Climate Change Mitigation in the Dairy Sector: Uncovering Heterogeneity Through Eco‐Efficiency Clubs

ABSTRACT Combining climate change goals with economic targets is crucial for the dairy sector, which is a significant contributor to agricultural greenhouse gas (GHG) emissions worldwide. In this paper, we assess economic and climate change implications of dairy production with panel data of Irish dairy farms from 2013 to 2021. We calculate transient, persistent, and overall eco‐efficiency with respect to GHG emissions by way of stochastic frontier analysis. The innovative component of our analysis is the application of club convergence analysis to explore heterogeneity in transient eco‐efficiency development over time. This offers a nuanced understanding of farm‐level responses to climate challenges. We then explore correlations between convergence clubs and GHG mitigation technology usage. Despite high overall eco‐efficiency, our results uncover significant variability across farms, with some showing improvement and others decline in eco‐efficiency over time. We also find that changes in milk yield and specialization are positively related to better eco‐efficiency development, while GHG mitigation technologies do not play an important role. These insights suggest that the average high eco‐efficiency masks considerable underlying heterogeneity, presenting opportunities for tailored policy interventions. Our study contributes to the literature by highlighting the complex dynamics of eco‐efficiency in the dairy sector and underscoring the need for policy frameworks that account for farm‐level diversity.