Can Ecologisation and Farm Productivity Coexist?
Insights from Hungarian Farms
By Lajos Baráth and Imre Fertő
As the European Union pushes forward with its Green Deal, one of the key challenges facing the agricultural sector is balancing environmental sustainability with economic performance. Farms are increasingly encouraged to adopt eco-friendly practices, often referred to as “ecologisation.” But how does this shift impact farm productivity? Our recent study explores the relationship between the degree of ecologisation and total factor productivity (TFP) in Hungarian farms, offering insights that could inform agricultural policies across Europe.
What is Ecologisation?
Ecologisation refers to the adoption of environmentally sustainable farming practices. These can include reducing chemical inputs like pesticides and fertilizers, improving soil health, using renewable energy, and promoting biodiversity on farmland. The European Union’s Common Agricultural Policy (CAP) has set ambitious targets to reduce the environmental impact of farming, with the goal of increasing sustainability while maintaining or even boosting productivity.
However, achieving this balance is easier said than done. The key question for policymakers is: Can farms become more eco-friendly without sacrificing productivity?
The Study: Measuring Ecologisation and Productivity
We focus on Hungarian field crop farms between 2015 and 2019, using data from the Farm Accountancy Data Network (FADN). The study introduces a continuous measure of the “degree of ecologisation,” which allows for a more nuanced analysis than the traditional binary approach of comparing organic and conventional farms.
We used a sophisticated econometric model to estimate how different levels of ecologisation affect TFP. Total factor productivity (TFP) is a measure of how efficiently farms use inputs like land, labor, and capital to produce outputs. By analyzing TFP, the study aims to understand whether farms can maintain or improve productivity as they adopt more eco-friendly practices.
Key Findings: A Complex Relationship
We found a monotonically decreasing relationship between the degree of ecologisation and TFP. In simpler terms, as farms become more eco-friendly, their productivity tends to decline. On average, a one-step increase in the degree of ecologisation leads to a 12% decrease in TFP.
However, this relationship is not linear. The researchers identified three distinct regions of impact:
High Ecologisation (Region 1): Farms with a high degree of ecologisation experience the steepest decline in TFP. As they adopt more sustainable practices, productivity drops significantly, by as much as 21%.
Medium Ecologisation (Region 2): In this region, the impact of ecologisation on productivity is less severe. Farms can adopt some eco-friendly practices without a substantial loss in productivity, with only an 8% reduction in TFP.
Low Ecologisation (Region 3): Interestingly, for farms with low levels of ecologisation, there is room to increase their sustainability practices without any significant loss in productivity. In this region, adopting eco-friendly measures does not negatively impact TFP.
What Drives the Productivity Decline?
The research suggests that the main reason for the decline in TFP as farms become more eco-friendly is technological. As farms adopt more sustainable practices, they shift toward using more land-intensive methods, which typically yield lower productivity. For instance, reducing the use of fertilizers and pesticides—while beneficial for the environment—can lower crop yields.
Interestingly, the study also found only minor efficiency differences between farms at different levels of ecologisation. This suggests that the decline in productivity is not due to inefficiencies in farm management but rather the limitations of current technology. In other words, the technologies currently available to farmers may not be sufficient to maintain high productivity while adopting more sustainable practices.
Policy Implications: How Can We Boost Both Sustainability and Productivity?
The findings have important implications for agricultural policy. If we want farms to become more eco-friendly without sacrificing productivity, we need to focus on technological innovation. This could include investing in precision agriculture and other land-saving technologies that allow farms to produce more with fewer inputs.
Additionally, the study suggests that there is room for sustainable intensification—a strategy where farms can increase productivity through better management and more efficient use of resources, without increasing their environmental footprint. For example, reducing inefficiencies in farm operations could help offset some of the productivity losses associated with ecologisation.
Conclusion: Balancing Sustainability and Productivity
The transition to more sustainable farming practices is essential for the future of agriculture, but it comes with trade-offs. Baráth and Fertő’s research highlights the challenges of balancing ecological goals with economic performance. While increasing the degree of ecologisation often leads to lower productivity, there are ways to mitigate this decline through innovation and better farm management.
As the EU moves forward with its Green Deal, these insights will be crucial for designing policies that support both sustainability and productivity in the agricultural sector. By investing in the right technologies and encouraging sustainable intensification, we can ensure that farms remain competitive while protecting the environment for future generations.
Baráth, L., & Fertő, I. (2024). The relationship between the ecologisation of farms and total factor productivity: A continuous treatment analysis. Journal of Agricultural Economics, 75(1), 404-424.
https://doi.org/10.1111/1477-9552.12563
