Abstract
We provide a theoretical framework and detailed bioeconomic simulations to examine privately and socially optimal dairy farm management in the presence of nutrient runoff and greenhouse gas emissions. Dairy farms produce milk by choosing herd size, diet, fertilization and land allocation between crops, as well as (discrete) manure storage and spreading technologies and the number of milking seasons. We show analytically that a critical radius emerges for the choice of land use between silage and cereal cultivation and fertilizer types (mineral and manure). Both privately and socially optimal manure application rates decrease with application distance. We characterize the optimal climate and water policy instruments for dairy farming. A detailed bioeconomic simulation model links farm management decisions with their impacts on climate and water quality. We numerically solve the social and private optima and the features of optimal climate and water policy instruments. We show that using only climate instruments provides considerable water co‐benefits, and in the same vein, the use of water quality instruments provides considerable climate co‐benefits. Climate policies lead to a reduction in herd size, as measures relating to manure management and spreading are relatively inefficient at reducing climate emissions. There is much more leeway for adapting to water policies than to climate policies, because dairy farms have multiple measures to reduce their nutrient loads.
Highlights
We provide a theoretical framework and detailed bioeconomic simulations to examine privately and socially optimal dairy farm management in the presence of nutrient runoff and greenhouse gas emissions
We provide a formal analysis of the privately and socially optimal dairy management in the presence of either nutrient runoff or greenhouse gas (GHG) emissions or both
To examine the hypotheses numerically and provide further insights, especially for the discrete technology choices, we develop a detailed bioeconomic simulation model and link all relevant climate and water quality impacts of farm management decisions to the model
Summary
We provide a theoretical framework and detailed bioeconomic simulations to examine privately and socially optimal dairy farm management in the presence of nutrient runoff and greenhouse gas emissions. Dairy farms produce milk by choosing herd size, diet, fertilization and land allocation between crops, as well as (discrete) manure storage and spreading technologies and the number of milking seasons. Instead of a land parcel, the primary production unit is the production animal, and arable farmland mostly has a supporting role in dairy production, serving mainly as a source of animal feed Another key difference is the production and use of manure. In addition to improving manure storage facilities, the dairy farmer can reduce nutrient runoff by measures similar to those used in crop production (such as reducing fertilization, using buffer strips and catch crops, see Lichtenberg 2002; Shortle and Horan 2001; Lichtenberg 1989; Lankoski and Ollikainen 2003)
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