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The dairy sector: phosphate rights

Bertus
Master Management, Economics and Consumer Studies at Wageningen University.

At the first of April 2015, the milk quota was abolished after 30 years. Farmers now have the right to produce an unlimited amount of milk. Many Dutch dairy farmers responded by expanding their farms. Not surprisingly, the livestock has been growing in number of cows these past couple of years. However, this free market system causes new challenges and problems, such as the introduction of phosphate rights.

The story of phosphate rights starts with an agreement of the Netherlands with Europe in 2006. The Netherlands got granted derogation every 4 years from that year on. Farmers then have the ability to put extra nitrogen from manure at their fields. Up to 250 kg/ha instead of 170 kg/ha. This saves a lot of processing costs for excesses of manure.

In exchange for derogation, several conditions are binding. For example, 80% of farmers’ land should be grassland. From the beginning it is also said that the Dutch livestock for all sectors will not excrete more than 172.9 million kilogram phosphate per year. This phosphate ceiling is equal to the phosphate excretion level of 2002. LTO, a Dutch farmers’ organization, specified this phosphate excretion ceiling such that every sector is limited by its own phosphate excretion level of 2002.

However, between 2008 and 2010 this level was exceeded. As a response, the Voerspoor has been introduced to lower the level of phosphate used in forage of livestock. This couldn’t prevent a new exceedance of the phosphate excretion ceiling in 2015. Because of the increase in numbers of dairy cows the national phosphate excretion has been exceeded.

The problem is that every 4 years new negotiations start for derogation. We have to prove again to Europe that we comply with environmental rules. The current derogation is valid up to 2018 and the exceedance of the phosphate ceiling is not favorable for our negotiation position. To solve this problem politician Van Dam announced the implementation of phosphate rights for the Netherlands. Every farmer gets phosphate rights which can be sold on the market. The system would be implemented at the beginning of 2017, but a couple of days ago Van Dam announced that this will be at the beginning of 2018 earliest. Van Dam thinks that the current plan will be seen as unfair state aid by Europe.

The system of phosphate rights has as reference point July 2 2015. Phosphate rights will be distributed among farmers in accordance to the number of dairy cows which were registered that day. Therefore, farmers who extended their farm with the intention to grow their farm because of the abolition of the milk quota, but who did not increase their livestock before July 2 2015 will face uncertainties for the future. They have to buy phosphate rights in order to fill their barns. The question is if that is profitable. The delay in implementation of the system won’t make their situation easier. Every day they have to wait is a loss in the opportunity to earn back their investment.

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