Land tenure and farm management efficiency: The case of smallholder rubber production in customary land areas of Sumatra

This study assesses the impact of land tenure institutions on the efficiency of farm management based on a case study of rubber production in customary land areas of Sumatra, Indonesia. Using the modes of land acquisition as measures of land tenure institutions, we estimated tree planting, revenue, income, and short-run profit functions, and internal rates of return to tree planting on smallholder rubber fields. We find generally insignificant differences in the incidence of tree planting and management efficiency (defined as residual profits) of rubber production between newly emerging private ownership and customary ownership. This is consistent with our hypothesis that tree planting confers stronger individual rights, if land rights are initially weak (as in the case of family land under customary land tenure systems). On the other hand, short-term profits are higher on land that is rented through share tenancy. This result indicates that rubber trees are over-exploited under renting arrangements due partly to the short-run nature of the land tenancy contracts and partly to the difficulty landowners face in supervising tapping activities of tenants in spatially dispersed rubber fields. This revised version was published online in June 2006 with corrections to the Cover Date.