Using field data and information from a palm oil company and neighbouring independent smallholders in Sarawak, this research estimated the profitability and greenhouse gas (GHG) emissions of oil palm producers, and compared the outputs of estate and smallholder production systems. The results indicate that the estate and smallholders had unique operation styles and costs incurred, with the estate achieving greater productivity (and profitability) per hectare and higher GHG emissions per net profit when the emissions from land-use change were considered. Efficiency in terms of fertiliser application was key to explaining this difference. Nonetheless, it was evident that the overall cost efficiency of smallholders was not lower than that of the estate. If the effect of land-use changes is considered, estate production results in much higher GHG emissions (and hence greater environmental costs) than smallholder production. The results also indicate large variations in the costs, revenues and GHG emissions among smallholders. This may reflect less standardised aspects of operations and therefore a relatively high degree of flexibility in smallholder production, as well as other variables such as site conditions and the age of trees.

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