Analysis of the effect of alternative agri-environmental policy instruments on production performance and nitrogen surplus of representative dairy farms

Nitrogen (N) surplus is an important environmental problem on the island of Ireland (Northern Ireland and the Republic of Ireland), and the dairy sector has been identified as contributing more to this problem compared to other agricultural sectors. As a result, there has been increased demand for efficient policy measures to improve the economic and environmental performance of dairy farms in the region. In this study, we employed the positive mathematical programming (PMP) optimization modelling framework to simulate the economic and environmental impact of two alternative agri- environmental policy instruments on different dairy farm types. Specifically, the study considers the effects of N surplus tax and agri-environmental nutrient application standard on the production performance and N surplus of representative dairy farms using scenario analyses. The results of the analyses showed that the effects of the agri-environmental policy instruments vary across the two countries and clusters of dairy farms, resulting in clear differential effects on farm structure and N surpluses. The study concluded that in situations where the nutrient surplus is already high, as with the large farms’ clusters in this study, the use of manure application standards will be more effective in limiting nutrient surplus to soils compared to the use of nutrient surplus tax.

Keywords: Nitrogen surplus; Mathematical programming; Cluster analysis; Dairy farms; Agri- environmental policy