Malaysian Economy - ECON 3010, Topic 4

Malaysian Economy - ECON 3010, Topic 4: The Agricultural Sector

• The agricultural sector in Malaysia was dominant until the 1980s when manufacturing gained prominence.

• The agricultural focus shifted significantly from the early post-independence era to recent years, marked by a transition from heavy reliance on natural rubber to crop diversification and the emergence of a "New Agriculture".

• Crop diversification was a key element of the New Economic Policy (NEP) between 1971 and 1990.

• There was a misperception that agriculture was no longer necessary after the rise of manufacturing. This contributed to slower agricultural growth and a widening rural-urban income gap in the early 1980s.

• The Asian Financial Crisis (1997-98) exposed vulnerabilities in the Malaysian economy's dependence on agricultural imports, specifically during periods of currency depreciation. This underscored the need for a shift towards transforming and strengthening the agricultural sector for long-term growth.

• The Ministry of Agriculture was renamed to Ministry of Agriculture and Agro-based Industry in 2004.

• The 9th Malaysia Plan (2006-2010) prioritized the development of New Agriculture.

• Government policies for agriculture focus on increasing domestic food production, supporting rural populations, and providing raw materials to the non-agricultural sector. The policies also aim to address balance of payment deficits related to food crops and expand opportunities in relevant agro-economic sectors.

Development of Agriculture

• The Malaysian government launched initiatives to improve the agricultural sector since 1957 when agriculture comprised nearly 40% of GDP and 60% of the labour force.

• Initiatives focused on land development to fight poverty.

• Examples of government-established bodies involved in agricultural development include FELDA, RISDA, FELCRA, and others.

• In 1984, the First National Agricultural Policy (NAP1) (1984-1991) aimed to maximize agricultural income, revitalize the agricultural sector's contribution to the economy, and achieve 80% self-sufficiency in food production.

• NAP1 strategies included boosting farm productivity, expanding production of traditional export crops, promoting potential export crops, and increasing food crop production. NAP1 also emphasized opening new land schemes, providing physical infrastructure, support services (including incentives), and encouraging public-private cooperation.

• Expenditure on agriculture was 11.8% of the 5th Malaysia Plan (1986-1990).

  • The allocation of new agricultural land ceased after the 7th Malaysia Plan (1996-2000).
  • Resources were instead redirected to support services like agriculture credit, R&D, and marketing.

• The Second National Agricultural Policy (NAP2) (1992-2010) was initiated to build on NAP1 strategies.

• NAP2 objectives involved achieving balanced development between agriculture and other sectors and attaining sustainable agricultural development.

• NAP2 strategies focussed on increasing productivity and competitiveness, increasing land area for palm oil plantations, and developing agro-based industries.

• Because of the economic changes after the Asian Financial Crisis (1997-98), NAP2 was replaced.

• The Third National Agricultural Policy (NAP3) (1998-2010) was designed with objectives, to enhance food security, increase productivity, deepen linkages with other sectors, create new sources of growth for the sector, and optimize resource use.

• Strategies included agroforestry (optimizing resource use) and product-based approaches (innovation for growth, such as agro-tourism, halal food, and biotechnology).

• Agro-eco tourism has contributed significantly to the Malaysian economy since the late 1990s, becoming a net exporter.

• Malaysia's competitive advantages in the halal food sector include: being a respected Organisation of Islamic Cooperation (OIC) member, being a pioneer in halal certification, and having a growing Muslim population globally.

• Biotechnology was identified by scientists as a key future option for sustainable agricultural growth and productivity.

• The National Biotechnology Policy (NBP) and the Malaysian Biotechnology Corporation (BiotechCorp) were introduced to promote resources and tax incentives for biotech companies.

The Old Agriculture

• Agriculture in early 1850s was small-scale, focused on sugarcane and coffee exports dominated locally by European and Chinese traders.

• Rubber became commercialized during the early 1900s, with European ownership prominent (around 55% in 1920s, or as high as 70% in 1953).

• Colonial policy focused on export agriculture, while indigenous Malay farmers concentrated on food production.

• Oil palm production began growing in the 1960s, and agriculture was the primary contributor to the economy during this era, employing the vast majority of the population.

• The share of agriculture in GDP declined from 31.5% in 1965 to 8.4% in 2005, primarily due to lower productivity resulting from factors like rapid soil degradation, lack of technological knowledge, small-scale farming practices, and an aging labor force.

The New Agriculture

• A major overhaul of the sector, focused on making it more competitive and productive, emphasized an important role for small farms through NAP3.
• Enhancement of the sector involved seeking new expertise, encouraging more private sector involvement, and strengthening marketing and distribution systems.
• The New Agriculture focused on two categories of commodities: Agricultural-industrial commodities (like palm oil, rubber, cocoa, and coconuts) and food commodities (such as rice, vegetables, fruits, and livestock products).

Challenges and Choices

• Challenges included agricultural entrepreneurs and professionals needing support, persistent poverty, trade-offs between land use for agriculture versus development projects, issues related to small and large scale farms, massive inflows of foreign labor, food security, and environmental concerns.

• Studies showed high poverty rates in the agricultural sector, particularly amongst rubber, palm oil, and padi (rice) farmers.

• Data on land use for different crops (oil palm, rubber, padi, fruits, coconuts, etc.) between 1980 and 2010 suggest a shift towards increased cultivation of certain crops.

• Farm size distribution data illustrates the diverse sizes of farms and the proportions of farmers working these farms.

• Information regarding employment of foreign workers highlight the roles these workers played, primarily focusing on specific sectors like agriculture.

• Finally, there has been a change in self-sufficiency levels for different food commodities during the time period between 1990 and 2010.

After 2010

• Separate policies for agro-food and industrial commodities.

• National Agro-food policy 1 (2011-2020) and 2 (2021-2030)

• Data on local processing and utilization of different agricultural commodities (such as palm oil, rubber, saw logs, cocoa, and pepper) between 1990 and 2010 show trends in processing and utilization percentages.

• Farm productivity data (including palm oil, rubber, and paddy) during the same period illustrates trends in farm productivity (in tonnes/hectare) between various groups of farmers.

• Productivity of paddy production varies from irrigated (6-8 tones/ha) to non-irrigated areas (3-4 tones/ha). Hybrid seed use and modern technology increased paddy yield to 10 tones/ha in certain areas.