Estimating the Range of Impacts Arising from Nitrate Leaching Reduction Policies Using Farm Accounts

Abstract

Declining agricultural incomes, increasing concern over rural poverty and sporadic crises such as those of BSE and Foot and Mouth Disease mean that the imposition of additional costs on UK agriculture are likely to be politically and socially sensitive. Such additional costs are however on the agenda with the implementation of the Water Framework Directive (European Commission, 2000). Like the Nitrates Directive (European Commission, 1991) before it, the WFD aims to, inter alia, reduce nitrate leaching from agriculture. The benefits of reduced nitrate concentrations in rivers and lakes will come at some cost to farms. In this study we assess four possible WFD measures proposed to Defra: reduced inorganic fertiliser application, conversion of arable land to un-grazed grassland, reduced livestock stocking rates and reduced livestock dietary N intakes. For each measure, changes in farm gross margins are estimated using a panel dataset of over 3000 farms. In contrast to previous analyses which have focussed upon mean responses at stylised farms, our approach allows analysis of the range of impacts across a wide variety of real-world farms and farm types. Findings reveal high variability in impacts and cost-effectiveness analysis indicates that, on average, cropping farms seems capable of reducing nitrate leaching in a more cost-efficient way than livestock or dairy enterprises.

Keywords: Water Framework Directive, farm financial impacts, farm accounts, nitrate

JEL Classification: Q15, Q18, Q53