Identifying and assessing intensive and extensive technologies in European dairy farming

Abstract

In order to tackle climate change and biodiversity loss, the European Union (EU) promotes extensive farming. However, identifying such farms across countries and assessing their performance for policy purposes remains challenging. This paper combines a latent class stochastic frontier model (LCSFM) with a novel nested metafrontier approach. The resulting model enables the identification of intensive and extensive farms across countries, estimation of farm efficiency and identification of different technology gaps. Based on Farm Accountancy Data Network data of French, Irish and Austrian dairy farms,we find poorer environmental but better economic performance of intensive farms, compared to extensive farms. The largest productivity differences stem from technology gaps and not from inefficiency. The approach enables a more nuanced analysis of sources of inefficiency to assist policy design for future green payments in the EU.