Dynamic Cost Inefficiency of the European Union Meat Processing Firms

We apply dynamic data envelopment analysis (DEA) to estimate dynamic cost inefficiency for a sample of European Union (EU) large meat processing firms over the period 2005–2012 and decompose this into the contributions of technical and allocative inefficiency. The estimation of dynamic inefficiencies controls for adjustment costs associated with firms’ investments. We further contribute by measuring dynamic cost inefficiencies and their components with regard to own region group (managerial inefficiencies) and the gap between the pooled frontier and the region‐specific frontier (programme inefficiencies). Results show that technical inefficiency tends to be the largest component of cost inefficiency when both conducting the analysis for the EU as a whole and estimating a region‐specific frontier. Results suggest significant differences in cost, technical, and allocative inefficiencies between meat processing firms in eastern, western and southern EU countries. We also find that the gaps between the pooled and region‐specific frontiers tend to be small to negligible, which suggests that the main source of pooled inefficiencies are shortcomings in managerial practices rather than differences in region‐specific conditions.