Economic Analysis of Oil Palm Industry a Case Study of Malay Independent Smallholders in Kuala Langat

It is entirely my own work and has not been submitted to any other University or higher education institution, or for any other academic award in this University. Where use has been made of the work of other people it has been fully acknowledged and fully referenced. I hereby assign all and every rights in the copyright to this Work to the Universiti Teknologi MARA (“UiTM’), which henceforth shall be the owner of copyright in this Work and that, any reproduction or use in any form or by any means whatsoever is prohibited without a written consent of UiTM.

Date:23 luly 2012 Name: Siti Farhani binti Awang @ Baharun that I have checked this project and in my opinion, this project is adequate in terms of scope and quality for the award of the degree of Bachelor of Science (Hons. ) Technology and Plantation Management, Faculty of Plantation and Agrotechnology, Universiti Teknologi MARA. I hereby declare Name of Supervisor: Fazleen Binti Abdul Fatah Position: Lecturer Date:23 July 2012 ACKNOWLEDGEMENT My special appreciation goes to my supervisor, Madam Fazleen Binti Abdul Fatah for her supervision and constant support.

Her invaluable help of constructive comments and suggestions throughout the period of this final year project and preparation of this report have contributed to the success of the whole process. My grateful thanks is specially dedicated to Tuan Hj. Kandar bin Sadiman, the village headman of Kg. Sungai Lang Tengah, and En. Mohd Saim bin Katiman, the village headman of Kg. Kanchong Darat who had given me the permission to carry out the interview sessions at both locations. I would also like to thank the smallholders of both villages for their support and cooperation to undergo interview sessions.

The Coursework on Group Work Project Team Meeting

Project Evaluation Report: TECH Ltd This report is to critically evaluate the applications workshop project and how our group worked together. Our main objectives were to design the database for The Pine Furnishing Warehouse to the satisfaction of the manager of the company. We had to update or modify the system each time we received feedback from the manager. This was to ensure a more efficient ...

Not to forget, my great appreciation goes to my research’s partner, Nurul Shafina Hassan which was very supportive and helpful to me all through my research. The experience from the research has really taught me to appreciate the true value of friendship and respect to each other. Last but not least, my deepest gratitude goes to my beloved parents; brothers and sisters for their endless love, prayers and encouragement. Thank you very much. SITI FARHANI AWANG @ BAHARUN iii TABLE OF CONTENTS Page ACKNOWLEDGEMENTS TABLE OF CONTENTS LIST OF FIGURES LIST OF TABLES LIST OF ABBREVIATIONS ABSTRACT ABSTRAK CHAPTER 1.

INTRODUCTION 1. 1 Background of the Study 1. 2 Objectives of Study 1. 3 Problem Statement 1. 4 Hypothesis 1. 5 Significance of the Study 1. 6 Definition of Terms 1. 6. 1 Age 1. 6. 2 Family Size 1. 6. 3 Size of Land Owned 1. 6. 4 Capital Invested 1. 7 Limitation of the Study iii iv v vi vii ix x 1 4 5 6 7 8 8 8 9 9 2. LITERATURE REVIEW 2. 0 Overview 2. 1 Oil palm 2. 2 Smallholders 2. 3 History of the Palm Oil Industry 2. 4 Current Status of Malaysia’s Palm Oil Industry 2. 5 Factors affecting the Productivity 2. 6 Moving the Palm Oil Industry Forward 2. Incentivizing Smallholders to Improve Palm Oil Yields 10 10 11 13 14 15 18 24 iv 3. MATERIALS AND METHOD 3. 0 Introduction 3. 1 Research Design 3. 2 Research Sites 3. 3 Sample of the Study 3. 4 Research Instrument 3. 5 Data Collection Procedure 3. 6 Data Analysis 3. 6. 1 Descriptive Statistic Method 3. 6. 2 Multiple Regression Analysis 3. 7 Socio Economics Characteristics 3. 7. 1 Multi Regression Analysis (Tabular Analysis) 3. 8 Instrument used to conduct analysis 3. 8. 1 3. 9 Excel Solver 27 27 28 32 32 33 34 35 38 38 38 38 Measurement of variables 4. RESULTS 4. Introduction 4. 1 Socio Demographic Characteristic 4. 1. 1 Age of Independent Smallholders 4.

1. 2 Gender of the Independent Smallholders 4. 1. 3 Education Level of the Independent Smallholders 4. 1. 4 Family Size of Independent Smallholders 4. 2 4. 3 4. 4 4. 5 Economic Analysis Interpretation of the Coefficients Cost Benefit Analysis Net Present value 40 40 41 42 43 44 45 46 47 5 DISCUSSION 5. 1 Socio-Demographic Variables 5. 2 Production Factors CONCLUSION 6. 1 Implication of Study 6. 2 Recommendation 48 50 52 52 53 54 56 6 CITED REFERENCES APPENDICES CURRICULUM VITAE LIST OF FIGURES Figure 3. 1 3. 2 3. 3 4. 1 Caption Map of Kuala Langat Map of Kg. Sungai Lang Tengah Page 34 35 36 Map of Kg. Kanchong Darat Age of Independent Smallholders Gender of smallholders in Kg. Sg. Lang Tengah and Kg. Kanchong Darat 46 4. 2 47 48 49 4. 3 4. 4 Education Level of the Independent Smallholders Family Size of Independent Smallholders vi LIST OF TABLES Table 2. 1 4. 3 Caption Plantation Ownership in Malaysia Pooled Data of Kg. Sungai Lang Tengah and Kg. Kanchong Darat 44 Page 19 vii LIST OF ABBREVIATIONS Kg. ha FFB TE kg CPO CSPO RSPO PODC NC3R s

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Kampung hectare Fresh Fruit Bunch Technical efficiency kilogram Crude Palm Oil Certified Sustainable Palm Oil Roundtable Sustainable Palm Oil Palm Oil Development Council National Centre for the Replacement, Refinement and Reduction of Animals in Research VOP Village oil palm viii ABSTRACT ECONOMIC ANALYSIS OF OIL PALM INDUSTRY: A CASE STUDY OF MALAY INDEPENDENT SMALLHOLDERS IN KUALA LANGAT The purpose of this study was to conduct an economic analysis of the smallholders involved in oil palm plantation in two villages – Kg. Sungai Lang Tengah and Kg. Kanchong Darat in the district of Kuala Langat.

Semi-structured interview by using questionnaires were used to obtain data for socio-economic background and input variables. Data for socio-economic background includes gender, age, size of household and education level, while data of input variables includes the size of land owned, seeds used, cost of fertilizer, cost of pruning, cost of labour, cost of herbicides and cost of machinery. Only 30 questionnaires were valid based on completed answers. The result of the study showed that there was no significant relationship between income of the smallholders in both villagers and their age, gender, size of household and education level.

While in the production factors, for both Kampung Sungai Lang Tengah and Kg. Kanchong Darat (pooled data), the size of land owned showed a significant relationship in productivity (p < 0. 05), while there were no significant differences between fertilizer, pruning, herbicides, labour, machinery, and seeds used by oil palm smallholders. For Cost-Benefit Analysis, for every RM1 the independent smallholders spent on input variables, they received RM3. 75 in return. While the result obtained for Net Present Value and Internal Rate Return were RM 7347. 1 and 16% respectively. ix ABSTRAK ANALISIS EKONOMI DALAM INDUSTRI KELAPA SAWIT: KAJIAN KES TERHADAP PEKEBUN KECIL MELAYU DI DAERAH KUALA LANGAT. Tujuan kajian ini dijalankan adalah untuk mengendalikan analysis ekonomi di kalangan pekebun kecil kelapa sawit di dua buah kampung iaitu Kampung Sungai Lang Tengah dan kampung Kanchong Darat, Kuala Langat. Separa strutur soalselidik menggunakan kertas soalan telah digunakan untuk memungut data berkaitan latar belakang sosioekonomi responden dan pembolehubah input yang digunakan.

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Data bagi sosio-ekonomi merangkumi jantina, umur, bilangan tanggungan, dan tahap pendidikan, sementara data bagi pembolehubah input merangkumi luas tanah yang dimliki, benih, kos membaja, kos pemangkasan, kos meracun, dan kos jentera yang digunakan. Hanya 30 kertas soalan hasil soalselidik yang lengkap telah dianalisa. Hasil kajian menunjukkan tidak ada hubungkait antara pendapatan dalam kalangan pekebun kecil kelapa sawit bagi keduadua kampung apabila dibandingkan mengikut jantina, umur, bilangan tanggungan dan tahap pendidikan. Manakala faktor hasil, bagi kedua-dua Kampung Sungai Lang Tengah dan Kg.

Kanchong Darat (data terkumpul), hanya luas tanah yang dimiliki menunjukkan hubungkait dengan produktiviti (p< 0. 05).

Sementara, benih yang digunakan, baja, pemangkasan, pekerja, racun, dan peralatan yang digunakan oleh pekebun kecil tidak menunjukkan hubungkait terhadap produktiviti kelapa sawit. Bagi “Cost-Benefit Analysis”, untuk setiap RM1 yang dibelanjakan oleh pekebun kecil untuk pembolehubah input, mereka akan menerima RM3. 75 sebagai pulangan. Sementara itu bagi Nilai Bersih Kini (NPV) dan Kadar Pulangan Dalaman (IRR), ialah masing-masing RM 7347. 61 dan 16%. x CHAPTER 1 INTRODUCTION 1. Background of the Study Oil palm production is a major agricultural industry in Malaysia. Malaysia currently accounts for 39% of world palm oil production and 44% of world exports. Being one of the biggest producers and exporters of palm oil and palm oil products, Malaysia has an important role to play in fulfilling the growing global need for oils and fats sustainably (MPOC, 2011).

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The export of palm oil products is expected to exceed RM100 billion in 2020 compared to timber, export earnings from the industry is expected to reach RM53 billion by 2020 from RM22. 5 billion in 2008 (MPOC, 2011).

Oil palm production provides revenue for the government of Malaysia through export duties on exported oil palm from the country. The Malaysian palm oil industry is the fourth largest contributor to the Malaysian Gross National Income (GNI).

An ambitious GNI contribution target of RM178. 0 billion in 2020 has been set against the present GNI contribution of RM52. 7 billion for the palm oil industry. About 40% from the overall national production of palm oil came from smallholders under the Federal Land Development Authority (FELDA) and the Federal Land Consolidation and Rehabilitation Authority (FELCRA) and several 1 ther agencies under the state government, including 12% from 300,000 private settlers throughout the country (B. G. Dompok, 2010).

The growth of the oil palm industry in Malaysia has been extraordinary. From a mere 400 hectares planted in 1920 the size has increased to 54 000 hectares in 1960. Since then many more areas were opened up for oil palm cultivation, either from virgin jungles, or from conversion of plantations that originally supported rubber or other crops. By 1996, the hectarage under oil palm stood at a staggering 2. 6 million hectares.

In 2011, the hectarage reached 5 million hectares (MPOB, 2012).

Ownership of oil palm plantations hence could be categorized into private estates ownership, government schemes (e. g. FELDA, FELCRA), state schemes and not forgetting the smallholders. Most of the palm oil is produced by the oil palm plantations own by private estates located largely in the states of Sabah, Sarawak, Johor, Selangor and Negeri Sembilan. Focusing on oil palm smallholders, they can be grouped into two main categories: (a) the ones organized and assisted with government bodies and (b) the independent smallholders.

Examples of the government schemes are FELDA, FELCRA and Rubber Industry Smallholders Development Authority (RISDA).

These organizations are established government bodies set up to develop the smallholders. Hence the smallholders under these organizations get access to services pertaining to technical advice, input supply and marketing outlets. While the independent smallholders get minimal government assistance, 2 normally in the form of extension services imparted by the Department of Agriculture (DOA).

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The independent smallholders sector is a small scale production entity which is only 13. 8%.

Thus, it is generally perceived that this sector is inefficient and unproductive as compared to the large-scale production system of the estate sector and the government-assisted plantations. However, the existence of independent smallholders is nevertheless important as they contributed and played a significant role in the development of the agricultural industry in the country. They need to be efficient producers of Fresh Fruit Bunch (FFB).

If they slacken in their operation and no correction effort is made, this will effect the overall supply chain because their cumulative size is comparatively large (Ab Rahman et al. 2008).

The Roundtable on Sustainable Palm Oil (RSPO) grouping is putting in place a mechanism to channel a portion of its revenue towards the certification of oil palm estates owned by independent smallholders in key markets such as Indonesia, Thailand and West Africa. The RSPO had also set aside Euros 300,000 to encourage smallholders to certify their plantations. This is to equip independent smallholders with better access to the international buyers in markets like Europe, the United States and even India, which are increasingly demanding for CSPO (Certified Sustainable Palm Oil) instead of the noncertified ones.

The first batch involving about 5,000 ha of oil palm estates 3 belonging to independent smallholders from Thailand would undergo the certification process this year. At present, RSPO has successfully certified several estates belonging to “schemed” smallholders managed by Felda Group in Malaysia (The Star, 2012).

1. 2 Objective of the Study The study aims: 1. To determine the relationship between inputs and oil palm production 2. To find out the significant factors that affecting the performance and yield of oil palm among smallholders 3.

To investigate the relationship between socio demographic of smallholders and performance and yield of oil palm 4 1. 3 Problem Statement RSPO (2012) reported that beginning early June 2012, Indonesia had overtaken Malaysia as the world’s largest certified sustainable palm oil (CSPO) producer. Currently, both countries, Malaysia and Indonesia, are two of the world’s largest CPO producers, are highly dependent on smallholders to contribute to the respective countries’ total annual CPO production.

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Smallholders in Malaysia contributed about 52% of the total annual CPO production while smallholders in Indonesia contributed about 38% of the republic’s total CPO production. Hence, the government should give attention and concern about this. The independent smallholder’s average yield per year is only 16 to 18 tons per hectare as compared to the commercial plantations’ average yield of nearly 25 tons per hectare / per year. This is likely due to many problems such as lack of capital, lack in management expertise, and knowledge of new technology.

As stated earlier, the independent smallholders operate on a small scale production and get minimal government assistance as compared to the ones that are organized and assisted with government bodies. These factors could also affect their productivity of the independent smallholders. Plantation sector is said to be technical efficiency if it can produce higher level of output from the same level of input. In terms of the age of the independent smallholders, Ismail et al. (2003) stated that they were relatively old. He found that the average age was 58. years with a range of between 45 to 76 years old. Thus, it creates a concern whether 5 the age could also be a factor that would affect the productivity of the smallholders. 1. 4 Hypothesis 1) Is there any significant relationship between inputs and oil palm production? Ho= There is no significant relationship between inputs and oil palm production. H1= There is a significant relationship between inputs and oil palm production. 2) Is there any significant factors that affecting the performance and yield of oil palm among smallholders?

Ho= There is no significant factors that affecting the performance and yield of oil palm among smallholders. H1= There is a significant factors that affecting the performance and yield of oil palm among smallholders. 6 3) Is there any significant relationship between socio demographic factors (gender, age distribution, household size and education levels) of smallholders and yield of oil palm? Ho= There is no significant relationship between socio demographic factors (gender, age distribution, household size and education levels) of smallholders and yield of oil palm.

H1= There is a significant relationship between socio demographic factors (gender, age distribution, household size and education levels) of smallholders and yield of oil palm. 1. 5 Significant of the Study It is hoped that this study could provide the necessary information for the government, especially the Ministry of Agriculture (MOA), the Palm Oil Board to look into the welfare of the oil palm independent smallholders. Perhaps the government through MOA could formulate certain policies to improve the independent smallholders’ performance in order to enhance the growth of economy of the country.

The result of this study could also be as a source of knowledge for the independent smallholders to ponder on the importance of increasing their technical efficiency in order to increase their revenue. It is also hoped that the outcomes from this study could be an eye-opener for the decision makers, to take 7 considerative action or measures in order to improve the quality of lives of the oil palm independent smallholders. On the technical side, the findings from this study will also give information of the impact of identified factors on the performance level of the oil palm independent smallholders. . 6 Definition of Terms 1. 6. 1 Age In this study, age of the smallholders has been divided into three (3) categories which are (i) 20 to 40 years old, (ii) 41 to 60 years old, and (iii) 61 to 80 years old. 1. 6. 2 Family size In this study, family size refers to numbers of persons under responsibility including the smallholder him/herself. It is categorized into three (3) which are (i) 1 to 3 persons, (ii) 4 to 6 persons, and (iii) 7 to 9 persons. 1. 6. 3 Size of Land Owned Size of land owned defines as the hectare of the oil palm land of independent smallholders owned.

In this study, size of land for smallholder is known as a land owner whom has entitled over a land that is below 50 hectares as stated by Roundtable on Sustainable Palm Oil (RSPO).

8 1. 6. 4 Capital invested In this study, capital invested including cost of seeds bought, usage of machinery, cost or fertilizers and cost of herbicides or cost of weeding. 1. 7 Limitation of the Study There are several limitations of the study whereby: i. The sample of the study only focused on data gathered at Kg. Sungai Lang Tengah and Kg. Kanchong Darat. ii. Time constraint whereby the researcher has only 4 months to complete the entire project. ii. The questionnaires might be too simple and brief – this could limit the information received. iv. Sincerity of the respondents answering the questionnaires might affect the data collection. 9 CHAPTER 2 LITERATURE REVIEW 2. 0 Overview This objective of this study is to determine the relationship between inputs and oil palm production. The second objective is to find out the significant factors that affecting the performance and yield of oil palm among smallholders. Lastly is to investigate the relationship between socio demographic of smallholders and performance and yield of oil palm.

This chapter would define the technical terms for oil palm, smallholders, and technical efficiency; the history of palm oil production, factors affecting the productivity, and incentivizing smallholders to improve palm oil yields. 2. 1 Oil palm Scientifically, oil palm is known as Elaeis guineensis. It is originated from West Africa and was introduced to Malaya in 1870 as an ornamental plant. Oil palm economic life is 20-25 years, (seedlings at nursery: 11-16 months, first harvest: 32-38 months from planting, peak yield: 5-10 years from planting).

The widely used variety is Pisifera (Dura x Tenera) and the harvested part is the fruit bunch that weighing between 15 and 25 kgs (H. R von Uexkull, 1991).

They are made up of 1000 to 4000 oval shaped fruits, measuring three to five centimeters long. Extraction of Fresh Fruit Bunch (FFB) of oil palm produces oil that is valuable and can produce diverse of product. There are two ways of extraction. Palm oil is extracted from its fruit pulp, while palm kernel oil is derived from its seeds. 10 Main importance of palm oil is for cooking, particularly in the developing world.

Another importance are used as raw materials for manufacture of a wide range of manufacturing products for example are making soap and detergents, cosmetics, paints, processed food, industrial lubricants and most recently as a feedstock from which biodiesel is produced. 2. 2 Smallholder Smallholder is known as a land owner whom has entitled over a land that is below 50 hectares (RSPO).

Oil palm smallholders can be grouped into two main categories: (i) the organized smallholders and (ii) the independent smallholders.

Organized smallholders get access to services pertaining to technical advice, input supply and marketing outlets from government agencies such as Federal Land Development Authority (FELDA), Federal Land Consolidation and Rehabilitation Authority (FELCRA), etc. In contrast, the independent smallholders started the oil palm plantation business themselves with minimal government assistance. The types of government assistance received are normally in the form of advisory services imparted by the Department of Agriculture (DOA).

The land ownerships and business holdings are small and scattered (Ismail.

A et al. , 2003).

The independent smallholder’s average yield per year is only 16 to 18 tons per hectare as compared to the commercial plantations’ average yield of nearly 25 tons per hectare / per year. As stated by G. Koczberski (2001), smallholder productivity per hectare is much lower than that of the estate plantations, and village oil palm (VOP) productivity is below 11 that of the land settlement schemes (LSS) (except for Popondetta).

He also stated that, most smallholders are involved in various forms of customary production and exchange, especially VOP producers.

For many VOP smallholders, the motivation to harvest is not so much concerned with accumulating savings for capital investments or consumption in the market economy, but with redistributing wealth through kin exchange. Some smallholders with intermittent involvement in oil palm production may not harvest for several months but will do so to contribute to a communal feast or exchange. For more regular VOP producers, oil palm production may increase significantly when customary demands are unusually high. Thus, the requirements of customary exchange can drive people’s involvement in oil palm production. 2 2. 3 History of the Palm Oil Industry The palm oil industry in Malaysia which began 19th century has been steadily developed and improved. Commercialized palm oil planting was started in 1917 and led to new innovations and estate practices that improved productivity tremendously. Palm oil usage has diversified from its traditional applications as lubricants, soaps and cooking oils to medicines, oleo chemical and specialty fat products. These new applications have themselves spawned many burgeoning industries in the palm oil downstream segment and related industries.

More recently, demand for palm oil products have expanded to include bio fuels which has increased demand for palm oil and provided a surge for global palm oil prices. Combined with an expected surge in the global populace and income levels, the long-term outlook for the palm oil industry appears excellent (MPOC, 2010).

Since 1965, the palm oil industry had been identified as a key driver for Malaysia’s economic growth. Various steps were taken to develop the industry through government policies (e. g. incentives, taxes, subsidies), setting up of palm oil agencies to improve smallholder productivity (e. g.

Federal Land Development Authority, FELDA), to increase R&D efforts (e. g. Malaysia Palm Oil Board, MPOB) and to foster agricultural education (e. g. Universiti Pertanian Malaysia- now known as Universiti Putra Malaysia).

From its initial 2% coverage of Malaysia’s total agricultural produce, Malaysia has grown into one 13 of the largest palm oil producers in the world with the industry now contributing for 3. 3% to Malaysia’s total GDP as in 2009. The industry also provides various socio-economic benefits such as employment to over 600,000 direct workers and has significantly alleviated poverty in rural areas. Department of Statistics Malaysia, 2009).

2. 4 Current Status of Malaysia’s Palm Oil Industry Malaysia is also one of the few geographic regions where the conditions are ideal for oil palm trees to prosper. Perhaps most importantly, Malaysia’s relatively stable political climate and policy helps the palm oil industry to grow uninterrupted into one of the nation’s largest economic pillars. In 2009, Malaysia produced 17. 7 million tons of palm oil. Palm oil involves 4. 69 million hectares in Malaysia in 2009 and contributes 3. 2% of real GDP in 2008, increasing from 2. % in 2000. Exports of palm oil grew by 13. 8% a year since 2005 to RM38. 5 billion in 2009, accounting for 7% of total exports, compared to 4. 3% in 2005 (MPOC, 2010).

However, Malaysia is currently in danger of being marginalised as her natural competitive advantages diminish. Malaysia’s market share of global palm oil supply has been steadily declining over the years as arable land in Malaysia becomes increasingly scarce, limiting expansion. Nations such as Indonesia with the resources, capabilities and ambition to grow their domestic palm oil industry 14 re beginning to catch up and threaten Malaysia’s position as a palm oil market leader. 2. 5 Factors affecting the Productivity Over 40% of some five million hectares of palm oil plantations in Malaysia, is owned by private smallholders while another 20-25% is owned by smallholders supervised by government agencies. While FELDA and MPOB have managed to raise smallholder yields from 16 to 18 tons per hectare (from 2007 to 2008), a majority of smallholder’s productivity is still well below commercial plantation average yield levels of nearly 25 tons per hectare.

These issues stem from a lack of management expertise, technological knowhow as well as financial constraints that limit their growth. This situation has been made worse by the reluctance of smallholders to seek aid from the private sector and the lack of collaborative efforts between GLCs, the private sector and smallholders to raise productivity. A study carried out by Koczberski et al. (2001) in Papua New Guinea also discovered that there was a large increase in the total area under smallholder cultivation. Nevertheless, improving smallholder’s productivity remains one of the industry’s major challenges.

Similar to Malaysian scenario, smallholders’ productivity per hectare in Papua New Guinea is much lower than that of the estate plantations. 15 The palm oil industry in Malaysia also faces a shortage of harvesters, research workers as well as skilled technical specialists resulting in a lower upstream productivity as well as a lack of capability to drive the downstream segment through new technology and innovations. This has affected the effectiveness and growth of each stakeholder within and has become a major stumbling block in the industry’s efforts to transform to a high income and sustainable economic pillar.

Palm oil Research and Design (R&D) in Malaysia is mainly undertaken by private companies (e. g. Sime Darby, Genting Plantations) and the government agency MPOB. Private R&D differs from MPOB as private companies tend to focus on projects that maximize profits while MPOB focuses mostly on general projects that address broader issues within the industry. While MPOB commercializes 30% of their R&D projects, some of these apply only to a small amount of stakeholders or niche areas in the industry.

Similarly, private R&D projects that focus on maximizing their profits may not be in the industry’s best interest. A lack of priority for research projects as well as an absence of constructive feedback from the industry on the research required has caused a breakdown. The palm oil industry is an example whereby the supply chain has not been developed to its full potential. Partly due to the high profits at the upstream level, plantation companies have not moved as much downstream in order to get closer 16 to the final consumer.

Larger estates have not been able to mechanize and improve productivity as much due to the availability of cheap imported labour. As private sector estates have not been able to get additional land in Malaysia, the trend has been to shift to plantation in Indonesia and abroad, bringing valuable Malaysian seed and estate management technology to foreign competitors. Whilst Malaysia has the highest concentration of R&D research in palm oil in the world, there is insufficient collaboration between private sector and the research wing, so that there has been few commercial successes coming out of the R&D efforts.

National Economic Advisory Council (NEAC) cited in PODC (2010) suggested that palm oil’s share of real GDP can grow to 7. 6% by 2020 if the value-added gains from efficiency and innovation can be realized. This would translate into a yearly growth of 13. 7% from 2009-2020. Palm oil exports can also grow by 7% per acre to RM84. 6 billion by 2020, probably more if new palm oil-based products and services can be successfully marketed. There is a window of consolidation in the industry, as many of the pioneering smallholders are aging and the younger generation may not be willing to remain as smallholders.

Hence, the more efficient estates could help consolidate the industry by bringing better technology to raise the yield and the quality of production. 17 2. 6 Moving the Palm Oil Industry Forward For Malaysia to regain its competitive advantage in the palm oil industry, the critical areas identified within the palm oil industry that need to be improved: (i) Focus on improving our upstream productivity to regain our advantage as a major global producer, for example through R&D to enhance yields and efficiency and the development of smallholders. ii) Improve and nurture the domestic downstream industry through diversified palm oil products and the creation of domestic consumer brands by attracting foreign investment and talent to Malaysia through the global edible oil hub (National Economic Advisory Council as cited in PODC, 2010).

While Malaysia is one of the largest palm oil producers in the world, the players in the industry are relatively small and fragmented. Plantation land ownership is fragmented between private estate owners (60%) and smallholders (40%).

Within the private estate space, only 12 large planters make up 30% of Malaysia’s planting area while the remaining 70% are owned by numerous smaller private estates and public smallholders. Even Sime Darby, one of the largest palm oil players in the world, owns only 7% of planting area in Malaysia and produces a mere 5% of global palm oil production. 18 Table 2. 1 : Plantation Ownership in Malaysia 2008 (%) Type Private Estates State Schemes, Smallholders, FELCRA, RISDA FELDA Total Source: PODC (2010) Percentage (%) 60 7 11 2 4 16 100 Percentage (%) 60 40 100

One way to regain the competitive advantage upstream (other than to increase yield through better estate management, mechanization and seed improvement) would be to get better cooperation between the leading producers in areas of comparative advantage. The larger players can cooperate better through pooled R&D and help develop specific products and markets. Consolidation and cooperation will allow each planter to benefit from economies of scale as well as allow the sharing of knowledge (e. g estate and planting practices) and technology between commercialized planters and smallholders.

The Malaysian downstream segment has had great difficulty in breaking out into the international scene, which has lead to its lack of lustrous growth. With the fragmented state of the Malaysian downstream industry, there is no single company that has the capability or the size to becoming a leading consumer brand or processor. In order to overcome this, GLCs and the private sector need to collaborate in order to create a global champion capable of breaking out into new markets. Examples are the cooperation between two or three players to open 19 up estate development in new areas, e. g.

Western Africa, using Sovereign Wealth Funds interest in securing food security. Two or three leading players could also collaborate on building distribution chains in specific markets, such as India and Middle East. Using R&D to Regain Competitive Advantage R&D should remain the focal point for growth within the palm oil industry. It has become increasingly important to raise productivity on existing land area given our diminishing amount of available land in Malaysia and rising cost of production. R&D projects to improve productivity such as mechanization and biotech seed research (e. . genome) from existing planted area should be the main focus to maintain our competitive advantage as one of the largest suppliers of palm oil. R&D should also focus on providing commercial products for the downstream industry to compete with other international players in the field and to gain recognition for Malaysia in this segment. Constant R&D in both upstream and downstream will facilitate the transition to a high income, inclusive and sustainable economy through the abolishment of poverty and the creation of innovative, high value add products.

Fast growing and developed countries (e. g. India, China and Europe) are increasingly dictating what the world wants now and needs in the future. In order to keep abreast of future opportunities, Malaysia needs to foster collaborative programs with foreign consumer brands while GLCs and the private sector 20 aggressively pursue fruitful partnerships to identify next generation commercial needs ahead of actual demand. Methods to galvanize Malaysian human capital can come from abroad and through local efforts.

Partnerships with foreign companies can lead to direct investments in Malaysia in innovation centre, processing refineries and product development labs which in turn attract both foreign and local skilled talent. Locally, Malaysia can leverage on its potent R&D strength in both the private sector and government research institutes. More collaboration between the public and private sector, for example in supporting and funding public-private universities to produce world-class graduates with both innovative and entrepreneurial skills, need to be fostered.

The government has a vital role to play in this area, both indirectly through policy and incentives, and directly by being involved in the development of private-public R&D initiatives through their R&D agencies like MPOB. The idle funds under MPOB also need to be managed and channeled to the right areas within the industry. Introducing collaborative initiatives whereby private R&D institutes can gain funding from MPOB to work on a specific and valueadding project through matching grants or develop a pairing system to match independent researchers to the relevant business ventures.

The funds can also be used to address the human capital issue; for example through industry re-skilling programs and by funding the public-private universities as previously mentioned. 21 The key is that access to MPOB funding could be more private sectors driven that encourages commercial R&D. A portion of MPOB funding can be likened to Venture Capital in R&D – some of it will be risky and since the fee is derived from the palm oil producers, especially the small-holders and large estates, the funding should go back towards funding venture capital in the industry. Efforts should be made to promote Malaysia as a Global Hub for Edible Oils. National Economic Advisory Council, cited in PODC, 2010) suggested that Malaysia possesses the natural competitive advantage to be a hub for edible oils with our abundant supply of palm oil, the large existing refining base, good infrastructure and Malaysia’s position as a forerunner in sustainable palm oil development. Achieving the status as a global edible oil hub however is an iterative process and by no means an easy feat but is necessary to enable Malaysian downstream producers to compete on the global playing field with access to numerous networks and resources.

Attracting foreign consumer brand companies such as Unilever or Nestle to establish their operations in Malaysia is the first step. The downstream industry needs to actively seek close partnerships with consumer brands for product development or R&D. To do this, Malaysia needs to develop high R&D capabilities will act as a ‘pull’ factor to encourage further partnerships with consumer brands as well as to attract more downstream talent to Malaysia (e. g. researchers, product developers).

22

Once Malaysia has been identified as a nation with high comparative advantage in terms of expertise and supplies of raw material, consumer brands would begin to develop their refining and R&D capabilities in Malaysia. Eventually, as more foreign consumer companies build up capabilities, Malaysia will become the hub for high value edible oil products in the Asia region. Improved infrastructure and other passive utilities will eventually allow Malaysia to become a global hub of not only palm oil but all edible oil products.

With an established reputation as an edible oil hub, Malaysia can replicate the same model in other fast growing regions such as Africa or South America. This will require Malaysia to become a net exporter of expertise and experienced human capital in these areas, solidifying the segments transition to a high value economy. The replication of the model in these areas will allow downstream players to ride on Malaysia or local upstream efforts to establish a foothold in these untapped markets.

In order to achieve this, the government needs to step in to provide the right incentives and initiatives for local players to invest in refineries, innovation and R&D centre. Local downstream players need to be encouraged to engage in dialogues with consumer companies to pursue partnerships on product development and R&D with support from the government and GLCs. The 23 private sector and GLCs can also collaborate on how to achieve each of these targets for example on how to replicate the model and enter untapped markets. 2. 7

Incentivizing Smallholders to Improve Palm Oil Yields One way to address the issue of low smallholder productivity is by channeling and improving support services to smallholders. Easier access to funding and revised profit sharing structures can boost the income of smallholders enough to raise them out of poverty and channel their efforts towards improving productivity. In this sense, the government needs to work through its government agencies such as Bank Pertanian Malaysia, FELDA and MPOB to engage smallholders and provide assistance where needed.

Engaging the private sector to accelerate the process of improving productivity should be considered. Private companies, who boost some of the highest productivity in the industry, have the expertise, resources and technical knowledge to share with smallholders. However, the proper incentives (e. g. tax rebates) need to be in place to attract the private sector to participate in aiding smallholders. Smallholders themselves are reluctant to approach the private sector for consultancy services for fear of being exploited.

The government again needs to play its part in regulating dealings between the smallholders and the private sector, for instance by establishing a tribunal for legal recourse to address any issues. MPOB can step in to provide technological assistance through its commercial R&D projects and by providing funding to 24 smallholders using part of their idle funds. Inclusive business models to improve productivity rather than outright land acquisitions by the private sector should be considered to ensure returns for the private sector while retaining the land rights and providing benefits to smallholders.

National Economic Advisory Council, (PODC, 2010) proposed that the Malaysian palm oil industry requires to amalgamate between two broad operating models; the service competition and the network competition model with the government playing an overseer role over participants in the industry. Under the proposed model, the active network consists of the upstream segment, which supplies the raw material, while the access and content segment comprises of the downstream segment which creates derivative palm oil products. The government’s role is to regulate and control the industry’s growth through various mechanisms.

Examples of these mechanisms are tax rebates and initiatives to encourage upstream companies to assist smallholders. These same mechanisms can encourage downstream processors to be more aggressive or to foster R&D efforts in Malaysia. Through loose regulation, the government helps to stimulate the industry and set it in the right direction for growth. Passive networks such as infrastructure (e. g. roads, highways, ports) and basic amenities are necessary for the palm oil industry to operate locally and internationally. The managing of the passive infrastructure should be done by a third party utility, city, government. 5 For the palm oil industry to transform into a high value industry, the issues such as declining downstream competitiveness, reduced R&D potential and stagnant smallholder efficiency need to be resolved. All stakeholders, public and private sector should play a vital role in addressing each of these issues, for example through collaborations/partnerships in R&D and business ventures or by implementing high value and supporting policies for the palm oil industry. Growing the palm oil industry benefits more than the direct stakeholders within the palm oil industry but also provides broader benefits to the ‘rakyat’.

Improving smallholder productivity results in higher income and increased rural development (e. g. basic amenities).

Encouraging R&D and high value downstream industries brings about increased employment opportunities but more importantly access to high value jobs in the fields of research, marketing and innovation. These all lead to greater opportunities and a higher income for all Malaysians, not only within the palm oil industry but also to those in related industries as well (MPOC, 2010).

26 CHAPTER 3 MATERIALS AND METHOD 3. 0

Introduction This chapter would describe the research design, the location of study, sample size, procedures for data collection, and the data analysis. 3. 1 Research Design This study uses survey research method which involves correlation and regression. In this study the researcher would try to identify the correlation between Socio Demographic and production factors and the productivity of independent smallholders. Finally the researcher would try to determine the most important contributing factor to the independent smallholders’ productivity. Research data were collected from the respondents through face to face interview. 7 3. 2 Research Sites This study is conducted at state of Selangor. Selangor is located on the West Coast of Peninsular Malaysia with a population of 5,287,880 people (Malaysia Statistic, 2010).

It is the highest population among the other state in Malaysia. The state is covered with an area of 7,956 square kilometer (km2) representing 2. 4 percent of Malaysian land (Malaysia Statistic, 2010).

The data was collected in Kuala Langat district by involving 100 independent smallholders. The district is being administered by local municipal which is Majlis Daerah Kuala Langat (MDKL).

The number of population in Kuala Selangor is 202,000 people which consist of 242,100 people in Kuala Langat that contribute to 4. 74 percent of total population people who live in the Selangor state (Malaysia Statistics, 2010).

Kampung Sungai Lang Tengah and Kampung Kanchong Darat were selected for this study because these villages are located in the district and represent as the largest and second largest area of oil palm plantations in Selangor. 28 Figure 3. 1: Map of Kuala Langat (Source: Majlis Daerah Kuala Langat) 29 Figure 3. 2: Map of Kg. Sungai Lang Tengah (Source: Majlis Daerah Kuala Langat) 0 Figure 3. 3: Map of Kg. Kanchong Darat (Source: Majlis Daerah Kuala Langat) After gaining information (full name and address) from the middleman, I then search the independent smallholder’s houses using the map provided by Majlis Daerah Kuala Langat. This was done under supervision and guidance of each village’s Headman. 31 3. 3 Sample of the Study The sample of the study consists of 30 persons. 15 samples were from Kampung Sungai Lang Tengah and 15 samples were from Kampung Kanchong Darat. The sampling method used in this study is multistage sampling technique.

This method was conducted in two stages – the first stage by using purposive sampling, that is choosing one out of nine districts in Selangor which is Kuala Langat. Next from the districts selected, the random sample of 1 mukim (division) of Kelanang purposively will be selected. Lastly, from this mukim, 2 villages were chosen which were Kampung Sungai Lang Tengah and Kampung Kanchong Darat. 3. 4 Research Instrument The researcher employed semi-structured interview by using questionnaires which has been build and created under supervision of the researcher’s supervisor.

Further information and guidance also has been sought from Encik Azman bin Ismail which is one of the officers at Malaysia Palm Oil Board (MPOB).

10 respondents have been chosen for pilot test. A pilot, or feasibility test, is a small experiment designed to test logistics and gather information prior to a larger study, in order to improve the latter’s quality and efficiency. A pilot study can reveal deficiencies in the design of a proposed experiment or procedure and 32 these can then be addressed before time and resources are expended on large scale studies. (NC3R , 2006) s 3. 5

Data Collection Procedure This study requires two types of data – the socioeconomic background of independent smallholders and the input variables carried out by the independent smallholders. The socioeconomic background was to determine (i) the gender, ii) age, (iii) education level, and (iv) family size. The input variables were: (i) quantity of fertilizer (kg) /costs of fertilizing (RM), (ii) quantity of herbicides (litres) / costs of weeding (RM), (iii) costs of pruning (RM), (iv) capital invested (RM), (v) seeds bought (RM), (v) rental / usage of machinery (RM).

Data were collected by onducting the interview sessions. Before the interview sessions were carried out, the researcher has to follow certain procedures (i) the researcher has to go to the Malaysia Palm Old Board (MPOB) in Kelana Jaya to get data about the smallholders (ii) visit the Majlis Daerah Kuala Langat to get map of each village (iii) Get the permission from the headman of the villages of Kampung Sungai Lang Tengah and Kampung Kanchong Darat. With the assistance of the both headmen, and also the middleman of that village, the researcher was then given the list of the villagers, who are the independent smallholders to be interviewed.

The process is important because by interviewing the samples, the information on inputs, 33 outputs, prices of oil palm fresh fruit bunch and some socioeconomics variables was gathered. The researcher managed to interview 100 respondents comprising of the independent smallholders from the two villages, in order to get the data. But, the data could only be analyzed based on 30 samples because only the other respondents did not fulfill the criteria needed and did not complete answering the questionnaires. 3. 6 Data Analysis In this study, the data collected are analyzed and presented by using: . 6. 1 Descriptive Statistic Method There are two subdivisions of statistical method which are Descriptive Statistics and Inferential Statistics. Descriptive Statistic Method deals with the presentation of numerical facts, or data, in either tables or graphs form, and with the methodology of analyzing the data. 34 3. 6. 2 Multiple Regression Analysis In the theory, production function is generally estimated using multiple regressions. In order to study the relationship between inputs and yield production of palm oil, multiple regression method was used to run the analysis tool.

Yield production as a proxy for palm oil production (tons) per hectare per year as a dependent variable of the equation to be fitted. In order to understand the variation of palm oil produced, there are several independent variables that will be employed in regression model as determinants of palm oil production including size of land owned, labour employed and capital invested (cost of seeds, machinery, fertilizers, herbicides and pesticides).

All the aforementioned variables will be incorporated in the following model using a liner multiple regression model or ordinary least squares (OLS) regression.

Least squares estimation procedures. Least squares estimation procedure is used to find an estimator or rule for estimating the unknown parameters. With the least squares principle purposely to minimize the sum of squared differences between the observed values of: E[yt] = ? 1 + ? t2 ? 2 + ? t3 ? 3 + ? t4 ? 4. 35 Mathematically, minimizing the sum squares function S (? 1, ? 2, ? 3), which function of the unknown parameters, given the data, S (? 1, ? 2, ? 3) = = 2 2 (a) Given the sample observation yt, minimizing the sum of squares function is a straightforward exercise in calculus.

The solution is the least squares estimates b1, b2, b3, and b4 to give expression to them, it is convenient to express each of the variables as a deviation from their means. That is, let yt*= yt – y, ? *t2 = ? *t2 – ? 2, ? * t3 = ? * t3 – ? 3 Then the least square estimates b1, b2, b3 and b4 are: b1 = y – b2 x2 – b3x3 b2 = (? yt* ? *t2) ( *2 t3 *2 t2 *2 t3 *2 ) – ? y*t ? t3) ? ? *t2 ? * t3) (? ? ) (? ?) – (? ? *t2 ? * t3)2 b3 = (? yt* ? * t3) (? ? ) – ( ? y* t ? * t2) ( ? ?* t3 ? * t2) t2 ( ? ? ) ( ? ? ) – ( ? ?* t 2 ? * t3)2 t2 t3 36 *2 *2

These formulas can be used to obtain least squares estimates in the model (a) whatever the data values are. The formulas in (b) are referred to as estimation rules for unknown parameters. In general, since their values are known until the data are observed and the estimates calculated the least squares estimators are random variables. When applies to a specific data, the rules produces the least square estimates, which are numeric values. The equation for this study is: logYi = ? 1 log X1 +? 2 log X2 +? 3 log X3 + … + Vi – U it Where, Yi = is the output income of selling (FFB) ? is the vector of the unknown parameters to be estimated X = is the matrix of output variables Vi = is the random error i Ui = is the technical inefficiency i Both vi and ui are assumed to be independently and identically distributed (Mustafa N. H. N, 2011).

37 3. 7 Socio Economics Characteristics: a. Age of the smallholders b. Size of land (hectares) c. Education level d. Numbers of dependents of the smallholder (family size).

3. 7. 1 Multi Regression Analysis (Tabular Analysis) Y= Ait + ? age + ? size land + ? edu. level + ? family size+ et 3. 8 Instrument used to conduct analysis 3. 8. 1 Excel Solver

In this study, the method used is descriptive statistics. The statistical software’s used is Excel Solver. 3. 9 Measurement of variables Value of Output The cash receipts obtains from the sales of fresh fruit bunch at every round of harvesting produce by oil palm smallholder in the year of 2011 at selective months will be the output. 38 Input variables The input variables were categorized into six: (i) quantity of fertilizer (kg) /costs of fertilizing (RM), (ii) quantity of herbicides (litres) / costs of weeding (RM), (iii) costs of pruning (RM), (iv) capital invested (RM), (v) seeds bought (RM), (iv) application of machinery (RM).

To derive the input variables, the interview sessions has been conducted. Socio Economic Characteristics The socio economics characteristics of variables used are (i) age of the smallholder, (ii) years of experience of smallholder, (iii) size of land owned (hectares) , (iv) length of time since plantation was established, and (v) numbers of persons under responsibility of the smallholder (family size).

39 CHAPTER 4 RESULTS 4. 0 Introduction This section discussed based on the objectives of study. The data obtained then were analyzed by using Excel Solver. It is built altogether with Microsoft Office Excel 2007.

The Regression analysis tool performs linear regression analysis by using the “least squares” method to fit a line through a set of observations. It can analyze how a single dependent variable is affected by the values of one or more independent variables. 4. 1 SOCIO DEMOGRAPHIC CHARACTERISTIC 4. 1. 1 Age of Independent Smallholders Majority (67%) of smallholders of Kg. Sungai Lang Tengah comprise of the age group between 61 to 80 years old. On the other end, 27% belongs to age group between 41 and 60, while the remainders 6% are in the age group between 21 and 40 years old. For Kg.

Kanchong Darat, the major portion (60%) of the smallholders also falls in the age group of 61 to 80 years old and 33% is in the group 40 41 to 60 years old. Only 7% of them are age under category between 21 and 40 years old. Figure 4. 1: Age of Independent Smallholders 4. 1. 2 Gender of the Independent Smallholders For both villages, it could be seen that the distribution gender is the same. From figure 1. 2, 83% from the total sample are male while the rest (13%) consist of female. Figure 4. 2: Gender of smallholders in Kg. Sg. Lang Tengah and Kg. Kanchong Darat 41 4. 1. 3 Education Level of the Independent Smallholders.

For Kg. Sungai Lang Tengah, 53% of the total sample have other education while the rest are “not schooling”, completed “SPM” and “Diploma”. For Kg. Kanchong Darat, 53% also claimed other education and the rest (47%) have just completed “SPM”. Figure 4. 3: Education Level of the Independent Smallholders 42 4. 1. 4 Family Size of Independent Smallholders Based on Figure 4. 4, the highest percentages for family size of Kg. Sungai Lang Tengah are with 1 to 2 people which contribute 47%. On the other hand, for Kg. Kanchong Darat, the highest percentage of household size (60%) is also 1 to 2 people.

For group 9 to 11 people, Kg. Kanchong Darat contributes 7%. Figure 4. 4: Family Size of Independent Smallholders 43 4. 2 ECONOMIC ANALYSIS Table 4. 3: Pooled Data of Kg. Sungai Lang Tengah and Kg. Kanchong Darat SUMMARY OUTPUT Regression Statistics Multiple R R Square Adjusted R Square Standard Error Observations ANOVA df Regression Residual Total 10 19 29 SS 29211. 02081 26555. 48994 55766. 51075 Coefficients Intercept GENDER LOG AGE LOG FAMILY SIZE LOG EDUCATION LOG SIZE OF LAND LOG TOTAL COST LABOR LOG COST OF SEED LOG MACHINERY LOG COST OF FERTILIZER LOG COST OF HERBICIDE -196. 214 -8. 52223 82. 64133 39. 84 8. 500549 99. 10822 6. 827082 -1. 48752 4. 934794 6. 621221 6. 433319 Standard Error 227. 2692078 25. 80483769 127. 2714116 43. 28344815 28. 39290429 41. 0804533 12. 27168013 10. 69179649 10. 75885713 5. 455103898 11. 0272269 t Stat -0. 8633545 -0. 3302571 0. 64933147 0. 91452983 0. 29938991 2. 41253968 0. 55632819 -0. 1391272 0. 45867268 1. 21376628 0. 58340314 P-value 0. 398710286 0. 744819451 0. 523896873 0. 371899276 0. 767892948 0. 026114389 0. 584479848 0. 890813721 0. 651672647 0. 239709812 0. 566483467 MS 2921. 10208 1397. 65737 F Significance F 0. 723747 0. 523809 0. 273183 37. 38526 30 2. 089998703 0. 80030564 44 4. 3 Interpretation of the Coefficients Log productivity (Yi)= -196. 214 intercept + 99. 108 log land owned + 6. 827 log total labours – 1. 4875 log seed + 6. 62122 log fertilizer + 6. 433 log herbicide + 4. 9347 log tools and equipment + V1 ? ?0 = -196. 214 This is the intercept, the value of y when all the variables take the value zero. ? ?1 = 99. 108 As the land owned plant with oil palm increases, 99. 108% of yield of oil palm increase. ? ? 2 = 6. 827 As the total labour increases, 6. 827% yield of oil palm also increases. ? ? 3 = – 1. 4875 Buying new seeds should give significance output.

But at this study, it does not. Buying new seeds will decrease yield by 1. 4875%. ? ? 4 = 6. 62122 As the amount of fertilizers increased, the yield of oil palm will increase at a rate of 6. 62122%. ? ? 5 = 6. 433 As the amount of herbicide applied increase, it will increase 6. 433% of oil palm yield. ? ?6= 4. 9347 As the tools and equipment utilize in oil palm planting, it will increase yield by 4. 9347%. 45 4. 4 Cost Benefit Analysis Quantity Price Total A. Total revenue 1454. 68 622. 82 906006. 70 B . variable cost Labour Fertilizer Herbicide Seeds Machinery Total variable cost 92854. 28 49741. 00 12992. 0 34309. 50 11182. 00 201078. 78 C. Opportunity cost of variable input at 20% 40215. 76 D. Total variable cost 241294. 50 E. Gross margin 664712. 20 Benefits cost ration 3. 75 : 1 For every RM1 the independent smallholders spent on input variables, they received RM3. 75 in return. 46 4. 5 Net Present Value Net Present Value Is the preferred method to made evaluation. This is because, it consider time value of money and also size of cash flow over period of investment made. TOTAL INITIAL COST FOR NPV(AVERAGE) Seeds Fertilizers Herbicides Machinery Labours TOTAL 1143. 65 1658. 03 433. 07 372. 73 3095. 14 6702. 63 (a)

Total Present Value Less Initial Cost (a) Net Present Value IRR 14050. 24 6702. 63 7347. 61 16% (b) (b) Refer to Appendix 1 47 CHAPTER 5 DISCUSSION 5. 1 Socio-Demographic Variables 13% from the total sample were female and 87% were male for both Kg. Sungai Lang Tengah and Kg. Kanchong Darat. In both villages, male dominated the total number of the sample. The overall difference in the number of male and female involved in oil palm plantation may be attributed to the suitability of managing the land as most of the workers involve in the oil palm plantation are males. For example is for harvesting the fruit, and for fertilizing the land.

Most of them are foreigner and male. Beside that, this may be attributed to the common culture in Malaysia, where male are responsible to support the family. In terms of age, 67% of smallholders of Kg. Sungai Lang Tengah comprise of the age group from 61 to 80 years old, while 60% of Kg. Kanchong Darat respondents belong to this age group. This shows that, the independent smallholders were relatively old. The result of the study does not show any relationship in terms of age and productivity. This could be due to the nature of work in the oil palm plantation when it is mainly involve physical energy and hard work.

The result is not in line with K. Douglas (2008) that studied on maize farmers in Masindi where the increase in age indicated number of years spent in farming (experience) and farmers were in their productive age. Whereas in oil palm plantation, physical energy is vital because it involves managing the 48 labours and doing the agriculture practices for example fertilizing by own self can reduce the cost. Hence there is no relationship between age and productivity of oil palm by independent smallholders. Only 6% were in the age group between 21 to 40 years old for the smallholders from Kg.

Sungai Lang Tengah and 7% for Kg. Kanchong Darat. It could be due to lack of interest amongst the younger generation in continuing their parents’ agro-based business, which is running oil palm production. The location of the oil palm plantations which are mostly located in rural areas and the working environment in plantations are monotonous and demeaning that have not been attractive to the young people. Based on the result of education level, 53% from the total sample of Kg. Sungai Lang Tengah had other education while the rest had “no schooling”, “SPM”, and “Diploma”. For Kg.

Kanchong Darat, 53% had also obtained other education while the rest of 47% had just completed “SPM”. The result of the study however did not show any relationship in terms of level of education and productivity (P-value > 0. 05).

Generally, the group for “other” signifies primary school level. This level has the highest percentage for both villages might be due to economic downturn that cause financial problem. In term of household size, the highest percentage for household size of Kg. Sungai Lang Tengah are in the group of 1 to 3 persons which contributes 47% while for Kg.

Kanchong Darat , the highest percentage of household size are also 49 from group 1 to 3 person with 60%. The result of the study also did not show any relationship in terms of household size and productivity (P-value > 0. 05).

5. 2 Production Factors From the result of pooled data for both Kg. Sungai Lang Tengah and Kg. Kanchong Darat, all the production factors do not show any relationship with the total productivity of oil palm of independent smallholders as P-values are bigger than 0. 05 (P>0. 05).

However, only the coefficient for size of land is significant where the P-value is 0. 0261 that is smaller than 0. 5 ( P<0. 05).

Labour employed and capital invested (cost of seeds, machinery, fertilizers, herbicides and pesticides) did not show any relationship to the productivity of oil palm might be due to some reasons. Most of the oil palm trees planted by the smallholders were old, which are 25-30 years old. At this stage, oil palm tree should have been replanting. Beside, at this age, the trees are considered as at the stage of not productive and applying fertilizers give less of effects and impact. It is also not economical as the productivity is still low or constant after applying fertilizers.

In term of labour employed, it does not show any relationship, may be due to some labour employed are not doing their job with the best practices. Pruning is one of the most important practices and if this did not apply, it will make the fruits become small and the production will be low. Some of the smallholders refuse to employ any labour to manage their farm and this will cause the farm become mess and the ground will be covered with bushes. And thus, it will attract pest such as rats and rhinoceros beetles. 50 Choosing the best variety of seed before planting is vital as this will affect future production of the oil palm trees.

Seeds did not show any significant relationship might be due to the smallholders bought low quality variety of oil palm. While in term of machinery, the smallholders might not fully utilize it or the machinery is not been handle correctly. For example, servicing and repairing has been neglected. 51 CHAPTER 6 CONCLUSION 6. 0 Conclusion In conclusion, for socio demographic factors, most of the independent smallholders were old and most of them had “other” education. “Other” generally refers to primary education. In addition, most of the smallholders are male and the household size is 1 to 3 persons.

Based on the result, all the socio demographic factors show insignificant relationships with productivity of the oil palm (P value > 0. 05).

For production factors, there was only a significant impact between size of land owned and the productivity of oil palm independent smallholders. The other production factors such as labour employed and capital invested (cost of seeds, machinery, fertilizers, herbicides and pesticides), were also found not to be statistically significant with the yield of palm oil. 6. 1 Implication of Study The study shows that the productivity among the independent smallholders was quite low.

Hence the government should look into smallholder’s welfare and assist them with the technical aspect. The efficient allocation of resources for the smallholders has a great implication for overall national development. It will also 52 lead to rise in Gross National Product (GNP) and per capita income will increase (T. T. Amos, 2007).

6. 2 Recommendation In order to improve productivity of oil palm of smallholders, government or any other organization must play an important role in providing incentives for replanting among smallholders.

Replanting “packages” could include interest free credit and flexible loan repayment rates that take account of prevailing oil palm prices. In addition, they should promote high value market crops to compensate for short-term losses in oil palm income during replanting. On the other hand, oil palm companies need to continue the interest free credit schemes to smallholders in order to help them to get credit as well as capital to run their planting. The value of these schemes to smallholders could be enhanced significantly by making repayment rates more flexible to take account of fluctuations in oil palm prices. 53

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Towards Better Practice in Smallholder Palm Oil Production. Natural Resource Issues Series No. 5. International Institute for Environment and Development. London, UK. Retrieved on Jun 20, 2012 from http://www. fao. org/uploads/06IIED_Towards_better_practice_in_smallholder palm_oil_production_01. pdf. 55 APPENDICES 56 Background of Sample 1) Kampung Sg. Lang Tengah RESPONDENT 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 FAMILY SIZE 4 2 3 1 2 1 6 3 2 2 6 4 5 2 3

AGE 58 71 73 76 65 47 44 34 64 71 52 75 64 74 68 INCOME(RM/YEAR) 27031. 55 23460. 65 80386. 28 10809. 06 41195. 28 19043. 14 35915. 21 23668. 31 15394. 37 35157. 97 10815. 56 137217. 22 10690. 16 14013. 80 30756. 90 57 2) Kg. Kanchong Darat RESPONDENT 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 FAMILY SIZE 2 6 2 2 2 2 6 9 2 5 2 2 3 1 3 AGE 65 55 72 63 77 68 48 51 70 40 75 80 60 74 59 INCOME(RM/YEAR) 10721. 57 17480. 99 17296. 93 31778. 50 22820. 33 32548. 28 71570. 18 15497. 68 56785. 26 6433. 89 16090. 48 33239. 63 16401. 77 20827. 40 10857. 528 Summary characteristic of independent smallholder Variable, X Mean Age 63. 1 Household size 3. 7 Education 4. 9 Land size 1. 895345 Labours 3095. 14 Fertilizers 1658. 03 herbicides 433. 07 Tools n equipment 372. 7333 Seed 1143. 65 58 Net Present Value Value of (b) PROJECTED INVESTMENT MADE FOR OIL PALM SINCE “0” YEAR UNTIL “32” YEARS (Discount Rate, 10%) PRICE of FFB RM 300/TONNE Net Cash Flow (RM) Year Yield Profile (%) RM/TONNE 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 0 300 0 300 0 300 4. 52 300 1,356. 00 7. 53 300 2,259. 00 12. 55 300 3,765. 00 16. 57 300 4,971. 00 19. 08 300 5,724. 00 19. 83 300 5,949. 00 20. 34 300 6,102. 00 20. 34 300 6,102. 00 20. 09 300 6,027. 00 19. 93 300 5,979. 00 19. 58 300 5,874. 00 19. 58 300 5,874. 0 19. 58 300 5,874. 00 19. 33 300 5,799. 00 19. 08 300 5,724. 00 59 Present Value Factor 0. 909 0. 826 0. 751 0. 683 0. 62 0. 564 0. 513 0. 466 0. 424 0. 385 0. 35 0. 318 0. 289 0. 263 0. 239 0. 217 0. 197 0. 179 Present Value (RM) 926. 15 1,400. 58 2,123. 46 2,550. 12 2,667. 38 2,522. 38 2,349. 27 2,135. 70 1,916. 59 1,727. 93 1,544. 86 1,403. 89 1,274. 66 1,142. 40 1,024. 60 19 20 21 22 23 24 25 26 27 28 29 30 31 32 18. 83 300 5,649. 00 18. 58 300 5,574. 00 18. 33 300 5,499. 00 18. 08 300 5,424. 00 17. 83 300 5,349. 00 17. 58 300 5,274. 00 17. 33 300 5,199. 00 16. 83 300 5,049. 00 16. 33 300 4,899. 00 16. 08 300 4,824. 00 15. 58 300 4,674. 0 14. 33 300 4,299. 00 13. 58 300 4,074. 00 12. 18 300 3,654. 00 0. 163 0. 148 0. 135 0. 122 0. 111 0. 101 0. 092 0. 092 0. 092 0. 092 0. 092 0. 057 0. 057 0. 057 Total (RM) Initial Cost Net Present Value Internal Rate of Return 920. 79 824. 95 742. 37 661. 73 593. 74 532. 67 478. 31 464. 51 450. 71 443. 81 430. 01 245. 04 232. 22 208. 28 33,939. 11 6702. 63 (a) 27236. 48 (b) 16% 60 SET PEKEBUN KECIL (KECEKAPAN INDUSTRI KELAPA SAWIT: KAJIAN KES PEKEBUN KECIL DI KUALA SELANGOR DAN KUALA LANGAT TUJUAN: Borang kaji selidik ini dirangka bagi mendapatkan maklumat tentang Pekebun Kecil Kelapa Sawit di dalam daerah Kuala Selangor dan Kuala Langat.

Dengan adanya data dan maklumat berkenaan Pekebun Kecil Kelapa Sawit ini, ia dapat digunakan dan seterusnya membantu pihak kerajaan dalam merangka strategi bagi meningkatkan kecekapan dan keberkesanan sektor Pekebun Kecil Kelapa Sawit terutamanya di Negeri Selangor. A. LATAR BELAKANG PEKEBUN KECIL NO. RESPONDEN: 1. Nama: 2. Nama Panggilan: 3. Kampung: Bukit Badong Ijok Parit Mahang Jaya Setia 4. Mukim: Ijok Jeram 5. Jantina: Lelaki Perempuan 6. Bangsa: Melayu Cina India Lain-lain 7. Umur: 8. Status Perkahwinan: Berkahwin Bujang Lain-lain 9. Saiz Keluarga: orang. 10. Tahap Pendidikan: Tidak Bersekolah SRP/PMR SPM Diploma Lain-lain

Batang Berjuntai Bukit Kuching Ijazah Sarjana B. STATUS KEBUN 1. Keluasan tanaman Kelapa Sawit: ……………… ekar. i. Luas kawasan yang telah matang: …………… ekar. ii. Luas kawasan yang belum matang: …………. ekar. 2. Adakah anda mempunyai lebih daripada satu kawasan kebun/ladang? Ya Tidak Tahun: Keluasan: ekar. Lokasi Kebun/Ladang: ……………………………………………………………….. a. Jika ya, nyatakan. i. Tahun: Keluasan: ekar. Lokasi Kebun/Ladang: ……………………………………………………………….. ii. Tahun: Keluasan: ekar.

Lokasi Kebun/Ladang: ……………………………………………………………….. iii. Tahun: Keluasan: ekar. Lokasi Kebun/Ladang: ……………………………………………………………….. iv. Tahun: Keluasan: ekar. Lokasi Kebun/Ladang: ……………………………………………………………….. v. Tahun: Keluasan: ekar. Lokasi Kebun/Ladang: ……………………………………………………………….. 3. Status pemilikan tanah kebun/ladang: Sendiri Menyewa Memajak 4. Jika menyewa/memajak, nyatakan kos: Secara Bulanan Secara Tahunan, RM……………………..

C. SUMBER BIJI BENIH/ANAK POKOK 1. Dimanakah anda mendapatkan sumber biji benih/anak pokok? Tapak Semaian Orang Tengah MPOB Lain-lain 2. Berapakah kos yang anda keluarkan untuk membeli biji benih/anak pokok? RM …………………….. D. PENGURUSAN TENAGA BURUH I. Memotong Buah Tandan Segar (BTS) 1. Siapakah yang melakukan kerja memotong BTS: Sendiri Upah 2. Jika mengupah, berapakah bayaran yang dikenakan. Secara tan metrik, Secara tandan, RM ……………….. /tandan ATAU tan. 3. Berapa kali pusingankah anda menuai/memotong BTS? i. Setiap 30 hari ii. Setiap 18 hari iii.

Setiap 15 hari II. Membaja Pokok Kelapa Sawit 1. Pada tahun 2011, adakah anda melakukan kerja-kerja membaja Pokok Kelapa Sawit anda? Ya Tidak 2. Jika ya, siapakah yang melakukan kerja-kerja membaja Pokok Kelapa Sawit anda? Sendiri Upah 3. Jika mengupah, berapakah kadar bayaran yang dikenakan. i. Secara keluasan, RM /ekar. ii. Secara beg, RM /beg. 4. Perincian Pembajaan Harga Bilangan Harga Kuantiti Harga Liter Jenis Baja Rm/Beg Digunakan RM/Kg Digunakan RM/Liter Digunakan III. Meracun Rumpai 1. Pada tahun 2011, adakah anda melakukan kerja-kerja meracun rumpai Pokok Kelapa Sawit anda?

Ya Tidak 2. Jika ya, siapakah yang melakukan kerja-kerja meracun rumpai Pokok Kelapa Sawit anda? Sendiri Upah 3. Jika mengupah, berapakah kadar bayaran yang dikenakan: Secara keluasan, RM /ekar. 4. Perincian Meracun Rumpai Harga Bilangan Harga Kuantiti Harga Liter Jenis Racun Rumpai Rm/Beg Digunakan RM/Kg Digunakan RM/Liter Digunakan IV. Meracun Serangga/Makhluk Perosak 1. Pada tahun 2011, adakah anda melakukan kerja-kerja meracun serangga/makhluk perosak Pokok Kelapa Sawit anda? Ya Tidak 2. Jika ya, siapakah yang melakukan kerja-kerja meracun rumpai Pokok Kelapa Sawit anda? Sendiri Upah 3.

Jika mengupah, berapakah kadar bayaran yang dikenakan. Secara keluasan, RM /ekar. 4. Perincian Meracun Serangga/Makhluk Perosak Harga Bilangan Harga Kuantiti Harga Liter Jenis Racun Rumpai Rm/Beg Digunakan RM/Kg Digunakan RM/Liter Digunakan E. MEMANGKAS (PRUNING) PELEPAH POKOK KELAPA SAWIT 1. Pada tahun 2011, adakah anda mengamalkan teknik pemangkasan pada Pokok Kelapa Sawit anda? Ya Tidak 2. Jika ya, berapa kali anda melakukan teknik pemangkasan setiap bulan. 3. Siapakah yang melakukan kerja-kerja pemangkasan Pokok Kelapa Sawit anda? Sendiri Upah 4. Jika mengupah berapakah kadar bayaran yang dikenakan. . Secara keluasan, RM /ekar. ii. Secara bilangan pokok, RM /pokok. F. PENGGUNAAN MESIN/JENTERA & PERALATAN 1. Adakah anda menggunakan mesin/jentera didalam kebun/ladang Kelapa Sawit anda? Ya Tidak 2. Jika ya, yang mana satukah mesin/jentera yang anda gunakan? i. Cantas ii. Spreader iii. Motosikal Trailer iv. Lain-lain 3. Adakah anda menggunakan peralatan didalam kebun/ladang Kelapa Sawit anda? Ya Tidak 4. Berapakah jumlah keseluruhan yang digunakan untuk penggunaan mesin/jentera dan peralatan? RM ……………………….. G. PENJUALAN BTS 1. Kepada siapakah anda menjual hasil tuaian BTS anda? . Orang Tengah ii. Terus Kepada Kilang 2. Perincian jika menggunakan Orang Tengah. Lokasi Kebun/Ladang Maklumat Mengenai Orang Tengah 3. Perincian jika terus menghantar kepada kilang. Lokasi Kebun/Ladang Maklumat Mengenai Orang Tengah H. MASALAH-MASALAH UTAMA YANG DIHADAPI 1. Apakah masalah utama yang dihadapi di kebun/ladang kelapa sawit anda? i. Diserang oleh serangga/makhluk perosak. ii. Kurang baja. iii. Kurang air. iv. Kawasan tanah tinggi. v. Persaingan dengan pokok lain. vi. Sistem perparitan. vii. Tanah yang kurang sesuai. Terima kasih diatas kesudian anda menyertai soal kaji selidik ini.

SET PEMBELI BTS (KECEKAPAN INDUSTRI KELAPA SAWIT: KAJIAN KES PEKEBUN KECIL DI KUALA SELANGOR DAN KUALA LANGAT TUJUAN: Borang kaji selidik ini dirangka sedemikian rupa untuk mendapatkan maklumat tentang Pekebun Kecil Kelapa Sawit di dalam daerah Kuala Selangor dan Kuala Langat. Dengan adanya data dan maklumat berkenaan Pekebun Kecil Kelapa Sawit ini, ia dapat digunakan dan seterusnya membantu pihak kerajaan dalam merangka strategi bagi meningkatkan kecekapan dan keberkesanan sektor Pekebun Kecil Kelapa Sawit terutamanya di Negeri Selangor. NO. RESPONDEN: A. LATAR BELAKANG PEKEBUN KECIL 1. Nama: 2.

Nama Panggilan: 3. Kampung: Sungai Lang Tengah Kanchong Tengah Kanchong Darat 4. Mukim: Kelanang Morib 5. Perincian hasil jualan BTS mengikut Orang Tengah: A: B: Bulan Pusingan 1 Pusingan 2 Pusingan 1 Kg/tan RM/tan Kg/tan RM/tan Kg/tan RM/tan Januari Febuari Mac April Mei Jun Julai Ogos September Oktober November Disember JUMLAH C: Pusingan 2 Kg/tan RM/tan Pusingan 1 Kg/tan RM/tan Pusingan 2 Kg/tan RM/tan 6. Perincian hasil jualan BTS mengikut Orang Tengah: A: Bulan Pusingan 1 Pusingan 2 Kg/tan RM/tan Kg/tan RM/tan Januari Febuari Mac April Mei Jun Julai Ogos September Oktober November Disember JUMLAH

B: Pusingan 1 Kg/tan RM/tan Pusingan 2 Kg/tan RM/tan C: Pusingan 1 Kg/tan RM/tan Pusingan 2 Kg/tan RM/tan Terima kasih diatas kesudian anda menyertai soal kaji selidik ini. CURRICULUM VITAE 1. PERSONAL INFORMATION Full Name I/C Number Race Date of Birth Place of Birth Number of Siblings Birth of Order Permanent Home Address : : : : : : : : Siti Farhani binti Awang @ Baharun 890824-03-5212 Malay 24 August 1989 Hospital Kota Bharu, Kelantan 5 4 No. 17, Jalan 3/65, Seksyen 3, B. B. Bangi. 43650, Selangor 013 – 645 8757 Single farhani. com Telephone (home) Mobile Phone No. Marital Status E-mail : : : : 2. EDUCATIONAL BACKGROUND School/College/University Universiti Teknologi MARA, Shah Alam Perak Matriculation College Sek. Men. Iskandar Syah Certificate/Diploma/Degree B. Sc. (Hons. ) Plantation Technology & Management Matriculation Certificate Sijil Pelajaran Malaysia (SPM) Year 2009 2007 2006 3. WORKING EXPERIENCE (IF ANY) 1) Internship at MARDI Cameron Highland (1 month) 2) Internship at FELDA Lepar Hilir 5, Kuantan ( 1 month)