Assessment of the efficiency of palm plantations using a stochastic frontier approach

Purpose. The purpose of this study is to (1) estimate the effect of inputs use on production with the stochastic frontier production function model approach; (2) assess the potential for increasing productivity through the study of technical, allocative and economic efficiency of palm plantations; (3) determine the optimal inputs use in order to increase productivity of palm plantations so that technical efficiency, allocative efficiency and economic efficiency are beneficial for farmers. Methodology / approach. This study was conducted in Jambi province of Indonesia by taking samples from Muaro Jambi and Tebo districts. For this study, we randomly selected a sample of 120 farmers. Data were obtained through interviews with respondents in 2022. The analytical method was used to estimate technical, allocative and economic efficiency with the stochastic frontier approach. Result. The research results show that farmers are not yet efficient, both technically, allocatively and economically. The average technical efficiency of oil palm farmers is 68.7 %, allocative efficiency is 61.2 %, economic efficiency is 46.3 %. A quantitative assessment of the impact on the productivity of palm plantations of land area, the number of trees per hectare, labor, varieties and different types of fertilisers was carried out. The productivity scale of oil palm plantations is in the second area, namely decreasing return to scale. Opportunities to increase the productivity of oil palm plantations are very large. It indicates that in order to optimally increase the productivity of oil palm plantations, it is necessary to innovate oil palm plantations in an adaptive manner by allocating optimal production inputs as a result of research. Assistance is needed in procuring production facilities so that farmers can buy production inputs in the right amount, time and price. Originality / scientific novelty. This research is the first study to describe the effect of production inputs, especially single fertilisers, on the estimation of the actual production function and frontier production function using the Cobb-Douglas production function model. This research also explains the determinants and impacts of the number of trees and uses a dummy variable for superior seeds in the module used. Practical value / implications. The productivity function, the results of the evaluation of technical, allocative and economic efficiency of production in smallholder oil palm plantations in rural areas can be used by farmers. The government should intervene to optimise village economic institutions, such as village unit cooperatives, in order to provide fertilisers and herbicides in the right quantities, times and prices according to farmers’ needs.