2.4 Results
2.4.2 Differences between oil palm and rubber production systems
tual arrangements, Spi defines the degree of diversification in the income of a household with values between 1 and 0; calculated by the Herfindal index, andSii captures the size of the plot. All descriptions of the z variables are given in Table A.1.
2.4 Results
2.4.1 Parameters of the production functions
The overall models which were estimated for the two different production systems seem to be an acceptable fit, considering the amount of significant coefficients. In general, the models feature the desired assumptions and restrictions to ensure estimation accuracy.
There were some small violations against monotonicity in the case of two variables in the transmigrant oil palm estimation and these will be discussed later.
In their final specification, all models were tested for the existence of ui against the alternative hypothesis of no presence of inefficiency leading to an OLS estimation. In all three cases, our SFA specified model was the better choice at a 1% significance level.
Results of the test are listed in Table 2.1.
Table 2.1: LR-test results for testing the presence of inefficiency LLOLS LLSF A LRcrit (df) LRcalc Decision Rubber -605.028 -512.924 13.742 (6) 184.208 reject H0 Oil palm Trans -67.833 -31.367 12.103 (5) 72.933 rejectH0 Oil palm Auto -144.169 -110.921 13.742 (6) 66.496 rejectH0
The complete estimation results are included in the appendix. The first-order estimates can be interpreted as partial production elasticities of the production inputs since the data was mean-scaled prior to taking the logarithms.
2.4.2 Differences between oil palm and rubber production systems
With regard to partial production elasticities, a few distinctions between the importance of input factors in both crop production systems can be emphasized (appendix Table A.2,A.3 and A.4.
In general, three production variables are equally included in both crop production sys-tem estimations: plot size, hours of labour, and plantation age. The size of the plot is significant in both crop transformation systems. Nevertheless, the magnitude of the effect of an increase in the plot size, ceteris paribus, is larger in both oil palm estimations – transmigrant and autochthonous but not in rubber. These results may indicate a higher scarcity of land in the production system of oil palm in comparison to rubber. The de-scriptives from Table A.1 highlight a smaller plot size for oil palm, emphasizing these findings. Transmigrant producers are distinct in the category of oil palm producers, man-aging smaller plot sizes as a result of the political Transmigrant Support Program (TSP)
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which allocates a maximum of three ha per farmer. The structure of further support pro-grams limits the possibility of expansion for transmigrant framers. Therefore, the higher marginal product, all remaining variables being equal, reflects the underlying scarcity of land for transmigrant farmers in contrast to the less restricted autochthonous farmers.
The input of labour is also significant in both production systems but a clear distinction between both production systems is less obvious.
A marginal difference is found between the coefficient in rubber production and in au-tochthonous palm oil production, which are both substantially higher than the coefficient in transmigrant oil palm production.
Looking closely at differences within the oil palm production system, transmigrant farmers, with a higher degree of specialization, have a higher marginal product of labour than autochthonous farmers. The reduced effect of labour increase towards the output, in comparison to the autochthonous farmers, may indicate a more productive allocation of the scarce factor than their local counterpart. In general the relatively small differences stemming from the effect of a labour increase allows us to conclude that labour is equally relevant in all systems.
In rubber production the effect of plantation age is insignificant but, for both oil palm productions, the effect is significant. Autochthonous oil palm cultivation experiences a positive effect from an increase in plantation age, which is actively not possible. In any event, transmigrants’ production of oil palm decreases with increasing plantation age, ceteris paribus. This diverse reaction may result from the different stages of the plantations. At the mean, transmigrant plantations are 15 years old while autochthonous plantations only reach 10 years. The yield profile after Goh et al. (1994) draws a strong augmentation of the yield with increased plantation age from the date of planting up to a maximum age of 10 years, followed by a period of stagnation or even reduction in yield.
These findings were confirmed for three different rainfall scenarios (Corley and Tinker, 2003).
The application of chemicals is significant in both production systems, even though the implemented variables differ in detail. The smallest effect is estimated for rubber produc-tion with agglomerated chemicals (fertilizer, herbicides, soil fertility treatment). In oil palm production, autochthonous production presents a significant utilization of fertilizer, in contrast to the transmigrant estimation which shows a significant herbicide application.
Nevertheless, the effect is negative, which points to a decrease in output when herbicide application is increased. This could indicate an overuse of herbicide in terms of two modes of operation. Firstly, the application of herbicides in such strong concentrations not only affects the targeted ground cover, but the palm itself. This is frequently accompanied by incorrect application techniques which commonly appear in smallholder cultivations.
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Secondly, discussions relating to the advantage of plant covers from certain plants such as legumes, has been commonplace in the literature.
The utilization of herbicides in plantations to extinguish the plant cover which offers a protective surrounding for the oil palm can therefore negatively affect yield. The removal of such ground cover can lead to stronger erosion and runoff and can also be labour demanding.
In addition to the preceding variables there is the capital variable, which is represented by a rather small coefficient in both production systems. These findings do not likely coincide with the hypothesis of a capital-intensive oil palm production. This divergence may be due to the applied metrology of capital (vehicles such as trucks and tractors) in our estimation. Following comparisons with the relevant coefficients, other results confirm the earlier stated assumption of labour-intensive rubber production in comparison to a less labour-intensive oil palm production.
Summing up all plausible point elasticities of the estimation – plot size, labour, capital, and all the kinds of chemicals used in the estimations – provides us with a measure of scale elasticities of 0.829 for rubber, 1.03 for oil palm autochthonous, and 0.884 for transmigrant oil palm farmers. The scale elasticity indicates decreasing returns to scale for the rubber and transmigrant oil palm production, while for the autochthonous oil palm production, slightly increasing returns to scale are indicated. The mean returns to scale for rubber and transmigrant oil palm are significantly different from one another, as indicated by the t-test. Furthermore, the one-sided test shows that the RTSs are most likely to be below one.
The t-test for autochthonous oil palm indicated returns to scale significantly different from one and significantly bigger than one. The economic interpretation of decreasing returns to scale hints at a input increase with a less than proportional output increase. These are mostly found in smaller and more labour-intensive farms, where smaller volumes of production are also efficiently feasible. This also fits to rubber production, which is relatively small in production size and volume, especially in smallholder productions.
Table 2.2: Returns to Scale for oil palm transmigran, oil palm autochthonous and rubber production OP-Transmigrant OP-Autochthonous Rubber
RTS 0.884 1.03 0.829
Increasing returns to scale, where doubling the input more than doubles the output, are seen in economics as an indicator for larger and more capital-intensive productions.
Higher investments in productions, tractors, seedlings and chemicals generally correlate with high scale elasticities. This might strengthen the hypothesis of a capital-intensive oil palm cultivation, at least for the autochthonous producers, who operate on a bigger plot size than the transmigrants.