In the coming years, the Ministry of Agriculture will allocate a total of €175 million to support companies that want to switch to a far-reaching form of sustainable agriculture. Banks do not do this, because extensification can cost a lot of money.
At the same time as this news about the Sustainable Agriculture Conversion Scheme, Klaas de Jonge, business economist at PPP Agro, published yesterday (Wednesday 18 November) an accounting comparison between extensive and intensive dairy farms. Although De Jonge does not specify the numbers on which his commercial comparison is based and how large the difference in milk production per hectare is, the outcome of his comparison is not surprising. Producing less milk per hectare usually decreases cash flow. In his comparison, the cost price of 1 liter of milk on extensive dairy farms is €0,457 higher than on intensive dairy farms (€0,394). This includes a calculated (unpaid) compensation for labor of more than €0,05 per liter of milk produced.
Banking policy focused on cash flow
It is precisely because of this business economic pattern that dairy farming has been intensified after the milk quota was abandoned. Producing extra milk per hectare by purchasing roughage is usually cheaper than growing extra feed yourself. A whole bunch of reports have been published about it since the abolition of milk quotas came into view. Intensifying pays off, extensification does not, barring exceptions. Assuming that purchasing roughage remains relatively cheap and that the manure disposal costs do not increase further. Exactly the reason why established banks give up financing agricultural companies that want to extensify. Moreover, banks finance much less than in the past on land and much more on cash flow, due to the tightened Basel criteria as a result of the financial crisis. This is what Minister Schouten writes in an explanatory letter to Parliament on the Sustainable Agriculture Conversion Scheme.
Less milk production per hectare, which reduces cash flow. If you decide to start producing organic milk, then over time there will be a significantly higher milk price. Only extensification to meet the goals of the new CAP, namely CO2 reduction, biodiversity, soil and water quality and animal welfare, is a very shaky basis on which to base a profitable business. Now the average dairy farm collects several hundred euros per hectare in payment entitlements. But the new CAP will certainly not mean that this amount will only be paid to companies that meet far-reaching sustainability goals. At most 50% of the money flow will shift in that direction, because otherwise the income trap for companies that do not (can) become more sustainable will become too great.
CO2 footprint per liter of milk
Extensifying to meet FrieslandCampina's Planet Proof criteria is not a guarantee that you will be able to add even a little extra milk money. Because you run the risk that the CO2 footprint per liter of milk produced is too high. Klaas de Jonge's figures underline this. His conclusion that the government will have to structurally compensate for extensification because otherwise there is a risk of further income decline is only logical. The cost price of €0,40 for the average extensive dairy farm in his comparison is also far above the long-term yields per liter of milk.
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