Nitrogen efficiency of Dutch dairy farms : A shadow cost system approach

In this paper we analyse the cost efficiency and nitrogen efficiency of an unbalanced panel of Dutch dairy farms. Nitrogen efficiency is defined as the ratio of minimal to observed use of nitrogen (N-containing inputs), conditional on output and quasi-fixed inputs. Nitrogen efficiency is computed in a shadow cost system framework. Nitrogen-efficient production is found at the optimal mix of variable inputs, determined by the nitrogen content of these inputs. The optimal nitrogen content ratio is introduced using price distortion factors in the estimated cost function. The mean input-oriented technical efficiency is 84 per cent. The mean nitrogen efficiency is 56 per cent. The nitrogen surplus at the nitrogen-efficient point is less than half of the observed surplus, whereas production costs increase by only 3 per cent.