Technical and allocative efficiency in Malaysian rubber smallholdings : a production function approach

Abstract

The economic and social justifications of the FeIda-type land development approach as a means of alleviating the standard of living of the selected 1 landless' rural population have been proven by a number of researchers (for example, Lim, 1972; Singh, 1965, and McAndrews, 1976). This study compares technical and allocative efficiencies of 149 smallholders who have on average 3.0 hectare holdings selected from three Felda land settlement schemes, with 185 unassisted independent rubber smallholders with farms of approximately 1.0 hectare, in Melaka, Malaysia. It is found that Felda smallholders are more technically efficient than the independent smallholders, in that they obtained more yield, even when adjustment is made for different levels of measurable inputs. This is mainly due to their better rubber clones and holding management (ascribed to Felda*s rigid management supervision). Higher prices of output, more fertilizer usage, and much larger holding size result in Felda farmers having very much higher incomes and profits than the independent smallholders. However, the analysis showed that the independent and Felda smallholders are generally equally efficient in allocating their resources. In fact, the analysis reveals that Felda smallholders were slightly less efficient in their usage of available land in that they had less number of trees in tapping, and they were also inefficient in their use of fertilizer at the dcheme level. The poor utilisation of fertilizer is possibly because the amount of fertilizer to be applied to each Felda holding is decided by the manager of each scheme who based his decision on a fixed quantity per tree surviving on the holding, rather than on the input and output prices. The detail analytical approach and findings of the study are contained in its first seven chapters, with their summary in the last. Chapter 1 introduces some features of the Malaysian rubber industry, its importance to the Malaysian economy, and discusses sampling and data collection procedures. ,. The chosen method of analysis is to concentrate on the farm as the proauction unit for rubber. For this the transcendental production function is modified to suit the technical requirement of the rubber production (process. The appropriate functional form is developed in Chapter 2. Arising from the development of the theory in Chapter 2, the next three chapters discuss, respectively, the treatment of 'uncontrollable' , 1 controllable' and management factors in rubber production. The uncontrollable or state variables are those over which the farmer has no immediate control such as the physical environmental factors. The controllable variables are those about which farmers have to make decisions. In the perennial crop case these have to be divided between decisions of a recurrent and an investment nature. Management and sociological factors are studied and an attempt is ma'de to relate these to rubber yields. Chapter 6 contains most of the descriptive data and it compares output, incomes and profit between and within groups of FeIda and independent smallholders using tabular analysis. Building oh these data and the previous chapters, Chapter 7 presents the actual production function analysis and the basic conclusions regarding the efficiency of resource use. Show more