Making Agriculture More Sustainable Has Major Financial Consequences For Farmers; Government Help Is Needed

Measures to make dairy farming and arable farming more sustainable have major financial consequences for companies in these sectors. With these measures, these companies can make a major contribution to sustainability, but this is at the expense of their income. Government help is necessary to reduce calculated income losses and ensure the continuity of companies. The results from the study Elaboration of farm types of sustainable agriculture for dairy farming and arable farming, carried out by Wageningen Economic Research (WecR), lead to this conclusion.

Farmers must make significant contributions to making agriculture more sustainable. The condition for this transition to be successful is that there remains 'earning capacity' for farmers, as indicated in the letter from Minister Adema to the House of Representatives: 'Future of agriculture' (November 25, 2022). The basic principle is that farmers must have sufficient economic prospects to run their business sustainably and viable. It must also be clear what contribution the government must make to facilitate the transition and offer farmers economic prospects.

Study focuses on dairy farming and arable farming
In this study, sustainability tasks, possible contributions from agricultural companies and the economic impact have been examined together. To make the effects of sustainability visible, the researchers first developed a number of standard farm types for two sectors: dairy farming and arable farming. The standard companies used are a model for typical dairy and arable farms in the Netherlands and are based on the company data of individual companies recorded in WEcR's Business Information Network (BIN). The initial situation of the standard farm types and the effects of the measures have been calculated with the FARMDYN model, a model that takes into account adjustments in the behavior of farmers and which has also been used for sustainability analyzes in Germany. This takes into account that companies can follow various development and conversion paths.

Mandatory and additional measures
In collaboration with the Ministry of Agriculture, Nature and Food Quality, the Interprovincial Consultation, LTO, the Dutch Agricultural Youth Contact (NAJK) and the Nature & Environment Foundation, sector experts and other stakeholders, WEcR has mapped out the economic and environmental effects for a large number of measures. Some of these are legally required measures. An example is the abolition of the derogation scheme, which allows dairy farmers to spread less animal manure on their own land. Another example is the obligation for arable farmers to sow catch crops after the main crop, to prevent fertilizers from washing away via the groundwater. In addition to these legally required measures, the effect of possible packages of measures has been calculated. These packages have been drawn up by LNV in consultation with stakeholders and are based on a list of measures that contribute to the multiple environmental and nature tasks of the NPLG. Consider, for example, raising the surface level in peat meadow areas, constructing hedgerows and tree belts, using buffer strips next to ditches, more grazing and low-emission stables.

The study compared the effects of the measures per business type with the average income from normal business operations. This is the average income for the year 2021, calculated in the BIN. These are emphatically examples of standard business types and not about calculating the business plans of individual entrepreneurs. The established measures that are included in the calculation come from the 7th Nitrate Directive Action Program , the derogation decision and the National Strategic Plan of the Common Agricultural Policy (CAP-NSP), which came into effect on January 1, 2023.

Substantial emission reduction, but significant income losses
The study shows that the mandatory and additional measures lead to substantial emission reductions. At the same time, they have very negative financial consequences. For example, expected income losses in dairy farming range from 28% to 201% compared to current income. In arable farming the decrease is between 10% and 63%. The figures show the continuity of a large number of companies is seriously threatened if the calculated measures are introduced without government help.

Tools for economic perspective
What instruments can the government use to offer dairy farms and arable farms economic prospects in the transition to sustainable agriculture? Five groups of instruments are then important:

• market instruments (such as a surcharge for sustainable products)
• subsidizing non-productive investments (such as a subsidy for sustainable animal feed)
• payment for ecosystem services (such as compensation for extensification in peat meadow areas to combat dehydration)
• depreciation of land (for example by lowering the value or rent)
• other instruments (such as a guarantee for SME agricultural loans).
• Combination of instruments has the most effect

The exploration also shows that a combination of stimulating instruments in particular offers economic prospects. The income losses shown in the study consist of several components. It requires a political assessment to decide which part of the income loss is compensated. The choices made naturally have consequences for the government budget. This aspect was not included in the study.