Ozone pollution and farm profits in England and Wales

Abstract

Tropospheric ozone is an air pollutant known to adversely affect crop yields across Europe. Experimental work is underway to quantify yield effects at ambient ozone levels for a number of crops. In this article, we undertake direct, farm-level evaluation of the impact of ozone by estimating a multi-output profit function using a panel dataset of cereal farms in England and Wales. A system of equations, comprising the profit function, input and output share equations is estimated using a fixed-effects seemingly unrelated regression technique, with ozone as a quasi-fixed input. Estimated parameters are used to calculate tropospheric ozone-related profit and output supply elasticities. The main findings from the profit function show that a 10% increase in average ozone levels would decrease variable profits by 1.3% and wheat output supply by 1%. These results are of a significantly lower magnitude, but qualitatively consistent with findings from similar studies carried out in North America.

Acknowledgements

The authors are grateful to Xavier Irz and Alastair Bailey for comments on a previous version of the material presented in this article. We are also thankful to two anonymous referees for perceptive comments that have improved this article. Any remaining errors are our own.

Notes

¹ Wheat, potatoes and sugarbeet are key UK crops that are more likely to suffer following high ozone concentrations.

² We are grateful to a referee for pointing this out.

³ The translog specification is used as it is a interpretable as a second-order approximation to an arbitrary function at a given point. ‘Flexible’ functional forms such as the translog have become the forms of choice in applied production analysis.

⁴ Note however that these studies did not estimate multi-output profit functions and instead aggregated data from multiple crops into scalar indices.