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The dairy sector is an important sector in Northern Ireland being the single largest contributor to its agricultural economy. However, the sector contributes more to soil phosphorus (P) surplus compared to other agricultural sectors. Consequently, the goal of this research is to analyse the environmental technical efficiency of dairy farms making use of a novel parametric hyperbolic distance function approach. The model is able to internalise P surplus as undesirable output in the dairy production process by treating desirable and undesirable outputs asymmetrically, thereby allowing for the maximum expansion of the desirable output and an equi-proportionate contraction of the undesirable output. The stochastic production frontier model is analysed simultaneously with an inefficiency model to explain variability in efficiency scores assuming the existence of heteroskedasticity in the idiosyncratic error term. Additionally, we estimated the shadow price and pollution cost ratio of P surplus in dairy farms. Our results showed that the average environmental technical efficiency estimates for dairy farms in Northern Ireland is 0.93. Intensification resulting in increased use of concentrates feed was found to be negatively related to environmental technical efficiency. We also found that age of the farmer and share of milk output have a positive relationship with environmental technical efficiency.


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