Unraveling the impact of variable external input use on the cost efficiency of dairy farms in Europe

There has been a global shift towards intensification in the dairy sector in recent years which may have considerable impact on the cost efficiency and economic returns of farms. Considering this, the goal of this study is to offer an empirical analysis of the effect of variable external input use on dairy farms. Employing a novel Activity Analysis Model (AAM), the study analysis was conducted in two distinct but complementary steps. In the first step, we discriminated two technologies (low and high inputs) which allow us to classify a sample of dairy farms according to their level of intensification, while in the second step, we evaluated two cost efficient frontiers instead of assessing individual farm inefficiency scores. With this approach, we explore different technologies within a sample of EU dairy farms. Our results, on average, shows that agricultural practices using low inputs dominates the high input ones for farms operating on a large scale while a slight dominance of high input over low inputs exist for small scale farmers. While we reckon that low input can be cost competitive with their high input counterparts, we also note that regional differences do exist. Thus, showing that the significant gap between the two discriminating frontiers depends not only on farm size but also on farm region. We found that increased cost efficiency can reduce the negative environmental impact of EU-dairy farms while simultaneously reducing farmers’ production costs. The results of the study can therefore provide a direction to policymakers and dairy farmers alike as regards the efficient use of external inputs which may consequently reduce environmental burdens associated with dairy farms.