Dutch cow numbers to decline by 20-30%

Every couple of decades, radical structural change happens in Dutch agriculture. The changes being proposed by the Dutch government now are as radical as the last shakeup that took place when the final polder on the Zuiderzee was constructed in the 1960s.

However, the key difference now is that rather than increasing agricultural land as with the polders, the Dutch government now wants to decrease agricultural output. The stated aim is to decrease nitrogen pollution by 50%, with dairy cow numbers likely to drop by 20% to 30% over the next decade.

The reason – the Netherlands has a nitrogen problem so bad that all future development in the country is at risk. Environmental NGOs are on the warpath as the state will be breaching the Water Framework Directive and other EU directives by granting permission and permits, not just for farms but also factories, housing schemes and industrial projects – all of which will have an impact on the environment.

The Netherlands is approximately the same size of Munster, but is home to 17.5m people, 1.6m dairy cows, 2.2m cattle, 11.5m pigs and 100m broilers and a huge horticulture sector. It’s a highly intensive farming country, with an average of 3.8 livestock units/ha across all classes of stock, compared to an average of 1.3 livestock units/ha in Ireland.

The level of intensity is such that the country has a massive problem with nitrogen, both in the air and in the water. It also has a huge problem with phosphorus pollution but a phosphorus quota, introduced in 2018, is curtailing that nutrient, with the government extinguishing 10% of every right that is traded on the market. A phosphate quota for a typical dairy cow costs approximately €7,500/cow.

Ammonia emissions decreased by 63% since 1990 but a further 50% reduction is required.

The plan is to reduce nitrogen emissions by 50% and the government has a €25bn war chest to see that plan delivered. Approximately 600 farms have been identified as being in the highest risk areas and will have to cease all farming activities. These are the farms that are situated closest to Natura 2000 sites, or special areas of conservation.

All farms will have to reduce nitrogen losses, but by how much will vary depending on proximity to these sites, with some farmers needing to cut by 12%, while others need to cut by 47%, 58%, 70% and 95% depending on their proximity to these sites. Most of the Natura 2000 sites are located in the centre of the country, with the northern parts of Holland not as badly affected.

It’s not that Dutch farmers have been laggards regarding nutrient use efficiency; ammonia emissions decreased by 63% since 1990 but a further 50% reduction is required. Even though chemical nitrogen use declined by 39% since 1990, more cuts are needed if they are to have any hope of reaching “good” water quality status as set out in the EU Water Framework Directive.

The nitrates derogation, which has allowed Dutch farmers to stock their farm greater than 170kg organic N/ha, is also being phased out, with the 250kg/ha cap with the derogation dropping to 240kg by 2023, 220kg/ha by 2024, 190kg/ha by 2025 and 170kg/ha by 2026. This means that dairy farmers will have to either reduce cow numbers, source extra land or export more slurry to tillage farms.

The Dutch government has introduced a €130m fund to compensate dairy farmers for the loss in revenue as a result of the changes to the derogation. According to Rabobank, not having a nitrates derogation is going to cost the average Dutch farmer 3c/l on all milk produced. Interestingly, the Irish Government signed off on a cut in Ireland’s nitrates derogation but no compensation is planned nor has there been any analysis of the costs of this cut on the sector.

Transition

The Dutch government has also set aside a massive €25bn of funds for the transition to 50% lower nitrogen emissions. This money will be used to buy the 600 or so farms that have to cease farming among other projects. The indications are that farmers who sell their land will not be able to purchase land to start farming elsewhere in the Netherlands or even in Europe.

Total milk production in the Netherlands is over 13bn litres per year but is likely to fall sharply based on these new cuts. Dairy processors like FrieslandCampina and Royal A-Ware are concerned about future supply and the impact on their profitability. There is talk of a merger between FreislandCampina and Arla, which has a more dispersed milk pool across Europe. Royal A-Ware is already investing in cheese plants in Lithuania and of course with Tirlán in Ireland as it seeks to outsource supply for its high-value cheese products.

The dairy sector in Holland employs 47,000 people full-time and generates €8.2bn in exports, contributing 6.8% to the country’s balance of trade. Despite this, the Dutch government, under pressure from the EU and NGOs, is willing to take drastic action to improve the environment.

The situation is creating huge uncertainty for farmers on the ground. Emotions boiled over last summer when farmers took to the streets in sometimes violent protests against stricter environmental rules.

Farmers who have invested heavily in ammonia-reducing cow sheds are also facing uncertainty as new data is showing these special floors are not reducing as much ammonia as expected. The special floors divert urine away from faeces and the slats also have flaps on them, reducing ammonia losses to the air, but there are now doubts as to how effective these actually are.

Finance

Dutch dairy farmers are highly indebted but are in a strong equity position, due in the main to the high prices for land.

Average debt levels are over €1.07 for every kilo of milk produced. So a typical herd producing 10,000kg of milk per cow will have debt levels of almost €11,000 per cow. Average herd size is 105 cows per farm.

Despite the high debt levels, because land is trading for over €80,000/ha (€32,000/acre) and higher, the average Dutch farmer has a debt to equity ratio of 25%.

Despite the uncertainty, land prices in Holland continue to rise. Dairy farmers are having a very profitable year, with record milk prices. There is also fierce competition for land from arable and horticultural farmers who are able to grow high-value vegetables, flowers and nursery crops on the fertile lands.

Frans Kalmthout milks 340 cows on his family dairy farm at Rucphen in the southwest of the Netherlands. The Kalmthout farm is over 20km away from the nearest Natura 2000 site so is unlikely to be directly affected by an order to cease farming, but will still be affected by the measures to cut production as he will need to find more hectares to farm.

Frans is already being curtailed in how much milk he can produce by the phosphate quotas. If the herd goes over 29l/cow/day between now and the end of the year he will have to purchase more phosphate rights, which currently costs €180/kg, or else cull 30 cows. Each dairy cow excretes approximately 45kg of phosphorus per year, depending on milk yield.

The farm has not been in a nitrates derogation for the last three years and as a result Frans is exporting slurry off the farm to nearby arable farmers. It costs over €10/m3 of slurry to transport and spread on arable farms and with 5,000m3 of slurry to move off farm, shifting it costs Frans €50,000 per year.

Milk price is currently 62.79c/l ex. VAT but feed and energy costs have risen sharply and Frans says he’s concerned that milk price will fall faster than feed and energy costs will fall. Soya bean meal is currently costing €575/t while it cost €300/t last year while electricity and gas have more than doubled in price.

Read more about Frans and his farm in this years’ Irish Dairy Farmer magazine which is available via subscription only. Sign up for your copy here and it will be posted to your door in the coming days.