CONTEXT: Global demand for milk is increasing, however, the dairy sector has considerable environmental impact and cattle are large contributors to greenhouse gas (GHG) emissions that lead to global warming. In a circular food system, the role of animals should be to convert biomass that humans cannot or do not want to eat into nutrient-dense products. In this system, dairy cows are only fed with grass from marginal lands and by-products from harvesting and food industries. One example of marginal land are peat areas, since these soils are mainly too wet for arable crop production. However, drainage caused peat to oxidize and emit CO2 and N2O. OBJECTIVE: The objective of this study was to evaluate global warming potential (GWP) and economic performance of Dutch dairy farms on peat compared to sandy soil. Also, two scenarios that might reduce GHG emissions of a dairy farm on peat soil were considered: 1) increased groundwater tables and 2) an adjusted dairy cow diet consisting of grass and by-products only. METHODS: A whole-farm linear programming (LP) model used for dairy farms on sandy soil was updated and adjusted to simulate structure, management and labour income of a dairy farm on peat soil. The basic LP model is a static year model that includes all relevant activities and constraints that are common to a Dutch dairy farm and the solution generates feeding management, manure application and land use. The objective function maximized labour income. In addition, the linear model was combined with a Life-Cycle Assessment to determine the GWP of the produced milk, economically allocated between milk and meat. RESULTS AND DISCUSSION: The results of this study showed that dairy farms on peat soil have lower labour income and considerably higher GWP compared to dairy farms on sandy soil. When the groundwater table on peat soil was increased, labour income decreased even more, however GHG emissions were somewhat reduced. Feeding a dairy cow diet with only grass and by-products resulted in higher labour income, but equal GWP compared to a regular dairy farm on peat soil. A sensitivity analysis was performed to explore the effect of grass yield on the economic and environmental performance of dairy farms on peat soil. SIGNIFICANCE: Dairy farms on peat soils have lower labour income and considerably higher GWP compared to sandy soils. Improvement of GWP is possible and can lead to increased labour income.