Evaluating the economic impacts of climate change on Aotearoa–New Zealand's dairy sector

Abstract

This study examines the economic impacts of climate change on Aotearoa-New Zealand's (A-NZ) dairy sector, a critical contributor to the nation's GDP and global agricultural trade. Using a combination of biophysical and economic modelling, including the Dairy Sector Pathways (DSP) model and a multi-country partial equilibrium model (LTEM), the research evaluates the sector's response under various gradual climate change and extreme event scenarios. Results indicate that climate change will generally have a negative economic impact on the A-NZ dairy sector, with producer returns decreasing as global temperatures rise. However, scenarios involving global heat stress show potential for higher revenues due to increased global dairy prices offsetting local production declines. Adaptation strategies, like changes in pasture and feed management, reduce some impacts, but their effectiveness diminishes under severe climate scenarios. Extreme events, such as frequent droughts, exacerbate losses, reducing GDP contributions from dairy by up to 32% by the century's end. This comprehensive assessment underscores the importance of integrating adaptation and mitigation strategies to safeguard economic stability and enhance resilience in the dairy industry