Analysis of environmental and economic efficiency using a farm population micro-simulation model
Section snippets
Modeling environmental performance
New Zealand's success in raising agricultural productivity has been accompanied by higher input use, leading to adverse effects on the environment. Until recently, analysis of dairy farm performance in New Zealand has often ignored undesirable effects on the environment [13], [14], [17]. The eco efficiency study by Basset Mens et al. [3] provides a notable exception by indentifying farms which were both economically and environmentally efficient. This was achieved by including nitrogen
DEA model specifications
We define technical efficiency as the ability of a farm to reduce inputs including nitrogen discharges for a given level of output. Our model set up (Eq. (1)) is input oriented and reflects constant returns to scale. Input oriented approaches are useful in situations where the environmental focus is on reducing pollution while maintaining production [26].
For each farm j = 1, …, J. there are data on i = 1, …, i, farm inputs (x), where z is the vector of nitrogen discharges and q is the output.
Empirical analysis
Environmental efficiency is affected by factors such as management, input use, topography, and soil type. These variables were regressed against the DEA efficiency estimates using the maximum likelihood approach (Tobit). This two stage approach was preferred because of its ability to accommodate multiple, continuous and categorical variables and because it does not require prior assumptions about the direction of influence of environmental variables [7]. The explanatory model for the regression
Results and discussion
We use DEA to assess the efficiency of a simulated population of dairy farms based on four different measures. These measures include both separate measures, e.g. technical and economic efficiency and also joint environmental and economic efficiency (joint efficiency). We provide definitions for each of these measures below:Efficiency measure Definition Technical Ability to reduce inputs including nitrogen discharges for a given level of output Economic Ability to minimize farm expenses for a given
Implications
Data on environmental and economic efficiency should allow farmers to benchmark their performance and assist policy makers to make informed decisions which promote sustainable development. Agri-environmental policies need to take account of differences in the inherent efficiency of farms and the different factors that explain efficiency levels. Some improvements in environmental efficiency can be achieved by improving environmental efficiency of input use; particularly towards lower stocking
Acknowledgements
An earlier version of this paper was first presented in 2009 at the MODSIM09 conference. This improved and fully revised version of the paper has benefitted from the comments of conference participants and the Guest Editors of this Journal.
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