An efficiency-based concept to assess potential cost and greenhouse gas savings on German dairy farms

This article investigates potential savings of costs and greenhouse gas (GHG) emissions for a sample of 216 dairy farms in northern Germany using Data Envelopment Analysis. Tradeoffs between a cost-efficient and a GHG-efficient production are identified. For this purpose, an environmental-economic farm model is used, which allows ‘pricing’ the input with market prices and CO2 equivalents, respectively. Uncertainty of CO2 equivalents and volatility of input prices are taken into account and therefore efficiency scores are in the form of ranges. The results reveal that the sample farms are more GHG-efficient than cost-efficient. We estimate potential cost savings between 37.2% and 57.4% and potential savings in GHG emissions between 24.9% and 41.3%. Cost and GHG emission reductions are complementary across a wide range: by moving from the status quo to cost-efficient production, at least 87.5% of the GHG saving potential would be tapped. Unlocking the remaining reduction potential comes at a shadow price (abatement cost) of about €165/t CO2 equivalent. From an input allocative point of view, a change from cost-efficient production to GHG-efficient production requires reductions in nitrogen use and an extension of diesel use. Compared to the sample average and the cost-efficient farms, GHG efficient dairy farms are characterized by a higher share of legumes and a longer effective lifetime of cows.