Analysis of the efficiency and returns to scale of sugar mills in Mexico

Abstract

In Mexico, the sugarcane agroindustry is important in the economy of 25 states and 267 municipalities. In the 1995-1996 harvest, 61 sugar mills operated and in the 2017-2018 harvest only 51 mills. In a 19-year period, 16.4% of the milling infrastructure of the Mexican sugarcane agroindustry closed. Technically, there are inefficiencies in their parameters that influenced their closure. The present research aims to analyze the efficiency and nature of the returns to scale with which sugar mills operated in Mexico in the 2010-2011 harvest. The methodology used was data envelopment analysis (DEA). The results indicate that 23 mills operated at their optimal scale, nine mills with total efficiency, but with pure inefficiency and scale inefficiency, and a third group operated with total inefficiency, pure inefficiency and scale inefficiency. As for the nature of the returns to scale, the DEA identified that 23 mills operated with constant returns to scale, 29 with increasing returns to scale and only two mills with diminishing returns to scale. The main conclusion indicates that the 29 mills with increasing returns to scale can improve their performance if they expand their size, production and factor productivity would increase more than proportionally. The mill Panuco is the only one that was identified with both scale inefficiency and diminishing returns to scale, so such performance could lead it to stop operating and close as a plant.