Economic analysis of the nutrient balances in the dairy sector on the island of Ireland pre and post milk quota abolition

Abstract

The dairy sector is the most important agricultural sub-sector on the island of Ireland (made up of Northern Ireland and the Republic of Ireland; two countries with differing dairy production systems) in terms of its contribution to the economy. However, with the abolition of the European Union (EU) milk quota system in 2015, environmental pressures associated with nitrogen (N) and phosphorus (P) surpluses are likely to be an important policy issue in the region. The goal of this research is to undertake an economic analysis of nutrient balances in the dairy sector on the island of Ireland pre and post milk quota abolition. This thesis is divided into two sections based on the methodologies employed. In the first section, a multiplicity of complementary and novel econometric models were employed to analyse the environmental performance and the factors influencing environmental performance in dairy farms. Specifically, the methodologies include: the OECD/EUROSTAT nutrient balance methodology used to estimate the level of N and P balances in dairy farms; the directional output distance function (DODF) data envelopment analysis (DEA) based model used to analyse the regional environmental efficiency differentials of the dairy farms; and the hyperbolic environmental technology distance function in a stochastic frontier framework used to estimate the shadow price of N surplus. A truncated linear regression model with bootstrapped non-parametric DEA environmental efficiency estimates as a dependent variable and the within-between farm random effects modelling technique on a balanced panel data set were separately employed to analyse the determinants of environmental performance. In the second section of the thesis, a positive mathematical programming (PMP) optimization modelling framework was employed to simulate the effect of milk quota abolition and alternative agri-environmental policy instruments on the structure and nutrient surpluses of different dairy farm types. The analyses are based on representative farm-level data from the Teagasc National Farm Survey (NFS) and the Northern Ireland Farm Business Survey (FBS). The results of the analyses showed that dairy farms have the potential to improve their environmental and production performance but with regional differences across the island of Ireland. N and P surpluses were found to be higher in Northern Ireland compared to the Republic of Ireland. It will cost about €93,552 and €28,149 per farm to fully abate N surplus in dairy farms in Northern Ireland and the Republic of Ireland respectively. The higher value of pollution costs for Northern Ireland reflects the higher shadow price of N surplus with respect to output from dairy production. Stocking density, the amount of grazed grass per hectare, utilized agricultural area and adoption of milk recording were identified as some of the most important factors influencing environmental performance in dairy farms on the island of Ireland. The results also showed that access to land and environmental constraints are likely to be the constraining factors in the expansion of the dairy sector in the post milk quota era. The results of this research will be useful to policy makers and advisory staff in the design of regulatory environmental policies required to improve soil nutrients management in dairy farms on the island of Ireland in the post quota era. The results will also be helpful in developing sustainable dairy farm business strategies.

Date of Award	Jul 2019
Original language	English
Awarding Institution	Queen's University Belfast
Sponsors	Teagasc - Irish Agriculture and Food Development Authority
Supervisor	George Hutchinson (Supervisor), John Davis (Supervisor), Trevor Donnellan (Supervisor) & Myles Patton (Supervisor)