Towards Eco-Conscious Farming: A New Approach to Productivity Measurement

The OECD's Environmentally Sustainable Productivity Index (ESPI) offers a new way to measure agricultural productivity by integrating environmental impacts like greenhouse gas emissions and nutrient surpluses. This adaptable framework helps countries balance productivity growth with ecological sustainability, guiding policy toward greener agriculture.

Researchers from Virginia Tech, the University of Queensland, the OECD, and the World Bank have introduced a new analytical framework aimed at evaluating agricultural productivity with an emphasis on environmental sustainability. The paper, published by the OECD, proposes the Environmentally Sustainable Productivity Index (ESPI), a metric that integrates traditional agricultural productivity measures with environmental factors. Unlike conventional total factor productivity (TFP) metrics that focus solely on output relative to input, the ESPI expands this scope by including “bad outputs” such as greenhouse gas emissions and nutrient surpluses, representing environmental harm. Tested across 28 countries, including 18 anonymized OECD nations, from 1990 to 2018, this framework assesses agricultural sustainability trends over time, offering a more comprehensive perspective on productivity that aligns with ecological preservation goals.

Expanding TFP for a Balanced Environmental Approach

One of the ESPI’s defining advantages is its flexibility, allowing for the inclusion of various environmental variables and adapting as new data on natural capital and externalities become available. This adaptability proves valuable for policy as it reveals productivity trends that prioritize minimized environmental impact. By merging economic outputs (like crops and livestock) and negative environmental outputs, ESPI captures the complexity of agricultural productivity under ecological constraints. Comparing ESPI with TFP scores shows how standard productivity measures often miss whether gains have come at the expense of environmental health. For instance, countries with slower increases in negative outputs, such as greenhouse gases, tend to score higher in ESPI than in TFP, as ESPI rewards efforts in reducing emissions and nutrient excesses while maintaining productivity.

Customizable Indices Tailored to Diverse Needs

The paper explores three main ESPI formulations: additive, multiplicative, and benefit-of-the-doubt (BOD) indices, each with specific strengths. Additive indices use fixed weights to measure productivity, which is effective for consistent long-term tracking but may not capture the variable importance of different environmental factors across countries. Multiplicative indices introduce flexibility by applying geometric averages, enabling dynamic interpretation of environmental and productivity scores over time. The BOD approach, uniquely adaptable, allows weights to vary across time and countries, suiting it to diverse economies within international comparisons. A central challenge in implementing ESPI is selecting appropriate weights for “good” and “bad” outputs to reflect their actual environmental and economic significance. These weights might be derived from market prices or estimated shadow prices, yet shadow prices often reflect broader values than market data reveal.

Policy Flexibility Through Decision-Maker Preferences

The ESPI framework includes a “decision-maker preference parameter” that lets policymakers decide the extent to which environmental outputs are weighted against productivity outputs. This parameter can either be a consensus-based policy choice or estimated statistically, allowing ESPI to reflect diverse policy priorities, whether focused on productivity or environmental goals. In this study, an empirical estimation approach was tested, yielding decision-maker parameter values between 0.3 and 0.4 across the index types. This balanced weighting between environmental and productivity outputs can be modified as policy needs evolve, providing a flexible and dynamic tool for nations aiming to align agricultural practices with sustainability.

Insights from the ESPI: Gains in Sustainable Productivity

Empirical analysis over three decades revealed that, on average, OECD countries have achieved sustainable productivity. ESPI results show that these countries, on average, increased productivity while either reducing or stabilizing environmental externalities, such as limiting increases in greenhouse gas emissions relative to productivity gains. For many OECD nations, the gap between TFP and ESPI scores has grown over time, especially between 2004 and 2009, indicating a shift toward environmentally friendly practices and technologies. Countries that performed better in ESPI maintained productivity without proportional increases in negative outputs, achieving a favorable “good-to-bad” output ratio, suggesting that agricultural advancements did not harm ecological balance and aligned with broader environmental goals.

Addressing Implementation Challenges and Future Outlook

Despite its promise, the ESPI framework encounters challenges, particularly around data comparability and weighting choices. The study emphasizes the need for additional research into data sources, shadow price accuracy, and consensus on bad outputs to ensure fair and accurate comparisons across countries. While ESPI has a solid foundation in index theory, a global implementation would require standardized data on environmental outputs, which remains scarce in some countries. Although not a final solution, the ESPI framework offers a promising foundation for measuring agricultural productivity that promotes sustainable practices. Its ability to reward nations for improving sustainable productivity offers policymakers a valuable tool to balance economic growth with environmental protection. As global food demands increase, the ESPI can help guide nations toward policies that address food security while minimizing ecological impact, fostering a more sustainable agricultural future.