Improvement in nitrogen leaching efficiency (NLE)-the kilograms of milk solids produced per kilogram of nitrogen leached-has been proposed as one strategy to reduce the amount of nitrogen (N) leached from New Zealand dairy farms. A whole-farm optimisation model is used to assess the implications of NLE targets in the Waikato region of New Zealand. In the absence of NLE constraints, there is no relationship between NLE and farm intensification (measured in terms of the proportion of cow diet consisting of imported feed). Indeed, NLE remains stable between 25. kg MS/kg N and 28. kg MS/kg N as a greater amount of imported feed promotes N leaching, but also milk production. In the absence of a stand-off pad (a bark-covered loafing pad employed to reduce urine deposition on pasture), fixing higher levels of NLE decreases N leaching, but imposes an enormous cost on producers by encouraging higher levels of production through the purchase of costly, low-protein supplementary feed. By comparison, with the availability of a stand-off pad, higher levels of NLE allow reductions in leaching to occur at reasonable cost. Nevertheless, levels of N leaching varied significantly between simulated farming systems, depending on the level of NLE studied and variability in the economic environment. Indeed, the coarse relationship between N leaching and NLE infers that N leaching could easily increase under a policy that targets NLE, highlighting the general inadequacy of efficiency measurements for environmental regulation. © 2014.