Assessing the Eco-efficiency of Swedish Crop Farms and the Role of Subsidies : a Directional Distance Function Approach

Abstract: The agriculture sector’s contribution to global greenhouse gas (GHG) emissions and its increasing vulnerability to the effects of climate change warrants assessments considering not only on-farm productivity but also the industry’s environmental sustainability. Utilizing the concept of eco-efficiency, this study analyzes the environmental performance of Swedish crop farms by incorporating farm-level GHG emissions as an undesirable output in the production function. Eco-efficiency is the term used to describe production with efficient use of resources while reducing environmental damage. Using panel data from the Swedish Farm Accountancy Data Network (FADN) spanning from 2009 to 2020, GHG emissions at the farm level are quantified. Contrasting usual non-parametric eco-efficiency methods, a parametric estimation of an output-oriented directional distance function (DDF) is employed via a stochastic frontier analysis (SFA) to ascertain farmers’ potential to simultaneously enhance farm net-value added (FNVA) while decreasing GHG emissions. Further analysis is conducted to investigate any potential effects of the common agricultural policy (CAP) subsidies on eco-efficiency levels. Results reveal that Swedish crop farmers emit an average of 295 tonnes of CO2 equivalent, predominantly from nitrous oxide (N2O) due to fertilizer use. These farmers are highly eco-efficient at an average level of 0.90, suggesting that they can concurrently increase FNVA and decrease emissions by 10%. Investigating the factors affecting eco-inefficiency, it is found that crop and environmental subsidies significantly lead to reduced efficiency. Meanwhile, results suggest that the implementation of the 2013 CAP reform, and increased crop diversification foster more eco-efficient practices. From these findings, implications, and conclusions are drawn, which offer valuable insights for policymakers.