Abstract
Negative externalities such as nitrogen (N) surplus that accompany dairy production activities are not usually accounted for in the market place since they are not costed. Using a parametric hyperbolic environmental technology distance function approach, we estimate the environmental efficiency and farm-specific abatement costs (shadow price) of nitrogen surplus in dairy farms on the island of Ireland (Northern Ireland and the Republic of Ireland). The methodology, unlike previous approaches (output/input distance functions), allows for asymmetric treatments of production outputs (desirable and undesirable outputs). We also analyse the farm level nitrogen pollution costs ratio and its determinants. The results of our analyses showed that the average environmental technical efficiency estimates for the Republic of Ireland and Northern Ireland are 0.89 and 0.92 and the mean abatement costs per kg of N surplus is €4.02 and €6.2 respectively. We found a reasonable degree of variation in the spectrum of abatement costs across the dairy farms with a relative increase observed over the years.
Highlights
Negative externalities such as nitrogen (N) surplus that accompany agricultural activities and in particular dairy production have been identified as a significant contributor to ground water and surface water pollution, greenhouse gas (GHGs)1 3 Vol.:(0123456789)emissions and the build-up in soil of contaminants, such as heavy metals (McLellan et al 2018; Buckley et al 2016)
We describe the derivation of the shadow price of N surplus based on the duality between the hyperbolic environmental technology distance function and the maximisation of the profitability function
The negative sign of the inputs and undesirable output parameters implies that any increase in the amount of these variables would increase the value of the distance functions
Summary
Emissions and the build-up in soil of contaminants, such as heavy metals (McLellan et al 2018; Buckley et al 2016) These externalities result mainly from inappropriate manure management and the overuse of external inputs such as fertilizers and concentrates feeds in intensive dairy production systems. Unlike the desirable outputs, (milk for example), the undesirable outputs are not accounted for in the market place, either from an individual producer or society’s perspective, and are not costed They are not often taken into consideration by the farmers in making their production decisions. By quantifying the opportunity costs of reducing N surplus, policy makers can better understand the burden that abatement costs would have on the performance of the dairy farms This will be relevant in making economic and policy decisions affecting the design of regulatory environmental policies and the management of dairy farms
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