Measuring environmental-economic efficiency in the Karapiro catchment, New Zealand

Abstract: 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 farm performance has tended to ignore such negative externalities. However the current emphasis on environmental issues has led dairy farmers to target improvements in both environmental performance and productivity. Therefore measuring the environmental performance of farms and integrating this information into farm productivity calculations should assist informed policy decisions which promote sustainable development. Nitrogen discharge from dairy farming is major source of nonpoint pollution in the Karapiro catchment. Incorporating farm nitrogen discharges into farm production measures helps to identify farms which are efficient both economically and environmentally. However this is a challenging process since conventional environmental efficiency measures are usually based on simple input and output flows but nitrogen discharge is a complex process which depends on climate variability, pasture and cow physiology and geophysical variability. Furthermore the outdoor, pastoral nature of New Zealand farming means that it is difficult to control input and output flows, particularly of nitrogen. Therefore this paper proposes a novel approach to measure environmental and economic efficiency of dairy farms using a spatially micro-simulated virtual population data. The methodology used for empirical analysi