Performance analysis and optimal scale size in the European forest sector: a two-stage data envelopment analysis

Abstract This research leverages a unique two-stage production frontier approach to rigorously assess technical performance and determine the optimal scale size within 36 forest sectors of European countries, thereby contributing to the development of a new research frontier in this field. We designed a novel two-stage data envelopment analysis model that captures the forestry and exploitation stages at the country-specific level within the European forest production sector. It was found that the Forestry stage showed higher efficiency (technical efficiency score of 0.76 out of 1) than the Exploitation stage (0.51) and the overall system (0.46), suggesting that efforts to enhance efficiency should be strategically targeted for the entire European forest sector. Regional analysis indicates the Central-West region, including eight countries (Austria, Belgium, France, Germany, Ireland, Netherland, Switzerland, United Kingdom), is the most efficient on average (0.55), but the South-East has more efficient countries (i.e., three fully efficient DMUs such as Montenegro, North Macedonia, and Serbia) and potential for productivity gains because they are operating in an increasing returns to scale region. Regression analysis found forest area has a marginal positive effect, while carbon stock, afforestation, and forest product exports directly and significantly relate to technical efficiency. The technical efficiency analysis identifies benchmark values for inefficient European countries, underscoring the extensive changes needed in both inputs and outputs to enhance their efficiency. However, a significant limitation of this method is the extensive proportional adjustments required, which presents a practical challenge for European forest managers to implement in a reasonable timeframe. An alternative Optimal Scale Size approach, considering input and output prices, was suggested as more feasible, with practical applications demonstrated in Spain. This comprehensive analysis provides valuable insights into the forestry sector’s efficiency and potential areas for enhancement or investment, aiding in understanding how scale sizes affect sector performance across European countries.