Taking the Tractor to Town
Last week, hundreds of New Zealand farmers drove their tractors into the city to protest new water, land-use, and climate regulations.
In 1979, thousands of American farmers drove their tractors to Washington DC to protest the poor farm economy. Initially, their presence was unwelcome as they blocked traffic and damaged the National Mall, but the sentiment changed when a blizzard hit and the tractors were among the only vehicles able to navigate the streets. Farmers used their tractors to help emergency services.
The New Zealand tractor protest focuses on environmental regulations, whereas most tractor protests around the world address low product prices. Among the regulations under protest are:
- Essential Freshwater Package, which includes regulations restricting intensive winter grazing, limits on farm intensification, fencing to keep livestock out of waterways, and a cap on nitrogen use on pasture.
- Significant Natural Areas (SNA), which are habitats for threatened native animals and plants New regulations would require local governments to identify and protect SNAs within their districts, including on private land.
- Clean Car Standard, which will subsidize vehicles with low carbon emissions and taxes those with high emissions, such as trucks. This has become known as the "ute tax". Ute, or utility vehicle, is Kiwi-speak for pick-up truck.
These policies obligate farmers to pay the cost of regulatory compliance, which is why they protested. The protests would be moot if farmers could pass the compliance cost along to their customers or suppliers.
New Zealand is a small country that exports a lot of its agricultural products, so its farmers likely cannot pass regulatory costs on to customers in the form of higher prices. Similarly, they would not be able to offer lower prices to international suppliers of equipment such as utes. They may be able to pay somewhat less to local input suppliers or farmworkers, but the input with the most flexible price is land.
In economics jargon, the ability to pass through regulatory costs depends on the elasticities of customer demand and input supply. The most inelastic components will absorb the impact and in this case means land will bear the brunt.
In US agriculture, taxpayers often pay compliance costs of environmental policies, as evidenced by the Conservation Reserve Program, in which the government pays farmers to remove land from production, and the current proposals to pay farmers to adopt carbon-friendly practices. One exception is the Waters of the United States, which has been entangled in the courts since 2015 when EPA proposed regulating waterways on farms.
The New Zealand regulations are clearly addressing real problems of water quality, biodiversity, and climate change, which organizers of the protests acknowledge. These are difficult problems because the same practices cause different amounts of pollution depending on characteristics of the landscape, so a one-size-fits-all policy is sup-optimal. However, implementing a different policy for each field would be expensive and open to manipulation.
The way farming works is that profits tend to average out at a "normal" value in the long run, and the big money is made or lost based on changes in the value of farmland. These compliance costs will reduce the value of farmland. Farmers with a big mortgage may lose their farm.
I don't know enough of the details to opine on how efficacious the New Zealand policies are, but a large part of the battle is whether landowners or taxpayers should pay the bill.
As I wrote earlier this year, it matters whether policymakers use carrots or sticks.