Measurement of agricultural total factor productivity growth incorporating environmental factors: A nutrients balance approach

This article proposes to use nutrient-orientated environmental efficiency (EE) measures to construct a nutrient total factor productivity index (NTFP). Since nutrient-orientated EE measures are consistent with the materials balance principle, NTFP index is superior to other existing TFP indexes. An empirical study on the environmental performance of an agricultural sector in 30 OECD countries from 1990 to 2003 yielded several important findings. First, these countries should be able to produce current outputs with at least 50% less aggregate eutrophying power, implying that they should have been able to substantially reduce the potential for eutrophication. Second, traditional TFP has grown by 1.6% per annum due to technical progress; however, there are lags in the responses of several countries to this technical progress. Third, environmental TFP has grown at a slower rate than traditional TFP growth due to reductions in nutrient-orientated allocative efficiency. Finally, changes in input combinations could have significantly improved environmental efficiency and productivity. These findings favor policy interventions and faster technological transfer to improve environmental performance.

► A new environmental productivity index is developed using nutrient-orientated efficiency measures.
► Environmental TFP in OECD's agriculture has grown by 1.3% per annum during 1990–2003.
► Changes in input combinations could significantly improve environmental performance.
► Policy interventions and technological transfer could improve environmental performance.