Climate change and food security have become critical issues in the agricultural policy agenda. Although global warming is expected to increase both the frequency and severity of heat stress on dairy cattle, there are very few economic studies focusing on this issue. This paper contributes to the literature by integrating the frontier methodology, commonly used in applied production economics, with heat stress indexes used by animal scientists but largely ignored by economists. Our econometric models are useful to quantify gross benefits expected from adaptation to climatic conditions represented by the Temperature Humidity Index (THI) and alternatively by the Equivalent Temperature Index (ETI). Stochastic production frontier analysis is used to measure technical efficiency for an unbalanced panel of 103 dairy farms located in Florida and Georgia. Five alternative model specifications are evaluated. The results reveal that both THI and ETI have a significant nonlinear negative effect on milk production. The climatic indexes when incorporated in the frontier specification absorb some of the output shortfall that otherwise would be attributable to inefficiency. The results indicate that using fans combined with sprinklers is an effective adaptation to offset output losses stemming from heat stress conditions.

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This study evaluates the environmental performance of northeastern U.S. dairy operations that differ in size using a directional output-distance function that measures the joint production of milk and emissions while incorporating a fourway error approach that captures farm-size heterogeneity, transient and persistent technical efficiency, and random errors. For the emission component, a comprehensive pollution index is generated that incorporates three major sources of pollution in dairy farming: fuel, fertilizer, and livestock. Computed shadow prices and Morishima elasticities of substitution reveal that large dairy operations are environmentally inefficient compared to their smaller counterparts.

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