Ozone Externalities on Crop Production: Insights from UK Farm Level Data

Tropospheric ozone is an air pollutant thought to reduce crop yields across Europe. Much experimental scientific work has been completed or is currently underway to quantify yield effects at ambient ozone levels. In this research, we seek to directly evaluate whether such effects are observed at the farm level. We use both primal (production function) as well as dual (profit function) methods, with ozone as a fixed input, to explore the extent to which output and profits are affected by ozone in the UK. A panel dataset on UK farms is intersected with spatial data on ozone, and panel data production and profit function estimation methods are used. The production function does predict a statistically significant negative effect of ozone on wheat yields at the farm level. However, this elasticity is small, and indicates that ozone is unlikely to result in the imposition of substantial external costs on wheat production. The profit function implications regarding ozone are less clear. Although the estimates indicate that ozone depresses wheat farm profits and wheat supply, the elasticities are statistically insignificant, and few definite conclusions can be drawn. We conclude that the farm-level evidence does not show a substantial ozone effect in the UK, and that it may be wise to interpret economic valuations based upon experimental results with some caution.