Dairy farmers could face a 20% drop in income if the allowances for organic nitrogen per hectare under the Nitrates Derogation scheme are reduced, analysis by the Irish Farmers Journal has found.
As revealed last week, the European Commission has imposed a condition when granting the Nitrates Derogation for 2022 to 2025 that in areas where water quality trends worsen or pollution or risk of pollution from nitrates is present, that the upper end of the derogation for organic nitrogen be cut from 250kg/ha to 220kg/ha.
This measure will kick in after the 2023 mid-term review of the derogation.
This condition was not included in either of the two draft Nitrates Action Programme (NAP) documents published by the Irish Government in 2021 and was not revealed by the Minister for Agriculture when he welcomed the granting of the derogation in March 2022.
The Irish Farmers Journal understands that neither the Department of Agriculture nor Teagasc have carried out an economic analysis of the impact of such a move on the thousands of dairy and beef farms that are stocked higher than 220kg organic N/ha.
The criteria for what constitutes a worsening trend, or a situation or risk of pollution has not yet been published.
It is expected that this criteria will be made known by the nitrates expert group in autumn, after the publication of the 2021 water quality report by the Environmental Protection Authority (EPA).
The NAP for 2022 to 2025 has significant changes for all farmers, but particularly dairy farmers. A new banding system for organic nitrogen per cow is being introduced next year, which will see herds being assigned different organic N concentrations per cow based on milk yield.
If a reduction to the upper limit of 250kg organic N/ha is introduced in 2024, it will have a serious financial impact on thousands of farms, requiring either a reduction in cow numbers or an increase in land area.
Our analysis shows that a dairy farm which is operating at the Teagasc target of 2.7 cows/ha and in the medium band for organic nitrogen will see family farm income drop by 20% if the derogation is reduced. Higher yielding herds will see their income drop by a massive 42%.
As outlined in Table 1, prior to the introduction of banding or a reduction in the derogation, a 40 hectare farm following the Teagasc production model could carry 108 cows and generate a profit of €115,560, based on the preliminary 2021 National Farm Survey data.
When the new banding measures are introduced, and if the derogation is reduced, the maximum number of cows that could be carried on this 40 hectare block for herds in the middle nitrates band is 96 cows.
Based on lower gross output and lower variable costs but static overheads, the profitability of this farm would drop by 20% to €91,913.
Sixty five per cent of milk suppliers are in this middle band, while 11% of milk suppliers are in the high band. If these farms are currently stocked at 2.7 cows/ha, they will be forced to reduce stocking rate to 2.07 cows/ha if the derogation is reduced.
This means that a maximum of 83 cows could be milked on 40 hectares. Based on this analysis, this measure would reduce profit by 42% to €67,503 relative to a farm with 108 cows.
A Strategic Environmental Assessment carried out by the Department of Housing, Local Government and Heritage as part of the review of the NAP dismissed reducing stocking rate as an option in the new programme.
It cited a nitrogen report published by Teagasc last July and stated; “This report showed marginal gains (a 2.7% reduction on nitrogen leached) by reducing the stocking rate from 250kg/ha/yr (equivalent to 2.74 cows/ha) to 230kg/ha/yr (equivalent to 2.52 cows/ha).
"Overall, the results presented suggest some marginal gains in applying a reduced stocking rate and this has been considered in the evaluation. On balance, the marginal gains offered by the reduced stocking rate would have more significant adverse material asset impacts as presented for the alternative assessment.”
It appears that the Commission has taken a different view and a reduction in stocking rate is now inevitable, depending on how this condition is interpreted.