Pure and compensated technical efficiency of Swedish dairy farms

The compensatory effect of environmental subsidies for agri-environmental output constraints was evaluated through a comparative analysis observing the 'pure' technical efficiency, as a benchmark for prevailing production conditions, and the 'compensated' technical efficiency, as a proxy indicator of the compensation. An unbalanced data panel covering 3578 observations of 668 Swedish dairy farms in the period 2002-2012 was used. The analysis showed that in the study period, environmental farm support decreased the differences in farm revenue generated by agri-environmental output constraints in Sweden. However, the environmental support distribution did not succeed in meeting regional needs, so difficulties emerged in farmers' ability to generate output in southern and central forest and valley areas of Sweden. Furthermore, the environmental agricultural support had only a partial subsidisation effect on 'output-reducing' farm management practices, with full compensation being achieved for organic and capital-extensive farming, whereas low livestock density farming was not sufficiently compensated for. This analysis reveals incentives with policy implications for farm technical performance and provides direct input to future policy recommendations for environmental support allocation.