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Agriculture, Trade and the Environment
The Dairy Sector
The Dairy Sector
Agricultural policies affect agricultural production with consequences for the environment. What are the impacts and how might they be affected by further agricultural policy reform? What are governments doing to improve the environmental performance of agriculture and how does this affect international competitiveness? The Dairy Sector report attempts to answer these questions and many others. The report contains agri-environmental indicators for the dairy sector, and details of the policy measures supporting dairy production and addressing environmental issues. It takes an in-depth look at the sector in OECD countries and focuses on such areas as: • Further trade liberalisation, the likely expansion of milk production and the environmental concerns relating to water pollution and greenhouse gases. • Regulations regarding manure management, the cost effect on dairy producers and the differences in international competitiveness. The Dairy Sector report also points to the policies that OECD governments, particularly in Europe, have introduced to promote organic milk production and their impact on trade flows.
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Agriculture, Trade and the Environment
This is the second in a series of in-depth studies undertaken by the OECD to investigate the linkages between agriculture, trade and the environment. The first study on The Pig Sector was published in 2003. A third study examines these issues in The Arable Crop Sector.
[email protected] The Dairy Sector
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Agriculture, Trade and the Environment: The Dairy Sector
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FOREWORD
The objective of this study is to improve understanding of the linkages between agriculture, trade and the environment in OECD countries by examining how they relate within the dairy sector. Three of the main issues are: the environmental impacts of agricultural support measures and the consequences of further trade liberalisation; the trade impacts of policies measures to address environmental issues in agriculture; and the characteristics of policies that can best achieve environmental objectives in ways that are compatible with multilateral trade and environmental agreements. Policies dealing with animal welfare also have an impact on milk producers, but these are beyond the scope of this study. This study continues the analysis of agriculture, trade and environment linkages by the OECD Joint Working Party on Agriculture and the Environment (JWP). After completing two general studies (OECD, 2000a and OECD, 2000b), the JWP commenced work at the sector-specific level. Dairy is the second sector examined, following on from the initial study Agriculture, Trade and the Environment: The Pig Sector (OECD, 2003a). A third study is examining these linkages in the arable crop sector, planned for release in 2005. The dairy sector provides a good opportunity to consider these linkages. It provides a useful contrast to the pig sector study because there are a greater range of farming systems involved in dairy production, e.g. mountain dairy farming, pastoral based systems, indoor facilities, reflecting to some extent different agro-ecological conditions and land availability. Consequently, the environmental impacts of dairy farming are quite diverse. While water and air pollution from dairy farming are of increasing concern for most OECD countries, a number of other environmental issues such as soil erosion, biodiversity and landscape are also considered important in some instances. There is a wide variation in the forms and level of support, including through trade measures, provided to dairy producers among OECD countries and over time. In many countries, it is one of the most highly supported sectors. There are also a growing number of agri-environmental policies impacting of dairy farmers. This diversity of policy experience provides a rich variety of material to be examined and compared. The study, which does not deal with
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environmental issues beyond the farm gate, also provides an excellent opportunity to use and progress two tools being developed by the OECD: agrienvironmental indicators and the inventory of policy measures addressing environmental issues in agriculture. The study also presented an opportunity to follow-up on the OECD Workshop on Organic Agriculture by examining in detail some of the environmental, trade and policy issues surrounding organic dairy production (OECD, 2003b). The principal author of this report is Darryl Jones. Valuable contributions were provided by Mikael Skou Andersen, National Environmental Research Institute, Denmark (the comparative analysis in Chapter 9); Ellie Avery (Chapters 4 and 8 dealing with organic dairy production); and Allan Rae, Massey University, New Zealand (the GTAP modelling work in Chapter 6). Statistical support was given by Véronique de Saint Martin and Chen Yuong, while Françoise Bénicourt prepared the document for publication. Colleagues in the OECD Secretariat and delegates from member countries provided many useful comments. This report is published under the responsibility of the Secretary-General of the OECD.
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TABLE OF CONTENTS
Summary and Conclusions.......................................................................11 Overview .....................................................................................................11 Dairy farming and the environment ............................................................13 Developments in the structure and practice of dairy farming .....................15 Environmental impacts of organic dairy systems........................................16 Agricultural policies supporting dairy production ......................................17 The impact of further agricultural trade liberalisation on nitrogen manure output and greenhouse gas emissions from the dairy sector ......................19 Policy measures addressing environmental issues in the dairy sector ........19 Organic dairy production – policy measures and market developments.....21 The effect of manure management regulations on competitiveness ...........22 Policy implications......................................................................................23
Chapter 1 WORLD DAIRY MARKETS ..................................................................27 Production ...................................................................................................27 Consumption ...............................................................................................30 Trade ...........................................................................................................31 Chapter 2 DAIRY FARMING AND THE ENVIRONMENT ................................33 An overview of the linkages........................................................................34 Water pollution............................................................................................36 Air pollution ................................................................................................43 Soil quality ..................................................................................................48 Water use.....................................................................................................49 Biodiversity .................................................................................................49 Landscape....................................................................................................52 Decoupling environmental impacts from production..................................53
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Chapter 3 DEVELOPMENTS IN THE STRUCTURE AND PRACTICES OF DAIRY FARMING.............................................................................57 Scale of production .....................................................................................58 Regional concentration................................................................................62 Intensity of production ................................................................................66 Factors driving changes in structure and practice .......................................70 Technologies to improve the environmental performance..........................71 Management practices to improve the environmental performance ...........74 Environmental comparison of dairy farming systems.................................76
Chapter 4 ENVIRONMENTAL IMPACTS OF ORGANIC DAIRY SYSTEMS ................................................................................................79 Overview of environmental impact.............................................................80 Comparison by agri-environmental indicator..............................................82 Implications of the comparative analysis ...................................................88 Chapter 5 AGRICULTURAL POLICIES SUPPORTING DAIRY PRODUCTION ........................................................................................91 The level of support at the OECD level ......................................................92 Comparison of support levels between OECD countries............................93 Composition of support policies .................................................................95 Trade policies affecting milk production ....................................................98 Developments in market price support......................................................101 Summary of agricultural policy reform in the dairy sector .......................102 Impact of agricultural policy on the environment .....................................103
Chapter 6 THE IMPACT OF FURTHER AGRICULTURAL TRADE LIBERALISATION ON NITROGEN MANURE OUTPUT AND GREENHOUSE GAS EMISSIONS FROM THE DAIRY SECTOR 109 Recent progress in dairy policy reform .....................................................110 The liberalisation scenarios.......................................................................112
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The trade model and data ..........................................................................114 Impacts on milk production and trade.......................................................118 Impacts on nitrogen manure ouput and GHG emissions...........................120 Impact on dairy trade GHG emissions ......................................................123 Implications of the modelling results ........................................................125 Chapter 7 POLICY MEASURES ADDRESSING ENVIRONMENTAL ISSUES IN THE DAIRY SECTOR.......................................................129 Overview of developments........................................................................130 Economic instruments ...............................................................................132 Command and control measures ...............................................................141 Advisory and institutional measures .........................................................143 Impact of agri-environment policy measures on trade..............................149 Chapter 8 ORGANIC DAIRY PRODUCTION – POLICY MEASURES AND MARKET DEVELOPMENTS .............................................................155 Policy measures affecting organic dairy production .................................156 Organic dairy market development and issues..........................................165 Trade implications of organic policy measures.........................................171 Chapter 9 THE EFFECT OF MANURE MANAGEMENT REGULATIONS ON COMPETITIVENESS .....................................................................175 Competitiveness issues in the dairy sector................................................176 Basic conditions and features in the six countries.....................................179 Comparative analysis of manure regulations ............................................181 Methodology for comparing the cost of manure management regulations ................................................................................................188 Manure management costs under different regulations ............................191 Implications of the comparative analysis ..................................................194
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Tables 2.1. Milk production and water pollution risk indicators, 1985-87 and 1995-97 ...........................................................................38 2.2. Ranges of biochemical oxygen demand (BOD) concentrations from various wastes ......................................................................................42 2.3. Average ammonia (NH3) emission rates per type of animal ................47 2.4. Average particulate matter (PM) emission rates per type of animal ....48 2.5. Risk status for farm cattle in OECD countries .....................................50 3.1. Share of dairy cow population on holdings with more than 100 cows in selected countries .............................................................................61 3.2. Share of holdings with more than 100 cows in selected countries.......62 3.3. Regional dairy farm structural characteristics in selected countries ....64 3.4. Intensity of milk production in selected countries ...............................68 3.5. Distribution of dairy cow nitrogen (N) manure production by management system in selected countries, 2001..................................73 4.1. Assessment of organic dairy faming’s impact on the environment compared to conventional dairy farming..............................................81 5.1. Composition of milk PSE by country, 1986-88 and 2000-02 ..............97 5.2. Average tariffs for dairy and agri-food products, 1997........................99 5.3. Dairy product budgetary export subsidies, 1995-2001 ......................100 6.1. Agricultural trade liberalisation scenarios..........................................112 6.2. Increase in GHG emissions associated with increased trade in dairy products.....................................................................................124 7.1. Agri-environmental policies affecting dairy producers in selected countries .............................................................................................131 7.2. Agri-environmental payments to specialist dairy farms in the European Union, 1999........................................................................137 7.3. Nutrient taxes on manure in OECD countries....................................139 8.1. Policies to support organic dairy farming in OECD countries...........157 8.2. Typical payments supporting organic dairy farmers in selected OECD countries .................................................................................162 8.3. Organic milk production, consumption and trade ..............................166 8.4. Price premiums for producers and consumers of dairy products .......167 9.1. Basic conditions for and features of dairy production in the six countries .......................................................................................178 9.2. Manure management regulations in the six countries ........................184
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Figures 1.1. Share of world milk production by species of animal, 1992-2001.......28 1.2. Share of world cow milk production, 1997-2001 average ...................29 1.3. Per capita milk and milk product consumption in selected countries, 1998-2000 ............................................................................................30 2.1. Resource and input use and environmental impacts through the dairy supply chain “Life cycle approach” .....................................................35 2.2. Linkages between milk production and the environment.....................36 2.3. Risk to water pollution from nitrogen (N) in dairy manure, 1985-87 and 1995-97 ...........................................................................39 2.4. Gross emissions of greenhouse gases from dairy cows in selected countries, 1999-2001.............................................................................44 2.5. Gross emissions of greenhouse gases from dairy cows, 1990-92 to 1999-2001 ..........................................................................45 2.6. Dairy cow nitrogen (N) manure production per unit of milk in selected countries, 1985-97 ..............................................................54 2.7. Dairy cow GHG emissions per unit of milk in selected countries, 1990-2001 ............................................................................................55 3.1. Number of cows in milk and dairy holdings in selected countries, 1990-2001 ............................................................................................59 3.2. Average number of cows in milk per holding in selected countries, 1990 and 2001 ......................................................................................60 3.3. Relationship between nitrogen manure output and milk yields per cow .................................................................................................67 5.1. OECD average Producer Support Estimate for milk, 1986-2002 ........92 5.2. Producer Support Estimate by commodity, 1986-88 and 2000-02 ......93 5.3. Producer Support Estimate for milk by country, 1986-88 and 2000-02..........................................................................................94 5.4. Market Price Support for milk, 1986-2002 ........................................101 5.5. Policy reform in the milk sector by country, 1986-88 to 2000-02 .....103 6.1. Milk production quotas ......................................................................115 6.2. Changes in milk production resulting from further agricultural trade liberalisation.......................................................................................119 6.3. Changes in dairy cow N manure output resulting from further agricultural trade liberalisation...........................................................121 6.4. Changes in dairy cow GHG emissions resulting from further agricultural trade liberalisation...........................................................123 9.1. Annual milk production in the six countries, 1980-2002 ...................179 9.2. Comparison of manure management costs in six countries ...............192 9.3. Composition of manure management costs........................................193 9.4. Manure management costs per tonne of fat corrected milk ...............194
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Boxes 9.1. Potential impact on environmental standards on trade.......................177
ANNEX.....................................................................................................197
Annex Tables 1.1. Cow milk production in selected countries .......................................198 1.2. Major milk and milk product trading countries.................................199 5.1. Total OECD Producer Support Estimate for milk.............................200 5.2. Milk producer support in OECD countries ........................................201 5.3. Composition of total OECD PSE for milk by support category ........202 5.4. Average bound tariffs for dairy products by in, out and non-quota for selected OECD countries..............................................................203 6.1. Selected European Union dairy statistics ...........................................204 6.2. Regional aggregation for trade liberalisation scenarios .....................205 6.3. Sectoral aggregation for trade liberalisation scenarios.......................206 6.4. Regional base data for trade liberalisation scenarios, 1997 ...............207 6.5. Change in agricultural production as a result of trade liberalisation scenario #1 .........................................................................................208 6.6. Change in agricultural production as a result of trade liberalisation scenario #2 .........................................................................................209 7.1. Cross-compliance requirements in OECD countries..........................210
BIBLIOGRAPHY ...................................................................................211
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SUMMARY AND CONCLUSIONS
Overview Milk production in OECD countries raises a number of policy challenges when viewed in terms of the economic, environmental and social dimensions of sustainable agriculture. While per capita milk consumption is relatively stable in most OECD countries, consumption is expected to increase strongly in nonOECD countries. OECD countries account for over 80% of world exports. The high level of support provided to milk production in most OECD countries suggests that significant adjustments may occur within OECD countries as a result of further trade liberalisation. At the same time, the environmental consequences of dairy farming are of increasing public concern. Within this broad context, this study focuses primarily on the linkages between milk production, trade and the environment. In particular, two linkages have been explored: the impact of trade liberalisation on milk production and the environment; and the impact on competitiveness of policies introduced to reduce the harmful environmental effects of milk production. Animal welfare requirements can also have an impact on dairy farming, but a review of these policies is beyond the scope of this study. Eight main conclusions emerge from this study and are discussed in more detail in the following sections. x
In regions with a high concentration of milk production there is a larger risk of water pollution, mainly in certain regions of Europe and Japan, although the risk is increasing in Australia, Korea and New Zealand. There is evidence that some environmental pressures are becoming more “decoupled” from milk production in some countries. The impact on ecosystem biodiversity and landscape varies considerably.
x
Although dairy cow numbers have fallen in some countries, there has been a significant increase in the number of cows per farm in all countries and evidence of greater intensity of production. Regional changes have sometimes led to a greater concentration of production. These potentially raise the environmental risks
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associated with milk production. Technologies and management practices have been developed that reduce the risks, all requiring an investment in human-capital if environmental performance is to be improved. x
A review of comparative studies that analyse the environmental effects of both organic and conventional dairy farms reveals that organic farms perform better in terms of soil and water quality, and species biodiversity, but can perform worse in terms of methane emissions.
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The level of support for milk is high relative to other agricultural commodities, varies greatly between countries, and is mainly provided through the most distorting forms. Although high support levels are not a necessary condition for environmental pressure, those countries with the highest levels of milk support are also those with the greatest risk of nitrogen water pollution from dairy farming. However, linking changes in support (level or composition) with changes in environmental risk is much more difficult to substantiate.
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Further trade liberalisation will raise the risk of water pollution from dairy farming in Australia, New Zealand and in some central European countries where production is anticipated to expand. In others, particularly the high support countries, the risk is likely to reduce. The increase in greenhouse gas (GHG) emissions from dairy cows may become an important constraint on New Zealand meeting its Kyoto commitments.
x
Environmental policies most relevant to milk production focus on water pollution and ammonia, and more recently on biodiversity and GHG emissions. Environmental policy measures are predominately regulatory, which are increasing in severity and complexity, while payments for grassland management are provided in many European countries. Research and advisory services have also formed a crucial part of most government’s policy response.
x
A range of policy instruments have been used to encourage organic farming, including organic dairy farming. Particularly in Europe, organic milk production is supported through area payments to offset income losses. Problems of over-supply have
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emerged in some markets, leading to the adoption of a more coordinated approach to the policy mix. Organic regulations and payments have been influencing patterns of trade in the organic milk sector. x
Manure management regulations vary between countries reflecting to some extent variations in dairy production systems. Consequently, the cost of manure management regulations on a per cow basis varies by up to 40% between countries. But the cost is not significant in terms of overall production costs, and therefore is unlikely to be having an impact on trade competitiveness. Manure management costs per cow decrease with farm size, and have been offset in many countries with payments to assist in storing, transporting or applying manure.
Dairy farming and the environment The main environmental issues associated with milk production concern water and air pollution, and biodiversity. Water pollution arises from the inappropriate disposal of manure and the application of fertilisers for forage production. Nutrients, principally nitrogen and phosphorous, are a significant component of pollution from agriculture to surface water, groundwater and marine waters, damaging ecosystems through eutrophication and degrading their recreational use. Water bodies can also be affected by organic effluents and pathogens contained in manure. Water pollution is mainly a local or regional concern, although cross-border pollution can occur. It is difficult to quantify the specific contribution of dairy farming to water pollution but data contained in the OECD’s soil nitrogen balance indicator – an indirect pressure indicator – reveals the potential risks. The OECD balance is only calculated at the national level so regional variations in nitrogen balances, which can be significant, are derived from other information sources. The actual level of pollution depends on factors such as the soil type, climate and management practices. Countries can be grouped into four distinct groups according to the level of risk as measured by the country soil nitrogen balance and the importance of dairy cow manure as a source of nitrogen. The risk is highest in Belgium, the Czech Republic, Denmark, Germany, Ireland, Japan, the Netherlands, Norway, Portugal, Switzerland and the United Kingdom. In Australia, Canada, Italy, New Zealand, Spain and the United States the risk of nitrogen pollution from dairy cow manure is low at the national level, although studies indicate that the risk at the regional level can be just as large as in the high-risk countries. In 13
Austria, Poland, Portugal and Sweden, the overall nutrient balance is low but the contribution of dairy cows to total nitrogen input is greater than 10%, while in Korea the overall nutrient balance is high but manure from dairy cows contributes less than 10%. Changes in the nitrogen balance indicator between 1985-87 and 1995-97 reveal a number of different trends in the potential risk of water pollution from dairy farming. The risk has increased in Australia, Korea and New Zealand, with dairy cow manure nitrogen production increasing in response to higher levels of production. For all other countries, the risk has decreased with a fall in the nitrogen balance and in dairy cow nitrogen manure production, although dairy farming remains a significant threat in many. Dairy farms are also a source of greenhouse gas (GHG) emissions, mainly from enteric fermentation (methane) and manure management (methane and nitrous oxide). The absolute level of GHG emissions from dairy farms in carbon dioxide equivalent terms is highest in the United States, France and Germany, reflecting both greater cow numbers and the relatively higher emission rates per cow. Only in New Zealand do dairy farms contribute significantly to the national level, contributing over 20% of total GHG emissions. In all other countries dairy cows contribute less than 6% of total emissions. Further, over the period 1990-92 to 1999-2001, total GHG emissions from dairy cows decreased in all countries except Australia and New Zealand. In some countries, ammonia emissions from livestock housing facilities and from poorly managed storage and spreading of manure are of serious local concern. Livestock accounts for around 80% of total ammonia emissions in the OECD, with the importance of dairy cows as a source of emissions following a similar pattern to its contribution to livestock nitrogen manure production. The issue is particularly serious in regions of high dairy cow concentration in parts of northern Europe and Asia. In most countries dairy nitrogen manure output and GHG emissions are becoming more “decoupled” from production in the sense that the output of these environmental risk indicators per unit of milk has fallen over time. While some care is required in interpreting these trends, improvements in productivity and the adoption of more environmentally friendly technologies and management techniques would suggest that such changes could be expected to occur. Biodiversity issues relating to dairy farming include the genetic erosion of dairy breeds and the impact on ecosystem diversity. In terms of genetic diversity, there are globally 1 224 recorded breeds of cattle, of which 299 are at
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risk of being lost. While OECD countries account for 191 of those at risk and the Holstein breed dominates milk production in many countries, the risk of further genetic loss does not appear to be a major issue due to the establishment of conservation programmes for most native breeds in OECD countries. The genetic conservation situation in non-OECD countries is not as positive. The impact on ecosystem biodiversity is diverse. In general, a larger range of biodiversity, in terms of plant, insect and bird species, is found on more extensive dairy production systems. These can be lost when land is more intensively managed, resulting in “green deserts” of biodiversity, although in some areas these more intensively managed lands have become important for migrating wildfowl. They can also be lost when dairy production is abandoned. Whether this is an issue depends on the relative value of the biodiversity lost and those replacing them. This is a particularly important concern for mountain dairy systems. Milk production also contributes to landscape when it is associated with farms producing amenities such as hedgerows, farm buildings and even through cows grazing on pasture. In some countries the open landscape of intensive production is desired, in others the existence of extensive systems with hedgerows and hay meadows is appreciated. Developments in the structure and practice of dairy farming To meet growing consumer demand, particularly in developing countries, world milk production increased by 20% between 1982 and 2001. In most OECD countries milk production has either remained stable or fallen slightly, reflecting in many cases the existence of output quotas. Growth has been the most rapid in Australia and New Zealand, moderate in Korea, Mexico and Portugal, and steady in the United States. Trade has grown at a faster rate than production, but less than 8% of milk is traded internationally in some form or other (14% if intra-EU trade is included). Despite differences in production growth, there have been some similar structural changes in the dairy sector. In all OECD countries, the scale of production has increased, shown by an increase in the average number of animals kept per holding, even in countries when overall cow numbers have decreased. This has lead to an increase in the number of larger, more capitalintensive operations. Milk production has also become more intensive, as measured by the volume of milk produced per cow and per hectare of forage area. There have also been some changes in the regional pattern of production. The change has been more noticeable in countries that do not operate production quotas. Major factors driving these structural changes include capital
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intensive technologies (e.g. technologically advanced milking parlours), management intensive technologies (e.g. record keeping and rotational grazing) and attempts to reduce on-farm production costs. These structural changes potentially raise the environmental risks associated with milk production. A greater number of animals per farm results in a larger volume of manure that must be disposed of. If there is less land available per cow, the quantity of nutrients supplied to the soil will increase, with potential harm to water quality. In some cases, changes in the regional distribution of production may be reducing the environmental pressure from dairy farming as production moves out of more marginal production areas (e.g. following deregulation in Australia). In others, the risk may be increasing as the average herd size in the expanding regions can be significantly higher than in traditional regions (e.g. in New Zealand and the United States). The environmental performance of dairy farming is also being affected by technological developments (e.g. in regard to housing (holding) facilities, manure storage and treatment systems including wetlands, and alternative energy production units) and management practices (e.g. altering feed composition and manure spreading practices). Some of the developments are not scale-neutral (e.g. methane converters), nor lead to increases in production (e.g. fencing off native bush or waterways). Consequently, operations of a larger-scale have a greater potential to introduce such technologies because the cost can be spread over a larger volume of production. Other changes, such as in feed composition can provide win-win situations for all farmers, lowering both production costs and the environmental risks. In all cases, along with production technologies, developments have led to a significant increase in the humancapital requirement of milk production. Environmental impacts of organic dairy systems At present there is little empirical work to assess the environmental impact of different dairy systems and scales of production. Results from the few comparative studies indicate that larger, more intensive operations appear to have a higher risk of environmental damage. This study has examined in particular differences between organic and conventional dairy production systems. Although there are wide variations with the spectrum of organic and conventional production, both within and between countries, a number of key findings emerge. Organic dairy farms generally display a greater balance between the level of inputs, such as nutrients, pesticides and energy, and what is required for production. Consequently, organic dairy farms are found to perform better in
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relation to agri-environmental indicators of soil quality (e.g. soil organic matter, biological activity and soil structure), water quality (e.g. nitrate, phosphate and pesticide leaching), and species biodiversity. On the other hand, organic systems do tend to have a higher level of methane emissions. For other indicators, either no clear difference between the systems has been found or yet studied. A final assessment of the comparative environmental performance of organic dairy farming, and organic farming in general, should consider its broad impact on a wide range of variables rather than its impact on any specific indicator. Appropriate farm management is crucial in ensuring that the potential benefits actually occur, particularly in relation to nutrient leaching, carbon dioxide emissions, and animal health concerns. Another consistent result was that while the environmental pressure from organic farming was less on a per hectare basis, the difference between systems reduced substantially when measured on a per unit of output basis. Agricultural policies supporting dairy production Milk production is very highly supported in most OECD countries but there are exceptions. OECD countries can be grouped in terms of their support levels for milk. The first group (Iceland, Japan, Norway and Switzerland) has relatively high tariffs and consequently higher overall levels of support, averaging over 70% of gross farm receipts. A second group have slightly lower tariffs, with support in the range of 40-55%. These include Canada, the European Union, Hungary, Korea and the United States. These countries also use export subsidies, along with Norway and Switzerland. At the other extreme, support for dairy farmers in New Zealand is about 1%. In countries where support is provided to milk producers, policy measures that are more output(e.g. measures such as tariffs and export subsidies) or input-linked make up a significant proportion. In comparison to other commodities, support levels for milk are generally higher even in countries where commodity support is low. This pattern of support for milk, in terms of the level and composition, influences production patterns and consequently changes the pressure on the environment. While it is difficult to separate out the effects of support policy, the high level of output- and input-linked support for milk in many countries has encouraged greater volumes of more intensive production and this is likely to have exerted greater pressure on the environment than if producers were responding to market signals, all other things being equal. The countries where the potential risk of nitrogen water pollution is the highest are also those with the highest level of support to milk producers i.e. northern Europe and Japan. However, high support levels are not the only factor causing environmental pressure. Harmful environmental impacts of milk production are also evident in
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countries with low levels of support, particularly where production is becoming more intensive. Milk production quotas are an important component of dairy policy in many countries that provide high support to dairy farmers. By controlling the expansion of milk production generated by high support prices they have limited the environmental impact that would have otherwise occurred. But they have effectively “locked-in” the regional distribution of production so that changes in geographic patterns of production are less obvious in quota countries than those that do not have them. The environmental impact of this is not obvious. While they have contributed to the maintenance of dairy farms in marginal areas considered to be of high environmental value, it seems very unlikely that the geographic distribution of dairy farms at the time quotas were imposed was optimal from an environmental point of view, particularly since quotas were imposed for production and not environmental related reasons. Quotas may also have contributed to increasing the intensity of production on some farms, by providing greater incentives to increase production per cow rather than to expand the number of cows and area involved in milk production. However, increases in intensity of production have also been driven by other policy changes, such as the reform of the European Union cereal market. There have been moves to reduce output- and input-linked support in most countries, although the rate of decrease varies considerably. In a few, such as the Czech Republic and Switzerland, reductions have been compensated by increases in payments based on animal numbers or historical entitlements. It is difficult to connect changes in support for milk with changes in environmental pressure. A number of other variables can contribute including changes in support provided to other commodities, agri-environmental measures, and market induced changes. Changes in environmental impact need to be analysed on a case-by-case basis, and appear to vary according to the environmental concern. However, it seems clear that for those negative environmental impacts that are directly related to production, such as air and water pollution, these risks have decreased in countries where production has fallen. To the extent to which support changes have driven the fall in production, policy reform have contributed to an improved environmental performance from dairy production. In some countries, reform has resulted in an expansion of milk production, either in the country as a whole or in certain regions, and this has raised some environmental concerns.
18
The impact of further agricultural trade liberalisation on nitrogen manure output and greenhouse gas emissions from the dairy sector While the WTO Uruguay Round Agreement on Agriculture (URAA) made some progress in reducing and limiting the import barriers and export subsides provided to milk producers in OECD countries, significant trade impacting policies remain in place. Consequently, when the current WTO Doha Development round of negotiations is finally concluded, these should be further reduced. The present study considered the impact of two general agricultural trade liberalisation scenarios on two agri-environmental indicators relevant to the dairy sector: nitrogen manure output and the greenhouse gas emissions from cows. The first scenario considered reductions very similar to that negotiated under the URAA and the second, the elimination of export subsidies and trade distorting support, and substantial tariff cuts. Under both further trade liberalisation scenarios, the global level of milk production increases by less than 1%. What is more significant is the projected change in the regional distribution of production. Milk output is estimated to fall by around 20% in the most highly supported countries, Iceland, Japan, Norway and Switzerland, and increase by around 20% in New Zealand and Australia, with some increase also likely in central European countries. As the indicators under review are closely related to production, the study predicts increases in dairy nitrogen manure output and GHG emissions in Australia and New Zealand, and decreases in the other OECD countries. Overall, there is a very small net increase in global emissions. Production is expected to change little in Korea and the United States. As a consequence of changing production patterns, global trade in dairy products will rise, by 14% in the most liberating scenario. The increase in GHG emissions associated with expanded dairy product trade is insignificant in comparison with current levels of direct emissions from milk production. An important qualifier to these results concerns the assumption regarding the value of the producer rents associated with milk production quotas. In both scenarios there is no change in production in the European Union and Canada. This is because the fall in milk prices is not enough to lower production as quotas remain binding i.e. the quota rents still exist despite further liberalisation. Policy measures addressing environmental issues in the dairy sector Reducing the harmful environmental impacts of milk production, particularly in relation to water pollution and ammonia emissions, is a major
19
objective of agri-environmental policy measures affecting the dairy sector. In recent years, measures have been introduced in some countries to deal with concerns such as the impact of dairy on biodiversity and to a lesser extent GHG emissions. There are relatively few measures that specifically relate to dairy, with milk producers affected by wider policies aimed at the livestock sector or the agricultural sector as a whole. Some policy measures, such as those relating to ammonia or GHG emissions have been introduced in response to international environmental agreements and this trend is likely to continue. Others, such as those relating to water quality and biodiversity have been largely motivated by local or regional concerns, and are very often designed and implemented at that level. In terms of policy measures, the initial response by most governments to address environmental issues in the dairy sector is to develop research programmes and provide on-farm technical assistance and extension services to farmers. The aim being to try and achieve the environmental result at least cost to each individual farmer. This has often been supported or followed quickly by regulations. Such policy measures remain an integral part of the overall environmental strategy in most countries. For example, this process of first undertaking research and advice is being carried out in relation to GHG emissions from dairy cows in countries such as Australia and New Zealand where this is an emerging issue. There is an array of regulations impacting on dairy farming practice in all OECD countries. Regulations were first introduced to limit point source pollution, for example by prohibiting or limiting the direct discharge of dairy cow manure into waterways. Regulations have been steadily introduced to limit non-point source pollution, for example by regulating the quantity of manure that can be produced, the quantity that can be spread and the way in which it is spread. Over time there has been a clear trend for the number of regulations to be increasing and to be imposing more stringent conditions on dairy farmers. A greater number of measures and generally of a more restrictive nature have been applied to producers in northern European countries. Only in Norway and Switzerland are environmental cross-compliance requirements imposed as a condition on the receipt of budgetary support payments to milk producers. In many countries, payments have been provided to assist dairy farmers in meeting the costs imposed by new regulations, particularly those associated with manure management such as the storage, transport and application of manure. Such payments have mainly taken the form of grants, and interest or tax concessions, and have generally been made available for a limited time only following the introduction of the regulation. Support has also been provided to encourage alternative uses for dairy manure, such as an energy source, in both 20
on-farm and off-farm operations. Payments to support the use of breeds at risk, offset the cost of input restrictions and, most importantly, the management of grasslands are also provided. While dairy farmers are subject to general pesticide and fertiliser taxes in a limited number of countries/states, taxes specifically relating to livestock pollution have only been used in Belgium, Denmark, France and the Netherlands. These taxes are levied on the volume of nutrients above a certain level measured at the total farm level. Organic dairy production – policy measures and market developments Within the range of agri-environmental policy measures potentially impacting on dairy producers, a large number have been introduced to encourage and support the development of organic farming. All OECD countries have either in place, or are in the process of finalising, regulations defining national organic standards, including those for organic milk and dairy products. In many countries, the inspection and certification of growers and processors according to these standards is being carried out by government agencies; in others private sector parties have been contracted to do so. In addition, OECD countries in Europe provide financial support in the form of annual per-hectare payments for both the conversion and maintenance of organic milk production. In North America, producers are provided with some assistance to offset the cost of certification. On the demand side, governments have supported organic production through information campaigns, supplychain co-ordination, and institutional procurement policies favouring organic produce. In a growing number of countries, greater attention is being paid to the coherence of organic policies through “Action Plans”, to ensure that the market is not disrupted by large swings in supply and demand, which impact on price premiums. There has been a significant increase in the number of organic dairy farmers in most countries since the mid 1990s, often as a consequence of support policy developments, although organic production remains a very small share of total milk production in all but a few countries. In some European countries such as Austria and Denmark, milk is the most important organic product. Price premiums for organic dairy products are higher at the retail level than the farm level due to comparatively higher per unit costs of processing a smaller volume of milk. It is also common for organically produced milk to be sold as, and processed with, conventional milk, i.e. the milk producer does not receive a price premium. In some countries, the price premium for organic milk collapsed following a large increase in the number of suppliers. Concerns have been raised about the impact of agri-environmental measures on trade competitiveness, and the resulting impact on the pattern of 21
trade and location of production. At present there is little international trade in organic milk and dairy products, with the exception of intra-EU trade. While there may be economic and environmental justifications for policy intervention in the organic milk market, there are a number of trade implications arising from such measures. While the creation of a national standard may remove confusion from the consumer market, it may place obstacles in the path of trading organic milk and milk products. There are a few examples that suggest that some regulations and certification requirements have created trade barriers to entry in the organic milk and milk product markets. The move to equivalence will help facilitate trade. It appears that payments for organic milk production have also influenced trade patterns. Those countries that first supported the development of organic milk production are some of the most important traders, exporting to other countries where organic milk production did not exist or was in small supply. Policies to stimulate demand for organic products, including milk, may also have a trade distorting effect to the extent that they specifically encourage the consumption of local product. The effect of manure management regulations on competitiveness In addition to the possible trade effects associated with organic policies, another important issue for the dairy sector is the extent to which variations in environmental regulations impact on trade patterns by imposing significantly different costs on milk producers. To answer this question, a comparative analysis of the manure management costs associated with the storage, disposal and application of manure in six countries/regions was undertaken. These costs are determined by the requirements of national/regional regulations, and are not net of the costs that farmers would have incurred if regulations had not been in place. While other environmental regulations exist, manure management regulations are seen as the most comprehensive and costly for dairy farmers. The analysis shows that manure management costs, when measured on a per cow basis, were highest in Denmark and the Netherlands. They were approximately 10% higher than the cost of the new regulations in Ontario (Canada), and around 40% higher than those in Japan, Switzerland and Waikato (New Zealand). However, in terms of overall production costs, differences in manure management costs are not of a scale (2-4% of costs per cow) that explains differences in competitiveness between the six countries/regions. When measured on a per tonne of fat corrected milk basis, the country order changes with New Zealand manure management costs being the highest. Two main points of divergence arise when these results are compared to those from the similar analysis done for the pig sector. First, manure management costs in the dairy sector are generally lower, possibly reflecting the 22
less intensive nature of milk production on a per hectare basis. Second, there is less diversity in manure management costs between countries/regions in the dairy sector, reflecting the more stringent regulations that are place on pig producers in some countries. Differences in production costs imposed by regulations should be expected to the extent that these are associated with variations in the environmental cost of milk production and are in conformity with the polluter-pays-principle. This is particularly true for those environmental effects that are of a local nature. The environmental costs of milk production are likely to vary between countries just as labour, land and capital costs vary between countries. In most countries, support has been provided to offset the increased costs imposed by regulations, limiting the extent to which the true cost of pollution is being internalised by dairy producers. Another result of the analysis was the relationship between farm size and the costs imposed by manure management regulations. The costs of manure management regulations, as measured in relation to total production costs per cow were greatest for the smallest farm size examined (40 cows). This is due to economies of scale in the construction of storage facilities, and the lower quantity of production across which costs are spread. As a general rule, manure management costs per cow decrease with farm size. In the analysis, costs for the largest farm (160 cows) are higher than for the middle-sized farm, but this is because of the assumption that the larger farm is required to transport and apply manure off their farm in order to meet the regulatory requirements. If the largest farm did not have this requirement, then its manure management cost per cow would be the lowest. A similar finding was observed in the pig sector. Policy implications A number of policy implications can be drawn from this study, including the following. x
Flows of environmentally damaging materials into water (e.g. nutrients) and emissions into the air (e.g. GHG and ammonia) are a common consequence of dairy production. Reducing the flows of these materials and emissions to an acceptable level of risk in terms of human and environmental health is a priority for policy.
x
All countries will need to respond to increases in pollution risks associated with the further intensification of production driven by market and technological developments. 23
x
Technologies and management techniques do offer the possibility of reducing the environmental risks, with evidence of some “decoupling” of environmental risk from milk production taking place. These may require significant investment in human-capital.
x
Further trade liberalisation is likely to increase livestock environmental pressure in countries where production would increase such as Australia and New Zealand, requiring careful attention to the effectiveness of policies.
x
Further trade liberalisation may also reduce the environmental pressure in some of the countries where it is currently the highest, but for European Union countries, including some where dairy production carries a large environmental risk, milk quotas remain binding, limiting any beneficial adjustment.
x
Progress in a few countries in developing policies that tax farmers for the potential pollution resulting from milk production demonstrate that the difficulties in taxing “non-point” source pollution may be able to be overcome to a certain extent.
x
Experience has shown that government policies to support organic milk production can impede market signals. Governments need to work with and not against the market.
x
While maintaining the integrity of organic standards, attention needs to be given to minimising their potential trade distorting effect.
x
Providing support payments to farmers for environmental benefits/services requires inter alia investment in research to ensure that the benefit being paid for is actually being provided.
x
The multiple and sometimes conflicting impacts with biodiversity and the variation in public value indicate that a targeted approach is very necessary to achieve objectives in this area.
x
Policy makers need to recognise the cost impact of agrienvironmental policies, especially regulations, on different sized producers and consider this in relation to the resulting environmental benefit. A one-size-fits-all approach, particularly
24
when focused on a specific farming practice, may be neither environmentally effective nor economically efficient. x
Differences in regulations do exist, but these appear to reflect differences in the environmental risk, and are not large enough to impact on the trade competitiveness of producers. Payments to offset the cost of regulations will reduce the extent to which farmers understand the cost they impose on the environment and limit the appropriate implementation of the polluter-paysprinciple.
25
Chapter 1 WORLD DAIRY MARKETS
x
Cow milk production accounts for the largest share of total world milk production.
x
The European Union and the United States are major producers of cow milk, together accounting for 40% of global production. India, Russia and Brazil are important non-OECD producers.
x
Since 1980, significant increases in production have occurred in Australia, Korea, Mexico, New Zealand and Portugal, with growth limited in a number of OECD countries by the imposition of production quotas.
x
Trade in dairy products has increased at a faster rate than production, particularly during the last half of the 1990s. While only a small proportion of total world production is exported, exports are significant for some European and Oceania countries.
This chapter provides a brief overview of the world dairy market, discussing the levels and trends in production, consumption and trade of milk and milk products. Since 1980, there has been a steady increase in world cow milk production, although production in some OECD countries has been constrained by quotas, with some significant increases in others. OECD countries are major producers and consumers of milk and milk products, dominate the export of milk and milk products, and are important markets for imports. Production Cow milk production accounts for the largest share of world milk production by animal species (Figure 1.1). This report focuses on milk production from cows, and references to “milk production” without reference to animal type are referring to milk produced from cows and not from other
27
animals. Although, its share has declined, world cow milk production increased by just under 1% per annum during the period 1992 to 2001, to reach a total of 495 million tonnes. Figure 1.1. Share of world milk production by species of animal, 1992-2001 % 100 90
Cow
80 70 60 50 40 30 20
Buffalo
10
Sheep and Goat
0 1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
Source: IDF [International Dairy Federation] (2003), “World Dairy Situation 2003”, Bulletin of the International Dairy Federation, 384/2003, August.
The European Union is the world’s largest producer of cow’s milk, producing around 122 million tonnes in 2001 and accounting for around 25% of total world production in the period 1997-2001 (Figure 1.2). Throughout this report the EU is defined by the 15 member states prior to the accession of 10 additional members on 1 May 2004. Within the EU, the top five producers are Germany, France, the United Kingdom, the Netherlands and Italy, together accounting for about three-quarters of total EU production. Excluding the Netherlands, the other four countries contain 67% of the useable agricultural land and 63% of the population. Outside the EU, the largest producer is the United States, along with nonOECD countries such as Brazil, India and Russia. While countries such as Brazil, India and Russia have very large cow populations, milk yields in these countries are very low. India is the world’s largest producer if buffalo milk is included. In total, OECD countries account for around 60% of cow milk production.
28
Figure 1.2. Share of world cow milk production, 1997-2001 average
EU-15 25% United States 15%
Russia 6%
India 7%
Brazil 4%
Other 37%
New Zealand 2% Australia 2%
Source: OECD Secretariat.
Since 1980, production has been relatively stable or slightly falling in most OECD countries, due in many cases to the existence or establishment of production quotas during this period (Annex Table 1.1). There are a few notable exceptions to this trend. During the 1980s there was a large expansion of milk production in percentage terms in Korea and to a lesser extent Portugal. Then, during the 1990s, milk production increased significantly in Australia and New Zealand, and continued to grow steadily in Korea, Mexico and Portugal. Production has expanded in the United States at a fairly constant rate of about 1% over the period 1980-2001, translating into the largest increase in volume terms. Production in the European Union has been limited by the imposition of production quotas since 1984. In terms of the major dairy products, there has been a decline in skim milk powder (SMP) and butter production since the mid-1980s. This has been offset
29
by a steady increase in the quantity of cheese and whole milk powder (WMP) production. Consumption For most countries, a large proportion of milk production is consumed domestically in various forms including fluid milk and other fresh products such as yoghurts, or in processed products such as butter, cheese and milk powders. Per capita milk consumption rates in OECD countries are relatively high and stable, with the exception of Japan and Korea where consumption rates are lower but increasing (Figure 1.3). Figure 1.3. Per capita milk and milk product consumption in selected countries, 1998-2000
Netherlands Sweden Norway France United States Australia EU-15 Argentina New Zealand Canada Czech Republic Poland Spain Russia Chile Brazil Mexico Japan South Africa Korea Thailand Nigeria China
0
50
100
150
200
250
300
350
400
kg milk per capita
Source: DAFF [Department of Agriculture, Fisheries and Forestry, Australia] (2003), Australian Food Statistics 2003, Canberra, ACT.
30
Approximately one-quarter of world cow milk production is consumed in the form of fluid products, although the share of production consumed as fluid product and per capita consumption rates vary from country to country. In some OECD countries per capita consumption rates of fluid milk are falling, with milk increasingly utilised only as a beverage and being substituted for fermented milk, milk drinks and dairy desserts. In contrast the volume of liquid milk sales in developing countries is steadily rising because of improved distribution systems and increased income per household. Trade Because a large share of milk production is consumed domestically, and despite technological developments in refrigeration and transportation, international trade in milk and milk products represents only about 8% of world production, excluding intra-EU trade (14% including intra-EU trade). Most dairy product trade is in bulk commodities, with butter, cheese, SMP and WMP accounting for around 80% of the value of trade (Jesse, 2003). The share of production traded varies considerably between milk products. At one extreme, approximately 50% of WMP production is exported. At the other, exports of retail packed liquid milk account for less than 0.5% of production. In between, approximately 30% of SMP, 10-15% of butter and retail packed condensed milk, and 7% of cheese production is exported (Vavra, 2002). While trade has traditionally been dominated by butter and SMP products, during the 1990s the main growth was in WMP and cheeses. OECD countries are the major exporters of dairy products (Annex Table 1.2). Together they accounted for 82% of world exports in the 1997-2001 period, excluding intra-EU trade (90% if included), a reduction from the early 1980s when 94% of world exports originated in OECD countries. The European Union is the largest exporter of dairy products, although its share of total exports (excluding intra-EU trade) has fallen from about 55% of world exports in the first half of the 1980s to approximately one-third during the last half of the 1990s. In contrast, exports from Australia and New Zealand have risen substantially, particularly in the form of WMP and cheese, and also from Mexico and the United States but from a much lower base. The world’s largest traders in terms of exports as a percentage of production are New Zealand (70%), the Netherlands (61%), Ireland (55%), Denmark (50%) and Australia (49%). Belgium is a major processor of milk within the EU and is now exporting more than it produces domestically. While the United States is a major milk producer, only 3% of its production is exported.
31
Imports of milk and milk products are less concentrated among countries than exports. While dominating the export of dairy products, the OECD as a whole is not as significant in terms of imports, accounting for only 30% of total imports in the 1997-2001 period, excluding intra-EU trade (around 60% if included). The major markets in terms of total volume of product are the European Union, Japan, Mexico and the United States. In almost all countries, the volume of imports has increased during the 1990s, with significant increases in Canada, Hungary, Korea and Poland. The importance of individual countries varies from product to product. For example, the major import markets for cheese are the European Union, Japan, Russia and the United States. For milk powders, developing markets are important with Algeria, Brazil and Malaysia major importers of WMP, and Algeria, Mexico and the Philippines significant importers of SMP. For butter and butteroil, the EU and Russia are the most important import markets (IDF, 2003).
32
Chapter 2 DAIRY FARMING AND THE ENVIRONMENT
x
The key environmental issues associated with dairy farming concern water pollution (mainly nitrogen and phosphorus), air emissions (principally greenhouse gases (GHG) and ammonia), and the links between dairy farming and biodiversity.
x
The environmental risks of dairy manure disposal in certain regions have increased as production units have grown fewer, larger, and more specialised. The level of risk to water pollution from nitrogen in dairy manure is highest in Japan and several European countries, with the risk increasing in Australia, Korea and New Zealand as production has expanded.
x
Greenhouse gas emissions from dairy farming have decreased in almost all OECD countries, and generally represent a low share of overall GHG emissions. Only in New Zealand are dairy cows a significant source of GHG emissions.
x
While there are some risks to the genetic stock associated with widespread adoption of the Holstein breed for milk production, most OECD governments have in place programmes to protect the genetic diversity of native cattle populations.
x
The impact of milk production on ecosystems is diverse. While increasing the intensity of milk production generally reduces biodiversity, some intensive systems are valued for their contribution to migratory birds and landscape value.
x
Evidence suggests that milk production has grown more rapidly than the output of nitrogen in manure and GHG emissions i.e. some decoupling has occurred. This is probably due to increased productivity, and the adoption of environmentally friendly technologies and management practices.
The dairy sector plays an important part in the agricultural activity of many OECD countries, with global demand for dairy products expected to continue to rise. Milk is produced through a range of different farming systems, e.g. indoor facilities, pastoral based systems and mountain dairy farming, reflecting to some
33
extent different agro-ecological conditions and land availability. Consequently, the potential environmental impacts of dairy farming are many and complex. While water and air pollution from dairy farming are of increasing concern for most OECD countries, a number of other environmental issues such as soil erosion, preservation of biodiversity and landscape are also considered important in some countries. Along with other agricultural sectors, growing public awareness of the environmental impact of dairy farming has raised concerns for farmers, processors and policy makers. This chapter provides an overview of the environmental impacts of dairy farming and comments on the trends in these impacts in OECD countries. An overview of the linkages A broad view of the dairy industry can be taken by considering the entire agro-food chain, extending from feed production through to the final consumption of dairy products. The “life-cycle approach” illustrates the range and diversity of environmental inputs and outputs resulting from the actions of dairy producers, processors, marketers and consumers along the food chain (Figure 2.1). However, it is not the objective of this study to examine the entire range of impacts along the milk “life cycle”; instead the focus is on the direct impacts on the environment of the milk production stage of the chain. One consistent finding of the “life cycle” assessments that have been done in the dairy sector is that production at the farm level has the greatest environmental impact of all the stages (Berlin, 2002). The scope of the direct linkages between milk production and the environment cover a wide range of issues (Figure 2.2). The most important of these issues concern the contribution to water and air pollution, although other environmental issues need to be recognised, including soil quality, water use, biodiversity and landscape.
34
Water emissions Air emissions Residues Odours
Soil erosion Water emissions Air emissions Biodiversity impacts
Solid waste
Packaging
Energy Glass Metals Plastic Paper/cardboard
ENVIRONMENTAL IMPACTS
Water emissions Air emissions Residues and solid waste
Processing
Water Energy Cleaners/ sanitzers
Air emissions Chemical residues
Distribution and Marketing
Energy (transport)
Air emissions Solid waste Organic residues and effluents
Consumption
Energy (cooking)
35
Source: OECD Secretariat, adapted from Pagan, R. and M. Lake (1999), “A whole of life approach to sustainable food production”, Industry and Environment Review, Vol. 22, Nos. 2-3, pp. 13-17, United Nations Environment Programme.
Milk Production
Water Energy Feed Medicines
Agricultural Feed Production
Soil Water Energy Fertilisers Pesticides
RESOURCE USE AND INPUT USE
Figure 2.1. Resource and input use and environmental impacts through the dairy supply chain “Life cycle approach”
Figure 2.2. Linkages between milk production and the environment Greenhouse gases Dust and microrganisms
Ammonia
Noise
Odours
Air pollution
Dairy genetic resources Heavy metals Milk Production Biodiversity
Soil pollution
Food crops Pathogens
Ecosystem support
Water pollution
Nutrients
Pathogens Landscape
Water use Organic effluents Eutrophication
Human health
Drinking water Aquatic ecosystems
Source: OECD Secretariat.
Water pollution The contamination of water bodies with pollutants from dairy production can occur through a variety of pathways, from both point or diffuse (non-point) sources of pollution, and transported as nutrient particles into soil and water or as organic effluents in the form of faecal waste directly into waterways. In dairy farming areas the disposal of excess nutrients, principally nitrogen (N) and phosphorus (P), from dairy manure are among the principal causes of pollution of surface water (rivers and lakes), groundwater, and marine waters. Excess nutrients can damage aquatic ecosystems, including coastal marine ecosystems, through eutrophication (i.e. algae growth and depletion of oxygen in water) and degrade their use for recreational purposes, such as fishing (OECD, 2001a). Nutrients in surface water and groundwater can also impair drinking water quality and increase purification costs, and in high enough concentrations lead to human health problems.
36
Nutrient pollution from dairy production mainly occurs because producers do not, or are not required to, take into account the environmental costs resulting from point sources of pollution, such as slurry/manure storage facilities and dairy housing units, and non-point pollution sources, principally from fertiliser application and spreading manure on fields. Dairy cows grazing in open fields, depending on the stocking density and local conditions (e.g. soil, weather), are also a non-point source of pollution resulting in surface run-off and leaching of manure excreted in the field. Given the many sources of nutrients from agriculture into water bodies (e.g. fertilisers from crop production and manure from other livestock farming), there is little data available that identifies the specific contribution of dairy to water pollution. However, given the prominence of the dairy sectors in the livestock industry of many OECD countries it could be significant in some cases. In the United Kingdom, dairy cattle were responsible for 700 water pollution incidents in 1998 where source was classified, representing almost one-third of all incidents of water pollution from agriculture (Williams and Bough, 2001). Similarly, one-third of water pollution complaints regarding livestock production in Japan in 1997 (totally 851) were caused by dairy farms (Nagamura, 1998). Trends in the nutrient content of dairy manure production and nutrient soil surface balance can be used as a proxy to reveal the potential risks to water quality from dairy farming. It is important to note that this does not include other sources of nutrients such as fertilisers and atmospheric deposition, or the uptake of nutrients by crops. Further, it is an indirect measure of the potential risk of water pollution as other factors, in particular soil types, precipitation levels and farm management practices such as stocking rates and manure management procedures, influence the level of nutrient leaching that actually occurs. However, it is worth considering because the appropriate disposal of nutrients from dairy cow manure has become a major environmental issue in many countries as a result of the trend towards larger production units. Many agri-environmental policy measures, particularly regulations, specifically address manure management.
37
Table 2.1. Milk production and water pollution risk indicators, 1 1985-87 and 1995-97 Milk production
Dairy cow N manure2
000 t 000 t 1985-87 1995-97 1985-87 1995-97 Milk production and dairy cow N manure increasing Share of dairy cow N manure in total N input increasing Nitrogen balance increasing Korea 1 762 2 005 26 34 Australia 6 279 8 888 125 133 New Zealand 7 782 10 530 198 247 Milk production increasing but dairy cow N manure decreasing Share of dairy cow N manure in total N input increasing Nitrogen balance decreasing Japan 7 390 8 560 121 115 Share of dairy cow N manure in total N input decreasing Nitrogen balance increasing Portugal 1 296 1 786 42 38 United States 64 900 70 366 1 027 896 Canada 7 934 7 970 104 85 Nitrogen balance decreasing Germany 25 487 28 696 699 505 Greece 710 752 25 19 Milk production and dairy N manure decreasing Share of dairy cow N manure in total N input increasing Nitrogen balance decreasing Switzerland 3 819 2 597 72 67 Share of dairy cow N manure in total N input decreasing Nitrogen balance increasing Ireland 5 653 5 336 134 111 Norway 1 962 1 843 31 27 Spain 6 071 3 967 154 109 Nitrogen balance decreasing Netherlands 12 306 11 076 321 235 Belgium 4 128 3 601 82 57 Denmark 5 023 4 624 108 88 United Kingdom 16 007 14 737 337 270 Finland 3 031 2 454 61 39 Czech Republic 6 940 6 487 99 55 France 27 670 25 130 546 401 Sweden 3 568 3 318 71 55 Italy 10 824 10 724 207 143 Poland 15 933 11 697 313 211 Austria 3 729 2 973 66 48 Turkey 3 400 3 200 310 291
Share of dairy cow N manure in total N input % 1985-87 1995-97
Overall country N balance kgN/ha 1985-87 1995-97
4 1 6
4 2 7
173 7 5
253 7 6
8
9
145
135
14 4 3
10 3 2
43 25 6
63 32 14
16 3
15 3
88 58
61 33
26
27
80
61
17 16 7
13 13 5
62 72 40
79 73 44
30 18 15 11 19 12 11 18 9 12 16 11
25 13 15 9 14 10 9 15 7 11 13 11
314 189 152 107 78 99 59 47 44 48 35 17
262 181 115 87 64 54 54 34 30 29 27 12
Notes: 1. Countries are listed within each grouping according to their 1995-97 nitrogen balances. 2. Based on nitrogen manure production from dairy cows. Source: OECD Nitrogen Soil Balance Indicator Database, www.oecd.org/agr/env/indicators.htm.
The OECD nitrogen soil balance indicator measures the difference between the nitrogen available to an agricultural system (inputs, mainly from livestock manure and inorganic fertilisers) and the uptake of nitrogen by agriculture (outputs, largely crops and pasture), with a persistent surplus indicating potential environmental pollution of water (indicated by kilograms of 38
nitrogen per hectare of agricultural land), as the volatilisation of ammonia from livestock is excluded from the balance (OECD, 2001a). While the baseline to assess the risk of nitrogen surplus can vary according to local conditions (e.g. soil types, climate), some studies suggest that above 50 kg nitrogen per hectare (kgN/ha) annually indicates a high risk of soil surface run-off or leaching of nitrate into water bodies. Figure 2.3. Risk to water pollution from nitrogen (N) in dairy manure, 1 1985-87 and 1995-97
Share of dairy cow N manure in total N input (%)
35
30
Netherlands Switzerland
25
20 Sweden Ireland
Belgium
Germany 15
Austria
Portugal
10
Norway Czech Republic
France
Poland
Denmark
United Kingdom Japan
Italy Spain 5 New Zealand Canada USA 0
Korea
Australia
0
50
100
150
200
250
300
350
Overall country Nitrogen soil balance (kgN/ha)
Note: 1. Each point in the graph shows the combination of the overall nitrogen soil balance and the share of dairy cow N manure in total N input. The point at the tail of an arrow refers to 1985-87 and the point at the head of an arrow refers to 1995-97. Source: OECD Nitrogen Soil Balance Indicator Database, www.oecd.org/agr/env/indicators.htm.
Using the information contained in the OECD nitrogen soil balance indicator, it is possible to identify changes in the level of risk associated with milk production. Countries can be classified according to the level of dairy cow nitrogen manure production, the share of this in total nitrogen input, and the overall country nitrogen soil balance (Table 2.1 and Figure 2.3). This is likely to underestimate the contribution of dairy to nitrogen input because it does not take into account nitrogen manure from other dairy animals (calves, heifers and bulls), nitrogen fertilizer applied on dairy farms, nor the biological nitrogen fixation by legumes such as clover used in certain dairy grazing systems.
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It is possible to identify four groups of countries in terms of the level of risk to water pollution from nitrogen in manure produced by dairy cows at the national level
Countries where the risk is higher as measured by the overall nitrogen balance (i.e. 50 kgN/ha or greater) and the importance of dairy cow manure as a source of nitrogen (i.e. contributing 10% or more to the total nitrogen input) include Belgium, Czech Republic, Denmark, Germany, Ireland, Japan, the Netherlands, Norway, Portugal, Switzerland and the United Kingdom. These countries are located in the top right hand quadrant of Figure 2.3.
In France and Korea, while the overall nitrogen balance is high, the contribution of nitrogen from dairy cow manure is less than 10%.
In Austria, Poland and Sweden, the reverse is true; the overall nitrogen balance is low but the contribution of nitrogen from dairy cow manure is greater than 10%.
In Australia, Canada, Italy, New Zealand, Spain and the United States, the risk is lower, as indicated by an overall nutrient balance below 50 kgN/ha and with dairy contributing less than 10% to total livestock nitrogen manure production. These countries are located in the bottom left-hand quadrant of Figure 2.3.
Changes in the OECD nitrogen balance indicator between 1985-87 and 1995-97 reveal different trends in the potential risk to water pollution from nitrogen in dairy manure. Again, four groupings of OECD countries can be identified.
In Australia, Korea and New Zealand, the risk has increased as measured by an increase in both the contribution of dairy cows to total nitrogen input and the overall nitrogen balance between the two periods. In all three countries there has been a significant increase in milk production and a corresponding increase in the quantity of dairy cow nitrogen manure. These trends indicate that the expansion of dairy production in these countries is exerting a growing risk to the environment in terms of the potential release of nitrates from dairy farming into water bodies.
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In Canada, Ireland, Norway, Portugal and Spain and the United States, the contribution of dairy cow nitrogen manure has fallen but the overall nitrogen balance has increased. Of these six countries, milk production has expanded in Canada, Portugal and the United States but the amount of nitrogen from dairy cow manure has decreased. This can be explained by a fall in cow numbers but an increase in milk yield per cow. In the other countries, both milk production and dairy cow nitrogen manure production has decreased. In all six countries it is likely that the overall risk has decreased.
In Japan and Switzerland, the contribution of dairy cows to total nitrogen input has increased but the nitrogen balance has fallen. It is difficult to conclude the net overall effect, but the importance of dairy cows as a potential source of nitrogen pollution could well have decreased, but remains a significant source at least in Switzerland.
In all other countries the risk has decreased as both the nitrogen balance and the contribution of dairy cow nitrogen manure have decreased. For most of these countries, Austria, Belgium, the Czech Republic, Denmark, Finland, France, Italy, the Netherlands, Poland, Sweden, Turkey and the United Kingdom, a reduction in the level of milk production and in the quantity of nitrogen manure from dairy cows has contributed to this decline in national risk. Factors driving these developments include a reduction in milk quotas in many European Union countries and increases in milk yield, requiring fewer cows to achieve the production limit set by quota. Germany and Greece have been able to expand production while reducing the quantity of nitrogen manure produced. Overall, it can be concluded that for this group of countries the risk of nitrogen water pollution from dairy production has decreased, although it continues to remain a significant source in some (e.g. the Netherlands).
In addition to trends in the level of nutrient production, a number of other factors are also likely to be changing the risk of water pollution. Importantly, the above analysis does not take into account the nitrogen input from fertilizers that is also applied to pasture and fodder crops. With a shift towards fewer but larger dairy operations the production of recoverable manure nutrients is exceeding the assimilative capacity of the cropland and pasture on these farms (Chapter 3). Further, changes in the geographic location of dairy production
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may also raise the risk if production becomes spatially concentrated to the extent that the quantity of manure from farms in these regions exceeds the assimilative capacity of surrounding farmland to absorb dairy manure nutrients at agronomic rates. A major limitation of the proceeding analysis is that it only considers the level and change in risk at the national level. In the United States, data from the 1997 Census of Agriculture indicate that dairy, beef, poultry, and swine operations all produce nutrients in excess of on-farm requirements, with more than half the total excess coming from poultry operations. It is estimated that 60% of the recoverable nitrogen produced from manure is in excess of the on-farm crop needs. Of this excess (735 000 tonnes N), 64% is from poultry, with dairy contributing 9%. For phosphorus, over 70% of recoverable phosphorus is in excess (462 000 tonnes P2O5), 52% is from poultry with dairy again contributing 9% (Gollehon et al., 2001). However, while the overall quantity of manure from dairy cows has been decreasing, the quantity in excess of on-farm crop needs has been increasing, more than doubling between 1982 and 1997 (Kellogg et al., 2000). In addition to nutrients, organic effluents usually contain a high proportion of solids, and can be transported into waterways direct from dairy slurry or manure storage. Organic pollution of water causes rapid growth in microorganisms resulting in a high biochemical oxygen demand (BOD), and as a result reduces the available oxygen to support aquatic life. Direct discharge of organic effluents is capable of causing fish kills or severe disruptions to aquatic ecosystems by increasing BOD levels (Hooda et al., 2000). While dairy slurry has a lower BOD concentration compared to other forms of waste (Table 2.2), its impact can still be significant on water bodies. In addition to manure, the inappropriate storage of grass silage for animal feed can be a significance source of BOD pollution if not managed correctly. Table 2.2. Ranges of biochemical oxygen demand (BOD) concentrations from various wastes Waste Source
BOD Value (mg/l)
Silage effluents Pig slurry Cattle slurry Liquid effluents draining from slurry stores Treated domestic sewage Clean river water
30 000 – 80 000 20 000 – 30 000 10 000 – 20 000 1 000 – 12 000 20 – 60
