For decades the Dutch farming business model has favoured density and intensification to increase productivity. The sector has become more concentrated over the years: fewer, larger units are generating ever more output. But now facing strict climate policies and higher costs, farmers are being told to produce more with less – or change careers.
In its June report, ‘A National Program to Reduce Nitrogen Greenhouse Gas Emissions in Rural Areas’, the Dutch government set reduction targets at a provincial level, ranging from 12% to 70%. The plan gives farmers one of three options: sustainable transition, relocation, or termination.
As the government itself admits, there isn’t a future for all Dutch farmers within this approach. It’s a tough-love stance for the world’s second-largest agricultural exporter after the US. The Netherlands has an extremely intensive farming industry relative to land size; rural areas represent over 50% of the country’s surface area.
If the state budget isn’t big enough to buy out farms and fund innovation, then what should be prioritised is the innovation
But highly productive farming comes with a catch: high emissions. In 2020, farming was responsible for 87.3% of the country’s total 124 million kilograms of nitrogen emissions, according to the Global Agricultural Information Network.
In a bid to get quick results, the government of prime minister Mark Rutte is opting for radical cuts to livestock numbers and the reallocation of a large portion of rural areas to biodiversity. It estimates that over 11,000 farms will have to close, and that thousands more farmers will have to downsize their livestock to meet the targets.
The plan has not gone down well and has already led to the resignation of agriculture minister Henk Staghouwer after just nine months in the job.
The tug of war between Dutch farmers and their government isn’t new, but the June announcement highlighted the growing pressure that states are facing when it comes to sustainability commitments. The impacts of climate change are becoming more intense year after year, and governments need to do more to get quick results.
The Dutch state is at least prepared to pay up to get those results. The plan includes a €24.3 billion budget in addition to an existing €7.5 billion national termination scheme for livestock farming.
There’s just one problem: farmers don’t want to sell.
Push-back
According to the Dutch ministry of agriculture, farmers will be able to apply for subsidies by the end of 2022, and subsidy decisions will be issued in the second quarter of 2023. So far, no farmers have been definitively bought out.
Their reluctance is understandable. Global demand for Dutch agricultural goods including animal products remains high. In 2021, horticultural exports generated €12 billion, up from €9.6 billion the year before, while meat exports rose 7% to reach €9.1 billion, according to Statistics Netherlands.
The national plan takes aim at emissions at the output level by cutting livestock instead of financing sustainable farming methods to reduce emissions at the operational level, despite the fact that there are already companies capable of enabling the automation of processes, renovating building and infrastructure to reduce energy consumption and capturing methane or nitrogen.
If the state budget isn’t big enough to buy out farms and fund innovation, then what should be prioritised is the innovation – helping to support methods of lowering emissions within farms, rather than simply shutting them down.
Big stakes
By January 2023, provincial authorities must deliver a detailed area-specific program explaining which farms will close or move, or what strategies they are putting in place to cut up to 70% of emissions.
This kaleidoscope approach gives little clarity to farms who want to stay in business or the financial institutions whose loan books will suffer if the sector bleeds out.
Some, like Rabobank, support the government target but want to see a more integrated approach with other climate-related initiatives such as water usage and carbon emissions in other sectors, rather than a strict focus on nitrogen.
Rabobank has a big stake in the debate. With €35.7 billion invested in the Dutch food and agriculture (F&A) sector, the bank accounts for about 85% of loans and roughly 60,000 farmers. As the biggest lender, it would likely be the ultimate recipient of much of the budget allocated by the government as bought-out farmers repaid their debts and exited the sector altogether.
But if farmers don’t sell, the credit risk of Rabo’s F&A book will increase. According to its 2022 interim report, Rabobank has now classified the Dutch pork, floriculture and dairy sectors as stage 2, or ‘vulnerable’.
The bank notes that the government’s nitrogen reduction plans are expected to hit its clients’ business models hard. Those clients are already facing higher input costs and low margins, and farmers have no buffer to take any additional risk by changing farming methods without access to capital and a longer timeframe to transition effectively.
No easy option
The kind of rhetoric seen in this debate isn’t new – or particular to the Dutch situation. The ‘What about them?’ argument has been a typical response to most climate initiatives, as stakeholders want the burden to be shared by all, including consumers.
But setting stakeholders against one another diverts attention away from the real challenge: to fix a multi-dimensional climate and biodiversity crisis, what is needed is targeted measures to tackle all contributors to climate change.
Livestock is certainly one of those, and the agricultural sector cannot expect to avoid having to make tough choices in order to become more sustainable and curb harmful emissions generated by intensive methods. But climate agendas also need to be operationally practical.
Banks can play their part in incentivising their F&A clients to borrow either to finance relocation or to update their business models towards a more circular supply chain, with fewer animals per hectare.
But this will only be successful if the government wholeheartedly supports such a transition, rather than taking the easy option of removing farmers from the picture altogether.
