NEXUS project: exploring profitable, sustainable livestock businesses in an increasingly variable climate

The NEXUS project examines the intersection and trade-offs between profitability, profitability, greenhouse gas (GHG) emissions and consumer perceptions of livestock farms under an increasingly variable climate. The project is being conducted at sites across the entire eastern seaboard of Australia. This document comprises Milestone Report 4, in final report form, of the Tasmanian component of the NEXUS project, including an economic evaluation of abatement and sequestration options of both Emissions Reduction Fund (ERF) and non-ERF methods. Changes to the method of estimating Australia’s greenhouse gas (GHG) emissions since the previous milestone report have been incorporated into this milestone report. The main change has been the implementation of new global warming potentials for methane (CH₄; increasing from 25 to 28 times the warming potential of carbon dioxide (CO₂) and nitrous oxide (N₂O; decreasing from 298 to 265 times to warming potential of CO₂).

This report includes analysis of one beef and one sheep case study farm in the north-west and northern Midlands of Tasmania, respectively. Modelled GHG emissions of the self-replacing 350-mature cow beef farm location totalled 2,908 t CO2-equivalents (CO₂e)/annum, with an emissions intensity (EI) of production of 9.8 kg CO₂e/kg liveweight (20.4 kg CO₂e/kg carcase weight). Modelled GHG emissions of the self-replacing 8,500-mature ewe prime lambs/superfine Merino wool and self-replacing 280-mature cow beef farm totalled 5,862 t CO₂e/annum. Using protein mass allocation to attribute GHG emissions, wool EI was 46.7 kg CO₂e/kg clean wool, while sheep and beef meat EIs were both 10.0 kg CO₂e/kg liveweight (22.7 and 20.9 kg CO₂e/kg carcase weight, respectively, due to differing dressed weight percentages).

The biophysical, GHG emissions and economic effects of adapting farm systems using one of several methods (both ERF and non-ERF) on each case study farm were also explored. Here, the purpose was not to conduct detailed analyses of individual options, but rather to screen the economic, productivity and mitigation potential of several viable options that may be implemented by Tasmanian farmers and further evaluated in later NEXUS research. Each method was evaluated using a partial discounted net cash flow analysis to calculate Net Present Value, Benefit Cost Ratio at a discount rate of 10% p.a. real return (before tax) and Modified Internal Rate of Return (MIRR; with a 10% p.a. real, before tax, reinvestment assumption). Adaptations to farm systems (encompassing ERF options) included environmental plantings of trees, increased ewe fecundity and enhanced soil C sequestration through irrigation, pasture renovation and/or acidity management, with herd/flock management implications (e.g. increased ewe fecundity, turning off stock sooner).

Interventions with carbon sequestration due to environmental plantings (of trees) allowed the greatest reduction in net GHG emissions. A carbon price of $AUD20/t CO₂e was profitable at the required rate of return for the beef farm, but only when trees were assumed grown on non-agricultural land. If the trees were assumed to be grown on land currently used for pasture production, carbon prices of $48 and $75/t CO₂e would be required on the beef and sheep farms, respectively, to meet the required annual rate of return of 10% p.a real return.

Soil carbon interventions through ERF sustainable intensification options such as introducing irrigation, pasture renovation and/or acidity management generally did not reduce net farm GHG emissions. Such interventions increased pasture production, but the corollary of this was greater stocking rates, causing greater livestock GHG emissions. While soil carbon interventions did not qualify to earn Australian Carbon Credit Units (ACCUs), the interventions were generally the most profitable.

We also analysed the effects of combining a soil carbon intervention with the beef herd management ERF, or an equivalent sheep flock management option (although the latter does not yet exist as an ERF option). Net GHG emissions decreased with the soil carbon/beef herd management intervention, but remained unprofitable, until a carbon price of $50/t CO₂e was realised. In contrast, the soil carbon/flock management option was profitable in the absence of a ERF-derived income, as net GHG emissions remained similar to the baseline farm system.

The intervention options that delivered the greatest reduction in GHG emissions resulted in production either remaining the same or declining, reducing profit. These results have implications for both the red meat industry and future agricultural policies, as there appears to be a clear disconnect between reducing GHG emissions, based on current ERF options, while maintaining/ improving productivity and profitability when applied to southern temperate livestock systems. However, further work is required to substantiate this claim.

Further research is also needed to examine effects of future climates on pasture production, livestock productivity and GHG emissions, both for the current (baseline) systems, as well as for various adaptations such as those detailed above.

The next step in this research is to explore a range of ERF and non-ERF options with the regional reference group (RRG) to determine adaptation options that will be modelled in detail going forwards.