Economic efficiency of rubber smallholders in Negeri Sembilan, Malaysia

• Main Author: Abdulrahman, Aliyu
• Format: Thesis
• Language: English
• Published: 2017
• Online Access: http://psasir.upm.edu.my/id/eprint/70269/1/FP%202017%203%20-%20IR.pdf; http://psasir.upm.edu.my/id/eprint/70269/
• Institution: Universiti Putra Malaysia

Malaysia is one of the leading producers of natural rubber in the world. About 8.3 % of the total world’s rubber is produced in Malaysia. To be precise, Malaysia is currently the third biggest producer of natural rubber in the world and it’s the fifth largest consumer of rubber among the world’s largest exporters of rubber products (Malaysia Rubber Export Council, 2009). The industry employed more than 300, 000 workers and contributed RM 6.24 billion to the country's export earnings in 2015 (MPIC, 2017). Several studies were carried out on efficiency of rubber production in Malaysia, some studies were on either, allocative or technical efficiency or both (economic efficiency). The present study looked at the economic efficiency and was actually motivated by the fact that efficiency and productivity of Malaysian rubber production has been declining over the years as justified by the preliminary analysis done on nearly 30 year period from 1982-2012. The study therefore, examined not only the possibility of assessing the future survival and strength of rubber productivity in Peninsular Malaysia, but also in a disaggregated form since rubber is a perennial crop. In order to investigate the effects of perenniality on yield and productivity of rubber, both parametric and non-parametric techniques were applied. The determinants or factors militating against the rubber smallholders’ efficiency in Negeri Sembilan, Peninsular Malaysia, were also carried out. Multistage data collection was employed on 327 smallholder farms among 5 districts of Negeri Sembilan state. However, only 307 observations were used in computing inferential statistics, because the young-age category has been removed due to statistically scanty nature of the sample size. The districts include Seremban, Tampin, Rembau, Kuala Pilah and Jempol. Both the descriptive and inferential statistics were thoroughly computed using the appropriate and required statistical tools. The results of the study revealed that the mean rubber yield in kg/ha for the all-age, matured-age and old-age crops categories were 3,638 kg/ha, 4,611 kg/ha and 1,653 kg/ha respectively. The mean technical efficiencies (TE) under Stochastic Frontier Analysis (SFA) with Cobb-Douglas functional form are 0.70, 0.77, and 0.72 for all-age, matured-age and old-age crops respectively. The mean TE with Translog functional form 0.87, 0.91 and 0.65 respectively for all-age, matured-age and old-age crops. For the non-parametric estimates, the mean TE under variable returns to scale (VRS) and constant returns to scale (CRS) were found to be 0.95, 0.97 0.96 and 0.45, 0.61, 0.33 for the all-age, matured-age and old-age crops respectively. Therefore, this is an indication that matured-age category was found to be relatively higher than the other two age categories in virtually all the methods used. And thus we can conclude that there is quite a difference between the aggregate and disaggregated data. The findings of the study also disclosed that there are actually differences in mean TE between Translog and Cobb-Douglas, DEA and Bootstrapped-DEA, VRS and CRS, DEA and FDH. The result clearly indicated that Translog has higher efficiency scores than the Cobb-Douglas, Mean TE scores under VRS’s assumption were higher than those under CRS assumption, and naïve DEA has higher mean scores than bootstrapped-DEA, thus indicating the presence of bias in the former and absence of bias in the later. FDH was also found to have higher mean scores than DEA and this proved the relaxation of convexity assumptions in FDH. Finally, both the VRS and CRS assumptions as well as their respective bias-corrected efficiency scores were also determined using Tobit regression analysis against the 15 socio-demographic factors. It was found out that critical factors, common to all the age-categories, influencing rubber in Malaysia include educational level, tapping system and marital status under both VRS and BC-VRS assumptions, while under both CRS and BC-CRS assumptions include race, tapping system, marital status and farm’s distance. Therefore, education of smallholders should be given more attention to increase efficiency. Also tapping system of one-half spiral cut and alternate daily tapping (S/2 d2) should be adopted. However, the findings indicated that increase in farm’s distance also increases efficiency. And this translates that nearness to farm leads to reluctance on the part of the smallholders and hence reduces efficiency. This might be true because if a smallholder gets to the farm will easily be reluctant in spending more hours on the farm and will probably be retiring home after working few hours and this reduces performance and hence productivity. Unlike if the farm is relatively far away from home, in which case the farmer would spend more time and hours on the farm and hence improves efficiency. The study finally recommends that the traditional concept of computing efficiency or productivity of rubber and other perennial crops in an aggregated form should be complemented with the disaggregated form as this eliminates any bias and gives meaningful results as the perennial crops are growing in phases. Improved methods such as bootstrapping should also be used as this only gives what is called bias-corrected efficiency scores. Regarding the determinants, factors such as education, tapping system and farm distance should be given more emphasis. Other policy implications include granting subsidy to the smallholders in terms of fertilizer and chemical herbicides as this helps to cut down the smallholders’ production cost and hence improves efficiency. Adequate and skilled training on most of the agronomical practices should be sufficiently and regularly provided at all levels. Most importantly, policy planners should be very cautious on specific techniques. They should as well be knowledgeable and comparatively minded on the results obtained from both parametric and non-parametric assumptions with regards to the policy selections on the rubber crop.