Efficiency of Indonesian Palm Oil Mills
Abstract
Crude palm oil (CPO) is one of Indonesian agricultural products that are
widely developed. It is produced by palm oil mills. This study analyzes the
efficiency of Indonesian palm oil mills and the way to improve the efficiency. The
difference in the efficiency score based on managerial factors of the mills are
analyzes to enhance the result of the study. The managerial factors that used are
ownership, export participation, and location of the mills. This study uses 2010
manufacturing industry survey conducted by the Statistics Indonesia. The
efficiency analysis is done by using Data Envelopment Analysis (DEA) with
production value as the output, and production expenses, labor expenses, other
expenses, and fixed capital as the inputs.
The result shows that the Indonesian palm oil mills are inefficient. The
inefficient firms are state-owned, non-exporting, and firms that located in Sumatera
islands. On average the firms can improve the efficiency by decreasing the use of
fixed capital, other expenses, labor expenses, and raw material expenses. Based on
managerial factors, the difference in efficiency score occur between foreign-owned
and other ownership, exporting and non-exporting firms, and firms that located in
Sumatera and other islands. In regard of average efficiency score and production
scale, it is not suggested to increase the number of palm oil mills. Considering the
efficiency, it is suggested to learn the way to achieve efficiency from foreign-owned
firms. State-owned are the least efficient firms. The source of inefficiency is fixed
capital owned and labor expenses. Regarding fixed capital owned, the efficiency
can be improved by renewing the technology. Reducing the number of labor or
improving the productivity of the labor could rise the efficiency of state-owned
firms. Based on export participation, it is suggested that the government support
the firms in export participation, considering exporting firms are more efficient than
non-exporting firms. The development of palm oil mills in other islands are
recommended following the growing of the oil palm plantation in the area.
Collections
- MT - Economic and Management [2970]