Oil Palm Industry Economic Journal Vol. 16 (2) September 2016 p. 19-27

Total Factor Productivity: How Productive is the Palm Oil Milling Sector in Malaysia?

Norhidayu, A*; Azman, H**; Balu, N* and Azman, I*
Received:    Accepted:    Available Online:


This study investigates the total factor productivity (TFP) growth for Malaysian palm oil mills over the period 2010 – 2014, using the stochastic frontier analysis (SFA) model. TFP focuses on three components, namely, technical efficiency (TE), technical progress (TP), and scale components (SC). The first step in estimating TFP comprises specification and estimation of SFA, followed by tests for specification of the stochastic production functions. Secondly, it involves the selected specification of a regression model used to predict the TE effects. The empirical results show that productivity growth was driven mainly by TE, followed by TP. However, the change in SC had a small effect on productivity growth. Overall, results of the study suggest that there is an opportunity to improve productivity growth in the palm oil milling sector in Malaysia, for instance, by improving working conditions, upgrading the capacity of the mills, and providing incentives and rewards to the workers

Keywords: total factor productivity, Malaysian palm oil mills, technical progress, technical efficiency, scale components

About Post Author


* Malaysian Palm Oil Board,
6 Persiaran Institusi,
Bandar Baru Bangi,
43000 Kajang, Selangor,

E-mail: hidayu@mpob.gov.my

** Department of Economics,
Universiti Putra Malaysia,
43300 UPM Serdang,
Selangor, Malaysia