Environmental efficiency with multiple environmentally detrimental variables; estimated with stochastic frontier analysis and data envelopment analysis

The objective of this paper is to estimate comprehensive environmental efficiency measures for Dutch dairy farms. The environmental efficiency scores are based on the nitrogen surplus, phosphate surplus and the total (direct and indirect) energy use of an unbalanced panel of dairy farms. We define environmental efficiency as the ratio of minimum feasible to observed use of multiple environmentally detrimental inputs, conditional on observed levels of output and the conventional inputs. We compare two methods for the calculation of efficiency; namely Stochastic Frontier Analysis (SFA) and Data Envelopment Analysis (DEA). This paper reveals the strengths and weaknesses for estimating environmental efficiency of the methods applied. Both SFA and DEA can estimate environmental efficiency scores. The mean technical efficiency scores (output-oriented, SFA 89%, DEA 78%) and the mean comprehensive environmental efficiency scores (SFA 80%, DEA 52%) differ between the two methods. SFA allows hypothesis testing, and the monotonicity hypothesis is rejected for the specification including phosphate surplus. DEA can calculate environmental efficiency scores for all specifications, because regularity is imposed in this method.