Examining the Relationship between Social Inefficiency and Financial Performance. Evidence from Wisconsin Dairy Farms

Although social sustainability is an important component of sustainable agricultural production, little research has been conducted to assess social sustainability performance at the farm level. This study measures farmers’ social sustainability performance using (in)efficiency measures derived from a non-parametric dynamic directional distance function approach. It further examines the relationship between social (in)efficiency and financial performance measured by profitability, which is crucial to understand the financial impact of engaging in socially responsible activities. The empirical application focuses on a sample of Wisconsin dairy farms over the period 2007–2017. Results show that sample farms could have (decreased/)increased their social (in)efficiency by an average of 14%. Social (in)efficiency was found to be (negatively/)positively related to farm profitability, implying that social objectives can be achieved in tandem with economic goals.