a result, the Scope 3 emissions reduction targets set by local retailers have a significant impact on the dairy sector.

While efforts within the dairy industry so far have focused on measuring emissions and setting targets, much of the research into emission-reduction technologies has centered around technical feasibility rather than economic viability.

The report categorizes emission reduction options into two broad categories: management-based options, such as improving productivity, and technological innovations, which include methane-reducing feed additives.

The latter, such as the additive 3-NOP, have shown a potential to reduce methane emissions by 30% without affecting milk production, though their widespread adoption would come with a net cost.

Despite the relatively low cost of these technologies, consumer willingness to pay higher prices for more sustainable products remains a concern.

However, with the cost burden being relatively low, Rabobank suggests that passing this cost onto consumers could be a feasible solution, especially given the small premium involved.

The development of cost-sharing models across the value chain is still in its early stages, with many stakeholders, including industry players, government, processors, retailers, and financial institutions, holding an interest in reducing emissions from dairy production.

The future of emissions reduction in Australia’s dairy sector will depend on collaboration between these parties to share the costs and ensure the necessary resources are available to tackle the issue effectively.

“Collaboration looks to play an important role in enabling the resources required to solve the problem of emissions to be divided rather than duplicated,” Drake concluded.