On-farm compliance costs with the EU-Nitrates Directive: A modelling approach for specialized livestock production in northwest Germany

Abstract

In the EU, several environmental regulations aim at protecting the environment from agricultural nitrogen and phosphorus losses. The German regulation on farmers' nutrient management, especially implementing the EU Nitrates Directive, was revised in 2017. It comprises considerable tightening of numerous measures and costs for farmers to comply with. We provide the first systematic farm-level analysis of compliance costs of the recent revision in a case study for the federal state of North Rhine-Westphalia. To do so, we apply a bio-economic optimisation model at farm level to a representative sample of specialized dairy and pig farms. The sample is derived by Latin Hypercube sampling based on the observed distribution of farm characteristics from official agricultural statistics. Modelling results are evaluated by grouping of farms and a statistical meta-model. Results show highly heterogeneous compliance costs reaching from 0 to 2.66 Euro per pig and 0 to 0.83 cent per kg milk. 47.3% of pig and 38.4% of dairy farms do not face any costs. Pig farms with high compliance costs are characterized by high stocking density, the absence of low-emission manure application techniques and phosphorus-enriched soils. Dairy farms with high compliance costs have no low-emission manure application techniques and a high share of grassland. For dairy farms, stricter thresholds for nutrient application do not cause any compliance costs. The meta-model reveals the large effect of prices and assumptions regarding the fertilizer management on compliance costs. Results are of relevance beyond the case study area as other regions in the EU have a similar agricultural structure and need to fulfill the same EU directives. Policymakers need to be aware that high compliance costs increase the incentive of non-compliance and also consider heterogeneous impacts when designing complementary policies. Future research should focus on long-term adaption of farmers and include transaction costs as well as technical progress.