“If the Dutch lived in Ireland, they’d feed the world. But if the Irish lived in Holland, they’d drown.” So the saying goes.

Known for its canals, tulip fields, windmills and cows, almost 50% of the Netherlands is below sea level. With a land mass smaller than Munster, the Netherlands is a small country that thinks big. The Dutch export €94bn (€25bn of which is re-exports) worth of food, making it the world’s second-largest exporter of food and agricultural products, after the United States, a country with a surface area almost 300 times the size. For every three cows milked in the Netherlands, the output from one stays at home, one goes to the EU and one goes to international markets.

Its food and agri-exports are seven times the size of Ireland, on only a third of our land mass. Impressive. But it shouldn’t be surprising, given that the Dutch have reclaimed 17% of their current land mass from the sea.

But they face a problem. Traditionally, the Dutch have achieved maximum returns with minimal resources. Given their small surface area, it’s been the only option. The challenge now is how they balance the Dutch ambition while continuing to grow with the little land it has, in such a way that it also remains socially acceptable, in terms of the environment and animal welfare.

The dairy cull

Nearly 180,000 Dutch dairy cows, representing more than 10% of the herd, have a pretty big problem. If the Netherlands can’t find a way to manage the manure they produce, EU environmental rules mean they will have to be killed.

The 11-year exemption on phosphate levels the Dutch government secured in 2006 ended last year. Three schemes have since been developed to reach the targets, including a cow slaughter incentive scheme, a retirement scheme which allows phosphate rights to be sold, and lower phosphorus content in feed rations.

A cull of this scale would wipe out about a tenth of the 1.6 million cows in the country. This comes as a major blow to the 18,000 dairy farmers, who are the EU’s fourth-largest milk producers and to the Dutch economy as dairy contributed €7bn to the economy in 2014. The average herd size in the Netherlands is 93 cows. Of these, 1,924 farms have 150 cows or more and only 150 farms have more than 300 cows.

But as usual the Dutch are confident they can manage the goal and reach the targets. What’s interesting is the impact of the cull is unlikely to hit Dutch or even European milk supply as up to 50,000 head for contract-rearing could end up being exported to nearby countries. Farmers most likely culled their poorer-producing cows. Therefore, the net impact on milk production may be minimal.

Even if there was a 2-3% reduction in Dutch milk production, as the Netherlands accounts for only 10% of the EU’s total milk supply, it would only hit milk supply by the equivalent of 0.2% across the whole of the EU.

When it became clear that the Dutch dairy industry would need to cull the herd many felt that the oversupply in global milk markets would be corrected given that the Netherlands is such a major exporter. Since November, monthly cow slaughterings have risen sharply compared to previous years with over 50,000 head slaughtered per month (see figure 4) This is about 10,000 head more than monthly slaughter rates in previous years.

With this higher rate of culling cows, milk production growth has stalled in the Netherlands and milk supply has been relatively flat from November to April (figure 4). However, the mood amongst Dutch dairy farmers is still one of expansion. Like their Irish counterparts, Dutch dairy farmers have been preparing for the end of quotas and remain committed to expanding their businesses.

The Netherlands is the most chicken-dense nation in the world, but bird numbers are in decline due to animal welfare pressure. The same is true for the pork industry. As a result, it is likely we will see the Dutch dairy industry manage to trade phosphate rights from the pig and poultry sector in the future that will allow an increase in cow numbers once again.

Focus on value add

The above reflects the typical Dutch mindset – resourceful, open, innovative, entrepreneurial and international. This same attitude applies to how they plan to overcome future environmental regulations being forced upon them.

The Dutch trading spirit drives their ambition to continue to grow. Dutch production efficiency is high where the added value per hectare is up to five times higher than the European average.

Nowadays, they no longer achieve growth by increasing productivity or by working harder.

Their vision for the agri food sector focuses firstly in doing more with less – using less water, less energy and even less cows while reducing CO2 emissions in the entire chain. The second is higher added value which centres on innovation.

Given that more than 50% of dairy farms in the Netherlands have converted to robotic milking, this demonstrates their ambition to increase efficiency.

But coupled to this they continue to increase the value of their products, importing low-value grains and converting this to higher-value proteins across dairy, pigs or poultry.

Focus on green energy

FrieslandCampina, which processes 80% of the milk from Dutch farmers, wants to buy the energy and gas produced from dairy cow manure helping reduce CO2 emissions from the dairy industry. The Dutch government has set aside €150m to support farmers who want to diversify into this area.

A single farm can supply 40 homes with sufficient energy and gas. This contributes to the government’s target to generate 14% renewable energy by 2020.

At the same time, emissions of greenhouse gasses like methane are reduced. Furthermore, most of the barns have solar panels fitted which generate electricity which is fed back to the national grid where the farmer receives a rent from the electricity company. The Irish Government has no equivalent schemes in place.

Focus on grass to glass

Given the small land mass, typically cows are confined for most of the year. A FrieslandCampina scheme called Meadow Milk incentivises farmers to allow cows out to graze for 120 days, six hours per day, to attain a 1.5c/l milk price bonus. Up to 80% of farmers are in the scheme, with 60% complying, allowing FrieslandCampina to market grass-fed milk to the infant formula manufacturers and for use in its cheese and its own infant formula brand, Friso.

But the issue is one of perceived welfare and marketing and not necessarily based on science as the image of cows grazing on the land is very powerful to a consumer no matter where in the world they are. While Ireland has cows out full-time for more than 250 days per year, it seems the Dutch despite the short times grazing are focused on using it to their advantage, and doing so at larger scale and succeeding.

Focus on leverage

Dotted throughout the flat landscape are impressive barns that look like they come with an equally impressive price tag. Borrowings per cow average €10,000, ten times that of Ireland and are intergenerational.

This is thanks to a looser financial model where finance is easily accessed from the Dutch banks such as Rabobank. Interest rates are low at typically less than 2%, with long repayment periods (20 years), with some farmers opting for interest-only periods in times of poor prices.

However, banks are tightening up on this. This credit has helped fuel the 24% expansion in milk production in the last 10 years.

Spend any length of time in the Netherlands and you will soon see the huge influence that non-governmental organisation (NGOs) have over the Dutch agriculture sector. With most Dutch citizens almost 20 generations removed from the farm gate, primary production is totally misunderstood by a significant cohort of Dutch consumers.

If you buy meat in any Dutch supermarket today, you will notice that all beef, pork and poultry products are labelled with a rating system known as “Better Life”. After huge pressure and lobbying by NGOs, this system was agreed between the Dutch government, farmer representative bodies and the animal welfare groups in 2007.

All meat products are labelled with a score between zero and three stars depending on the quality of welfare animals receive during their lives.

In March this year, the Netherlands held a general election that saw the Party of the Animals win five seats (3% of the vote) in the Dutch parliament – the highest number of seats the party has ever won. It is an activist political party whose sole mandate is to campaign on animal welfare issues. The party has no fiscal or economic policies.

However, of greater concern to most Dutch farmers is that since 2010 there has been no standalone minister for agriculture in the Dutch government. In October 2010, newly elected Prime Minister Mark Rutte took the decision to merge the Ministry for Agriculture, Nature and Food Quality into the Ministry of Economic Affairs.