Efficiency and determinants of entry into Malaysian palm oil refinery industry
The palm oil refinery industry became the key industry following the nation’s economic transition plan in the early 1970s, where it is since known as the workhorse of palm oil industry. The refinery industry began to boom with the establishment of refineries in several states in the early days...
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2016
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Palm oil industry - Environmental aspects - Malaysia Palm oil industry - Malaysia |
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Palm oil industry - Environmental aspects - Malaysia Palm oil industry - Malaysia Choo, Sze Yi Efficiency and determinants of entry into Malaysian palm oil refinery industry |
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The palm oil refinery industry became the key industry following the nation’s economic
transition plan in the early 1970s, where it is since known as the workhorse of palm oil
industry. The refinery industry began to boom with the establishment of refineries in
several states in the early days spreading in Peninsular Malaysia and to Sabah and
Sarawak in recent years. The issues of efficiency and competitiveness of refinery industry
are brought to question as to what causes the downtrend of capacity utilisation rate, why
a refinery country has been importing refined palm oil and export crude palm oil (CPO)
instead of producing processed palm oil (PPO) locally and the slow entry of new
refineries.
This study aims to examine the entry and efficiency of the Malaysian palm oil refinery
industry from the period of 2005 to 2013. The non-parametric Data Envelopment
Analysis (DEA) approach of Malmquist Total Factor Productivity (TFP) indices are
employed to examine efficiency of the industry, while the discrete choice logit model is
adopted to identify factors related to entry in the industry.
The DEA approach includes panel data analysis of 34 Malaysian palm oil refinery firms.
The empirical results indicate that only 14.7% of the firms in the industry are closed to
the frontiers or on the frontier across all efficiency indices. On average, palm oil refinery
industry has not been performing well with regress in four out of five efficiency indices.
Technical efficiency change exhibits a drop of -0.3%, technological change declines -
1.3%, pure efficiency change is down by -0.3%, and total factor productivity change
declines -1.6% respectively. Scale efficiency change is the only indicator that shows
slight progress of 0.1% over the estimation period of 2007 to 2013.
The empirical analyses of logit model are conducted using panel data of 52 Malaysian
palm oil refinery firms. The empirical findings of logit model on all 52 firms indicate that profit rate (positive), minimum efficient scale (negative) and distribution and
marketing intensity (negative) variables exhibit expected coefficient signs and are
significant. The logit analysis on 35 public listed firms is significant where profit rate
(positive), growth (positive), minimum efficient scale (negative) and distribution and
marketing intensity (negative) carried the expected coefficient signs. The statistically
significant p-values of these analyses directly indicate that the overall influence of
independent variables is considered significant on entry in this model.
Consumption and demand for palm oil will continue to rise in the future given its wide
application in our daily lives. As palm oil industry is the key industry to the economic
growth of Malaysia, it should be studied extensively to ensure its growth and
development is in line with the world’s need for the product. The empirical findings
suggest that vertical integration is necessary to allow domestic refineries to enjoy
complete supply chain in their production. Refineries would therefore be able to enjoy
continuous inputs and cheaper raw materials for refining processing. It is also essential
for refineries to boost productivity, efficiency and competitiveness in both domestic and
global markets through adoption of advanced technologies in machineries, equipments
and refinery plants. Refineries ought to amplify their production scale to attain
economies of scale in production to enjoy lower cost advantage and higher utilisation
rate. In addition, large scale entry through mergers and acquisition of small firms are
necessary to expand the operation of small firms and to encourage healthy competition
among refineries. Collaboration between government’s agencies and refineries are
essential in encouraging development in the said industry. |
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author |
Choo, Sze Yi |
author_facet |
Choo, Sze Yi |
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Choo, Sze Yi |
title |
Efficiency and determinants of entry into Malaysian palm oil refinery industry |
title_short |
Efficiency and determinants of entry into Malaysian palm oil refinery industry |
title_full |
Efficiency and determinants of entry into Malaysian palm oil refinery industry |
title_fullStr |
Efficiency and determinants of entry into Malaysian palm oil refinery industry |
title_full_unstemmed |
Efficiency and determinants of entry into Malaysian palm oil refinery industry |
title_sort |
efficiency and determinants of entry into malaysian palm oil refinery industry |
granting_institution |
Universiti Putra Malaysia |
publishDate |
2016 |
url |
http://psasir.upm.edu.my/id/eprint/66727/1/FEP%202016%2027%20IR.pdf |
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my-upm-ir.667272019-02-18T07:24:22Z Efficiency and determinants of entry into Malaysian palm oil refinery industry 2016-08 Choo, Sze Yi The palm oil refinery industry became the key industry following the nation’s economic transition plan in the early 1970s, where it is since known as the workhorse of palm oil industry. The refinery industry began to boom with the establishment of refineries in several states in the early days spreading in Peninsular Malaysia and to Sabah and Sarawak in recent years. The issues of efficiency and competitiveness of refinery industry are brought to question as to what causes the downtrend of capacity utilisation rate, why a refinery country has been importing refined palm oil and export crude palm oil (CPO) instead of producing processed palm oil (PPO) locally and the slow entry of new refineries. This study aims to examine the entry and efficiency of the Malaysian palm oil refinery industry from the period of 2005 to 2013. The non-parametric Data Envelopment Analysis (DEA) approach of Malmquist Total Factor Productivity (TFP) indices are employed to examine efficiency of the industry, while the discrete choice logit model is adopted to identify factors related to entry in the industry. The DEA approach includes panel data analysis of 34 Malaysian palm oil refinery firms. The empirical results indicate that only 14.7% of the firms in the industry are closed to the frontiers or on the frontier across all efficiency indices. On average, palm oil refinery industry has not been performing well with regress in four out of five efficiency indices. Technical efficiency change exhibits a drop of -0.3%, technological change declines - 1.3%, pure efficiency change is down by -0.3%, and total factor productivity change declines -1.6% respectively. Scale efficiency change is the only indicator that shows slight progress of 0.1% over the estimation period of 2007 to 2013. The empirical analyses of logit model are conducted using panel data of 52 Malaysian palm oil refinery firms. The empirical findings of logit model on all 52 firms indicate that profit rate (positive), minimum efficient scale (negative) and distribution and marketing intensity (negative) variables exhibit expected coefficient signs and are significant. The logit analysis on 35 public listed firms is significant where profit rate (positive), growth (positive), minimum efficient scale (negative) and distribution and marketing intensity (negative) carried the expected coefficient signs. The statistically significant p-values of these analyses directly indicate that the overall influence of independent variables is considered significant on entry in this model. Consumption and demand for palm oil will continue to rise in the future given its wide application in our daily lives. As palm oil industry is the key industry to the economic growth of Malaysia, it should be studied extensively to ensure its growth and development is in line with the world’s need for the product. The empirical findings suggest that vertical integration is necessary to allow domestic refineries to enjoy complete supply chain in their production. Refineries would therefore be able to enjoy continuous inputs and cheaper raw materials for refining processing. It is also essential for refineries to boost productivity, efficiency and competitiveness in both domestic and global markets through adoption of advanced technologies in machineries, equipments and refinery plants. Refineries ought to amplify their production scale to attain economies of scale in production to enjoy lower cost advantage and higher utilisation rate. In addition, large scale entry through mergers and acquisition of small firms are necessary to expand the operation of small firms and to encourage healthy competition among refineries. Collaboration between government’s agencies and refineries are essential in encouraging development in the said industry. Palm oil industry - Environmental aspects - Malaysia Palm oil industry - Malaysia 2016-08 Thesis http://psasir.upm.edu.my/id/eprint/66727/ http://psasir.upm.edu.my/id/eprint/66727/1/FEP%202016%2027%20IR.pdf text en public doctoral Universiti Putra Malaysia Palm oil industry - Environmental aspects - Malaysia Palm oil industry - Malaysia |