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Why Dutch dairy will downscale in 2017

Environmental compliance will force a reduction in the Dutch dairy herd next year, but the changes could also drive increased profitability for innovators.

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After being relieved of the milk quota in 2015, Dutch dairy producers are now facing a quota on manure, leaving some farmers no choice but to downsize their herds in order to meet European Union phosphate limits.

The dairy sector has exceeded its European phosphate limit for the past three years. As a consequence, the Netherlands is at risk of losing its derogation to apply more nitrates to land compared with other EU regions.

Both farmers and politicians see the need to comply with European Union rules, but new regulations will come at a cost to the industry. 

"Some dairy farmers will get into trouble" 

According to Marijn Dekkers, Dairy Sector Manager at Rabobank, there is no other option for the Dutch sector than to scale down in 2017. “This means some dairy farmers will get into trouble,” Mr Dekkers said.

After a stressful few months filled with uncertainty – a first proposal on reducing phosphate was abandoned last October – the Dutch government finally agreed on new phosphate regulations on 6 December. The phosphate regulations will take effect on 1 January 2018.

Three measures for 2017

To prevent a disorganised situation in the lead-up to new regulations, the Dutch dairy sector itself has presented three measures for 2017: 

  • Reduce the amount of phosphate in cattle feed
  • Offer pre-financing solutions to farmers who want to quit in 2018
  • Limit milk production by letting milk processors introduce penalties for farmers producing more milk than a predetermined quantity

These short-term measures should increase chances for the Netherlands to keep its derogation. The EU commission is expected to give a definite answer on this in January 2017. 

 "Losing the derogation would have a big impact"

“The Netherlands only stands a chance of keeping its derogation when all the pieces fit. Losing the derogation would have a big impact on Dutch dairy farms. Rules on manure would be stricter, resulting in a less effective farming business,” said Mr Dekkers. 

“Farms would be confronted with an annual loss of income of €15,000 to €25,000. For smaller farms, that’s enough to get them out of business.”

Even if the Netherlands ends up keeping its derogation, dairy farming won’t be an easy ride for the next years to come. New limits on phosphate production will result in a short-term drop of milk production, which is currently at 14 billion kilograms a year.

“Farmers will pay close attention to their mineral balance” 

“The Dutch herd will be smaller. Continued growth just isn’t possible in this densely populated region. Farmers who’ve been concentrating on expanding their herd, should now be concentrating on efficiency and innovation,” said Mr Dekkers.

Although there are similarities between the abolished milk quota and the new limit on phosphate production, Marijn Dekkers pointed out an important difference: “Farmers will pay close attention to their mineral balance”.

“If you find the perfect balance, it’s possible to produce more milk without exceeding your phosphate limits. Good management skills will be more important than ever before.”

Click here to download Rabobank's latest report on finding the value in environmental sustainability

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