Fonterra’s scope 3 emissions reduction target is set – but is it good enough for the climate?

On November 8, Fonterra announced a target of 30% intensity reduction in on-farm emissions – so-called scope 3 – by 2030, from a 2018 baseline. At 86%, on-farm emissions make up the most sizable part of Fonterra’s GHG footprint, and the new target is seeking to reduce their intensity by ton of fat and protein-corrected milk collected by the co-operative. This will be done in several ways – through improved herd performance and feed quality, novel technologies to tackle methane, carbon removals from vegetation, and land-use change conversions.

In highlighting some of the challenges to improving on-farm GHG emissions footprint, Fonterra chairman Peter McBride said there was ‘significant variation within and across farming systems when it comes to emissions intensity’. “There’s no one solution to reducing on-farm emissions,” he said. “It will require a combination of sharing best farming practices and technology to reduce emissions – it’s both our biggest opportunity and our biggest challenge.”

Fonterra’s scope 3 target comes after close to a year of discussions with farmers about why it was needed in the first place, and how it can be achieved. On one hand, the co-op needs to meet market expectations, with CEO Miles Hurrell stating that “the co-op needs to keep making progress to make sure it doesn’t fall behind”.

On the other hand, a scope 3 emissions target is crucial to achieving any net-zero objectives. As Kite Consulting sustainability expert Hayley Campbell-Gibbons told DairyReporter, “Net zero targets are an end-goal to scope 3 reduction targets and efforts. What’s crucial is that any company’s net zero target must include all emissions scopes. The vast majority of any large food company’s emissions lie in their scope 3, so any target that doesn’t seek to address this is largely pointless.”

There’s another caveat – reporting on-farm emissions data in intensity terms means tackling emissions per unit of output, i.e. kilogram of milk collected, rather than setting one blanket, ‘absolute’ reduction target.

Asked why Fonterra chose to adopt an intensity-based target for scope 3, a spokesperson for the co-op told us: “Absolute emissions refer to the total amount of greenhouse gas being emitted. Intensity compares the amount of emissions to a unit of output, for example per kilogram of milk solids. Whilst we are setting an intensity target, we will continue to report annually on our reduction in absolute emissions, which have reduced by 1.85 million tonnes of CO2e (-6.9%) since 2018.”

The spokesperson added that Fonterra has submitted its targets for validation with the Science Based Target Initiative (SBTi) in alignment with the objective of keeping global warming below 1.5°C.

“The intensity-based approach is not novel or new with other comparative international companies such as Cargill, Glanbia, Kerry and Tyson Foods having intensity-based approaches. In New Zealand, it is also used by Synlait and Olam,” the spokesperson concluded.

Intensity-based targets make business sense – but are they ambitious enough?

According to the Intergovernmental Panel on Climate Change (IPCC), restraining emissions in absolute terms is what the planet needs. In its special report​ entitled Global Warming of 1.5°C​, the IPCC concludes, leaning on existing research, that “[m]ost interventions that improve the productivity of livestock systems and enhance adaptation to climate changes would also reduce the emissions intensity of food production, with significant co-benefits for rural livelihoods and the security of food supplies (Gerber et al., 2013; FAO and NZAGRC, 2017a, b, c). Whether such reductions in emission intensity result in lower or higher absolute GHG emissions depends on overall demand for livestock products, indicating the relevance of integrating supply-side with demand-side measures within food security objectives (Gerber et al., 2013; Bajželj et al., 2014).”

With demand for dairy projected to increase in the future, limiting production isn’t an option for processors, who are aiming to meet this demand while reducing their environmental footprint at the same time. In that sense, intensity-based targets can offer a balanced approach, but are they efficient enough to tackle climate change?

We contacted the Carbon Disclosure Project (CDP) for some background information on the subject. CDP is a nonprofit organization that runs a global environmental disclosure system for businesses and public organizations, and holds the largest environmental database in the world, having scored more than 15,000 companies, including Fonterra, Danone and Yili.

Asked which type of target is optimal for the climate, a CDP spokesperson told us: “Intensity targets are an important stepping stone in companies’ decarbonization journeys, but they do not always lead to absolute reductions, therefore absolute emissions reductions targets are better for the ‘bigger picture’ in terms of reducing emissions globally.”

They added that as a general rule, intensity targets are better for homogeneous industries such as cement or steel, as the products and life cycle emissions are similar and thus easier to compare. “These industries tend to have fewer large players that dominate the market, thus if the industry all moves in a direction to zero emissions intensity it is more likely that absolute emissions reductions will follow. Whichever targets are adopted (near term absolute and intensity targets) they should be ambitious and enable the company's transition to a net-zero [2050] future.”

This isn’t so much the case for dairy, where production methods and product types vary. And why we confirmed with CDP that absolute targets would be more ambitious and make a greater impact on emissions reductions, SBTi’s forest, land and agriculture guidance (FLAG) has been designed specifically with land-intensive sectors in mind.

“For intensity targets to ensure high-level of ambition comparability and to minimize the chance of inflated progress a companies must use the correct metric,” the CDP spokesperson added. “When it comes to companies in this sector setting a target, they should follow the guidance from FLAG to aid them in setting science-based targets.” To that end, Fonterra’s scope 3 targets are FLAG-compliant.

“Since 2022 [the launch of SBTi’s FLAG guidance, ed.], there has been a 1.5°C aligned, credible emissions intensity pathway available for the sector. However, these intensity convergence pathways require a minimum 3.1% annual absolute reduction and are applicable to short term (2020-2030) targets only. These commodity pathways - intensity targets - are only applicable to the company's FLAG emissions; fossil emissions (e.g., from transport) cannot be included.”

"Currently, it is difficult to eliminate more than 80-90% of emissions across any industry, so the remaining hard-to-abate emissions are an issue across all industry/ sectors. This doesn’t mean that companies should put off starting to measure and manage their scope 3 emissions. Companies that report through CDP disclosed their supply chain emissions are the biggest contributor to greenhouse gas emissions - accounting for an average of 11.4x more emissions as compared to operational emissions."

A data-driven approach

Fonterra told us it has been measuring each farm’s environmental in order to offer farmers specific insights into how each producer can move the needle on sustainability, without compromising their profitability and productivity. “Every year, our farmers receive a Farm Insights report that is personalized to their farm and gives a view of their farm’s efficiency,” a spokesperson for the co-op told us. “We’ve been producing these reports for the past few seasons. The reports turn data from milk quality and production, Farm Dairy Records, and industry research into insights that farmers can use to fine-tune productivity, profitability, and sustainability.

“The reports can give farmers a better understanding of their farm’s emissions, benchmarked against other similar farms.”

There’s also a team of ‘on-farm sustainability daring advisors’ available to support farmers in making environmental changes, we were told. “This year, we introduced a new farm efficiency overview, as well as a milk production page that looks at production per cow. This is to give farmers a better idea of what’s happening on farm, and how their farm compares to others in the co-op. We are working towards every farm having their own Farm Environment Plan by 2025.”

The spokesperson added that on-farm emissions for the whole business had been calculated annually since 2004, using a lifecycle assessment model that considers all emission scopes associated with the co-op’s milk production. “This reporting is done using AgResearch so is independent of Fonterra. Using this reporting we will be able to get an accurate picture of any change in emissions across milk supply base,” they explained.

Asked if farmers will receive financial incentives for embracing sustainable farming methods, Fonterra’s spokesperson said: “At the moment, we won’t be incentivising our farmers for emissions efficiency. However, many of the good practices that are recognised through the Co-operative Difference also result in emissions efficiency.”

The Co-operative Difference is a corporate program Fonterra runs that rewards farmers for ‘practices that support the long-term success’ of the co-op, including farming efficiency improvements and actions associated with regenerative agriculture practices, such as pasture management. “The Co-operative Difference payment encourages farmers to adopt new and emerging practices and is achieved through differentiating the price our farmers are paid for the milk based on the practices adopted on each farm. A significant number of our farmers have been receiving this payment at some level, which is a great indication of the high-quality milk and good on-farm practices being carried out,” Fonterra’s representative told us.

Besides improving farming efficiency, the co-op is counting on new technologies to help it move the needle. This includes developing its own methane-inhibiting feed, Kowbucha, which was expected to launch in 2024 but Fonterra was coy on confirming this. “It has been shown in repeat trials that Kowbucha can reduce methane emissions while improving feed efficiency in young dairy cattle by up to 20%,” the representative told DairyReporter. “Currently, we are investigating if the effects of Kowbucha extend to lactating cattle while also preparing for the regulatory process that is required by the New Zealand government for all products making methane claims.  The time to reach market will be governed by the regulatory approval process.”

There’s also ongoing work on a so-called methane vaccine, which is being led by joint venture AgriZeroNZ, also behind other long-term tech R&D. “AgriZeroNZ is a long-term partnership with industry partners and over the next three years we’ve committed to invest $50 million,” the spokesperson told us. “Since being established less than a year ago, it has made four investments into vaccines, inhibitors and probiotics. There are another 59 projects on the radar.”

In addition to finding solutions, work in the regulatory space is ongoing to allow for new solutions to be accessible to farmers and also the expansion of Fonterra’s GHG testing facilities in New Zealand.

Concluding, the Fonterra spokesperson said: “Right now, Fonterra is one of the world’s lowest carbon suppliers of dairy at scale, however there is a lot of activity across other markets to reduce emissions to meet their targets.

“Our climate roadmap outlines the actions we’ll take towards our 2030 targets and our ambition to be net zero in 2050. Along the way we will tackle some significant milestones including phasing out of coal by 2037 and 100% of farmers having a Farm Environment Plan by 2025.

“It is also our belief is that from New Zealand’s low emissions starting point, our continued improvements will make us the best choice for our customers to accelerate their journey to a net zero future."