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Most global strategies for future food security focus on sustainable intensification of production of food and involve increased use of nitrogen fertilizer and manure. The external costs of current high nitrogen (N) losses from agriculture in the European Union, are 0.3–1.9% of gross domestic product (GDP) in 2008. We explore the potential of sustainable extensification for agriculture in the EU and The Netherlands by analysing cases and scenario studies focusing on reducing N inputs and livestock densities. Benefits of extensification are higher local biodiversity and less environmental pollution and therefore less external costs for society. Extensification also has risks such as a reduction of yields and therewith a decrease of the GDP and farm income and a smaller contribution to the global food production, and potentially an i0ncrease of global demand for land. We demonstrate favourable examples of extensification. Reducing the N fertilization rate for winter wheat in Northwest Europe to 25–30% below current N recommendations accounts for the external N cost, but requires action to compensate for a reduction in crop yield by 10–20%. Dutch dairy and pig farmers changing to less intensive production maintain or even improve farm income by price premiums on their products, and/or by savings on external inputs. A scenario reducing the Dutch pig and poultry sector by 50%, the dairy sector by 20% and synthetic N fertilizer use by 40% lowers annual N pollution costs by 0.2–2.2 billion euro (40%). This benefit compensates for the loss of GDP in the primary sector but not in the supply and processing chain. A 2030 scenario for the EU27 reducing consumption and production of animal products by 50% (demitarean diet) reduces N pollution by 10% and benefits human health. This diet allows the EU27 to become a food exporter, while reducing land demand outside Europe in 2030 by more than 100 million hectares (2%), which more than compensates increased land demand when changing to organic farming. We conclude that in Europe extensification of agriculture is sustainable when combined with adjusted diets and externalization of environmental costs to food prices.