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.