The new quota for Dutch dairy farmers

The Dutch farming industry is fighting to save its nitrate derogation after it exceeded phosphate threshold in 2015 and expectations are it will exceed again in 2016 and 2017. Last week in the Netherlands an emergency meeting of all industry stakeholders met to agree specific guidelines that effectively cap the number of livestock in the country. The consequences are some Dutch dairy farmers will have to reduce cow numbers in 2017.

There are a number of issues ongoing in Holland at the moment that will have significant consequences for other EU countries and dairy markets into next year and beyond. The long term issue is that when you combine the phosphate produced from dairy cows, pigs, chicken and other livestock, the Dutch have exceeded a national phosphate quota set in 2006 based on 2002 production. It wasn’t until cow numbers started to increase that it has been exceeded.

National phosphate production needs to be below the 172.9m kg/year threshold if the Netherlands is to have any hope of holding on to its latest nitrate derogation action plan. The derogation is up for renewal in 2018. Dairy farmers are in the spotlight because they have increased cow numbers significantly for the last number of years.

What have the Dutch been doing?

Since 2013, three successive dairy acts have set limits on how much manure dairy farmers can export or process (incinerate), or how much extra land farmers need to hire or buy in order to manage the phosphate they produce.

The aim of these dairy acts is to keep the dairy enterprise somewhat land-based on reference values established in 2013. Effectively, this means they don’t want a new cow unit set up with all the feed bought in and all the slurry incinerated and moved outside the country. The dairy acts were supposed to create phosphate rights which it looks like will have an asset value that may be traded from farm to farm. The EU recently ruled that trading phosphate rights based on recent values is not permitted because of competition rules combined with concerns about effectively the Dutch breaching national phosphate production in 2015 and 2016 limits. The Dutch parliament will discuss and vote on the phosphate rights this week and next week.

Despite the dairy acts, cow numbers have continued to rise as Dutch dairy farmers fill the cubicle spaces created in anticipation of milk quota disappearing. Now the fact of the matter is the Dutch government has decided that the phosphate threshold must be upheld and there are enough nutrients produced in Holland for the land area within the country.

It means that in the short term they have decided for 2017 that a package of measures that will cost over €50m will be rolled out to reduce stock (drop phosphate production). The measures are expected to mean cow numbers will reduce by 175,000 cows. The key points are:

1. Farmers will be compensated for reducing cow numbers by around 10% – this will reduce phosphate by about 2.5m kg per year. Farmers considering getting out of milk may be offered a premium to exit faster.

2. Farmers who exceeded a 2015 reference milk volume produced will be penalised – this is aimed to reduce phosphate by about 4m kg per year.

3. Feed manufacturers have agreed to lower the levels of phosphorus in feed – it is hoped this will reduce phosphate by 1.7m kg/year.

These three proposals combined are set to reduce phosphate production by 8.2m kg/year and were agreed by all industry stakeholders last week.

Why is this happening in Holland?

The nitrates derogation allows some Dutch farmers a stocking rate equivalent up to 250kg organic nitrogen (2.4 Dutch cows/ha) in parts of the country, same as Ireland. The thinking is if the Netherlands loses the nitrates derogation which allows this, then the situation becomes even more serious and perhaps farmers would have to cut livestock numbers even further.

Milk deliveries have jumped significantly in Holland in the year prior to quota removal and since then (see graph). There is now more milk delivered in Holland than pre-quota in 1983.

The first Dutch derogation started in 2006 when the EU set a limit on the amount of phosphate Holland could produce from agriculture (see graph). The limit was set at 172.9m kg per year. In 2015 the phosphate limit has been exceeded and the predictions are that the limit will be exceeded in 2016 by 6.6m kg of phosphate.

Comment

Twenty years ago I was in Delft in Holland studying dairy environmental management for three months. Back then Dutch farmers were covering slurry tanks to contain gases, using low-emission spreading techniques and doing everything possible to reduce or reuse slurry such as drying and separating. So, environment was high on the agenda, even back then. This week I returned to Holland and from a nation that was the powerhouse of dairy production a new world has dawned. In the near future all Dutch dairy farmers will have to reduce cow numbers in a last ditch effort to remain within EU rules.

Effectively, the hens have come home to roost. A land area half the size of Ireland with almost 17m people cannot take any more livestock and the subsequent nutrients produced.

However, the Dutch are good on farm business solutions. Will Dutch farmers export all youngstock to countries such as Eastern Europe that don’t have stocking rate problems? Other farmers will no doubt reduce cow numbers and look to increase yield per cow. This conflicts with the grazing bonus FrieslandCampina was to increase.

FrieslandCampina processes 80% of the milk in Holland so any change is going to have a dramatic effect on its supply and future business. A significant reduction will have big consequences for dairy markets in 2017 and, of course, for FrieslandCampina.

Inside the farm gate there will also be challenges. Many Dutch farmers have invested millions in their farms with very little land available around the yard. In the past, this expenditure was diluted by a growing milk pool and it made the figures look better. Now that the milk pool is capped and reduced, there will be significant increases per litre in the cost of intensification inside the farm gate.

It’s not exactly clear what actions Dutch dairy farmers will choose but whatever happens will bring more cost on Dutch dairy farmers. Whether it’s hiring more land (if land is available), processing more manure, buying phosphate rights, or contract rearing in other countries etc.