Environmental heterogeneity and technical efficiency in Malaysian oil palm smallholder production

Duasa, Jarita and Ahmad, Azlin Alisa and Mohd Thas Thaker, Mohamed Asmy and Idris, Zera Zuryana (2026) Environmental heterogeneity and technical efficiency in Malaysian oil palm smallholder production. Malaysian Journal of Economic Studies, 63 (1). pp. 27-48. ISSN 1511-4554

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Abstract

Independent smallholders are crucial to Malaysia’s oil palm sector, yet their productivity remains below potential due to technical inefficiency and diverse production environments. This study examines the technical efficiency and production determinants of independent oil palm smallholders using a stochastic frontier analysis (SFA) framework. Primary survey data were analysed with a Cobb-Douglas stochastic frontier production function estimated under half-normal and truncated-normal distributions, with models specified both with and without environmental variables. The truncated-normal model provided the best fit, and the mean technical efficiency was about 0.63, indicating that smallholders produce only 63% of their potential output, with substantial variation across farms. Including environmental variables ‒ such as rainfall, temperature, soil type, land type, humidity, sunlight and climate-related shocks ‒ improved model fit and altered several input elasticities. Fertiliser use showed a negative association with output, while irrigation, labour, pest control, sunlight and temperature contributed positively to productivity. Accounting for environmental heterogeneity reduced unexplained variance, revealing that part of the observed inefficiency reflects environmental constraints rather than managerial shortcomings. These findings highlight the need for site-specific strategies tailored to local agroecological conditions to enhance smallholder productivity

Item Type:	Article (Journal)
Uncontrolled Keywords:	Environmental production conditions, Malaysia, oil palm smallholders, productivity, stochastic frontier analysis, technical efficiency
Subjects:	H Social Sciences > H Social Sciences (General)
Kulliyyahs/Centres/Divisions/Institutes (Can select more than one option. Press CONTROL button):	Kulliyyah of Economics and Management Sciences > Department of Economics
Depositing User:	Dr Mohamed Asmy Bin Mohd Thas Thaker
Date Deposited:	14 Jul 2026 15:45
Last Update:	14 Jul 2026 15:45
Queue Number:	2026-07-Q3952
URI:	http://irep.iium.edu.my/id/eprint/129777

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