MEASURING AND DECOMPOSING ECONOMIC, ENVIRONMENTAL AND ECOLOGICAL EFFICIENCY AND PRODUCTIVITY CHANGE IN AGRICULTURAL PRODUCTION

The economic perspective of agricultural sustainability involves the optimisation of monetary gains for farming businesses. These monetary objectives tend to drive farming businesses to conduct a production practice that is harmful to the environment and the sustained functioning of the ecosystem. In the long run the environment and ecosystem fails to support sustained plant and animal productivity growth. As a result there exists an urgent need to make agriculture more sustainable not only for farmers but also for the environment and ecosystem as a whole. This raises a need for measuring sustainability not only from the economic perspective but also from the environmental and ecological perspectives. The existing methods for measuring efficiency levels and productivity changes mainly deal with the economic considerations. Several models have proposed environmental efficiency and productivity change measures. However, they do not satisfy the first and second laws of thermodynamics which govern all production processes. This thesis proposes an analytical framework which accommodates the efficiency and productivity measurement from the three perspectives of economic, environment and ecological sustainability. This framework offers a number of models in which the contents of mass and exergy are utilised to construct environmental and ecological efficiency and productivity change measures. These newly proposed models satisfy the first and second laws of thermodynamics. In addition, the framework also decomposes changes in nutrient use efficiency, energy use efficiency, exergy use efficiency and cumulative exergy efficiency into various components of total factor productivity change and changes in aggregate nutrient, energy, exergy and cumulative exergy contents of inputs and outputs. In response to increasing efforts to assess the environmental and ecological performance of OECD countries in agriculture, this thesis applied the proposed models to measure the efficiency levels and productivity changes in these countries for years from 1990 to 2003. These empirical applications yielded several important findings. The first finding was that there were huge opportunities for OECD countries to make their agricultural production systems more sustainable environmentally and ecologically. On average, OECD countries should be able to produce their current output with an input vector that contains 57.9% less nitrogen and phosphorous and 68.9% less of cumulative exergy consumption without reducing the output levels. The saving in the consumption of nitrogen and phosphorous suggests that less potential eutrophication problems caused to the water systems by the nutrient balance. The reduction in the consumption of cumulative exergy implies that less extraction of the ecosystem services and resources and less amount of cumulative pollution sent to the ecosystem. The second important finding was that the potential improvements in terms of environmental and ecological sustainability can be achieved by being more technically efficient and even more significantly by changing input combinations. The results also confirmed that sustainability varied significantly across OECD countries and that environmental and ecological performance was also found to have connections with national production structures and the implementation of national agro-environmental policies. Further investigations are needed to explore these relationships. In terms of productivity, on average OECD countries had achieved an annual growth of one per cent. Moorsteen-Bjurek total factor productivity (TFP) growth was attributed by 1.8% growth in technological progress. Input-orientated technical, scale and residual mix efficiency levels, however, had declined over time. Annual growth rate in the nitrogen use efficiency estimated to be around 0.9% while the cumulative exergy transformity experienced a reduction at a yearly rate of 0.1 per cent. The changes in these two indicators were driven by TFP growth but also counteracted by the changes of the aggregate nutrient contents and aggregate cumulative exergy contents ratios. The empirical applications have a few shortcomings which are mainly due to the use of the national aggregate data set of the OECD countries and data envelopment analysis (DEA) estimating technique. The proposed models, however, can deliver high potential uses for empirical studies in agricultural production. These shortcomings in the empirical studies can be dealt with effectively by using stochastic techniques to estimate frontiers of micro data sets.