Agriculture emissions projections 2014–15 · Web viewDairy contributed 11 per cent of...

Agriculture emissions projections 2014–15

August 2015

Published by the Department of the Environment.

www.environment.gov.au

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Executive summary

Key points• Emissions from agriculture were 15 per cent of Australia’s preliminary 2013–14 national greenhouse gas inventory,

at 82 Mt CO2-e.

• Emissions from agriculture in the 2014–15 Projections are lower than in the 2013 Projections because growth in export demand is expected to be lower.

• Emissions from agriculture are projected to be:

– 85 Mt CO2-e in 2019–20, a fall of 6 per cent on 1999–2000 levels

– 92 Mt CO2-e in 2029–30, an increase of 1 per cent on 1999–2000 levels

– 95 Mt CO2-e in 2034–35, an increase of 5 per cent on 1999–2000 levels.

• World economic growth and depreciation of the Australian dollar against its US counterpart are expected to lead to stronger export demand, which would support growth in agricultural activity over the period 2013–14 to 2034–35.

• Seasonal conditions are assumed to return to normal in 2015, which would allow for increased livestock numbers and crop production.

• Emissions from beef cattle, sheep and dairy are more than 70 per cent of emissions from agriculture.

Throughout this report:

1. Totals may not sum due to rounding.

2. Percentages have been calculated prior to rounding.

3. Years in charts and tables are financial years ending in the stated year.

Agriculture emissions projections 2014–15 2

Baseline projections• Emissions from agriculture are projected to increase by 4 per cent over the period 2013–14 to 2019–20, by

12 per cent from 2013–14 to 2029–30, and by 16 per cent from 2013–14 to 2034–35, to reach 95 million tonnes of carbon dioxide equivalent (Mt CO2-e).

• Export demand, which provides support for growth in agricultural production, is expected to strengthen as a result of growth in foreign incomes and population, and depreciation of the Australian dollar.

• Australia is projected to remain a competitive agricultural producer, as a result of improvements in productivity.

• The 2014–15 agriculture projections are based on the assumption that seasonal conditions will return to normal in 2015–16. In 2012–13 and 2013–14, beef and sheep meat producers reduced livestock numbers in response to ongoing dry conditions, and are expected to rebuild stock when seasonal conditions allow.

• The emissions produced by a unit of agricultural activity, for example, the amount of greenhouse gas produced by a head of beef cattle, is the same as in the most recent national greenhouse gas inventory, and is assumed to be constant over the projections period.

Figure 1 Agriculture emissions 1989–90 to 2034–35

Sources: CIE 2014, DoE 2015, DoE analysis.


Table 1 Baseline agriculture emissions, key years

2000 2014 2020 2030

Mt CO2-

eMt CO2-

eMt CO2-

e

Increase on 2000

Mt CO2-e

Increase on 2000

Livestock 73 64 67 -6 72 -1

Crops and soil treatments 9 9 10 1 11 2

Savanna burning 9 9 9 >-1 9 >-1

Total 91 82 85 -5 92 1


Impact of measures• There are no measures in the 2014–15 agriculture projections. Projections of abatement from the Emissions

Reduction Fund are not included to avoid disclosing potentially market sensitive information, and because the safeguard element of the Fund has yet to be decided.

• The Government will consider including estimates of abatement in future projections if it is possible to do so without reducing the effectiveness of the Emissions Reduction Fund auctions.

Changes from the 2013 Projections• In the 2014–15 Projections, agricultural emissions in 2019–20 are 20 Mt CO2-e lower than in the 2013 Projections.

This difference is a result of a range of factors:

– Better estimates of emissions factors (the emissions produced by a unit of agricultural activity) and changes to IPCC reporting guidelines. Emissions factors are assumed to be constant over the projections period, and in 2019–20, the new emissions factors and reporting guidelines account for 15 Mt CO2-e of the difference in projected emissions between the 2013 and 2014–15 Projections.

– Changes to the coverage of the 2014–15 agriculture projections, in line with the 2006 IPCC Guidelines for National Greenhouse Gas Inventories. In 2019–20, these changes account for 3 Mt CO2-e of the difference between the 2013 and 2014–15 Projections.

– Slower projected world economic growth, which has led to expectations of export demand lower than in the 2013 Projections.

– Recent poor seasonal conditions, which have caused farmers to slaughter more animals, and have reduced the potential for agricultural productivity growth.

• The fall in projected emissions between the 2013 and 2014–15 Projections would have been greater, except that the exchange rate is now expected to be more favourable for agricultural producers.

• Changes to emissions factors, reporting guidelines and coverage do not affect the calculation of emissions


reductions targets because they have also been applied to the national greenhouse gas inventory time series, from 1989–90 to 2013–14.

Table of ContentsExecutive summary.................................................................................................................................. 2

Key points................................................................................................................................................................ 2Baseline projections............................................................................................................................................ 3Impact of measures.............................................................................................................................................. 4Changes from the 2013 Projections................................................................................................................4

1.0 Introduction..................................................................................................................................... 71.1 Sources of emissions from agriculture.............................................................................................71.2 Recent trends—national greenhouse gas inventory....................................................................81.3 Projections scenarios.............................................................................................................................. 91.4 Outline of methodology....................................................................................................................... 11

2.0 Projections results..................................................................................................................... 122.1 Trends in the agriculture projections..............................................................................................132.2 Beef cattle................................................................................................................................................. 142.3 Sheep........................................................................................................................................................... 152.4 Dairy........................................................................................................................................................... 162.5 Pigs and poultry....................................................................................................................................... 162.6 Crops and soil treatments...................................................................................................................17

3.0 Sensitivity analysis.................................................................................................................... 203.1 Drought (lower supply responsiveness).......................................................................................223.2 Exchange rate.......................................................................................................................................... 233.3 Foreign income....................................................................................................................................... 243.4 Productivity............................................................................................................................................. 253.5 Yields......................................................................................................................................................... 263.6 Input prices.............................................................................................................................................. 273.7 High emissions and low emissions..................................................................................................28

Appendix A Changes from the 2013 Projections..........................................................................29

Appendix B Key assumptions............................................................................................................. 31

Appendix C References......................................................................................................................... 32

FiguresFigure 1 Agriculture emissions 1989–90 to 2034–35..............................................................3

Figure 2 Agriculture emissions by sector 1999–2000 to 2013–14......................................9

Figure 3 Projected annual average change in agriculture emissions..............................13

Figure 5 Sheep emissions 1989–90 to 2034–35......................................................................15

Figure 6 Dairy emissions 1989–90 to 2034–35.......................................................................16

Figure 7 Pig and poultry emissions 1989–90 to 2034–35....................................................17

Figure 8 Cropping emissions 1989–90 to 2034–35................................................................18


Figure 9 Soil treatment emissions 1989–90 to 2034–35......................................................19

Figure 10 Drought sensitivity analysis......................................................................................22

Figure 11 Exchange rate sensitivity analysis...........................................................................23

Figure 12 Foreign income sensitivity analysis........................................................................24

Figure 13 Productivity sensitivity analysis..............................................................................25

Figure 14 Yield sensitivity analysis............................................................................................. 26

Figure 15 Input price sensitivity analysis.................................................................................27

Figure 16 High emissions and low emissions sensitivity analysis....................................28

Figure 17 Comparison between the 2013 and 2014–15 Projections...............................30

TablesTable 1 Baseline agriculture emissions, key years..............................................................4

Table 2 Sources of agriculture emissions................................................................................7

Table 3 Projections scenarios................................................................................................... 10

Table 4 Projected agriculture emissions, key years.........................................................12

Table 5 Agriculture sensitivity analysis, key years...........................................................20

Table 6 Changes in emissions factors between the 2013 and 2014–15 Projections............................................................................................................................................. 29

Table 7 Annual average world economic growth...............................................................31

Table 8 Annual average growth in slaughter weight........................................................31


1.0 Introduction

The 2014–15 agriculture projections are a full update of the 2013 agriculture projections. They are based on published research by the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES 2014a-c), and research commissioned from The Centre for International Economics (CIE 2014) by the Department of the Environment (DoE).

1.1 Sources of emissions from agricultureGreenhouse gas emissions from agriculture are defined in the national greenhouse gas inventory as per Table 2. For readability, emissions projections are presented according to livestock type, cropping and soil treatments.

The 2014–15 agriculture projections have been updated to take account of the 2006 IPCC Guidelines for National Greenhouse Gas Inventories and now include emissions from application of lime and urea, and from pasture renewal. Emissions of nitrous oxide from nitrogen fixing plants are no longer included.

Emissions from plant and machinery used in agriculture are counted under direct combustion, and emissions associated with electricity used in agriculture are counted under electricity generation. With the exception of carbon dioxide from the application of lime and urea, carbon dioxide emissions from agriculture are not counted because they are considered part of the natural carbon cycle.

Table 2 Sources of agriculture emissions

Source Description

Enteric fermentation Methane emissions from the digestive process of herbivores (sheep, beef and dairy cattle).

Manure management Methane and nitrous oxide emissions from the treatment and decomposition of manure under anaerobic conditions.

Rice cultivation Methane emissions during rice growing from the decomposition of organic material.

Agricultural soils Nitrous oxide emissions from the application of nitrogen to soil.

Prescribed burning of savannas Methane and nitrous oxide emissions from all burning of savanna and temperate grassland ecosystems.

Field burning of agricultural residues Methane and nitrous oxide emissions from the combustion of plant material.

Application of lime and urea Carbon dioxide emissions from liming or urea fertilisation of soils.


1.2 Recent trends—national greenhouse gas inventoryTotal agriculture emissions in 2013–14 are estimated to have been 82 Mt CO2-e; 15 per cent of the national greenhouse gas inventory (DoE 2015). Figure 2 shows that from 1999–2000 to 2013–14, emissions from agriculture fell by 10 per cent, although emissions were highly variable. Periods of low rainfall, from which there was some relief in 2004–05 and 2010–11, have also caused reductions in agricultural activity and emissions. In 2013–14, low rainfall led to another decline in agriculture activity and emissions. Since 1989–90, low prices for coarser wool, and higher meat prices, have seen a change in the structure of the sheep industry. The corresponding reduction in sheep numbers was the main cause of the drop in emissions since 1989–90.

Most agriculture emissions come from enteric fermentation and manure management associated with livestock production. Approximately 75 per cent of agriculture emissions from 1999–2000 to 2013–14 came from beef cattle (45 per cent), dairy (11 per cent), and sheep (19 per cent).

Emissions from burning of savannas accounted for 10 per cent of emissions from 1999–2000 to 2013–14. Emissions from the burning of savannas depend heavily on fire activity, which is difficult to predict with certainty. Periods of low rainfall have led to lower emissions from savanna burning by reducing fuel loads, such as in 2003–04.


Figure 2 Agriculture emissions by sector 1999–2000 to 2013–14

Source: DoE 2015

1.3 Projections scenariosThe baseline scenario has been developed on the basis of current information regarding the outlook for agriculture. The baseline scenario does not include the expected impact of the Emissions Reduction Fund for the reasons outlined above.

High and low emissions scenarios have been used to indicate the possible upper and lower bounds on the projections. Sensitivity analysis has been conducted to examine the implications of changing the assumptions which underpin the agriculture projections, as per Table 3. The results of the sensitivity analysis are presented in Chapter 3.


Table 3 Projections scenarios

Scenario Description

Baseline Best estimate of emissions based on current information.

Foreign income Growth in foreign income is assumed to be i) 20 per cent higher, and ii) 20 per cent lower, than in the baseline scenario.

Productivity Growth in productivity is assumed to be i) 50 per cent higher, and ii) 50 per cent lower, than in the baseline scenario.

Yield Growth in beef slaughter weight, dairy cow milk yield, and crop yield is assumed to be i) 50 per cent higher, and ii) 50 per cent lower, than in the baseline scenario.

Input prices Agriculture input prices are assumed to be i) 20 per cent higher, and ii) 20 per cent lower, than in the baseline scenario.

Exchange rate The exchange rate is assumed to be i) 20 per cent higher, and ii) 20 per cent lower, than in the baseline scenario.

Drought To simulate drought, farmers are assumed to have lower ability to increase production in response to price signals.

High emissions Combination of higher foreign income and productivity, and lower yields, input prices and exchange rate.

Low emissions Combination of lower foreign income and productivity, and higher yields and input prices and exchange rate.


1.4 Outline of methodology The 2014–15 agriculture projections are based on projections of agricultural activity and estimates of the emissions from a unit of agricultural activity. The latter are taken from the most recent (September 2014) quarterly national greenhouse gas inventory and are assumed to be constant over the projections period. Estimates of agricultural activity in 2013–14 are taken from the national greenhouse gas inventory.

Projections of agricultural activity over the period 2014–15 to 2018–19 are based on research published by ABARES (ABARES 2014a-c). Projections of agricultural activity over the period 2019–20 to 2034–35 are based on research commissioned from the Centre for International Economics by the Department of the Environment (CIE 2014).

Seasonal conditions are assumed to return to normal in late 2015. Although drought is a feature of the Australian climate, it is not possible to predict the timing or duration of future droughts with certainty.

The Centre for International Economics used general equilibrium models of the global and Australian economies to project export demand, world agricultural production and prices. These parameters were used as inputs to models of the world meat industry and the Australian dairy industry, and a model of the world grains industry which is focused on aspects of the industry particularly relevant to Australia. Models of sugarcane, rice and cotton production were also used. The key parameters used in the modelling are identified in Table 3 (i.e. foreign income, productivity, etc). Further information about these models and assumptions is available from the Centre for International Economics’ report (CIE 2014).

The Centre for International Economics was commissioned to project agricultural activity and emissions in June 2014. Since then, expectations regarding the exchange rate between Australia and the United States, and the international oil price, have changed significantly. The Department of the Environment has used existing research on the sensitivity of agricultural emissions to the exchange rate and the oil price, to adjust the emissions projections over the period 2019–20 to 2034–35 accordingly.

ABARES’ December 2014 forecasts of agricultural activity were used to update the projections of emissions over the period 2014–15 to 2018–19 (ABARES 2014c). ABARES’ March and September 2014 forecasts were used in the initial version of the 2014–15 agriculture projections (ABARES 2014a-b).


2.0 Projections results

Emissions from agriculture are projected to increase by 4 per cent, to 85 Mt CO2-e, over the period 2013–14 to 2019–20. Over the period 2013–14 to 2034–35, emissions from agriculture are projected to increase by 16 per cent, to 95 Mt CO2-e. Projected growth in export demand and productivity would lead to growth in agricultural activity and emissions, particularly for beef cattle.

Table 4 Projected agriculture emissions, key years

2000 2014 2020 2030

Mt

CO2-eMt CO2-

e

Increase on 2000

Mt CO2-e

Increase on 2000

Mt CO2-e

Increase on 2000

Dairy cattle 10 9 -1 9 -1 9 -1

Grazing beef cattle

35 35 >-1 36 1 40 4

Grain fed beef cattle

2 2 <1 2 <1 2 1

Sheep 22 13 -8 15 -7 16 -6

Pigs 2 1 >-1 1 >-1 2 <1

Poultry <1 1 <1 1 <1 1 <1

Other animals <1 <1 <1 <1 <1 <1 <1

Crops 5 6 <1 6 <1 7 1

Savanna burning

9 9 >-1 9 >-1 9 >-1

Fertilisers 3 4 <1 4 <1 4 <1

Lime and urea 2 2 <1 2 <1 3 1

Total 91 82 -9 85 -5 92 1



2.1 Trends in the agriculture projectionsEmissions from agriculture fell at an average rate of 0.7 per cent a year between 1999–2000 and 2013–14, largely as a result of the reduction in the size of the sheep flock. Between 2013–14 and 2034-35, emissions from agriculture are projected to grow at an average of 0.7 per cent a year.

Figure 3 shows the expected growth in emissions from each agricultural activity. Emissions from beef cattle, dairy, crops, liming, and application of fertilisers and urea are expected to grow faster from 2019–20 to 2034–35, than from 2013–14 to 2019–20. More growth is expected in the later period because stronger growth in export demand is expected.

In contrast, emissions from sheep and poultry are expected to experience stronger growth from 2013–14 and 2019–20, than over the period 2019–20 to 2034–35. More growth is expected in the earlier period because emissions growth from gradual rebuilding of the sheep flock is expected to be greater than emissions growth that would result from long term growth in export demand. Slightly more growth in poultry emissions is also expected over the period 2013–14 to 2019–20 than from 2019–20 to 2034–35 because chicken meat prices are expected to be low relative to other meats over the earlier period, and consumption of chicken meat is expected to grow as a result.

Emissions from dairy and pigs are projected to fall over the period 2013–14 to 2019–20, due to increasing competition from overseas suppliers. In real terms, world pig meat prices are expected to fall slightly, and real dairy prices are expected to increase slightly. The number of pigs is projected to fall, while projected increases in milk yields would allow dairy farmers to increase output without large increases in cow numbers.

Figure 3 Projected annual average change in agriculture emissions


Savanna burning emissions were 9 Mt CO2-e in 2013–14. Over the period 2014–15 to 2034–35, emissions from


savanna burning are assumed to be 9 Mt CO2-e a year, the average of emissions from savanna burning over the period 2003–04 to 2013–14. This assumption follows from the expectation of average seasonal conditions. Emissions from pasture renewal are projected to be constant because improvements in pasture renewal techniques would be expected to offset the effect of increases in the amount of land devoted to pasture.

2.2 Beef cattleEmissions from beef cattle were 45 per cent of total agriculture emissions in 2013–14. Grazing beef accounted for 43 per cent of total agriculture emissions, while grain fed beef accounted for 3 per cent. Over the period to 2013–14 to 2019–20, emissions from beef cattle are projected to increase by 4 per cent, to reach 39 Mt CO2-e. Over the period 2013–14 to 2034–35, emissions from beef cattle are projected to increase by 19 per cent to reach 44 Mt CO2-e.

Figure 4 Beef cattle emissions 1989–90 to 2034–35

Sources: ABARES 2014 a-c, CIE 2014, DoE 2015, DoE analysis.

Demand for beef in foreign markets is projected to grow steadily over the projection period, as a result of growth in foreign incomes and population, particularly in China and other developing countries. Beef is a relatively expensive form of protein, and people tend to consume more of it as their incomes increase. Free trade agreements with Japan and Korea are also expected to lead to a slight increase in demand for Australian beef. The free trade agreement with China has not been included in these projections, although it would also be expected to contribute to projected increases in demand for Australian beef.

The Centre for International Economics projects that global demand for beef will grow faster than global supply of beef, and that real beef prices will increase over the projections period. As a result, changes in the circumstances of other countries that produce beef would lead to changes in the markets for Australian beef, rather than changes in the volume produced and exported. Seasonal conditions and the productivity of Australian beef producers will be the main determinants of Australian beef production, given projections that whatever beef is produced is likely to be able to be sold, generally at higher prices.

Poor seasonal conditions in 2013–14, and 2014–15 have led farmers to increase slaughterings, to match cattle numbers with feed availability. Poor seasonal conditions have also reduced calving rates. Seasonal conditions are


assumed to return to normal in 2015–16, which would allow farmers to start rebuilding their herds.

2.3 SheepEmissions from sheep were 16 per cent of total agriculture emissions in 2013–14. Over the period 2013–14 to 2019–20, emissions from sheep are projected to increase by 11 per cent, to 15 Mt CO2-e. Over the period 2013–14 to 2034–35, emissions from sheep are projected to increase by 20 per cent, to 16 Mt CO2-e.

Figure 5 Sheep emissions 1989–90 to 2034–35


Demand for sheep meat and sheep meat prices are both expected to remain strong over the projections period, providing strong incentives for increases in sheep numbers. Despite this, ongoing dry conditions are projected to see producers continue reducing sheep numbers in 2014–15, as they try to bring the size of their flocks in line with the carrying capacity of the land. A steady increase in sheep numbers is expected from 2015–16, as producers would be expected to rebuild their flocks when seasonal conditions allow. Compared with the later period, faster emissions growth is expected over the period to 2019–20, as producers would be expected to hold animals back from slaughter while they rebuild their flocks.

Australia’s main markets for sheep meat are the Middle East and China, both of which are projected to grow over the projections period. Strong income growth is expected in China, and strong growth incomes and population are expected from the Middle East. Around 70 per cent of Australian sheep meat is exported.

New Zealand is Australia’s only major competitor for exports of sheep meat, and has a tariff free quota for exports to the European Union. Over the long term, this agreement means that New Zealand sheep meat is likely to gain an increasing share of European markets, and Australian sheep meat is likely to be exported to other markets, such as the Middle East and China.

2.4 Dairy


Dairy contributed 11 per cent of total agriculture emissions in 2013–14. Over the period 2013–14 to 2019–20, emissions from dairy are projected to fall by 4 per cent, to 9 Mt CO2-e. Over the period 2013–14 to 2034–35, emissions from dairy are projected to increase by 2 per cent.

Figure 6 Dairy emissions 1989–90 to 2034–35


Recent increases in dairy emissions have been a result of growth in milk production, with producers having increased the size of their herds in response to improving international dairy prices after a long run of unfavourable prices. The dairy herd is expected to continue to grow until 2017–18, when dairy prices are expected to start to fall in real terms due to increased supply from the European Union, the United States, New Zealand, South America and India. Milk yields in the European Union are expected to increase, as milk production is consolidated in the most productive countries following the end of milk quotas in 2014–15. In the United States, herd rebuilding is expected to see higher milk production, while yield improvements are expected as a result of genetic improvements and lower feed costs.

Steady increases in dairy prices are projected over the period 2019–20 to 2034–35. Growth in population, incomes, and the ‘westernisation’ of diets in Asia (China in particular), the Middle East and North Africa is expected to lead to increases in demand for dairy products, roughly at the same rate as world dairy supply. Small, but steady increases in dairy product volumes are expected from milk producers in Australia, and in the rest of the world, through a combination of increased dairy cattle numbers, and higher milk yields from new farm management practices and production technologies.

2.5 Pigs and poultryPigs contributed 2 per cent of total agriculture emissions in 2013–14. Over the period 2013–14 to 2019–20, emissions from pigs are projected to fall by 4 per cent, to 1.3 Mt CO2-e. By 2034–35, emissions from pigs are projected to be 1.5 Mt CO2-e.

Poultry contributed less than 1 per cent of total agriculture emissions in 2013–14. Over the period 2013–14 to 2019–20, emissions from poultry are projected to increase by 18 per cent to 0.5 Mt CO2-e. By 2034–35, emissions from poultry are projected to be 0.6 Mt CO2-e. Pigs and poultry produce fewer emissions than sheep, beef and dairy cattle


because their digestive processes do not involve enteric fermentation.

Figure 7 Pig and poultry emissions 1989–90 to 2034–35


Over the period 2016–17 to 2019–20, the number of pigs and their associated emissions are projected to fall, because pig meat prices are expected to weaken over that period due to increasing competition from overseas suppliers.

Demand for chicken meat is projected to increase steadily over the period to 2034–35, while demand for pork is expected to increase from 2019–20 to 2034–35. Demand for all meats is projected to increase in Australia, but the relatively low cost of chicken meat and pork mean that consumption of these meats is projected to grow faster than consumption of beef and sheep meat. Poultry and pork are cheaper because these industries have achieved higher productivity growth than other meat industries. They have higher feed conversion rates, and are better suited to high intensity production than beef cattle and sheep.

Australian poultry exports are projected to increase over the period to 2034–35 because Australian poultry production costs are expected to fall, and become internationally competitive. In contrast, Australian exports of pig meat are expected to increase only slightly, mainly because of strong overseas competition.

2.6 Crops and soil treatmentsCrop emissions included in these projections come from production of wheat, oilseeds, other grains (barley, triticale, oats, rye, sorghum, millet), maize, peanuts, rice, sugar and pasture renewal for livestock. Emissions from crops with emissions greater than 0.1 Mt CO2-e a year are shown in Figure 8. Crops contributed 11 per cent of total agriculture emissions in 2013–14. Over the period 2013–14 to 2019–20, emissions from crops are projected to increase by 6 per cent, to 10 Mt CO2-e. Over the period 2013–14 to 2034–35, emissions from crops are projected to increase by 29 per cent, to 12 Mt CO2-e.

Figure 8 Cropping emissions 1989–90 to 2034–35



Demand for crops is projected to increase steadily over the projections period as a result of growth in world population and incomes. Crops provide a large proportion of the world population’s calorie requirements, and are also used to feed livestock.

The world’s main producers of grains and other crops are low cost producers in the Black Sea region, South America and Canada. Although the United States is also an important producer, the expectation of higher returns from other farm enterprises is expected to lead to small declines in the area planted over the period to 2019–20. Strong growth in imports (of crops other than rice) are projected for Asian countries, and proximity to these markets mean that Australia is better placed to serve them than other large markets in North Africa or the Middle East.

Projected increases in world grains and other crop production are expected to be greater than projected increases in consumption, and prices are expected to average lower over the period 2014–15 to 2019–20, compared with the five years before. Despite this, Australian production of crops is expected to increase steadily over the projections period assuming a return to normal seasonal conditions in 2015. Crop production will remain a profitable and necessary aspect of Australian broadacre production systems, and returns to farmers would be improved by the assumed depreciation of the Australian dollar.

Production of rice is expected to increase gradually over the period to 2034–35, as a result of continued improvements in yield through better management techniques. Rice production has been highly variable, and depends almost entirely on the availability of water for irrigation.

In contrast to grains and other crops, world consumption of sugar is projected to grow faster than world production, and prices are expected to trend higher from 2017–18 once world sugar stocks fall from current record levels. Increases in sugar consumption are expected as a result of income growth in non-OECD countries, particularly China, India and Brazil. Assuming normal seasonal conditions, Australian farmers are projected to increase areas planted to cane and production of sugar cane in order to take advantage of higher prices.

Pasture renewal for livestock is projected to be roughly constant over the period to 2034–35. Improvements in techniques used to renew pasture are expected to offset the increase in emissions that would follow from increases in the area of land devoted to pasture. It is assumed that roughly 10 per cent of pasture is renewed each year, and this assumption means that emissions from pasture renewal have little variability around the mean.


Crop yields depend heavily on soil treatments: application of fertiliser, urea and liming. Figure 9 shows projected soil treatments over the period to 2034–35. Emissions from soil treatments are assumed to grow with livestock and crop production. Cotton production is also accounted for in the estimates of fertiliser application, but not elsewhere in the 2014–15 agriculture projections because it produces very little residue.

Emissions from soil treatments were 7 per cent of total emissions from agriculture in 2013–14. Emissions from soil treatments are projected to increase by 2 per cent over the period 2013–14 to 2019–20, to 6 Mt CO2-e. Emissions from soil treatments are projected to increase to 7 Mt CO2-e by 2034–35.

Figure 9 Soil treatment emissions 1989–90 to 2034–35



3.0 Sensitivity analysis

The future outcomes for key parameters and emissions drivers listed in Table 5 can only be forecast or assumed—they are not known with certainty. Sensitivity analyses have been conducted to inform plausible upper and lower bounds for the projections based on variations in these parameters from the assumptions used in the baseline projections.

Sensitivity analyses were conducted by running the Centre for International Economics’ suite of agricultural models with the parameter values shown in Table 5. These sensitivity analyses were based on ABARES’ March 2014 projections, and then scaled to ABARES September 2014 projections. Detailed information about the assumptions underpinning the Centre for International Economics’ projections is available from its report. Assumptions regarding world economic growth, yields and the exchange rate are shown in Appendix C.

Table 5 Agriculture sensitivity analysis, key years

ProjectionDescription of scenario

2020 Change from

baseline

2035 Change from

baseline

Mt CO2-e Mt CO2-e

Mt CO2-e Mt CO2-e

Baseline 85 - 95 -

Drought Supply elasticities reduced 50 per cent. 83 -3 88 -7

High emissions 96 11 114 19

Low exchange rate

USD/AUD exchange rate increased 20 per cent. 93 8 103 8

High foreign income

Foreign income growth reduced 20 per cent. 86 1 98 3

High productivity Australian productivity growth reduced 50 per cent. 86 1 99 4

Low yield Australian yield growth reduced 50 per cent. 87 2 100 5

Low input prices Input price growth reduced 20 per cent. 87 2 98 3

Low emissions 72 -13 71 -24

High exchange rate

USD/AUD exchange rate reduced 20 per cent. 79 -6 88 -7


ProjectionDescription of scenario

2020 Change from

baseline

2035 Change from

baseline

Mt CO2-e Mt CO2-e

Mt CO2-e Mt CO2-e

Low foreign income

Foreign income growth increased 20 per cent. 84 -1 91 -4

Low productivity Australian productivity growth increased 50 per cent. 84 -2 90 -5

High yield Australian yield growth increased 50 per cent. 83 -2 89 -6

High input prices Input price growth increased 20 per cent. 83 -2 91 -4



3.1 Drought (lower supply responsiveness)Drought is a feature of the Australian climate, and can be expected to occur regularly. Rather than try and predict the timing and duration of future droughts, the projections are developed on the assumption of a return to normal seasonal conditions in 2015–16, and sensitivity analysis is used to investigate a 50 per cent reduction in the ability of farmers to increase production. This approach was chosen because higher prices are often observed during drought, but farmers are unable to respond to them. Drought, as modelled, would be expected to cause a reduction in emissions of 3 per cent by 2019–20, and 7 per cent by 2034–35, relative to the baseline.

Figure 10 Drought sensitivity analysis



3.2 Exchange rateChanges in the exchange rate are assumed to lead to changes in farm production through changes in farm returns, and to a lesser extent, changes to export demand.

A 20 per cent decrease in the USD/AUD exchange rate is projected to cause emissions to be 9 per cent higher than the baseline from 2014-15, while a 20 per cent increase in the USD/AUD exchange rate would cause emissions to be 7 per cent lower than the baseline.

Figure 11 Exchange rate sensitivity analysis


The modelled change in the USD/AUD exchange rate is projected to have a greater effect on emissions than the modelled changes to the growth rate of foreign income, input prices, productivity or yield, and a greater effect than drought. This is partly because the change in the USD/AUD exchange rate is modelled to occur immediately, while the effect of the change in growth rates in the other parameters accumulates over the projections period. By 2034–35, the effect of changes in the USD/AUD exchange rate on emissions is more closely comparable to the effects of changes in other assumptions.


3.3 Foreign incomeChanges in foreign income are projected to influence demand for exports of Australian agricultural products. Livestock production is expected to increase by more than production of crops, because poorer people tend to spend a greater proportion of their income on animal protein as their incomes increase.

Relative to the baseline, a 20 per cent increase in foreign income growth would be expected to lead to a 1 per cent increase in Australian agricultural emissions by 2019–20, and a 3 per cent increase by 2034–35. A 20 per cent decrease in foreign income growth would be expected to lead to a 2 per cent decrease in Australian agricultural emissions by 2019–20, and a 4 per cent decrease by 2034–35.

Figure 12 Foreign income sensitivity analysis


Increases or decreases in foreign income are also projected to influence demand for exports of Australian agricultural products. Livestock production is expected to increase by more than production of crops, because poorer people tend to spend a greater proportion of their income on animal protein as their incomes increase.


3.4 ProductivityRelative to the baseline, a 20 per cent increase in productivity growth would be expected to lead to a 1 per cent increase in Australian agricultural emissions by 2019–20, and a 4 per cent increase by 2034–35. A 20 per cent decrease in productivity growth would be expected to lead to a 2 per cent decrease in Australian agricultural emissions by 2019–20, and a 5 per cent decrease by 2034–35.

Figure 13 Productivity sensitivity analysis


Productivity growth allows for lower input use while maintaining production levels, which allows producers to reduce their costs and increase their competitiveness. A 20 per cent increase in Australian productivity growth the would mean that the productivity of Australian meat producers would grow faster than their overseas competitors’—with the notable exception of the production of grain fed beef producers in the Americas. Similarly, a 20 per cent decrease in growth of Australian meat producers’ productivity would mean that their competitiveness will gradually fall.


3.5 YieldsRelative to the baseline, a 20 per cent increase in yield growth would be expected to lead to a 3 per cent decrease in agricultural emissions by 2019–20, and a 6 per cent decrease by 2034–35. A 20 per cent decrease in yield growth would be expected to lead to a 2 per cent increase in agricultural emissions by 2019–20, and a 5 per cent increase by 2034–35.

Figure 14 Yield sensitivity analysis


Yields are defined as the amount of meat per animal: wool per sheep, milk per cow, or tonnes of crop per hectare. Producers are assumed to adjust plantings and animal numbers in order to maintain production at the same level as in the baseline scenario. The modelled changes in yield growth do not affect Australia’s competitiveness because they are assumed to apply equally to all of Australia’s overseas competitors.

Improvements in livestock and dairy yields would lead to lower emissions because it would allow farmers to produce the same amount of meat, milk or wool with fewer animals. Similarly, the modelled reduction in yield growth would lead to higher emissions, as farmers would need more animals to maintain their output. Emissions from crops are not sensitive to assumptions about yields because crop emissions depend mainly on the amount of production, rather than the area planted.


3.6 Input pricesRelative to the baseline, a 20 per cent increase in the growth of input prices would be expected to lead to a 3 per cent decrease in agricultural emissions by 2019–20, and a 4 per cent decrease by 2034–35. A 20 per cent decrease in the growth of input prices would be expected to lead to a 2 per cent increase in agricultural emissions by 2019–20, and a 3 per cent increase by 2034–35.

Figure 15 Input price sensitivity analysis


In order to examine the sensitivity of emissions to input prices, the costs of fuel, fertiliser, hired labour, feed, fuel and electricity were varied. For the purposes of this sensitivity analysis, it was assumed that Australia’s competitors would experience similar changes in input costs and that higher input prices would lead to higher output costs, which would lead to lower consumption and production of agricultural products. Similarly, lower input prices would lead to lower output costs, which would lead to higher consumption and production.


3.7 High emissions and low emissionsRelative to the baseline, emissions in the low emissions scenario would be expected to be 15 per cent lower by 2019–20, and 25 per cent lower by 2034–35. Emissions in the high emissions scenario would be expected to be 13 per cent higher by 2019–20, and 20 per cent higher by 2034–35.

The low emissions scenario is a combination of the sensitivity analyses that lead to lower emissions: low foreign income growth, low productivity growth, high yield growth, high input price growth, a higher exchange rate and drought. The high emissions scenario is a combination of the sensitivity analyses that lead to higher emissions: high foreign income growth, high productivity growth, low yield growth, low input price growth and a lower exchange rate.

Figure 16 High emissions and low emissions sensitivity analysis


The high and low emissions scenarios indicate the range of plausible future emissions from agriculture, based on conditions at the time of writing. Emissions from agriculture over the period to 2034–35 are not known with certainty, and are likely to be more variable than projected as a result of the highly variable Australian seasonal conditions.


Appendix A Changes from the 2013 Projections

Emissions from agriculture were projected to be 2,515 Mt CO2-e over the period 2013–14 to 2034–35 in the 2013 Projections (DoE 2013). In the 2014–15 Projections, emissions from agriculture are projected to be 1,937 Mt CO2-e over the same period.

In the 2013 Projections, emissions from agriculture were projected to be 106 Mt CO2-e in 2019–20. In the 2014–15 Projections, emissions from agriculture were projected to be 85 Mt CO2-e in 2019–20. Changes in projected activity (e.g. beef cattle numbers) account for 12 per cent, or 3 Mt CO2-e, of the difference between the 2013 and 2014–15 Projections in 2019–20.

Further research into the emissions produced by a unit of agricultural activity (the emissions factors) has led to lower and more accurate estimates. The main changes to the emissions factors are shown in Table 6. The 2014–15 Projections also make use of the 2006 IPCC guidelines for the preparation of national inventories, which specify that emissions should be reported as annual values, rather than three year moving averages. This change has a small effect on overall emissions, and between 2013–14 and 2015–16 it causes projected emissions to fall instead of increase. In 2019–20, the improved emissions factors and the use of annual values instead of a three year moving average accounts for 73 per cent, or 15 Mt CO2-e, of the difference in emissions between the 2013 and 2014–15 Projections.

Table 6 Changes in emissions factors between the 2013 and 2014–15 Projections

Share of emissions

Emissions factor t CO2-e/head Change in emission

factor

% of 2014–15 Projections

(2014–15 to 2034–35)

2013 Projections

2014–15 Projections

Per cent

Grazing beef 43% 1.96 1.47 -25%

Grain fed beef 3% 3.15 2.64 -16%

Sheep 17% 0.20 0.18 -8%

Dairy 10% 3.62 3.22 -11%

Sources: DoE 2013, DoE 2015.

Between the 2013 and 2014–15 Projections, small changes were made to the coverage of the national greenhouse gas inventory. Emissions from nitrogenous crops were included in the 2013 Projections but not the 2014–15 Projections. Emissions from pasture renewal, liming and the application of urea are included in the 2014–15 Projections, but not the 2013 Projections. Changes in the coverage of the national greenhouse gas inventory, and the associated changes


to the coverage of the projections, account for 14 per cent, or 3 Mt CO2-e, of the difference in emissions in 2019–20, between the 2013 and 2014–15 Projections.

Changes to the coverage of the projections and the emissions factors do not affect the calculation of emissions reductions targets because the changes have been applied to the historical time series. The historical time series has also been recalculated using annual values instead of three year moving averages. Figure 17 shows the effect of the change in the emissions factors and the use of annual values instead of three year moving averages.

Figure 17 Comparison between the 2013 and 2014–15 Projections


The assumptions underpinning the projections have changed between the 2013 Projections and the 2014–15 Projections. Expectations of world economic growth are lower and the AUD/USD exchange rate is also expected to be lower. While both of these factors have a strong influence on demand for Australian exports, the effect of lower economic growth is expected to outweigh a lower exchange rate and lead to lower total world for Australian exports.

A run of poor seasonal conditions and ongoing cost pressures have led beef producers in Northern Australia to revise down their expectations of future productivity growth. Productivity growth is expected to be strong, but lower than was expected at the time of writing the 2013 Projections. In 2019–20, beef cattle numbers are expected to be 7 per cent lower than in the 2013 Projections. By 2034–35, beef cattle numbers are expected to be 18 per cent lower than in the 2013 Projections.

High international dairy prices, which were not foreseen in the 2013 Projections, have led to an increase in dairy cow numbers. Following from this, projected dairy cow numbers are 3 per cent higher in 2019–20 than they were in the 2013 Projections. By 2034–35, projected dairy cow numbers would be 3 per cent lower than in the 2013 Projections, as higher world dairy production over that period would be expected to lead to lower prices and cow numbers.


Appendix B Key assumptions

Explanation of the assumptions that inform ABARES projections over the period 2014–15 to 2019–20 can be found in its March 2014 and September 2014 editions of Australian Commodities (ABARES 2014a, 2014b).

Detailed explanation of the key assumptions underpinning the Centre for International Economics’ modelling can be found in its report (CIE 2014).

The AUD/USD exchange rate is assumed to be between 0.8 and 0.9 over the period 2020–21 to 2034–35. Assumptions regarding world economic growth and livestock product yields are reproduced below.

Table 7 Annual average world economic growth

2020 to 2025 2026 to 2035

Australia 3.20% 2.82%

China 6.22% 5.41%

India 6.44% 5.57%

United States 2.23% 2.27%

European Union 1.86% 1.95%

Rest of Asia 3.02% 2.94%

Rest of the World 3.47% 3.30%

Sources: IMF 2014 for 2013–14 to 2018–19, CIE assumptions for 2019–20 to 2034–35, DoE for Australian assumptions.

Table 8 Annual average growth in slaughter weight

2021 to 2030 2031 to 2035

Beef and veal 0.65% 0.52%

Mutton 0.95% 0.76%

Lamb 0.26% 0.21%

Pigs 0.40% 0.32%

Poultry 0.89% 0.71%

Source: CIE 2014.

The amount of milk produced by a dairy cow is assumed by the Centre for International Economics to grow by an average of 1.3 per cent a year from 2020–21 to 2029–30, and by 0.8 per cent a year from 2030–31 to 2034–35.


Appendix C References

ABARES 2014a, Agricultural commodities: March quarter 2014, Australian Bureau of Agricultural and Resource Economics and Sciences, Canberra ACT.

ABARES 2014b, Agricultural commodities: September quarter 2014, Australian Bureau of Agricultural and Resource Economics and Sciences, Canberra ACT.

ABARES 2014c, Agricultural commodities: December quarter 2014, Australian Bureau of Agricultural and Resource Economics and Sciences, Canberra ACT.

CIE 2014, Agricultural activity and emissions projections to 2050, The Centre for International Economics, Canberra, ACT.

DoE 2013, Australia’s Abatement Task and 2013 Emissions Projections, Department of Environment, Canberra, ACT.

DoE 2015, Australian National Greenhouse Accounts: Quarterly Update of Australia’s National Greenhouse Gas Inventory September Quarter 2014, Department of Environment, Canberra, ACT.

IMF 2014, World Economic Outlook Database, International Monetary Fund, April 2014


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