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Dr Jacqueline Rowarth: How green finance rules could hurt rural communities

How Green Finance Rules Could Harm New Zealand Farming

In an era where environmental sustainability is increasingly prioritized by global financial institutions, New Zealand's agricultural sector finds itself at a crossroads. Dr. Jacqueline Rowarth, a prominent voice in agricultural science, has raised alarms about how emerging "green finance" regulations could inadvertently undermine the very foundations of NZ farming. These rules, designed to channel investments toward eco-friendly practices, might end up penalizing efficient producers in a country where agriculture is not just an industry but a cornerstone of the economy. This extensive exploration delves into the nuances of green finance, its potential pitfalls for Kiwi farmers, and the broader implications for food production and national prosperity.

Green finance refers to financial products and services that support environmentally sustainable activities. It's a growing trend driven by international agreements like the Paris Accord and initiatives from bodies such as the European Union and the United Nations. Banks, investors, and insurers are adopting frameworks that assess the environmental impact of their portfolios, often using metrics like carbon footprints, biodiversity preservation, and water usage. In theory, this encourages a shift away from polluting industries toward greener alternatives. However, when applied to agriculture—a sector inherently tied to natural resources—these rules can create unintended consequences.

For New Zealand, where farming contributes around 5-7% to GDP and dominates exports through dairy, meat, and horticulture, the stakes are high. Farmers rely heavily on bank loans for operations, from purchasing equipment to managing seasonal cash flows. Under green finance guidelines, lenders might classify certain farming practices as "high-risk" or "non-sustainable," leading to higher interest rates, reduced access to credit, or outright denial of funding. Dr. Rowarth argues that this could disproportionately affect NZ's pastoral farming model, which, while efficient by global standards, is often scrutinized for greenhouse gas emissions, particularly methane from ruminant animals like sheep and cows.

One key concern is the oversimplification of environmental metrics. NZ farmers have made significant strides in sustainability: for instance, dairy farms have reduced nitrogen leaching through better effluent management, and sheep and beef operations emphasize regenerative practices like rotational grazing. Yet, green finance rules, often developed in urban-centric or European contexts, may not account for NZ's unique geography and climate. The country's grass-fed systems produce lower emissions per unit of output compared to intensive feedlot operations elsewhere, but blanket categorizations could lump them in with less efficient global peers. Dr. Rowarth points out that if banks start demanding "net-zero" commitments without feasible pathways, farmers might face insurmountable barriers. This isn't just theoretical; reports from organizations like the Reserve Bank of New Zealand and international bodies like the Network for Greening the Financial System highlight how climate-related financial risks are being integrated into lending decisions.

Consider the dairy sector, a powerhouse of NZ's economy. Milk production here is among the most efficient worldwide, with cows grazing on nutrient-rich pastures that minimize the need for imported feeds. However, methane emissions from digestion remain a sticking point. Green finance might require farmers to adopt costly technologies like methane inhibitors or genetic breeding for low-emission livestock—innovations that are promising but not yet scalable or affordable for all. If loans become conditional on such adoptions, smaller family farms could be squeezed out, leading to consolidation and reduced rural diversity. Dr. Rowarth warns that this could erode the social fabric of rural communities, where farming supports schools, local businesses, and cultural heritage.

Beyond emissions, water quality is another flashpoint. NZ has faced criticism for river pollution from agricultural runoff, prompting regulations like the National Policy Statement for Freshwater Management. Green finance could amplify this by tying funding to strict water metrics, potentially forcing farmers to reduce stocking rates or invest in expensive irrigation upgrades. While these measures aim to protect ecosystems, they might compromise productivity in a country where arable land is limited. Dr. Rowarth emphasizes that NZ's export markets demand high volumes of quality produce; any dip in output could harm trade balances, especially with partners like China and the EU who are themselves pushing green agendas.

The economic ripple effects are profound. Agriculture employs tens of thousands directly and supports ancillary industries like transport, processing, and tourism. If green finance rules lead to higher borrowing costs—say, a 1-2% premium on loans—it could add millions to farmers' expenses annually. In a volatile global market influenced by events like the Ukraine conflict or climate disruptions, this added burden might push marginal operations into insolvency. Dr. Rowarth cites studies from AgResearch and Lincoln University showing that NZ farming's carbon efficiency is world-leading, yet international green standards often overlook these nuances, favoring broad-brush approaches that disadvantage exporters from smaller nations.

Moreover, there's a risk of "greenwashing" in finance, where superficial compliance masks deeper issues. Banks might promote green bonds for sustainable projects, but if the criteria exclude viable farming models, it could divert capital away from food production toward less essential sectors. Dr. Rowarth advocates for a more tailored approach: NZ-specific green finance frameworks that recognize the country's low population density, renewable energy reliance (over 80% of electricity is hydro and wind), and innovative agri-tech sector. For example, tools like precision farming with GPS-guided fertilizers could be incentivized rather than penalized.

Critics of Dr. Rowarth's stance might argue that green finance is essential for combating climate change, and agriculture must adapt. Indeed, global warming poses existential threats to farming through droughts, floods, and shifting weather patterns. However, the counterpoint is that hasty regulations could exacerbate food insecurity. NZ produces enough food to feed 40 million people annually, far beyond its 5 million population, making it a vital player in global supply chains. If green rules hinder this, prices could rise worldwide, disproportionately affecting developing nations.

Looking ahead, Dr. Rowarth calls for collaboration between policymakers, financiers, and farmers. Initiatives like the Primary Sector Council and the Climate Change Commission's advice could inform balanced regulations. Education is key: helping farmers understand green finance and access grants for sustainable upgrades. International advocacy is also crucial; NZ should push for recognition of its efficient systems in global forums like the WTO or COP conferences.

In conclusion, while green finance holds promise for a sustainable future, its application to NZ farming risks doing more harm than good without careful calibration. Dr. Rowarth's insights underscore the need for nuance—celebrating NZ's agricultural strengths while addressing environmental challenges. Failing to do so could not only harm farmers but also jeopardize the nation's economic resilience and its role in feeding the world. As debates intensify, the path forward lies in evidence-based policies that support, rather than stifle, this vital industry. (Word count: 928)

Read the Full The New Zealand Herald Article at:
[ https://www.nzherald.co.nz/the-country/news/how-green-finance-rules-could-harm-nz-farming-dr-jacqueline-rowarth/ENKXBPHYVBFXNGICRHTTQXDJHY/ ]