The objective of this paper was to investigate the influence of environmental legislation to restrict nitrogen losses on dairy cattle breeding goals. Linear programming was used to model a dairy farm, including multiple restrictions on product output and production factor input. Management was optimized to maximize labour income. Effects of genetic improvement on labour income (economic values) were derived for dry-matter intake capacity, body weight and milk production (carrier, fat and protein). Also effects of genetic improvement on the farm's nitrogen losses were computed. Basic economic values calculated were 0, -0.05, -0.18, 0.78, and 13.81 for dry matter intake capacity, body weight, carrier, fat and protein, respectively. With more stringent environmental legislation, the economic value of fat increased (1.68) and the economic value of body weight decreased (-0.21), with constant economic values of carrier, protein and dry matter intake capacity. Generally, a higher fat production per cow resulted in a reduction of nitrogen losses, and an increase in body weight increased nitrogen losses.