Estimating the Elasticity of Demand and the Production Response for Nitrogen Fertiliser on Irish Farms

The application of artificial fertiliser continues to be a vital component of the production system on the bulk of Irish farms, accounting for approximately nine percent of total costs on dairy and cattle farms (Hennessy et al. 2011). However, the average application of artificial nitrogen fertiliser per hectare of grassland has been in decline recently. This reduction in use is likely due to a number of factors including better on-farm grassland management, as well as better management and utilisation of organic manures, the introduction of the Rural Environmental Protection Scheme, the Nitrates Directive, and more recently higher fertiliser prices. Changes in the level of artificial nitrogen usage are likely to have significant implications for agricultural productivity and the environment, both in terms of nitrate emissions and greenhouse gas emissions. Therefore, a better understanding of the factors affecting fertiliser demand, as well as the relationship between fertiliser use and agricultural production levels is required. In this study an unbalanced panel dataset was constructed using data for the period 2000 to 2010 from the Irish National Farm Survey (NFS) and used to estimate two fixed effects models. The first model estimated the elasticity of demand for artificial nitrogen fertiliser applied on grassland. A second fixed effects model was developed to estimate the relationship between stocking rate and the level of artificial nitrogen applied on grassland.