The effect of EU derogation strategies on the complying costs of the nitrate directive

1. The effect of EU derogation strategies on the complying costs of the nitrate directive Van der Straeten, B.*, Buysse, J.*, Nolte, S.*, Lauwers, L.*,**,Claeys, D.**, Van Huylenbroeck, G.* *Ghent University, Department of Agricultural Economics, Belgium **Institute for Agricultural and Fisheries Research, Belgium Bart.VanderStraeten@ugent.be

2. Problem statement • Nitrate directive (91/676/EC) • Reducing water pollution caused by agricultural sources (50 mg nitrate/l standard) • Most problems with managing organic manure disposition • Imposed already 20 years ago, but still many regions face difficulties to comply, especially in NVZ’s • Problem of manure overuse is supply and demand driven • Supply: manure producers aim to dispose as much as possible on land • Demand: manure is cheap substitute for inorganic fertilizers • A trend to use as much as possible organic manure

3. What is derogation? • One way to meet the demand to dispose more manure on land in NVZ’s is derogation • Derogation: higher fertilization standards under certain conditions • Several EU regions have made use of this possibility • In 2009: 6 different derogation possibilities were worked out

4. Derogation policies: criteria for application • In general • granted at farm level • Minima criteria grassland • Minima criteria cattle • Two used fertilization standards under derogation • 230 kg N/ha/year when cattle-criteria • 250 kg N/ha year when grassland-criteria

5. Derogation policies: criteria for application Wallonia Austria & Denmark Germany The Netherlands Flanders Ireland & North-ireland

6. Derogation policies: criteria for application • In general • granted at farm level • Minima criteria grassland • Minima criteria cattle • Two new fertilization standards • 230 kg N/ha/year when cattle-criteria • 250 kg N/ha year when grassland-criteria • Exception: in Flanders: granted at parcel level => Large variation in policies, but does it makes a difference?

7. Research question Impact of the differences between the applied policies on the application rate of derogation, the manure surplus and the manure allocation costs

8. Method: NAR market model • Specific characteristics of manure problem demand a regional model • NARs are evenly spread • production of nutrients is regionally diverse =>spatial difference between demand and supply =>spatial price equilibrium model =>Farmer’ demand and supply is captured in MP-model • MP-MAS model (Van derStraeten et al., 2010 in JEPM) • Able to simulate NAR-prices endogenously

9. Nutrient allocation rights (NARs) • The right to use one kg of organic nitrogen • NARs are allocated per farm based on land use • General: 170 kg N / hectare of land (grassland, maize, …) • Tradable concentration permits (Van der Straeten et al., 2011 EE) • Transactions of NARs between farmers are allowed

10. Costs for manure allocation (Van der Straeten et al., 2011, EE) • Manure allocation costs • Spreading costs • Transport costs • Processing costs • NAR- price • Region specific • Determined endogenous in the model • Detailed view on all costs of manure allocation • Model can be used for several applications • E.g. Assessment of possible growth of dairy production after dairy quota abolishment (Van der Straeten et al., 2009) • E.g. Costs of changing fertilization standards • E.g. Costs of removing the derogation option

11. results

12. Potential impact derogation (full compliance)

13. Potential impact derogation (full compliance)

14. Potential impact derogation (full compliance)

15. Derogation behaviour and expected impact of derogation • Behaviour is influenced by farm & manure market characteristics • Manure type • Possible benefits • Expected impact : same trends, but smaller effects because of smaller rate of application

16. conclusions • Derogation offers the farm /sector a possibility to mitigate impact of tightening fertilization standards • impact of derogation • Application rate • Potential number of farms / hectares under derogation

17. conclusions • Application rate • High application rate in Flanders and The Netherlands: 33% of all farms able to apply derogation will apply for derogation (in other regions: 0.005 to 3.9%) • reasons: • Extent in which manure problem acts at sector level • Both regions are fully indicated as NVZ and have a manure surplus at national level • In both regions manure policy is more experienced then in the other regions • Correspondence between farms experiencing manure problem and farms complying to derogation criteria: farms with problems have the solution in their own hands • High intensive dairy production in Flanders and The Netherlands (milk production per hectare is high) • These farms experience most impact of NVZ but at the same time can apply for derogation • In other regions: lower intensity, dairy producers face less difficulties to remain under 170 kg N standard

18. Potential number of farms / hectares under derogation • Influenced by policy rules • Parcel versus farm level • Used criteria • Used criteria level

19. Thank you for your attention