Production Efficiency Analysis of Oil Palm Plantations: Stochastic Frontier Approach

Palm oil is a commodity in the plantation sector that has an important role in the economy of North Sumatra Province. The oil palm plantation sector is one of the main sources of income for the people in South Labuhan Batu regency. The productivity of smallholder oil palm plantations is relatively lower when compared to the productivity of oil palm managed by large plantations. This study aims to determine the factors that influence the production and technical inefficiency of oil palm production. The research location is in South Labuhanbatu Regency, North Sumatra Province, which was carried out in 2020. Sampling was carried out using a purposive method, namely as many as 45 oil palm farmer households. The approach used is the stochastic frontier production function. Maximum likelihood estimation method used. The results of the analysis show that the area and the number of workers significantly affect the production of oil palm farmers. The technical inefficiency factor is caused by the age of the farmer, and the number of household members involved in oil palm farming. To measure the use of all resources can be used the concept of return to scale. The sum of all the elasticity responses to the use of all inputs estimated using the maximum likelihood method of the stochastic production function is 1.09, which indicates that an increase in all available inputs leads to a greater increase in farmers’ income. Government support is needed in the form of farming practice improvement and access to capital to achieve production at the frontier point with an opportunity of 10.93 %.

Keywords: Increasing return to scale, palm oil, stochastic frontier, technical efficiency