The system came into effect January 1, 2018.
The measure has been introduced to improve water quality in the country by limiting phosphate production from dairy cattle manure and promote a shift to land-based farming.
The EC said that given the high density of dairy cattle in the Netherlands, the phosphate contained in dairy cattle manure represents a significant environmental concern.
In addition to the main environmental objectives, the system also provides support for young farmers and is intended to have a positive effect on grazing and grassland.
Dairy farms will be awarded phosphate rights for free and will only be allowed to produce phosphate from dairy cattle manure corresponding to the phosphate production rights they hold. At the end of each calendar year, farms will be required to demonstrate that they have sufficient phosphate rights to justify the amount of phosphate produced by their dairy cattle manure.
Dairy farms, including new entrants, can acquire phosphate rights on the market, as phosphate rights will be traded.
When a transaction occurs, 10% of the traded rights will be withheld and kept in a ‘phosphate bank.’
This is intended to encourage the development of more land-based dairy farming by providing temporary, non-tradable rights to "land-based farms," which can fully absorb on their land all the phosphate from their own manure production.
Based on the environmental objectives the system aims to achieve, the European Commission concluded that the system is in line with the EU rules for environmental State aid.