The Influence of Biodiversity Provision on the Cost Structure of Swedish Dairy Farming


  • Joakim Gullstrand,

  • Rembert De Blander,

  • Staffan Waldo

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    • Joakim Gullstrand is the corresponding author and is with the Department of Economics, Lund University, Box 7082, S-220 07 Lund, Sweden. Tel: +46 46 2220000. Email: for correspondence. Rembert De Blande is with the Université Catholique de Louvain and CES, KU Leuven. Staffan Waldo is at the Swedish University of Agricultural Sciences. The authors thank Yves Surry, three anonymous referees, the Editor and the participants of the 6th meeting of FACEPA (Farm Accountancy Cost Estimation and Policy Analysis of European Agriculture) for helpful and insightful comments. Financial support from the European Community's Seventh Framework programme (FP7/2007-2013) under grant agreement No 212292 (FACEPA) is gratefully acknowledged.


Multi-functionality and the provision of eco-system services are politically highly prioritised aspects of farming. This study uses a Symmetric Generalised McFadden cost function to analyze the relationship between costs of production and the provision of biodiversity for Swedish milk farms. Biodiversity indicators are based on the number of valuable plant species present at the farm and are modeled as an output in the cost function. The results show that the marginal cost of biodiversity increases with higher provision, and that an increased provision of biodiversity also increases the costs of market commodities such as milk and beef. The upward slope of the marginal cost of biodiversity and its competitive relationship with market goods questions the efficiency of support schemes based on voluntary programmes with a flat-rate per hectare compensation. Instead, the results support targeted environmental policy schemes with zonings and/or the use of biodiversity indicators.