Agricultural externalities and environmental regulation: evaluating good practice in citrus production

Abstract

Economic activity takes place in a scenario characterized by an increasing number of environmental regulations aimed at bringing under control the emission of contaminating wastes. In this paper, we evaluate the impact of transforming a code of good practice in nitrogen fertilization on Spanish citrus fruit farms into an environmental regulation of compulsory fulfilment. Using data envelopment techniques, we calculate unrestricted and environmentally regulated short-run maximum profits. Both profit values are then used to compute an index of the cost of regulation. Our results suggest that the cost of shifting from a merely recommended practice to a binding rule is low. On average, the loss of profit computed is only about 4%. Furthermore, we find that farms’ overall efficiency is low and that the current gap between observed and regulated fertilization practices could be overcome by improving overall management efficiency.

Acknowledgements

The statistical information has been made available to the authors by the Regional Agricultural Board of the Valencian Government. We also thank the agronomic experts of the Board for their help in the preparation of the data. We are grateful to the Ministerio de Educacion y Ciencia and FEDER for the financial aid received (projects AGL2003-07446-C03-03 and SEJ2005-01163). The usual disclaimer applies.

Notes

¹ See Cooper et al. (2004) for a survey on DEA models and their applications.

² Variable returns to scale are imposed through restriction (v) (see Banker et al., 1984).

³ Farmers sometimes try to compensate the fall in profitability that occurs when a plantation ages by doubling the old-tree plantation surface with new trees. The aim is to avoid an interruption in output, progressively replacing old trees as new ones enter into production. Yet this is not recommended by agricultural experts, it is not what the best farmers do, and has, as a by-product, a temporary increase of nitrogen use per hectare.