Lake Taupo is a high quality lake in the centre of the North Island, New Zealand. Local government aims to control nitrogen (N) inputs into the lake to preserve lake water quality. In this paper we discuss the implications of this policy for land use and farm management in the Lake Taupo catchment. To do this we used a case study approach, based on a typical farm, to examine the effects of stocking density and management system on farm cash surplus, farm capital value and nitrate leaching. The

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... tudy showed that intensification of land use is a profitable option for farmers and any restrictions on land use in the Lake Taupo catchment will have large effects on the profitability and value of existing farm businesses. Farm systems can be adapted to reduce N leaching, however the options that we studied all resulted in a decrease in farm cash surplus. Further evaluation and experimentation on new systems is required. Rules that control farm activities in an attempt to control N leaching may not result in the gains desired owing to legitimate adjustments that farmers may make to re-optimise their farm business. Keywords: economic evaluation, farm systems, modelling, nitrate leaching, water quality