Empirical evaluation of nonpoint pollution policies under agent heterogeneity: regulating intensive dairy production in the Waikato region of New Zealand*

Models used for policy evaluation rarely consider firm heterogeneity, despite its importance for instrument design. This study considers agent heterogeneity explicitly in the evaluation of policies for nonpoint pollution control through the integration of decomposition and calibration procedures for programming models. The application concerns the regulation of nitrate leaching from intensive dairy production in the Waikato region of New Zealand. Failing to represent firm heterogeneity leads to widely different estimates of mitigation costs, relative to where heterogeneity is considered. Variation in baseline emissions and the slopes of abatement cost curves between firms renders a differentiated policy less costly than a uniform standard. However, the relative values of these policies are not broadly different, as firms required to do the most abatement – intensive farms with large baseline pollutant loads – can do so more cheaply, on average.     

Farmers and their groves: Will cost inefficiency lead to land use change?

Increased forest areas and climate change mitigation are policy goals enhanced by expanding private forest ownership. This study shows transfer of land from farms owning forested acreage associated with low quality land and high production costs achieves such goals. Calculated cost efficiency scores show a large gap between the most and least efficient farms, and farms with forests are less cost efficient. Land reforestation through subsidy programs could replace income from agricultural production. We illustrate that farms from the applied FADN panel could reforest 45,000 hectares, binding about 0.5 mln tons of carbon annually without limiting food or feed supply.     

土地经营规模对农户种粮收入的影响分析——以吉林省公主岭市为例

土地是财富之母,土地作为农民进行农业生产的基本生产资料,是农民收入来源的重要依托。家庭联产承包责任制实施至今虽然取得很大成就,但是以家庭经营为主的传统经营方式弊端日益显现,农民种粮收入难以实现有效增长。[目的]为了达到农村土地适度规模经营,调整农村产业结构、促进农民增收、加快小城镇建设等目的。[方法]通过选取产粮大县公主岭市为研究对象,利用实地调研数据对不同土地经营规模下的种粮成本及利润水平进行比较,并运用c-D生产函数对数据进行多元线性回归分析。[结果]从种植成本来看,5~20hm~2中等经营规模投入的综合成本低于5hm~2以下小规模和20hm~2以上大规模经营;从利润来看,5~20hm~2中等经营规模无论是自有承包地还是转包地所获得的每667m~2平均利润均高于小规模和大规模的经营规模。[结论]公主岭市农户土地经营面积为5~20hm~2的中规模优于其他土地经营规模。同时运用多元线性回归模型分析其对农户种粮收入的影响程度,进一步证实土地经营规模对农民种粮收入具有积极促进作用。从而提出推进公主岭市土地适度规模经营的对策建议。     

Determinants, differentiation, and development of short-term marginal costs in dairy production: an empirical analysis for selected regions of the EU

This work provides evidence on the determinants, cost differentiation, and development of short‐term marginal costs of dairy farms in important production regions of the European Union. The empirical study is based on the estimation of multi‐input multi‐output Symmetric Generalized McFadden cost functions using an unbalanced panel data set of the European Farm Accountancy Data Network. The results show considerable regional differences in the impact of the outputs, input prices, and fixed factors on marginal costs. Strong evidence can be found that marginal costs decrease over time and is further underlined by the development of derived regional aggregated short‐term supply curves. Marginal cost elasticities and correlation coefficients validate the hypotheses that a high degree of farm specialization, large milk output, and low milk prices are associated with lower marginal costs. Furthermore, the marginal cost spread in the data sample is analyzed. We show that milk output, milk yield, herd size, labor input, and fodder production can be attributed to significant marginal cost differentiation of farms, whereas for crop and animal output, grassland, stock of other animals, and depreciation only minor differentiation can be found.     

Gains and structural effects of exploiting scale-economies in Norwegian dairy production

In this paper, we present calculations of the economic gains in terms of reduced costs by exploiting scale‐economies in dairy production in Norway, and the effect this would have had on the number of farms. We also explore whether or not optimal scale and unexploited scale‐economies change over time due to scale‐augmenting technical change. The analysis is based on homothetic cost functions estimated by means of data for individual dairy farms for the period 1972–1996. For 1972, we find that, by full exploitation of scale‐economies, the costs could have been reduced by almost 40%, while the number of farms would have been reduced by more than 85%. The number of small farms has been substantially reduced in the period considered. This fact, combined with small scale‐augmenting technical change, implies that the gains and structural effects of exploiting scale‐economies have decreased over time. In 1996, costs could have been reduced by close to 30% by full exploitation of scale‐economies, while the number of farms would have been reduced by slightly more than 70%. Thus, both gains and structural effects are substantially less than in 1972. Nevertheless, the calculated gains for 1996 make almost 5 billion NOK. This corresponds almost exactly to the total public support to the dairy farms in 1996. The unexploited scale‐economies are largely due to the agricultural policy. Thus, a substantial share of the same can be considered as part of the‘price’ the Norwegian society has to pay for this policy. In addition, there are likely to be large hidden costs of this policy due in particular to the quota system and other direct production regulations. They imply that technical innovations and other efficiency‐improving investments requiring increased production to be profitable are not carried out. This is the more likely explanation for the extremely poor efficiency development in Norwegian dairy production in the period studied.     

Calculating environmental cost indicators of apple farm practices indicates large differences between growers

This study evaluates the environmental impact of current apple cultivation practices in Flanders, Belgium. It evaluates integrated production, the most common practice, and it compares this production method with conventional and organic production. The assessment was based on Farm Accountancy Data Network data from 2010 to 2012 for 64 farms in the region and a life cycle approach was used. The findings showed no significant improvement in environmental impacts for integrated farms compared to conventional farms and, even more, the former showed significantly higher average impacts per hectare for the categories ‘acidification’, and ‘non-renewable energy use’ in comparison with the latter. The organic production group showed higher average impacts per kilogram due to lower yields. Secondly, impacts related to the categories ‘acidification’, ‘eutrophication’ and ‘global warming potential’ were monetized based on the shadow price method in order to obtain external costs. Results show that external costs increase the production costs for integrated farming at least with 5%, both when these costs are expressed per kilogram and per hectare. However, the findings show a large variability in impacts and costs per farm. Farm-specific practices have therefore an important influence on the total environmental cost rather than production group-specific practices.     

Evaluating the impact of land fragmentation on the cost of agricultural operation in the southwest mountainous areas of China

Given the background of the increasing opportunity cost of farming and the popularization of labour-saving technology, increased fragmentation has gradually become a key factor in the devaluation and abandonment of land assets. To systematically identify the costs of fragmentation, we use a series of indicators such as the number of plots, the Simpson index, the plot-homestead distance and the total minimum commuting time from the homestead to all plots to measure the extent of fragmentation. A translogcost function is developed and estimated using survey data from three periods, 2011, 2014 and 2017; the data include an effective sample of 1064 household-year observations involving 6599 plot-year observations in Chongqing, China. The extent of fragmentation in the mountains of southwest China is quite serious compared with that in other countries and regions. The Simpson index is 0.63, and on average, 6.06 mu (1 mu = 666.67 m² or 1 mu = 1/15 ha) of cultivated land is distributed in 6.16 plots, while the total minimum commuting time from the homestead to all plots is approximately 45 min. An increase of one standard deviation in the number of plots, the Simpson index or total minimum commuting time would lead to cost increases of 7.1 %, 15.1 % and 12.2 %, respectively, if other conditions remain unchanged. The channel for the above result involves the changes in the cost share of inputs caused by fragmentation, which increase the labour cost share and reduce the machinery cost share. There is an inverted U-shaped relationship between farm scale and production cost with an inflection point at 47 mu; that is, costs begin to decrease when the scale exceeds 47 mu. However, the average farm scale is currently only 6.06 mu. In addition, production costs can be significantly reduced by renting-in land and implementing land consolidation. To reduce land system-induced costs in mountainous areas, the government should rationally consolidate land to achieve moderate-scale management, reduce the transaction costs of land transfers and popularize machinery suitable for complex terrain.     

A grassland strategy for farming systems in Europe to mitigate GHG emissions—An integrated spatially differentiated modelling approach

This paper assesses the impact of an EU-wide policy to expand grassland areas and promote carbon sequestration in soils. We use the economic Common Agricultural Policy Regionalized Impact (CAPRI) model, which represents EU agriculture using 2450 mathematical programming farm-type models in combination with the biogeochemistry CENTURY model, which provides carbon sequestration rates at a high resolution level. Both models are linked at the NUTS3 level using location information from the Farm Accounting Data Network. We simulated a flexible grassland premium such that farmers voluntary and cost efficiently increase grassland area by 5%. We find that the GHG mitigation potential and the costs depend on carbon sequestration rates, land markets and induced land use changes, and regional agricultural production structures. In Europe, the calculated net effect of converting 2.9 Mha into grassland is a reduction of 4.3 Mt CO2e (equivalents). The premium amounts to an average of EUR 238/ha, with a total cost of EUR 417 million for the whole EU. The net abatement costs are based on the premium payments, and account on average EUR 97/t CO2e. However, substantial carbon sequestration (28% of total sequestration) can be achieved at a rate of EUR 50/t CO2e. Carbon sequestration would be most effective in regions of France and Italy and in Spain, the Netherlands and Germany. Larger farms and farm-types specialized in ‘cereals and protein crops’, ‘mixed field cropping’ and ‘mixed crop-livestock’ farming systems have the highest mitigation potential at relatively low costs.     

Comparing economic performance of organic and conventional U.S. beef farms using matching samples*

Economic performance measures of organic and transitioning‐to‐organic cow–calf farms are compared with those of non‐organic cow–calf farms. A method of matching samples is used for the comparison, estimating sample average treatment effects for the subpopulation of the treated. Each organic farm is matched with one non‐organic farm that is involved in the same beef industry segments and farm size classes, and in the same region. Furthermore, farmer demographic, farming system, and technology variables are used to identify matches. Bias is reduced by estimating separate weighted regression functions for the treated and untreated groups. Results suggest that higher cost of organic production is due primarily to higher capital recovery, taxes and insurance, and overhead costs. Evidence is found for differences in beef enterprise profitability by organic status.     

On the nature and magnitude of cost economies in hog production

In this article, we assess the impact of farm size on production cost and evaluate the marginal costs and margins by considering that input prices may change with the scale of production. By using French hog farm data, we estimate a system of equations including a feed price function, input demand functions, and an output supply function based on a technology approximated by a combined generalized Leontief‐Quadratic form. Our results suggest that the marginal costs are over‐estimated when the adjustment of the feed unit prices to a change in farm size is not controlled for. More specifically, the cost economies for large farms (enjoying the highest profits) arise primarily from lower feed prices, with technological scale economies having little impact. In contrast, farms with no hired labor exhibit technological scale economies and reach higher price‐cost margins compared to larger farms.     

Africa's changing farm size distribution patterns: the rise of medium‐scale farms

This study assesses changes over the past decade in the farm size distributions of Ghana, Kenya, Tanzania, and Zambia, drawing on two or more waves of nationally representative population‐based and/or area‐based surveys. Analysis indicates that much of Sub‐Saharan Africa is experiencing major changes in farm land ownership patterns. Among all farms below 100 hectares in size, the share of land on small‐scale holdings under five hectares has declined except in Kenya. Medium‐scale farms (defined here as farm holdings between 5 and 100 hectares) account for a rising share of total farmland, especially in the 10–100 hectare range where the number of these farms is growing especially rapidly. Medium‐scale farms control roughly 20% of total farmland in Kenya, 32% in Ghana, 39% in Tanzania, and over 50% in Zambia. The numbers of such farms are also growing very rapidly, except in Kenya. We also conducted detailed life history surveys of medium‐scale farmers in each of these four countries and found that the rapid rise of medium‐scale holdings in most cases reflects increased interest in land by urban‐based professionals or influential rural people. About half of these farmers obtained their land later in life, financed by nonfarm income. The rise of medium‐scale farms is affecting the region in diverse ways that are difficult to generalize. Many such farms are a source of dynamism, technical change, and commercialization of African agriculture. However, medium‐scale land acquisitions may exacerbate land scarcity in rural areas and constrain the rate of growth in the number of small‐scale farm holdings. Medium‐scale farmers tend to dominate farm lobby groups and influence agricultural policies and public expenditures to agriculture in their favor. Nationally representative Demographic and Health Survey (DHS) data from six countries (Ghana, Kenya, Malawi, Rwanda, Tanzania, and Zambia) show that urban households own 5–35% of total agricultural land and that this share is rising in all countries where DHS surveys were repeated. This suggests a new and hitherto unrecognized channel by which medium‐scale farmers may be altering the strength and location of agricultural growth and employment multipliers between rural and urban areas. Given current trends, medium‐scale farms are likely to soon become the dominant scale of farming in many African countries.     

The Influence of Biodiversity Provision on the Cost Structure of Swedish Dairy Farming

Multi‐functionality and the provision of eco‐system services are politically highly prioritised aspects of farming. This study uses a Symmetric Generalised McFadden cost function to analyze the relationship between costs of production and the provision of biodiversity for Swedish milk farms. Biodiversity indicators are based on the number of valuable plant species present at the farm and are modeled as an output in the cost function. The results show that the marginal cost of biodiversity increases with higher provision, and that an increased provision of biodiversity also increases the costs of market commodities such as milk and beef. The upward slope of the marginal cost of biodiversity and its competitive relationship with market goods questions the efficiency of support schemes based on voluntary programmes with a flat‐rate per hectare compensation. Instead, the results support targeted environmental policy schemes with zonings and/or the use of biodiversity indicators.     

An Economic View of the Debate on Farm Size in Saskatchewan: A Comment

In a recent paper in this Journal, Jensen (1984) continues the debate on farm size in Saskatchewan. In particular, he considers the relationship between farm size and efficiency "… to determine if it is necessary to have fewer and larger farms in order to gain cost efficiency …" Attention is focused on the notion of returns to size and the vehicle for analysis is estimates of long-run average cost (LAC) curves. Individual farm data are used for different farm types in the two years, 1977 and 1980. Equations are fitted to each farm type in each year. Hence, each estimated equation is based on cross-section data. The conclusion drawn from this analysis is that, "… at the frontier, constant returns to size are the norm in Saskatchewan agriculture" (p. 199). Moreover, "Governments could consider removing policies which favor large units …" (p. 198).     

Developing farm-specific marginal abatement cost curves: Cost-effective greenhouse gas mitigation opportunities in sheep farming systems

Growing demand for agricultural produce, coupled with ambitious targets for greenhouse gas emissions reduction present the scientific, policy and agricultural sectors with a substantial mitigation challenge. Identification and implementation of suitable mitigation measures is driven by both the measures’ effectiveness and cost of implementation. Marginal abatement cost curves (MACCs) provide a simple graphical representation of the abatement potential and cost-effectiveness of mitigation measures to aid policy decision-making. Accounting for heterogeneity in farm conditions and subsequent abatement potentials in mitigation policy is problematic, and may be aided by the development of tailored MACCs. Robust MACC development is currently lacking for mitigation measures appropriate to sheep systems. This study constructed farm-specific MACCs for a lowland, upland and hill sheep farm in the UK. The stand-alone mitigation potential of six measures was modelled, against real farm baselines, according to assumed impacts on emissions and productivity. The MACCs revealed the potential for negative cost emissions’ abatement in the sheep industry. Improving ewe nutrition to increase lamb survival offered considerable abatement potential at a negative cost to the farmers across all farms while, lambing as yearlings offered negative cost abatement potential on lowland and upland farms. The results broadly advocate maximising lamb output from existing inputs on all farm categories, and highlight the importance of productivity and efficiency as influential drivers of emissions abatement in the sector. The abatement potentials and marginal costs of other measures (e.g. reducing mineral fertiliser use and selecting pasture plants bred to minimise dietary nitrogen losses) varied between farms, and this heterogeneity was more frequently attributable to differences in individual farm management than land classification. This has important implications for the high level policy sector as no two farms are likely to benefit from a generic one size fits all approach to mitigation. The construction of further case-study farm MACCs under varying farm conditions is required to define the biophysical and management conditions that each measure is most suited to, generating a more tailored set of sector-specific mitigation parameters.     

Where in the world is it cheapest to cut carbon emissions?*

Countries with low marginal costs of abating carbon emissions may have high total costs, and vice versa, for a given climate mitigation policy. This may help to explain different countries’ policy stances on climate mitigation. We hypothesize that, under a common percentage cut in emissions intensity relative to business as usual (BAU), countries with higher BAU emission intensities have lower marginal abatement costs, but total costs relative to output will be similar across countries, and under a common carbon price, relative total costs are higher in emission‐intensive countries. Using the results of the 22nd Energy Modeling Forum (EMF‐22), we estimate marginal abatement cost curves for the US, EU, China and India, which we use to estimate marginal and total costs of abatement under a number of policy options currently under international debate. This analysis provides support for our hypotheses, although its reliability is limited by the shortcomings of the EMF‐22 models and the degree to which our econometric model can adequately account for the substantial differences among them.     

Cost Efficiency for Alberta and Ontario Dairy Farms: An Interregional Comparison

In this study, two non-homothetic translog stochastic meta-frontier cost functions—with and without local concavity imposed—are estimated using a nonlinear maximum likelihood estimation procedure to compare the cost efficiency of Alberta and Ontario dairy farms for the period 1984–96. The resulting cost efficiency estimates are not very sensitive to whether or not curvature is imposed. In contrast, the properties of the cost and input demand functions (e.g., elasticities) are sensitive to imposition of local concavity during estimation. The implication is that if an inappropriate model that does not satisfy the properties required by the economic theory is used, the estimated input demand functions may not be reliable. Average cost efficiency for the pooled sample, with local concavity imposed, is approximately 89%. This suggests some potential for improved performance in the sector. The results also suggest that Ontario dairy farms may be more cost efficient than Alberta dairy farms, but the statistical evidence is inconclusive.     

The influence of diversification on long-term viability of the agricultural sector

We estimate the impact of diversification on the performance of farm businesses using measures of economic viability among farms in Scotland and Sweden. We derive indicators of viability using national level accounting surveys for the period 2000–2012 and account for short-term and long-term effects within our estimates of viability.A higher proportion of Scottish farms emerge as being more short-term and long-term viable than Swedish farms. This could, we propose, be due to emphasis on enhancing farm viability within Scottish planning for rural development, compared to Sweden which emphasized productivity and environmental enhancement. Moreover, for both countries the trend in viability is relatively stable until 2007, when both panels begin to display the impact of policy and market change.Findings based on a multinomial logistic regression indicate that farms which run additional ventures outside traditional agriculture, and are diversified in the sense that they obtain revenue from two or more agricultural enterprises, are more viable compared to specialized agricultural units. Other factors which affect viability were found to be structural, biophysical and institutional, specifically the reform of the Common Agricultural Policy (CAP) in 2003. However the significance and magnitude of these effects differ across the two countries. Consequently, these results seem to imply the importance of emphasizing non-specialized agricultural activities within rural development policy and, moreover, informs the rationale behind proposed redistributions of CAP payments.     

Scale Economies,Technical Efficiency,and the Sources of Total Factor Productivity Growth of Quebec Dairy Farms

Canada's average cost for milk production is among the highest in the world. This paper focuses on specific potential causes by estimating economies of scale and technical efficiency for a panel of Quebec dairy farms that spans the 2001–10 period. Additionally, this paper investigates the sources of total factor productivity growth. The stochastic frontier analysis, based on an input‐distance function, is used to estimate returns to scale relationships across dairy farms. The results show that there is significant economies scale to be exploited and that cost of production could also be reduced by improving technical efficiency. Accordingly, the paper indicates that input‐mix effect is the main source of total factor productivity growth. The results have important implications for Canada's supply management policy, and more specifically for the trading of production quota between dairy farmers, as well as for the delivery of targeted extension services.     

Regional Shifts in Pork Production: Implications for Competition and Food Safety

U.S. pork production and processing is consolidating in larger, more economically efficient units, and shifting from the Midwest into the Southeast. A regional model of farm supply and processing demand shows that smaller Midwest operations can survive only if processing capacity remains concentrated in that region. Salmonella incidence is higher in the Southeast and on larger farms. Restricting salmonella incidence in hogs delivered for processing to the minimum feasible level would increase total industry costs by 3%, due to increased production and delivery costs. It would also increase the comparative advantage of farms and processing firms in the Midwest.     

Cost and environmental efficiency of rice farms in South Korea

We examine cost and nutrient use efficiency of farms and determine the cost to move farms to nutrient‐efficient operation using Data Envelopment Analysis (DEA) with a dataset of 96 rice farms in Gangwon province of South Korea from 2003 to 2007. Our findings show that improvements in technical efficiency would result in both lower production costs and better environmental performance. It is, however, not costless for farms to move from their current operation to the environmentally efficient operation. On average, this movement would increase production costs by 119% but benefit the water system through an approximately 69% reduction in eutrofying power (EP). The average estimated cost of each EP kg of aggregate nutrient reduction is approximately one thousand two hundred won. For technically efficient farms, there is a trade‐off between cost and environmental efficiency. We also find that the environmental performance of farms varies across farms and regions. We suggest that agri‐environmental policies should be (re)designed to improve both cost and environmental performance of rice farms.