Who pays for greenhouse gas emissions reductions in Australian milk markets?

Reducing greenhouse gas (GHG) emissions in food production requires changes in farming practices and the adoption of new technologies at the farm level. But a lack of clear market signals to drive those changes presents a challenge for the transition towards lower-emission food production.

So far, commercial players in the Australian dairy industry have focused on GHG emissions measurement, reporting, and target setting. Research on new technologies and innovations to reduce emissions is also underway but has typically focused on technical feasibility rather than economic viability. Meeting the targets set by corporations and governments to reduce supply chain GHG emissions requires investment, changing farming practices, and bridging the gap between the economic viability that corporate ambitions require and the technical feasibility that research creates through the adoption and implementation of new technologies and change.

Addressing enteric methane production has the greatest potential to deliver substantial reductions in emissions in the dairy industry. Although implementing productivity-focused measures can reduce emissions intensity, options that can offer more progress on reductions are likely to come at a net cost (in the absence of changes in market signals).

Using the methane-reducing feed additive 3-NOP in dairy production is estimated to be able to reduce the emissions footprint of milk by 14% on average. The cost impacts of this additive are estimated at an additional 2.5 cents per litre of milk – a less than 2% increase in consumer price – with an estimated abatement cost of AUD 156/tonne carbon dioxide equivalent (CO2e).

Medium-term targets are fast approaching. But farmers supplying products to markets with targets to reduce value chain emissions typically do not have clarity about what will be expected from them or when.

While the Australian dairy industry has made strides in engaging with emissions topics, big economic questions around implementing the most effective emission-reduction technologies remain unanswered, including how the players with the greatest market power will drive progress towards their targets and whether they will use carrots, sticks, or a combination of both. The industry collectively should start preparing for these discussions.