Sanna Lötjönen, Esa Temmes and Markku Ollikainen
Department of Economics and Management, University of Helsinki, Finland
Dairy production in agriculture receives currently a lot of attention in environmental policy. In many regions, such the Baltic Sea or Chesapeake Bay, nutrient loads from dairy production are considerable. Climate mitigation policy is entering dairy farming all over the world given the high methane emissions from animal husbandry. Negative environmental effects of dairy production are directly linked to management decisions, such as the choice of the herd and its diet, fertilization of field parcels, and technology choices for manure management.
In the earlier literature of dairy management, a comprehensive theoretical modelling of privately and socially optimal production with both nutrient runoff and GHG emissions, and with endogenized interdependent choices (especially diet) in the animal husbandry farm, is missing. Optimizing the diet is important, since its changes affect many aspects of dairy production (e.g. milk production, manure excretion and composition, fertilizer application, land allocation between crops, and methane emissions from enteric fermentation).
We provide a comprehensive theoretical analysis of private and social optimum in dairy production. The private farmer maximizes revenue from milk production by choosing herd size, its diet (share of silage and concentrate feed), manure storage and spreading technologies (with or without cover; broadcast or injection spreading), fertilization (manure or mineral fertilizer), and land allocation between crops (barley or silage). The social planner accounts also for nutrient runoff to waterways and GHG emissions to the atmosphere.
We show analytically that critical radius emerges for both the choice of crops and fertilizer type (mineral and manure) not only in the private but also in the social optimum. We also show that manure application rate decreases in distance to farm center and fertilizer intensity is higher in the manure fertilized fields than in the fields in which mineral fertilizer is used. In contrast to what has generally been thought, the socially optimal fertilizer application follows the same spatial pattern than the private fertilization but at a lower level of intensity. This implies that nutrient policies designed for crop production do not fit to dairy farming.
A simulation model applied to the Finnish agriculture is used to further examine the features of the model. Numerical simulations reproduce the results derived in the theoretical analysis. In addition, we examine how accounting for only climate or water damage affect the optimal choices. Our numerical analysis shows that reducing GHG emissions is surprisingly difficult unless the farm reduces the number of productive animals. Although adjusting diet reduces nutrient loading, a lower herd size is the most effective way to reduce both nutrient runoff and GHG emissions. The number of barley parcels is also reduced when society accounts for only runoff damage or both damages. Diet contains less concentrates in the socially optimal solutions. Optimal manure management technologies are identical in all cases (storage with a cover, broadcast spreading).