Oil Palm Industry Economic Journal Vol. 13 (2) September 2013 p. 27-37

Technical Efficiency of Independent Oil Palm Smallholders (ISH) in Peninsular Malaysia with Respect to Fertiliser and Land Size

Ramli Abdullah*
Received:    Accepted:    Available Online:


Productivity of independent smallholders (ISH) is said to be low. This is partly due to, among others, their lower efficiency level compared to the estates. Although this is a known fact, there is no literature available which measures their efficiency level in producing their fresh fruit bunch (FFB). Hence, this study was carried out on the ISH to assess and determine their technical efficiency (TE) level by considering their effectiveness on using inputs, such as fertilisers and size of their holdings. The results of the study can be used to fill up the missing information pertaining to their level of efficiency. The study used Stochastic Frontier Analysis approach to see the effects of the two inputs. The ISH from Pahang, Perak and Johor were included in this study to represent Peninsular Malaysia region. The two variables, i.e. fertiliser application and size of their holdings had a positive relationship with FFB yield. The study revealed that the estimated average level of TE for the ISH is 0.70 while the maximum and minimum TE are 0.94 and 0.23, respectively. This indicates that the ISH in Peninsular Malaysia are generally inefficient and supports the claim to statement made by various authors on the level of their efficiency. The big difference in TE among ISH in the sample suggests that there is a potential to increase their output or yield by using inputs more efficiently. This can also be inferred that there is an opportunity to improve the ISH productivity, especially the Malays and Indian ethnic groups whose efficiency levels are lower than the Chinese ethnic group.

About Post Author


* Malaysian Palm Oil Board,
6 Persiaran Institusi, Bandar Baru Bangi,
43000 Kajang, Selangor, Malaysia.
E-mail: ramlia@mpob.gov.my