The relationship between the ecologisation of farms and total factor productivity: A continuous treatment analysis

Abstract

The European Green Deal aims to mitigate the environmental impact of food production while improving the income of primary producers and strengthening the EU's competitiveness. We examine how the degree of ecologisation affects farms' total factor productivity (TFP). Our analysis combines a random-parameter stochastic production frontier model with a composite indicator and a dose–response function approach. Results show a monotonically decreasing relationship between ecologisation and expected TFP level. On average, a one-step increase in the degree of ecologisation results in a 12% decrease in TFP. However, the results indicate a non-linear relationship. Three regions of the dose–response function can be distinguished; associated with high, medium and low degrees of ecologisation. In a region with a low degree of ecologisation, farms can increase the degree of ecologisation without reducing TFP. Both efficiency and technological differences contribute to these differences, but the main reason is technological. With increasing ecologisation, farm technology becomes more ‘land using’. Therefore, farms can increase their TFP and degree of ecologisation simultaneously by using land-saving technologies or through sustainable intensification.