Where to From Here? The Financial Impact of Environmental Changes on Family Farms

The new Nitrates Action Plan, which will be introduced in January 2023, will change the organic nitrate levels deemed to be produced per cow, with a new banding limit brought into effect for all herds. This imminent change, coupled with the forthcoming review of Ireland’s current nitrate derogation regulations, is set to act as a noteworthy constraint to expansion and increased production for a significant cohort of Irish dairy farmers.

Changes to the Status Quo

The current nitrates regulations govern the maximum number of animals a farmer is allowed to carry on their holding. Any breach of these regulations will result in penalties to the farm's direct payments. 

Under the old Nitrate rules, a farmer was allowed to carry 76 cows on 40 hectares, and they could still farm within the 170kg/hectare limit with no requirement to apply for nitrates derogation. If a farmer applied for a derogation from the rules, subject to meeting additional conditions designed to protect the environment, then they were allowed to increase their stocking rate above the 170kg livestock manure nitrogen/ha up to 250kg nitrogen/ha, across the entire land declared on BPS. For our farmer with the 40 hectares, that meant cow numbers could be increased to 108 cows and they would still be compliant. 

a)    Nitrates Banding:

The new Nitrates Action Plan commencing from January 2023 will increase the deemed organic nitrates produced per cow based on milk yield and will move about 17% of herds from 89kg of organic nitrogen excretion per cow to the next band at 106kg per cow, forcing some dairy farmers to involuntary reduce their stocking rate. 

Table 1: New Nitrates Banding Figures

b)    Review of Maximum Stocking Rate:

A mid-term review of the Nitrates Action Plan could also see the possibility of reducing the maximum of 250kg of organic N/ha to 220kg depending on water quality during the transition.

Table 2: Impact that reduced stocking rate from 250kg N/ha to 220kg N/ha will have on herd numbers

Financial Implications - Case Study

To facilitate a better understanding of the impact that some of these changes may have on family farms, let’s examine the following scenario.

This farm falls under the Band 3 Nitrates Banding as the average yield per cow is above 6,500kgs (6,300 litres). Consequently, the amount of organic nitrogen permitted from 2023 onwards will be 106kg/cow. Total income in scenario (B) would result in a 33% drop in income, allowing for a pro-rata reduction in feed and fertiliser costs based on 94 cows. In Scenario (c), if derogation were to be reduced to 220 kg organic N/Ha, the overall income would drop by 53%, based on the farm now carrying 83 cows. Feed and fertiliser have again been reduced on a pro-rata basis. 

Options to Maintain Cow Numbers

1.     Additional Lands:

The ability to analyse all options for farmers who wish to maintain cow numbers cannot be presented within the scope of this paper. However, we have identified and analysed two options based on the same base case scenario as per the previous case study. Let’s consider the option of a farmer who wishes to lease additional lands. The assumption here is that the farmer does not need the additional grass for forage, and the leasing of the lands is strictly required to conform with the new Nitrates Directive Plan. If this were the case, then assuming additional land rental for 8 hectares at a cost of €750/ha, then the impact of taking these additional leased lands would be a 5% drop in income from the base case. 

2.     Reducing Milk Supply

Again, if a farmer wished to maximise cow numbers, then another option would be to examine the possibility of reducing milk supply. This can be done by reducing the level of concentrates fed to cows in August and September so as not to compromise the cow nutritionally in the first three months of lactation. Proper nutrition is key during this period to ensure strong conception rates and maintaining overall BCS of the cow. 

By reducing feed by 150kg/head in August and September, this should reduce cow yields by c.300l/cow and then dry off cows a week or two earlier. This latter option may need to be fluid depending on milk yield performance. This option will reduce overall farm income by 23% from the base case due to the drop in milk yield and a slight drop in cow numbers.

Conclusion

The above case study demonstrates the financial impact that the new Nitrates Directive Plan will have on the higher-yielding herds. While it is the higher-yielding herds that are facing the immediate effects of this plan, any further changes to the overall nitrogen limits currently permissible will have far-reaching income effects for many more farmers. Everyone’s circumstances are unique to their own farm, and there is an onus for each farmer to review their own individual circumstances and put an appropriate plan in place that achieves the financial and environmental objectives of the business. It is likely that this new nitrates directive will act as a new quota for dairy farmers going forward, with a forced reduction in cow numbers inevitable on many farms.