Abstract:
Data Envelopment Analysis (DEA) is a non-parametric technique designed to assess the relative performance of a series of decision-making units operating with similar goals and objectives. In utilising DEA, this study analyses the relative efficiency of a group of dairy farms in New Zealand over the 2011-2012 season. Particular attention is drawn to the examination and comparison of the various approaches proposed by prior literature on incorporating the impact of undesirable factors into the DEA models. Four major approaches have been applied and analysed in the paper. They are the input method, linear transformation, inverse transformation, and the weak disposability method. Nitrogen leaching, which measures the amount of nitrogen (nitrate) leaching losses from dairy farm, is the environmentally undesirable factor being integrated into the DEA models examined in this paper. Results suggest that the efficiency assessments of farms vary considerably according to the DEA approach selected for incorporating the undesirable output (nitrogen leaching). Due to the deficiencies identified in the linear transformation and inverse transformation models, and to the fact the weak disposability treatment produces overestimated performance results, the input method is regarded as the preferred approach to integrate undesirable factors into the DEA analyses. The findings from applying this model show a a negative relationship between the farms’ technical efficiency and nitrogen leaching per hectare (and per cow). Thus, a farm discharging greater amounts of nitrogen leaching per hectare or per cow is less likely to operate efficiently. A farm’s technical efficiency, however, is not closely associated with its operating profit per hectare or per cow.
