Econometric Analysis of Resource Efficiency and Economic Performance of Oil Palm Plantations in Johor River Basin, Malaysia

The palm oil industry in the Johor River Basin (JRB), Malaysia’s third-largest producer in 2023, highlights the need for sustainable resource management to support local and national production. In this context, this study explores the oil palm sector in the JRB, analyzing how resource constraints, specifically capital, labour, land, water, energy, and materials, impact the economic performance of oil palm monoculture. This study uses a systematic approach combining econometric modeling, statistical-driven PCA-based regression to address multicollinearity, and the Cobb-Douglas production function to analyze input-output relationships. The PCA-based regression effectively reduced multicollinearity, showing that energy and capital significantly impact oil palm production, while inefficiencies in labor and land management must be addressed. The econometric analysis showed that capital and energy positively influence production, with a 1% increase in capital leading to a 0.0018% rise and a 1% increase in energy resulting in a 3.7594% increase in output. In contrast, labor and land have negative effects, with a 1% increase in labor causing a 2.6974% decrease and a 1% increase in land leading to a 1.1832% decline in production, while water slightly boosts output by 0.0062% per 1% increase. The study highlights the positive impact of capital and energy on production, stresses the need for improved land management and sustainable practices, and aligns with Malaysia’s sustainability goals, while pointing to inefficiencies in labor and land use. The study concludes that increasing capital investment, enhancing water management, and optimizing energy use are crucial for improving productivity, sustainability, and the long-term viability of Malaysia’s palm oil production.