John Helming 1, Jack Peerlings 2

Transcription

1 Effects Of The EU Nitrte Directive for the Dutch Agriculturl Sector: n Appliction of Regionl Model of Dutch Agriculture Bsed on Positive Mthemticl Progrmming John Helming 1, Jc Peerlings 2 1 Agriculturl Economics Reserch Institute, Postbox 29703, 2502 LS Den Hg, The Netherlnds 2 Agriculturl Economics nd Rurl Policy Group, Wgeningen University, Mnsholtln 10-12, 6708 PA Wgeningen,The Netherlnds Contribution ppered in Arfini, F. (Ed.) (2005) Modelling Agriculturl Policies: Stte of the Art nd New Chllenges, proceedings of the 89 th EAAE Seminr, pp Februry 2-5, 2005 Prm, Itly Copyright 2005 by John Helming nd Jc Peerlings. All rights reserved. Reders my me verbtim copies of this document for non-commercil purposes by ny mens, provided tht this copyright notice ppers on ll such copies.

2 Effects Of The EU Nitrte Directive for the Dutch Agriculturl Sector: n Appliction of Regionl Model of Dutch Agriculture Bsed on Positive Mthemticl Progrmming John Helming *, Jc Peerlings ** Abstrct This pper pplies the Dutch Regionlized Agriculturl Model (DRAM) to nlyze the effects of Dutch mnure nd nutrients policies of 2004 for the Dutch griculturl sector nd economy s compred to bse of DRAM cn be chrcterized s regionlised, environmentl, prtil equilibrium, mthemticl progrmming model of Dutch griculture. The model combines the technicl detil, including technology options vilble to frmers in different regions of the Netherlnds, of mthemticl progrmming frm models with some mret effects t griculturl industry level e.g. lnd nd mnure mrets. Moreover the mthemticl progrmming model is lined to mixed input-output model to nlyze economy wide effects of chnges in Dutch griculture. A specil feture of DRAM is the explicit modeling of mnure mrets. It is found tht through incresed mnure prices, mnure policies specilly ffects production nd profits in the beef nd pigs nd poultry sectors. Key words: Positive Mthemticl Progrmming, griculture, regions, mnure mrets, mnure policies. 1. Introduction Especilly in the Netherlnds the future development of the griculturl sector is highly dependent on the EU Nitrtes Directive (EC/91/676) nd its trnsltion in ntionl mnure nd nutrients policies. The Nitrtes Directive ims to reduce nd prevent pollution of surfce wters nd groundwter by nitrtes from griculturl sources, prticulrly livestoc mnure nd minerl fertilizers. Problems of mnure nd nutrients surpluses in the Netherlnds, especilly t livestoc frms, re explined by the high intensity of griculturl production nd frm nd * Agriculturl Economics Reserch Institute, Postbox 29703, 2502 LS Den Hg, The Netherlnds; e-mil: j.f.m.helming@wur.nl. ** Agriculturl Economics nd Rurl Policy Group, Wgeningen University, Mnsholtln 10-12, 6708 PA Wgeningen, The Netherlnds; e-mil: jc.peerlings@wur.nl. 458

3 5.Modelling Multifunctionl nd Environmentl Issue regionl speciliztion. In the Netherlnds livestoc production is concentrted t specilized livestoc frms. These frm types re especilly concentrted in the snd regions in the south nd est. Crop production is concentrted in the cly regions in the north nd southwest of the Netherlnds. Production in both cttle frming nd the intensive livestoc industry is lrgely bsed on imported concentrtes from outside the EU t reltively low prices compred to prices for EU produced feed grins. As result excess mounts of mnure re produced t livestoc frms ccording to previling legisltion. Prt of livestoc mnure is used t the own frm nd excess mounts re trnsported to neighbouring frms with lower stocing density. Prt of livestoc mnure is lso trnsported to other regions. Alterntively, excess mounts of mnure my lso be exported to surrounding countries or my be processed in fctories. However, the costs involved in such trnsport nd processing re substntilly higher thn the costs involved in using mnure within the region. Furthermore, rble crop production is bsed to lrge extent on purchsed minerl fertilizer becuse of the reltively low prices for minerl fertilizers. These low prices of minerl fertilizers hve lso stimulted intensity of the cropping pln t the verge rble frm, mening tht in the pst low nutrients input crops (e.g. cerels) re substituted by high nutrients input crops (e.g. pottoes nd sugr beets). Since 1985 the Dutch government hs implemented severl lws nd regultions to prevent the growth of livestoc production nd to reduce nd control mnure production nd use. From 1998 the so-clled minerls ccounting system (MINAS) becme compulsory for frms with high livestoc densities (more thn 2.5 livestoc units per hectre). MINAS clcultes the input (e.g. through the purchse of feed, nutrients from minerl fertilizers nd niml mnure) nd the output of nutrients (e.g. through the sles of mil, met, cerels nd mnure) t the frm level. Nutrient surpluses bove certin threshold level re txed. Threshold levels hve been shrpened over time nd re different per soil type nd crop to te into ccount differences in environmentl effects. In 2001 MINAS becme compulsory for ll frmers including rble frmers nd other open-field producers. Moreover, in 2002 the system of mnure contrcts, nown s Mest Afzet Overeenomst (MAO), ws introduced. Under MAO producers of niml mnure without sufficient mnure ppliction cpcity hve to contrct mnure ppliction cpcity directly from lndowners or indirectly through middlemn (Ministry of Agriculture, Nture Mngement nd Fisheries, 2002 nd 2002b). The objective of this pper is to nlyze the environmentl nd economic effects of MI- NAS nd MAO 2004 stndrds for the Dutch griculturl sector. For tht purpose DRAM (Dutch Regionlised Agriculturl Model), regionlised, environmentl, prtil equilibrium, mthemticl progrmming model of Dutch griculture is used (Helming, 2005). The model combines the technicl detil, including technology options vilble to frmers in different regions of the Netherlnds, of mthemticl progrmming frm models with some mret effects t griculturl industry level e.g. lnd nd mnure mrets. Moreover the mthemticl progrmming model is lined to mixed input-output model to nlyze economy wide effects of chnges in Dutch griculture (Helming, 2005). In section 2 of this pper we present theoreticl model of mnure mrets. Section 3 describes DRAM. In section 4 the scenrios re presented. Section 5 presents nd discusses the results. Section 6 gives some discussion on the sensitivity of the results. In this respect we focus on the possible effects of mnure policy chnges for Dutch griculture given the chnges 459

4 Modelling Agriculturl Policies: Stte of the Art nd New Chllenges in the Common Agriculturl Policy (CAP) of the Europen Union (EU). Section 7 concludes this pper. 2. Theoreticl model DRAM is bsed on the neoclssicl economic theory of behvior of economic gents. It is ssumed tht producers mximize profit nd tht mrets re perfectly competitive. Bsed on this neoclssicl frmewor of profit mximiztion, dul price reltionships e.g. between nutrients nd niml mnure demnd nd supply, cn be derived from the priml Lgrnge function nd pplying Kuhn-Tucer conditions (Hzell nd Norton, 1986; Howitt, 2002). To develop simple mthemticl progrmming model including mnure blnces we ssume tht niml mnure is by-product of niml ctivities (i=1). Moreover, we ssume tht in the bse ll the mnure is used by the crop ctivities (i=2). The model cn be written s follows. mximize 2 Z =!( pi xi " $ i xi " 0.5# i xi ) (1) # i= 1,2 subject to ( $ " s ) x! 0 i= 1,2 i " i xi! i= 1, 2 i b i! [! ] (1b)! [! ] (1c) x! 0 "i (1d) i Where Z is totl profit defined s revenue minus vrible costs (1000 Euro), xi is the level of ctivity i (i=1,2) (1000 hectre or niml), pi is the revenue in Euro per unit of ctivity i,! i! nd i re prmeters of qudrtic cost function. These prmeters re clculted using the pproch of Positive Mthemticl Progrmming (PMP) (Howitt, 2005). is the production of niml mnure type (=1) by ctivity i (m3 per niml), si is the demnd of niml mnure type by ctivity i (m3 per hectre). b is totl vilble quntity of fixed input (=1), i is quntity of fixed input demnded by ctivity i, vrible xi is the level of ctivity i. Restriction (1) mximizes profit from ctivities. Restriction (1b) sttes the production of niml mnure should be less thn the demnd of niml mnure. Restriction (1c) sttes tht ll ctivity levels should be greter thn or equl to zero. Vrible π ssocited with restriction (1b) is defined s the shdow price of niml mnure type (Euro per m3). The shdow price provides the increse in the objective function if the input could be mde less restrictive mrginlly. Vrible π ssocited with restriction (1c) is defined s the shdow price of fixed input.! i 460

5 5.Modelling Multifunctionl nd Environmentl Issue The Lgrnge function of the bove priml mthemticl progrmming problem cn be written s follows: 2 L = "( pi xi!& i xi! 0.5% i xi + # ( $ i! si ) xi + # ( b! i xi )) (2) i= 1,2 The Kuhn Tucer conditions re: & L = p1 % $ 1 % # 1x1 +! " 1 %! 1 & x1 (3) " L x 1 = x1 ( p1!& 1! % 1x1 + # $ 1!# 1 ) = 0 " x1 (4) % L % x2 = p2 $ # 2 $ " 2 x2 $! s2 $! 2 (5) " L x 2 = x2 ( p2!% 2! $ 2 x2!# s2!# 2 ) = 0 " x (6) 2 Using eqution (4) one obtins the following mrginl cost (inverse supply) function niml mnure type : " = ( $ +! (7) 1 + # 1x1 % p1 " 1 ) / 1 equls zero. This mens tht the mrginl cost func- For reson of simplicity ssume tht tion of niml mnure reduces to: 1 + " 1x1 p1) / 1 1 $ = (# %! (7) Using eqution (6) one obtins the following vlue mrginl product (demnd) function for niml mnure type : # = ( $! (8) p2 $ # 2 $ " 2 2 x2 ) / s2 Figure 1 is grphicl representtion of the mnure mret s described bove. The derived mrginl costs of niml mnure supply is indicted by the upwrd line MC in figure 1. The downwrd sloping line MR indictes niml mnure demnd. Profit-mximizing ppliction of this specific type of niml mnure is indicted by the intersection between the lines MR nd MC. The mret price of niml mnure equls! nd the profit-mximizing demnd nd supply equls Q =! 1 x1 = s2 x

6 Modelling Agriculturl Policies: Stte of the Art nd New Chllenges MC! 1! MR 1 MR 1 Q Q quntity (m 3 ) Figure 1. Grphicl presenttion of mnure mrets Now ssume tht mnure policies re tightened such tht the demnd of niml mnure by ' ctivity 2 decreses from s 2 to s 2. Also ssume tht this does not ffect other vribles s yield nd output prices. The niml ctivities cn only supply the sme mount of niml mnure, s by-product of livestoc production, if the lloction of lnd to the crops increses. However the mount of lnd vilble for crop production is limited (see eqution (1c)). Hence, lnd scrcity increses nd this trnsltes into higher shdow prices of lnd. In figure 1, the net result of the incresed shdow price of lnd nd decresed ppliction of niml mnure per hectre is shift of the mnure demnd line from MR to MR 1. Along the line MC, the 1 ppliction of niml mnure decreses to Q nd the price of niml mnure decrese to 1!. The policy chnge results in profit chnge for the griculturl sector s whole s indicted by re -(b+c). This loss represents chnges in producers' surplus -(+b) of niml mnure production ctivities (i=1) due to loss of net production vlue mesured s the re bove the line MC nd under the price line! minus the re bove the line MC nd under the price line 1 462

7 5.Modelling Multifunctionl nd Environmentl Issue!. The chnge in the producer surplus of users of niml mnure (i=2) is indicted by the 1 re -c. This is mesured s the re bove the price line " nd under the line MR 1 minus the re bove the price line! nd under the line MR. A more detiled description of the modeling of mnure mrets cn be found in Helming (2005). 3. Description of DRAM Introduction The model presented in section 2 is simplified version of DRAM s described in Helming (2005). This section gives full description of DRAM. Frm behviour The core of the mthemticl progrmming model, described in the middle of figure 2, is n optimistion bloc which mximizes profits from griculturl ctivities under the restriction tht economic, technicl nd policy constrints re respected. DRAM ssumes tht there exists n optiml level of griculturl input use nd output production. This optimum lloction of inputs nd output production is reched when mrginl costs re greter thn or equl to mrginl revenues for ll griculturl ctivities in the model. This condition for n optiml solution is derived from mximistion of totl profits from griculture. Profits re mximized simultneously over ll frms to te into ccount the reltionship between mret effects nd frmers behvior. Technology Figure 2. Schemtic representtion of DRAM. 463

8 Modelling Agriculturl Policies: Stte of the Art nd New Chllenges Regions To eep the model size mngeble nd becuse of dt limittions t the frm level, DRAM ggregtes griculturl ctivities of individul frms to the regionl level. DRAM distinguishes between fourteen regions. The selection of regions in DRAM is bsed on homogeneity of soil nd regionl concentrtion of griculturl production. Different soil types hve different yields nd regions distinguished by DRAM re therefore chrcterized by different predominnt soil types. Besides differences in yields per soil type, environmentl impcts cn lso be soil type specific e.g. intensity of nitrte leching. Intensive livestoc, mil nd beef production is minly concentrted in the snd regions in the south, est nd middle of the Netherlnds. Arble production is concentrted in cly regions in the north, middle nd south-west of the Netherlnds. In regions with pet soils, grsslnd production to feed diry cows nd beef cttle is predominnt, while rble production, including fodder mize is lmost impossible due to soil chrcteristics nd high groundwter level. Outputs nd inputs In DRAM griculturl outputs re produced by griculturl ctivities. Economic importnce nd possible environmentl effects determine the selection of griculturl outputs. Within ech of the fourteen regions, thirteen rble crop ctivities, two roughge crops ctivities, one non-food ctivity, seven intensive livestoc ctivities, including beef cttle nd fttening clves nd nine diry cow ctivities re distinguished. Other sectors lie horticulture under glss, nursery trees nd products produced by these sectors re left out of the model. In the Netherlnds there is limited interction between these sectors nd griculturl ctivities modelled. The livestoc ctivities included in the model represent diry cows, beef cttle, fttening clves, sows, fttening pigs, lying hens, met poultry nd mother nimls of met poultry. DRAM includes nine diry cow ctivities. More detil is included here becuse of the economic importnce nd impct of diry frming on lnd nd mnure mrets. Livestoc ctivities produce more thn one output. For exmple, sows produce met, piglets nd mnure. It is ssumed tht ech livestoc ctivity produces specific type of mnure s ppliction cost nd trnsport cost cn be different per type of mnure. Furthermore, the nutrients content nd the worbility of nitrogen in niml mnure (or minerl fertilizer equivlent) for crop growth, differs per mnure type. The following inputs re distinguished: concentrtes, pesticides, minerl fertilizers (nitrogen nd phosphorus) nd other vrible inputs. Other vrible inputs consist of services, other fertilizers, seed nd plnting mterils, energy, hired lbour nd by-products (s negtive input). 464

9 5.Modelling Multifunctionl nd Environmentl Issue Technology Technicl input coefficients concerning the totl use of nutrients (nitrogen (N) nd phosphorus (P), either from niml mnure or minerl fertilizer), young nimls nd roughge (grss nd mize) per ctivity re exogenous. A relistic representtion of technology requires tht the sme type of output cn be produced with different input-output coefficients. This is ten into ccount by including different input-output coefficients per ctivity per region. Regionl differentition of technicl coefficients is especilly importnt for crop production becuse of the differences in soil type per region nd the importnt reltionship between soil type nd yield. Moreover, mil is produced through nine types of diry cow ctivities, with type nd region specific input-output coefficients. Moreover, the sme qulity of grss nd fodder mize is produced by the diry cow ctivities nd seprte grsslnd nd fodder mize ctivities. Remining vrible costs (concentrtes, pesticides nd other vrible inputs) per ctivity re modelled using qudrtic vrible cost function. The pproch of Positive Mthemticl Progrmming (PMP) is used to clculte the prmeters of the cost functions in such wy tht the observed ctivity level is lmost exctly reproduced (Howitt, 1995). Fertilistion requirements of the crops nd cn be fulfilled using nutrients from niml mnure nd minerl fertilizer. Hence, ppliction of niml mnure nd minerl fertilizer per crop re endogenously determined within the model. Technicl restrictions on ppliction of niml mnure re included to model mnure ccepttion of mnure. The model llows for regionl trnsport, export brod nd lrge scle processing of niml mnure. The different vribles in the model llow to clculte nutrient blnces t soil level, including mmoni emission from stble, psturing nd ppliction of mnure nd nutrient surplus s resulting vrible. To model mnure ccepttion nd policies, more relisticlly, the mthemticl progrmming pproch llows to include restrictions on groups of griculturl ctivities e.g. restrictions over ll rble crops. Note tht this specifiction of the mnure mrets is much richer thn described in section 2 of this pper. Mrets Prices of most outputs nd inputs re treted s exogenous vribles, s they re ssumed to be determined t the internl EU mret or world mret. For these inputs nd outputs the smll country ssumption is pplied. Regionl prices re used to te into ccount possible regionl differences in output nd input qulity, frm size nd trnsport cost. Intr-sectorlly produced inputs in DRAM re different qulities of roughge, young nimls nd mnure. Intr-sectorlly produced inputs re produced nd consumed within the griculturl sector. Prices of the intr-sectorlly produced inputs re prtly endogenous within DRAM nd they cn be trded between regions nd interntionlly. In cse intr-sectorlly produced inputs re trded between regions, regionl prices re lined nd differences cn not exceed trnsporttion costs (Tym nd Judge, 1971). The smll country ssumption is pplied to export- nd import prices: export- nd import prices of intr-sectorlly produced inputs re fixed. An upper-limit is included for export of niml mnure. Output prices of some 465

10 Modelling Agriculturl Policies: Stte of the Art nd New Chllenges rble crops s consumption pottoes re endogenous s well using inverse liner demnd equtions. Fixed inputs Fixed inputs in the model re lnd nd quots. Agriculturl lnd nd quot for sugr beets re ssumed fixed t the regionl level. Quots for mil nd strch pottoes re ssumed fixed t the ntionl level. Cpitl nd lbour re ssumed not to be restrictive t the sectorl level. Mnure nd nutrients policies MAO cn be directly included in DRAM through restrictions on nitrogen (N) from niml mnure per hectre. MINAS is defined t the frm level. This mens tht high nutrient surpluses ttched to high nutrient crops cn be cnceled out by low nutrient surpluses ttched to low nutrient crops. If nutrients surplus still remins this needs to be trnsported from the frm or the frmer hs to py levy. Accepttion of mnure will be different for different frm types. To reduce ggregtion bis nd to te into ccount possible differences in behvior with respect to mnure demnd nd supply, the mthemticl progrmming pproch llows to group ctivities tht re relted to ech other. Doing so DRAM describes regionl MINAS blnces for 11 group of ctivities: 9 type of diry cow ctivities, 1 group of rble ctivities nd 1 group of grsslnd nd fodder mize ctivities. 4. Scenrios MINAS threshold levels nd levies on nutrients surpluses bove threshold levels until 2004 re presented in Appendix 1 of this pper. Under MAO the mximum ppliction of nitrogen from niml mnure in 2004 equls 250 g N per hectre for grsslnd nd 170 g N per hectre for rble lnd including fodder mize. Excretion of nitrogen per niml under MAO equls 85% of nitrogen in mnure under MINAS. The bse scenrio is simultion of Dutch griculture in To bridge the rther long period between mnure utiliztion stndrds in 1996 nd mnure nd nutrients policies in 2004, some frm mngement djustments ten from frm level studies (de Hoop, 2002; Beldmn et l., 2003) re included exogenously in DRAM. It is ssumed tht these frm mngement djustments re directly induced by the chnges in mnure nd nutrients policies. The dvntge in this respect is the mthemticl progrmming pproch of DRAM. Mthemticl progrmming llows the inclusion of mny vribles tht re prt of the generlly very detiled frm level studies. It is recognized tht in relity it is difficult to distinguish between mngement djustments induced by policy chnges nd utonomous technologicl chnges. The scenrios re the following: 466

11 5.Modelling Multifunctionl nd Environmentl Issue S1: - MINAS 2004 threshold levels nd corresponding levies nd MAO re ssumed to be introduced in the bse, with exogenous vribles t bse period (1996) levels. The following (frm mngement) djustments re ten into ccount: - 12% increse in mil production per diry cow ctivity; - 5%, 20% nd 40% decrese in minimum worble nitrogen (N) input per hectre grsslnd for diry cow ctivities with low nitrogen input per hectre grsslnd (LMLN, MMLN, HMLN), medium nitrogen input per hectre grsslnd (LMMN, MMMN, HMMN) nd high nitrogen input per hectre grsslnd (LMHN, MMHN, HMHN) respectively. This recognizes the fct tht more djustments cn be expected for grsslnd ctivities with reltively high nitrogen (N) input levels; - 25% increse in worbility of nitrogen in niml mnure pplied to grsslnd nd fodder mize nd lined to diry cows ctivities; - 25% decrese in mnure production in the field by grzing diry cows; - 15% increse in grsslnd production per hectre grsslnd; - Nutrients excretion per type of niml equl to 2003 stndrds given by vn Stlduinen et l. (2002) nd vn Stlduinen et l. (2003). This recognizes the fct tht from the erly nineties, nitrogen (N) nd phosphorus (P) excretion of sows nd fttening pigs on the one hnd nd lying hens on the other, hve decresed by -5 to -10% nd -15 to -30% respectively (Sttistics Netherlnds, different yers). Nutrients excretion of beef cttle nd fttening clves is ssumed constnt; - 250% increse in the export of mnure from lying hens nd met poultry (vn Stlduinen et l. 2002; vn Stlduinen et l., 2003). Moreover, ll the mnure from met clves is processed so tht nutrients leve the griculturl sector; - ll other exogenous vribles remin unchnged. S2: See S1, but: - 6% increse in mil production per diry cow ctivity; - 2,5%, 10% nd 20% decrese in minimum worble nitrogen (N) input per hectre grsslnd for diry cow ctivities with low nitrogen input per hectre grsslnd (LMLN, MMLN, HMLN), medium nitrogen input per hectre grsslnd (LMMN, MMMN, HMMN) nd high nitrogen input per hectre grsslnd (LMHN, MMHN, HMHN) respectively. This recognizes the fct tht more djustments cn be expected for grsslnd ctivities with reltively high nitrogen (N) input levels; % increse in worbility of nitrogen in niml mnure pplied to grsslnd nd fodder mize nd lined to diry cows ctivities; % decrese in mnure production in the field by grzing diry cows; - 7.5% increse in grsslnd production per hectre grsslnd; 467

12 Modelling Agriculturl Policies: Stte of the Art nd New Chllenges 5. Results Under scenrio S1 the number of diry cows decreses with 10% (tble 1). This is explined by the prtly exogenous increse in mil production per diry cow. Moreover, the hectre of grsslnd decreses with 4%. The decrese in the number of diry cows will ese the pressure on mnure mrets nd this limits the effect of MINAS 2004 nd MAO on the numbers of nimls in other livestoc industries. Nevertheless, under S1 the number of beef cttle decreses by 34%, while the number of fttening pigs nd poultry decreses by 8% nd 5% respectively (tble 1). Under S1, the re of grsslnd nd fodder mize decreses by 4% nd 2% respectively. This is the net result of two effects tht wor in opposite directions. On the one hnd the re of grsslnd nd fodder mize decreses due to reduction in the number of diry cows nd beef cttle. Moreover, the yield per hectre of grsslnd increses. On the other hnd there is n increse in demnd for grsslnd due to switch to extensive production methods in diry frming. The hectre of lnd llocted to cerels increses with 14% under S1. Tble 1 lso shows the effects on profits in number of selected industries nd the economy s whole. Here profit is defined s revenues minus vrible costs. Tble 1 shows n increse under S1 in profits from diry frming nd rble frming, including vegetbles in the open nd flower bulbs, of bout 6.1% nd 3.0% respectively. However, the effects on profits re very different per region nd per type of diry cow. Under S1, the chnge in totl profits from diry cow ctivities rnges from -4% in the snd regions to +19% in the pet regions. These effects re the result of the policy chnge in combintion with frm mngement djustments nd the resulting chnges in regionl lloction of mil production. Moreover, chnges in profits rnge from 11% for diry cow ctivities with high nitrogen from minerl fertilizer per hectre of grsslnd (intensive production methods) in the snd regions, to +27% for diry cow ctivities with low nitrogen from minerl fertilizer per hectre of grsslnd (extensive production method) in the pet regions. The increse in profits in rble frming is the net result of (1) lower prices for especilly vegetbles in the open nd flower bulbs due to smll increse in supply, (2) the incresed production of cerels nd other rble crops in prticulr nd (3) higher profits from mnure ccepttion. Under S1, the effect on profits is especilly lrge for pig frming, -8.1% (tble 1). This is explined by the incresed costs of mnure removl from frms. In bsolute vlues the verge ntionl producer price of pig mnure increses from 6 per m3 in the bse to bout 11 per m3 under S1. Tble 1 shows tht the effect on profits in totl griculture of scenrio S1 is positive. The totl effect of S1 on the Dutch economy is decrese in profits of 216 million. This is minly explined by decrese in profits in the met industry ( 83 million) nd input delivering industries ( 196 million). The effects presented in tble 1 show tht in bsolute terms, the economic effects for the rest of the economy by fr exceed the economic effects for griculture. 468

13 5.Modelling Multifunctionl nd Environmentl Issue Tble 1. Chnges in some selected vribles under S1 nd S2 s compred to the bse (1996). Bse S1 S2 % Diry cows (1000 hed) 1, Beef cttle (1000 hed) Fttening pigs (1000 hed) 6, Poultry (1000 hed) 90, Grsslnd (1000 h) 1, Fodder mize (1000 h) Cerels (1000 h) Profits diry frming industry (million ) 2, Profits pig industry (million ) Profits rble frming, vegetbles in the open nd flower bulbs (million ) 1, Million Profits totl griculture (million ) 7, Profits totl economy (million ) 226, % Emission of mmoni (g N per h) Net nitrogen surplus (g N per h) Tble 1 lso shows the effects on net nitrogen surplus t soil level. Compred to the bse in 1996, this vrible decreses with 50% under scenrio S1. Under scenrio S2 with limited frm mngement djustments the number of diry cows decreses by 5%, chnge of 10% compred to scenrio S1 (tble 1). Under S2 the number of beef cttle decreses by 43%, chnge of 34%. The number of fttening pigs decreses by 10%, chnge of -8%. These differences re explined by higher mnure prices under S2 s result of higher nutrients nd mnure production from diry cows s compred to scenrio S1. Lnd llocted to grsslnd decreses with 2%, this ws 4% under S1. This effect is due to the higher number of diry cows nd the lower grsslnd production under S2. Under S2 profits in the diry frming industry decrese by 4% compred to the bse. Detiled results show tht under S2, totl profits from diry cow ctivities decrese by 13% nd 3% in the snd nd remining regions respectively. Profits from diry cow ctivities increse by 7% in the pet regions. Due to higher mnure prices profits in the pig industry decrese by 10.4% under the new S2 scenrio. Due to higher profits from mnure ccepttion, profits in rble frming increse by +5.2% compred to the bse. Tble 1 shows tht the totl profit in griculture under S2 decreses by 134 million, compred to chnge of plus 68 million in scenrio S1. Totl 469

14 Modelling Agriculturl Policies: Stte of the Art nd New Chllenges profits in the rest of the economy decrese by 472 million. Under S2, net nitrogen (N) surplus decreses by 40% compred to the bse. Regionl effects nd technology shifts in diry frming With MINAS nd MAO nd exogenous mngement djustments ten into ccount, the optiml technology in diry frming moves into the direction of extensive production methods. Tble 2 shows tht the scenrios fvour the re-lloction of mil production in the Netherlnds from more intensive type of diry cow ctivities to reltive extensive type of diry cow ctivities. This is especilly true under scenrio S2, with limited frm mngement djustments in diry frming. Differences in the shre of extensive type of diry cow ctivities in totl regionl mil production, lso explins the effects of the scenrios on regionl mil production (tble 3). Tble 3 shows tht mil production increses in the pet regions, but decreses in the snd nd in the remining regions. A technicl explntion is tht the frm mngement djustments will increse the shdow price of mil quot. As mil quot becomes more expensive, extensive production systems nd regions with reltive lrge shre of extensive production methods in regionl mil production re now more competitive becuse of the reltive low vrible costs per ilogrm mil. Tble 2. Percentge chnge in mil production per type of diry cow under different scenrios(bse in 1000 tonnes) Bse S1 S2 Mil production (g per diry cow) LOW 5, MEDIUM 4, HIGH 1, Totl 11, Nitrogen from minerl fertilizer (g N per hectre grsslnd) LOW 2, MEDIUM 4, HIGH 3, Totl 11, Mil production (g per diry cow): LOW <6500; 6500 < MEDIUM < 7500; HIGH > 7500; Nitrogen from minerl fertilizer (g N per hectre grsslnd): LOW < 250; 250 < MEDIUM < 350; HIGH >

15 5.Modelling Multifunctionl nd Environmentl Issue Tble 3. Percentge chnge in regionl mil supply under different scenrios (bse in 1000 tonnes) Bse S1 S2 Snd 1 4, Pet 2 3, Remining regions 3 3, Totl 11, Estern snd region, Southern snd region, Centrl snd region; 2.Northern pet region, Western pet region; 3.Northern cly region, Northern snd region, Centrl cly region, Southern cly region, River re, Loess re, Pet colonies, Rest of Northern Hollnd, Rest of Southern Hollnd. 6. Sensitivity nlyzes: Common Agriculturl Policy of the Europen Union Until now it is ssumed tht exogenous vribles re equl to bse yer levels. In this section we discuss the possible effects of mnure policy chnges for Dutch griculture given the chnges in the Common Agriculturl Policy (CAP) of the Europen Union (EU) s put forwrd in Agend 2000 nd CAP Reform Anlyses of Helming (2005) of direct nd indirect effects for Dutch griculture of Agend 2000 nd CAP Reform 2003 suggest tht the hectre of lnd llocted to cerels decreses nd hectre of lnd llocted to grsslnd increses. Although mil prices decrese, the mil quot is still fully produced. The shre of extensive production methods (specified s diry cow ctivities with low nitrogen from minerl fertilizer per hectre of grsslnd) in totl mil production slightly increses. In the niml sector the number of beef cttle decreses strongly, wheres the number of pigs nd poultry slightly increses. In totl the production of niml mnure will decrese. The increse in the number of pigs nd poultry is explined by the increse in the mnure price due to the decrese in niml mnure supply in totl. The bove-mentioned effects of CAP chnges, will only to limited extend effect the results of Dutch mnure policies s described in this pper. More restrictive mnure policies bsiclly increse mnure prices. The effects on mnure prices will be somewht smller fter CAP chnges. This is explined by the decrese in niml mnure production due to decrese in number of beef cttle fter CAP chnges. Moreover, mnure ppliction room increses becuse of the increse in the hectre of grsslnd fter CAP chnges. 7. Discussion nd conclusion This pper ims to nlyze the environmentl nd economic effects of MINAS 2004 threshold levels for nutrient losses nd relted nutrients levies combined with mnure ppliction stndrds from MAO. 471

16 Modelling Agriculturl Policies: Stte of the Art nd New Chllenges Results show tht MINAS 2004 nd MAO minly ffect production in the beef cttle nd intensive livestoc industries, including intensive diry frming. The results lso show tht frm mngement mesures induced by the policy chnge reduce the net nitrogen (N) surplus in the soil blnce by 50%, while profits in griculture s whole increse by bout 0.9% or 68 million. However, the effects on griculturl profits re differing between industries nd regions. Moreover, due to the uncertinties prticulrly concerning frm mngement djustments induced by the policy chnge it is concluded tht the economic effects for the economy s whole rnge between -216 million nd -472 million. In generl, the scenrios presented in this pper show tht in bsolute terms the effect on profits in the rest of the economy by fr exceeds the effect on profits in griculture. Other studies tht nlyze the effects of mnure nd nutriens policies for the Dutch griculturl sector nd economy re presented by De Hoop nd Stolwij eds. (1999) nd Komen nd Peerlings (1998). De Hoop nd Stolwij use n input-output model. According to experts' opinions the number of beef cttle, met clves, pigs nd poultry decreses by 30 %, -10 %, - 15 % nd 20 % respectively due to the tightening of mnure nd nutrients policies. These re short to medium term effects s the ssumed djustment period is from 1998 to 2002 (de Hoop nd Stolwij, 1999). De Hoop nd Stolwij (1999) estimte the profit effect for the economy s whole to be million (1998 prices). Komen nd Peerlings (1998) use n Applied Generl Equilibrium (AGE) model. The ntionl mnure surplus resulting from different permitted stndrds for phosphte loss re trnslted into reduction of livestoc numbers. Nitrogen loss stndrds re not ten into ccount. The effects of reduction in the numbers of pigs nd poultry re compred with reduction in the number of pigs only. A reduction in beef cttle is not considered. Effects on ntionl profits of permitted phosphte loss stndrd of 30 g per h, rnges from million (1990 prices) s result of reduction in the number of pigs nd poultry, to million (1990 prices) s result of reduction in the number of pigs only. Komen nd Peerlings (1998) te into ccount possible chnges in output prices of pigs nd poultry production due to decrese in supply in the Netherlnds. Results from both studies on economy wide effects exclude the higher trnsporttion costs of niml mnure nd the incresed profits in rble frming. An dvntge of the study presented in this pper is the explicit modeling of mnure mrets. DRAM cn be chrcterized s short to medium term model since technology is fixed in griculture. In the longer term lterntive technologies my become vilble. Investment costs connected to exogenous frm mngement djustments re not ten into ccount in this study. Furthermore, some frmers will not hve the cpcity (nor the wish) to dopt the required mesures nd so chieve the ssumed mngement levels in reltion to mil production per diry cow, mnure hndling nd grsslnd mngement. Incresed investments costs nd lc of mngement cpcity to cope with mnure nd nutrients policies fter 1996, hve probbly ccelerted the decrese in the number of frms nd the increse in frm size. Uncertinties tht cn be identified re nutrients production, the upte of nutrients by crops, ccepttion of different types of niml mnure, mnure export to other countries, the costs of minerl fertilizer ppliction, sptil distribution of n environmentl impct (DRAM implicitly ssumes tht crop nd livestoc production nd the relted environmentl effects re evenly distributed in region), mnure processing costs nd chnges in frm mngement. 472

17 5.Modelling Multifunctionl nd Environmentl Issue Moreover, the frm mngement djustments tht re ten into ccount re not differentited per region or technology (type of diry cow). With more informtion vilble, especilly by close coopertion with regionl experts nd the ppliction of DRAM in interdisciplinry reserch, this could be improved upon. Notwithstnding the uncertinties, it is believed tht the modeling system offers flexible nd consistent tool for policy nlysis t the Dutch griculturl industry nd economy levels. References Beldmn A.C.G., Doornewrd G.J., Tomson N.C. nd Dtselr C.H.G. (2003): Prtijcijfers 2; Strtegie en cijfers. LEI/Prtijcijfers 2, Den Hg/De Bilt. Hzell P.B.R. nd Norton R.D. (1986): Mthemticl Progrmming for Economic Anlysis in Agriculture, Mcmilln Publishing Compny, New Yor. Helming J.F.M. (2005): A model of Dutch griculture bsed on Positive Mthemticl Progrmming with regionl nd environmentl pplictions, Ph.D. thesis, Wgeningen University, Wgeningen. Hoop D.W. de (ed.) (2002): Effecten vn beleid op minerlenmngement en economy in de lndbouw; een deelstudie in het der vn Evlutie Mestbeleid 2002, Rpport LEI, Den Hg. Hoop D.W. de nd Stolwij H.J.J. (eds.) (1999): Economische effecten vn milieubeleidsvoornemens voor de lndbouw voor 2002 en 2003; beleidsvoornemen vn 10 september 1999, Rpport LEI, Den Hg. Howitt R.E. (2002): Optimiztion Model Building in Economics, Deprtment of Agriculturl Economics, University of Cliforni, Dvis. Howitt R.E. (1995): Positive Mthemticl Progrmming, Americn Journl of Agriculturl Economics, 77: Komen M.H.C. nd Peerlings J.H.M. (1998): Restricting intensive livestoc production: Economic effects of minerl policy in the Netherlnds, Europen Review of Agriculturl Economics, 25(1): Ministry of Agriculture, Nture Mngement nd Fisheries (2002): Mnure nd the environment; The Dutch pproch to reduce the minerl surplus nd mmoni voltilistion. Ministry of Agriculture, Nture Mngement nd Fisheries (2002b): Mededeling dossier mest: Evlutie leidt tot npssen mestregels, 00.htm. 473

18 Modelling Agriculturl Policies: Stte of the Art nd New Chllenges Appendix 1 MINAS nutrients threshold levels nd levies Tble 1. MINAS nutrients (nitrogen (N) nd phosphorus (P)) threshold levels, in g per h per yer Phosphorus loss stndrd - rble lnd grsslnd Nitrogen loss stndrd - rble lnd cly/pet regions - rble lnd dry snd/loess - grsslnd grsslnd dry snd/loess Source: Ministry of Agriculture, Nture Mngement nd Fisheries (2002; 2002b). Tble 2. Levies on nutrients surplus bove threshold level, in per g Phosphorus (P) > g /h > 4.37 g/h Nitrogen (N) 0-40 g/h > 40 g/h Source: Ministry of Agriculture, Nture Mngement nd Fisheries (2002). 474