Purpose This research aims to evaluate the technical efficiency (TE) of the palm oil industry in Sumatera Utara, Indonesia. The study also explores key determinants such as Integrated Value Chains (IVCs), Market Access, Information, Certified Seed and Farmer Experience. Design/methodology/approach This study used a two-stage approach. In the first stage, the DEA model was used to measure the TE of oil palm. Then, in the second stage, specific variables related to palm oil that are assumed to affect efficiency are analyzed using Tobit regression. Findings Out of 150 farmers, 14 (9.3%) operate under constant returns to scale, 24 (16%) operate under decreasing returns to scale and 112 (74%) operate under increasing returns to scale. Tobit regression results reveal a significant result, emphasizing the pivotal role of direct Market Access in enhancing TE by 16%, respectively. Research limitations/implications The research has the following limitations: first is the use of Data Envelopment Analysis (DEA) to measure TE may introduce bias, as it does not fully capture real-world complexities and unobserved heterogeneity. In practice, unobserved farm-level, market and institutional characteristics may also contribute to measured inefficiencies. Second, although the study does not find a statistically significant impact of the IVC on TE, the analysis is retained due to the conceptual and policy relevance of this issue within the palm oil sector. Originality/value This article aims to delve into the impact of IVC and Market Access on palm oil farming efficiency in Sumatra Island.
Kusumawardani et al. (Mon,) studied this question.