Let the cows graze: An empirical investigation on the trade-off between efficiency and farm animal welfare in milk production

•Directional Data Envelopment Analysis: milk and farm animal welfare (FAW) as output.•Farm animal welfare is a seemingly irrelevant output in standard approaches.•Farms with pasture can be as efficient as in confinement despite lower milk yields.•Pasture may foster efficient provision of FAW but this is not guaranteed. To investigate whether farm animal welfare comes at the cost of dairy farm performance, and the role that pasture-access thereby plays, we analyse a rich sample of 45 dairy farms in Germany with a scientific measure of farm animal welfare. Based on directional efficiency measure that acknowledges sequential preferences such that farm animal welfare becomes relevant after technical efficiency, we cannot find a trade-off between farm animal welfare and technical milk efficiency. Pasture-based production systems can be at least as efficient or even more efficient compared to confinement systems, despite lower milk yields. Neglecting sequential preferences would bias efficiency in provision of farm animal welfare by pasture-systems. Farms from all types of dairy systems determine the efficient frontier, where efficiency increases with herd size, and is linked with higher profits. We conclude that pasture-access may help but does not guarantee higher levels of animal welfare. These results question governmental support for pasture access regarding the provision of farm animal welfare.