Assessing technical efficiency and productivity growth in indonesia’s crude palm oil industry: temporal, spatial, and scale-based variations

Abstract

Crude palm oil (CPO) plays a vital role in Indonesia’s economy, positioning the country as the world’s largest producer and exporter of this commodity. Given its significance, maintaining high productivity levels in the CPO industry is essential to meet global demand sustainably. This study investigates the productivity performance of the Indonesian CPO industry by analyzing total factor productivity growth (TFPg) through stochastic frontier analysis. The research explores variations in TFPg across different years, geographic locations, and firm sizes. The findings reveal a concerning trend: on average, productivity in the CPO industry has been declining annually. Specifically, firms operating in 20 provinces recorded negative TFPg values. When categorized by firm size, the analysis shows that both technical efficiency change (TEC) and technical change (TC) have contributed negatively to TFPg across all firm scales. However, medium-sized firms experienced a smaller productivity decline compared to their larger counterparts. In contrast, large firms demonstrated slightly better performance in terms of scale efficiency change (SEC), though both medium and large firms still exhibited negative SEC values. Overall, the results identify technical change (TC) as the primary factor driving productivity fluctuations—whether gains or losses—highlighting the pressing need for innovation and technological advancement in the CPO industry to reverse the downward trend in productivity.