Synergies or Trade‐Offs Between Environmental and Economic Outcomes? An Analysis of Agricultural Production Performance

ABSTRACT Incorporating greenhouse gas (GHG) emissions as an undesirable output of agricultural production in a directional distance function provides a better understanding of agricultural production performance. Based on balanced panel data from 126 prefecture‐level regions in the Yangtze River Basin in China, we employed a quadratic directional output‐oriented distance function to measure agricultural production performance in terms of environmental efficiency, relative shadow price of GHG emissions and Morishima elasticities of substitution between inputs. We found an upward trend, with average environmental efficiency of 0.871 during 2000–2020. This indicates that 12.9% more agricultural added value can be achieved, along with a 12.9% reduction in GHG emissions. Agricultural production in the upstream Yangtze River Basin region showed the best performance in terms of environmental efficiency. The estimated relative shadow price of GHG emissions was 4.606 and showed a negative association with environmental efficiency. Morishima elasticities of substitution indicated a substitution relationship of labour and fertiliser to land, and a strong complementary relationship between fertiliser and labour.