Valuing Agricultural Externalities: Nitrogen Surplus in the Dairy Sector on the Island of Ireland

Negative agricultural externalities that accompany dairy production activities are not usually accounted for in the market place since they are not priced. To be able to manage an externality however, it is important that it is measured. Using a hyperbolic environmental technology distance function, we estimate the farm-specific abatement costs (shadow price) of nitrogen pollution in the island of Ireland's (Northern Ireland and the Republic of Ireland) dairy sector. The methodology, unlike the 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 analyses are based on farm-level panel data from the Teagasc National Farm Survey(NFS) and the Northern Ireland Farm Business Survey (FBS). The results of our estimation showed that it will cost about 93,552 and 28,149 per farm to fully abate nitrogen surplus for Northern Ireland and the Republic of Ireland 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. The results will provide quantitative information on farmers costs of reducing nitrogen pollution. This will be of relevance in designing future agri-environmental policies Acknowledgement : This study is funded by Teagasc under the Walsh fellowship programme. The authors thank Agri-Food and Biosciences Institute, Northern Ireland for providing technical supports. We also thank the Department of Agriculture, Environment and Rural Affairs (DAERA), Policy and Economics Division, Northern Ireland and Teagasc for providing access to dat