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Costs of Future Welfare, Environmental Regulations to Dutch Pig Farmers

by 5m Editor
2 April 2010, at 12:00am

New regulations on animal welfare and ammonia emissions due to come into effect in the Netherlands in 2013 will cost €240 per fattening pig place and €500 per sow, according to a new report from the Agricultural Economics group of Wageningen University Research. And with fewer than 60 per cent of farms in a financial position to make the necessary investments, pig numbers could fall significantly. The report is summarised by Jackie Linden, editor of ThePigSite.


W.H.M. Baltussen of the Wageningen UR Livestock Research in the Netherlands and co-authors have published a report of their research to investigate the additional costs to the nation's pig farmers of complying with the latest regulations relating to welfare and the environment.

They explain that the Ministry of Agriculture, Nature and Food Quality commissioned research into the impact on the pig farmer of the necessity to comply with government measures relating to animal welfare (Pig Decree) and the environment (Ammoniac and Nitrate Directive) after the end of the transition period.

Based on individual pig farms in the Farm Accountancy Data Network, the researchers investigated whether farms can finance the necessary investments and whether the farm will have any income after that investment, and what less expensive housing alternatives might be suitable.

The policy for which the transition period ends in 2013 has far-reaching consequences for the entire pig sector, say the authors.

Introduction

In recent years, Dutch pig farming has had to prepare to comply with various government measures related to the environment and animal welfare for which the transition period ends in 2013. However, the starting positions of farms with pigs vary enormously. The transition periods end on 1 January 2013 for all farms.

This study aims to chart the economic impact of these government measures on pig farming.

Structure of the Study

The economic impact was studied of the following actions which pig farmers need to take on their farms:

  1. Limitation of ammoniac emissions in order to comply with the statutory maximum emission value (by 2013)
  2. Compliance with more stringent welfare measures from 2013:
    1. Introduction of group housing for farrowing sows
    2. Expansion of the living area for weaned piglets and fattening pigs, and
    3. Introduction of slats measuring a maximum of 18 mm on slatted floors for fattening pigs.

The report also takes account of the changes in the fourth Action Programme under the Nitrates Directive, abolition of the government contribution to the destruction costs and the government intention to abolish production quota by 1 January 2015.

For various cases with differing farm sizes, age of the pig buildings and numbers of fattening pigs and sows, it was determined what actions farms must undertake, the investment involved and the changes in the yields and costs. In total, 41 cases were defined. Each of the 164 farms in the Farm Accountancy Data Network, which constitutes a representative reflection of Dutch pig farming, was then linked to one of these cases. Combined with general starting points with respect to pig prices and costs (including manure disposal costs), the individual farms were audited.

For each farm, it was calculated whether the pig farmers would still have a positive income after the required investments.

Current Situation

According to the researchers, pig farms generally are not in a good financial position. They explain that the economic situation in pig farming has not been favourable in the past decade, and that the average income of specialised pig farms is relatively low. However, the financial results of farms vary enormously. In 2008, 56 per cent of the pig farms had a good to reasonable financial position and 13 per cent of the farms run at some risk of having to stop for financial reasons. The remaining 31 per cent of the farms can continue to produce but are in a poor financial position.

The report also points out that substantial adjustments are needed if farms are to comply with the statutory requirements from 2013. As well as the fourth Action Programme under the Nitrates Directive, pig farmers will also have to comply with the Ammoniac Emission Decree for Housing and the Pig Decree from 2013. These statutory requirements were adopted in 2004 and 1998, respectively. The transition period was extended on a one-off basis until 2013.

The CBS agricultural census of 2008 indicates that fewer than 10 per cent of the farms have completed the socially desired investments, although 60 per cent of the farmers with sows had already partially invested in group housing for sows and 23 per cent of the farms with pigs had reduced ammonia emissions.

The figures include some of the farmers who plan to stop and who will therefore not invest in these measures. The figures show that only few farmers have considered the welfare norms relating to piglets and fattening pigs that will apply from 2013.

A third feature found by the report was that, in the middle of 2008, there were more than 8,000 farms with pigs in the Netherlands, half of which can be described as specialised pig farms. These farms, for which pig farming is the main activity, consist of around 1,250 breeding farms, nearly 1,800 fattening pig farms and nearly 1,000 closed farms. Mainly fattening pigs are kept on other pig farms.

Opportunities for Future Alternation/Renovation

A limited group of farms is able to make all the investments required, according to the report. Calculations show that around 34 per cent of the pig farms have the potential to invest in all the government measures that will apply from 2013. The calculations take into account that some of the farms will reduce the number of pigs on the farm.

Alternatives are available, say the researchers. One of the possible alternatives explored by this study relates to keeping fattening pigs in bigger groups. It was not investigated whether any other alternatives are available or whether this alternative would provide a solution for all fattening pig farms.

For the fattening pig farms, the total investments are reduced by over 60 per cent if animals are kept in bigger groups than they are now, while the income reduction can be limited to half. For some of the farms, this offers possibilities to continue production. This alternative was not included in the calculations because this means a different type of farming for the pig farmer about which little experience has been acquired. However, this is one of the possible alternatives and the report adds that experience has shown pig farmers are creative and have a great capacity to respond to changing circumstances.

No clear differences between types of farms emerged from the study. These results only vary slightly between the different types of farms with pigs although closed farms are in a more difficult position because they have to invest in measures relating to both fattening and breeding. The average investment levels are therefore twice as high as farms with only breeding or fattening.

Some of the farms may cease production sooner than planned, say the report's authors. Some of the pig farmers will stop if existing houses need to be adapted to comply with environmental and animal welfare requirements. Many of these producers would have stopped pig production anyway, regardless of the additional requirements. Current buildings will be used until major replacement investments become necessary or until the farmer retires. This autonomous restructuring process is, in effect, just accelerated as a result of the government measures.

The report predicts that the number of pigs will decline. A substantial decline in the number of farms will also mean a decline in the number of pigs because it will probably not be possible for the remaining farms to absorb the released production capacity in the short term.

The extent to which this happens was only investigated in general terms. If those farms which can invest make maximum use of their available financial scope for farm development, in the most favourable case 68 per cent of the fattening pigs and 40 per cent of the sows could be kept on the 2,750 to 3,000 remaining farms with prospects. In addition, some farms will continue through alternatives or creative solutions. How many farms this involves and what part of the pig population is kept on these farms was not further investigated.

Consequently, it is not possible to give exact figures about the impact on the pig population. However, it can be concluded that there is a good chance that the pig population will decline by several ten percentage points in the short term. It is recommended that further investigation takes place into the social benefits and costs involved in a much smaller pig population.

In order to comply with the ammonia and animal welfare requirements, substantial investments are required, acccording to the report. Pig farms need to invest in limiting ammonia emissions and barn modifications in the interest of animal welfare. In the case where no modifications have yet been made, a quarter of the total investments will be spent on reducing ammonia emissions and three quarters on animal welfare.

Of the animal welfare measures, the report highlights the expansion of the living area per animal as the major investment. In practice, this is currently not yet being implemented and will need to be achieved by modifying existing barns. In the case of new building, the extra costs for enlarging the living area would be significantly lower. This also applies to widening the slats on slatted floors for fattening pigs.

Where new buildings are constructed, the extra investments for slatted floors are zero, while modifications for a farm with 1,500 fattening pig places would involve an additional €90,000 investment.

The demands with respect to ammonia control result in an average investment sum of around €60 per fattening pig. The requirements to expand the living area in the case of new buildings result in an average investment sum of –120 per fattening pig. The adjustment of the slat width results in an average investment sum of €60 per fattening pig. In total, the sum required for investment is €240 per fattening pig.

For comparison, Baltussen and co-authors calculated that the annual repayment capacity on the farms is €20 to 25 per fattening pig per year and that the maximum financing scope per fattening pig is around €400.

For breeding farms, the average investment in ammonia-reduction measures is €100 to 200 per sow. The average investment in welfare (group housing and area requirements for the piglets) would amount to €300 to 400 per sow. In total, the requirements cost around €500 per sow.

The annual repayments are around €125 per sow per year and the maximum financing scope is around €2,000 per sow.

Finally, the report adds that a relaxation of government policy would reduce the pressure on Dutch pig producers. Relaxation of government policy by relaxing welfare measures benefits the farms that can invest as costs are lower in the short term and incomes are higher in the meantime.

The relaxation of policy may provide scope for alternatives and creative solutions for the 40 per cent of farms in a poor financial situation but that want to continue production. For some of the farms, it will have very little effect, however. These farms are unable to finance even relatively small investments of €100,000, for example.

Conclusion

As a result of the current regulations, from 2013 welfare in pig farming will improve and the environmental impact of pig farming will significantly decline due to lower ammonia emissions and lower burden of the manure market. However, this will be at the expense of the number of pig farms, partly due to acceleration of the autonomous restructuring process. Particularly where modifications are required, the investments required to expand the living area and replace slatted floors are relatively high.

For many farms, the investments would be difficult to finance due to the average low yield prices and income in recent years, and this situation is not expected to improve much in the coming years. Furthermore, the pig farmers who can invest and continue their farming will have to accept a much lower income.

Reference

Baltussen W.H.M., R. Hoste, H.B. van der Veen, S. Bokma, P. Bens and H. Zeewuster. 2010. (Economic impact of existing regulations on Dutch farms with pigs). Wageningen UR LEI Report 2010-010. ISBN/EAN: 978-90-8615-404-3 [in Dutch with English summary]

Further Reading

- You can view the full report (in Dutch) by clicking here.


March 2010