Productivity and environmental costs from intensification of farming. A panel data analysis across EU regions

Abstract

This paper addresses the need of finding new ways of measuring environmental and economic performance of farming. The aim of this study is to inquire on the impacts that excessive intensification has on productivity and environmental costs in the long term and, additionally to explore empirically the trend of these two indicators over time. The contribution of this study is twofold: (a) to engage in the discussion that although intensification can boost yields and lower costs in the short-term, it might lead in the opposite direction in the long-term due to environmental and economic issues and (b) to explore current trends of productivity and environmental costs of farming. To this end, this paper performs a panel data analysis of productivity and environmental costs on a farm accounting database across European regions over the 1989-2009 period. The methodology uses output as an indicator of productivity and expenditures on energy, pesticides and fertilisers as proxy indicators of environmental costs. Results provide empirical evidence that regions under study have a negative trend of productivity and a positive trend of environmental costs in the years under study. These results correlate negatively with both, economic and environmental sustainability of farms. Arguably, this is aggravated in the latter due to hidden environmental costs valued at zero in traditional accounting.