Multi-output technical efficiency in the olive oil industry and its relation to the form of business organisation

Abstract

This work studies the level of technical efficiency in the Andalusian oil industry from a multi-output, non-parametric approach by conducting the data envelopment analysis (DEA) methodology with non-radial distance functions, as well as implementing environmental and non-discretionary variables. The production frontier includes three outputs: quantity and quality of oil production, the outputs to be maximised, and one output to be minimised, the environmental impact of the production process. The inputs are the following: grinded olive, labour, and capital (both fixed and floating). The analysis is carried out by including non-discretionary variables from two points of view. It is considered that the business structure (cooperative or corporation) of the firm affects the frontier (technology). This variable is included through a specific three-stage method. The relation between efficiency and other non-discretionary variables is analysed by the estimation of a Tobit model. Having a sample of 88 oil-mill industries in Andalusia as the starting point, the indices for the two nonconventional outputs in this type of analysis are elaborated; quality is quantified by means of an aggregated index that gathers some aspects related to the separation of olives, critical points, and traceability. The environmental impact is assessed by another index that includes the effects produced on soil, water, air, and sound comfort. From the analysis of results, it can be underlined that, in spite of the fact that the levels of efficiency are high on average, some production adjustments to reduce inputs and the environmental impact of the process could be implemented. The influence of the business structure is significant, and results show that corporations are the most effective ones.