Economic Impact on Irish Dairy Farms of Strategies To Reduce Nitrogen Applications

End of Project ReportEconomic research reported here analysed the likely impact on farm incomes of policies aimed at reducing nitrogen (N) applications on farms. Three types of policy were considered. First was a restriction of the intensity of livestock production to control amounts of organic nitrogenous material going on the land. That in the EU Nitrates Directive of 170 kg N per hectare was used (equivalent to 2 dairy cows per hectare). To this was added a restriction on the total amount of nitrogen applied of 260kg N/ha reflecting rules in the Rural Environment Protection Scheme (REPS). The third measure considered was a 10 percent tax on sales of manufactured nitrogenous fertilisers. These measures to address nitrate pollution are under discussion in Ireland as the concentration of nitrates in waters in some areas has increased significantly. Particular attention was paid to estimating the impact of the three constraints on specialist dairy farms, as they were most likely to have to restrict applications of N to comply. Many of these farms were in the five Munster counties selected for the study, namely Cork, Kerry, Limerick, Tipperary and Waterford. In these counties 39 percent of specialist dairy farms would have been affected both by Nitrates Directive restrictions on applications of nitrogen as organic material (animal wastes) and REPS rules on the total amount of nitrogenous material spread on farm land. A further 30 percent of these farms would be affected only by the restriction on total applications of N, as in the REPS rules. The remaining 31 percent of the specialist dairy farms would not have been affected by restrictions on N use under either the Nitrates Directive or REPS rules. The potential economic impact of policies to constrain nitrogen use was simulated for a sample of specialist dairy farms in Munster. All of these farms started with levels of N applications in excess of one or both of the restrictions being considered. This policy simulation was carried out using individual farm Positive Mathematical Programming (PMP) models. The results showed that compliance with restrictions on N use would reduce income on all of the selected farms. The results also indicate that these farms could partly or wholly offset the loss by increasing the efficiency of N use, or by increasing milk production per cow. However, the more a farm was above the regulation 2 Livestock Units (dairy cows) per hectare the larger the potential loss of income and the more difficult it would be to make good this loss. Farms starting with fewer than 2 LU/ha but applying in total more than 260 kgN/ha (REPS rule) would find that meeting this target would cause a lesser reduction in income. This loss would also be easier to offset by efficiency increasing measures. With regard to the third scenario of imposing a 10% tax on sales of manufactured N fertilizers, the results showed this to be very ineffective in reducing the amounts used. In some cases the imposition of a tax would have no effect whatsoever on the amount of N used yet would slightly reduce incomes on all of the nation\u27s farm