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Increasing agricultural production efficiency is a common economic strategy for dealing with the conflict of growing demands and environmental pressures. The application of Nitrogen is exemplary for this conflict, boosting yields on the one hand, while having negative impacts on soil and surrounding ecosystems, such as eutrophication. An all-things-considered analysis of progress in productivity must therefore account for environmental pressures as well. In this paper we apply the Malmquist-Luenberger index, a non-parametric measure of productivity, which allows for the inclusion of undesirable outputs into efficiency measurement. We then compare it to the standard Malmquist Productivity Index to assess if increasing eco-efficiency is a suitable strategy towards sustainable agriculture. The empirical analysis, based on NFS Irish farm level data from 2006 to 2016, shows an increasing trend both in efficiency and in eco-efficiency, with differences in technological change and among farm types indicating a future potential for dairy farms to increase eco-efficiency.


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