Technical Efficiency of Independent Oil Palm Smallholder In Indonesia

Abstract

This study assesses technical efficiency and possible sources of inefficiency of independent smallholder oil palm production in Indonesia with stochastic frontier approach. The result show all the input variables is positively affect the oil palm production and exhibit decreasing returns to scale . The farmers have mean technical efficiency (TE) values 0.6541, however about 53 % farmers have TE above 0.70. Factors such as age of farmer, education, extension services, member of farmer group, land ownership and funding sources have a positive and significant effect on technical efficiency. It is suggested that by improving factors such as input used, education level, technical assistance on farming practice and accessibility to credit facilities should be increase the productivity and technical efficiency of oil palm production. The farmers who have plant over 30 years old, which the TE and productivity are the lowest values, should be thinking about replanting

Analysis of factors affecting the technical inefficiency on Indonesian palm oil plantation

“…This is because the older farmers have more experience than younger farmers and they can improve the efficiency according to their experience. This finding is consistent with Hasnah et al, Fariani et al and Varina 9 , 17 , 21 . The planting system has a negative and significant value on technical inefficiency.…”

“…The more the farmers are educated, the more the technical efficiency. This is also in line with the finding of Alwarritzi and Varani et al, in which the higher the education level of palm oil farmers, the more responsive they tend to be in adopting and utilizing palm oil management technology 9 , 21 . Fariani et al and Varani et al also confirmed that the higher the level of farmer education reduces the level of technical inefficiency and the education increases the level of efficiency 9 , 21 .…”

“…This is also in line with the finding of Alwarritzi and Varani et al, in which the higher the education level of palm oil farmers, the more responsive they tend to be in adopting and utilizing palm oil management technology 9 , 21 . Fariani et al and Varani et al also confirmed that the higher the level of farmer education reduces the level of technical inefficiency and the education increases the level of efficiency 9 , 21 . This is because Indonesia government encourage a social intervention such as Corporate Social Responsibility (CSR) in the palm oil plantation in Indonesia.…”

“…Bankole et al mentioned that the age of the farmer has positive effect on the technical efficiency of smallholder farmers in palm oil plantation in Nigeria 8 . Varina et al also showed that age, education and extension have a positive effect on technical efficiency of palm oil production 9 . The source of the seed and extension services effect on the technical efficiency of palm oil farmers in Jambi Province in Indonesia with the average efficiency value of 66%, showing that it is still need to improve the efficiency 10 .…”

Does Household Financial Management of Independent Oil Palm Smallholders Promote Rural Development?

“…In addition, they possess variations in financial management (Andrianto, Fauzi, & Falatehan, 2019) and low technical efficiency (Varina, Hartoyo, Kusnadi, & Rifin, 2021). Most independent smallholders do not record cash flows; only a few keep written records of the prices of fresh fruit bunches (FFB) or the quantity of fertilizers and pesticides (Sahara, Haryadi, & Kusumowardhani, 2017), have a low marginal propensity to save, and prefer to hold cash (Sahara et al, 2017).…”