Malaysian Economy ECON 3010: Agricultural Sector PDF

Malaysian Economy ECON 3010 Topic 4 The Agricultural Sector  Outline Development of Agriculture 1. Introduction 2. Government policy on agriculture 3. The old agriculture 4. The new agriculture 5. Challenges and choices  Introducti...

Malaysian Economy ECON 3010 Topic 4 The Agricultural Sector  Outline Development of Agriculture 1. Introduction 2. Government policy on agriculture 3. The old agriculture 4. The new agriculture 5. Challenges and choices  Introduction Agriculture was the dominant sector in Malaysia until manufacturing rose to prominence from 1980s. The focus of agriculture shifted thru time from the early days after the independence until the most recent years. – Heavy reliance on natural rubber – Crop diversification – New Agriculture  Introduction Crop diversification was part and parcel of the overall economic diversification under the NEP (1971-1990). There was misconception among policy makers that agriculture was not worth pursuing once manufacturing takes off. This scenario explains why Malaysia in the early-1980s has slower agricultural growth and bigger income gap between rural-urban.  Introduction The Asian Financial Crisis (1997-98) exposed the reality of agricultural sector for development and economic sustainability. Depending on agricultural import was a real mistake especially when RM depreciated. It was then realized that Malaysia needed to transform its agriculture if the economy was to have any real hope for long-term growth.  Introduction The Ministry of Agriculture was then renamed as the Ministry of Agriculture and Agro-based Industry in 2004. A policy change was formalized under 9MP (2006-2010) which give priority on `New Agriculture’. The govt. targeted that the New Agriculture will become one of Malaysia’s engine of growth.  Introduction The government’s policy on agriculture centres on the following: To increase food supply for domestic consumption. To assist rural population. To supply raw material to the non-agricultural sector.  Introduction The government’s policy on agriculture centres on the following(cont.): To overcome balance of payment deficits in food crops To enlarge opportunities for other related agro-economic sectors. To improve the commercial crops production for exports.  Government Policy on Agriculture The Govt. has launched various initiatives to develop the agricultural sector. In 1957, agriculture generated nearly 40% of GDP and accounted for almost 60% of the labor force. There were a number of initiatives since independence to boost land development with the main aim of poverty eradication.  Government Policy on Agriculture Agricultural development authorities/initiatives to reduce poverty: – FELDA – RISDA – FELCRA – State Economic Development Corporations (SEDC) – Muda Agricultural Development Authority – Kemubu Agricultural Development Authority – Kelantan Selatan Development Authority  Government Policy on Agriculture In 1984, the Govt. launched the First National Agricultural Policy (NAP1) (1984-1991) Objectives: – Maximizing income through agriculture. – Revitalizing the contribution of the agricultural sector to the economy. – Achieving at least 80% self-sufficiency in food production.  NAP1 (1984-1991) Strategies: – Raising farm productivity – Expanding production of traditional export crops – Increasing promotion for potential export crops – Increasing the production of food  NAP1 (1984-1991) Supporting strategies: – Opening new land schemes – Provision of physical infrastructure – Provision of support services and incentives – Joint cooperation between public and private sectors  NAP1 (1984-1991) Agriculture expenditure accounted for 11.8% for the 5th Malaysia Plan (1986-1990). The allocation of new land for development ceased after the 7th Malaysia Plan (1996- 2000). The policy shifted from land development to support services such as agricultural credits, R&D and marketing. NAP1 (1984-1991) Expenditure on Agriculture  NAP2 (1992-2010) The Second National Agricultural policy (NAP2) was launched to fulfill the strategies underlined in NAP1. Objectives: – To achieve balance development between agriculture and other sectors. – To attain sustainable development in agriculture.  NAP2 (1992-2010) Strategies: – Increase productivity and competitiveness – Increase land area for palm oil plantation – Develop and promote agro-based industry It was felt that the objectives underlined in NAP2 could not adjust to the changing world economic scenario. Hence, the NAP2 was replaced with immediate effect after the Asian Financial Crisis (1997-98).  NAP3 (1998-2010) The Third National Agricultural policy (NAP3) was launched immediately during the Asian Financial crisis. Objectives: – To enhance food security – To increase productivity – To deepen linkages with other sectors – To create new sources of growth for the sector – To optimize the utilization of resources  NAP3 (1998-2010) Two important strategic approaches: 1. Agroforestry approach Focuses on optimizing resource use for agriculture and forestry. 2. Product-based approach Focuses on innovation of new sources of agricultural growth. – Agro-Eco tourism – Halal food – Biotechnology  NAP3 (1998-2010) Agro-Eco Tourism has to date contributed significantly to the Malaysian economy. Since the late 1990s, Malaysia has become net exporter of tourism. Agro-Eco tourism products have gained greater attraction from tourists – National Parks, jungle trekking, homestay, mountain climbing, river canoeing and etc.  NAP3 (1998-2010) Malaysia has a competitive advantages in the Halal food industry because of several reasons: – Malaysia is a respected OIC member – Pioneer in halal certification – Growing number of world Muslim population  NAP3 (1998-2010) Biotechnology has a great potential to the economy. Most scientists claimed that the future of agriculture is in technology. – Increase productivity – Sustainability – Environmentally friendly  NAP3 (1998-2010) The National Biotechnology Policy (NBP) was launched in 2005 to capitalize resources for this area. The Malaysian Biotechnology Corporation (BiotechCorp) was launched in 2010 to promote and offer tax incentives to companies. Limitations: – R&D is very costly – The output may take more than a decade to be finalize Malaysia Agricultural Policies  After 2010 2 separate policies for agro-food and industrial commodities National Agro-food policy 1 (2011-2020) and 2 (2021-2030)  The Old Agriculture Agriculture in the early 1850s was limited in scale. Export oriented agricultural products (sugar and coffee) were dominated by the European and the Chinese. Rubber started to be commercialized in the early 1900s. Around 55% of rubber estates were owned by Europeans in 1920s.  The Old Agriculture In 1953, Europeans owned 70% of rubber estates while the rest mainly controlled by the Chinese. British administration policy was to produce crops for exports while the indigenous Malays concentrate on food production. Oil palm began to expand in the 1960s.  The Old Agriculture Agriculture was the main contributor to the economy back then. Majority of population lived in rural areas and depended on agriculture for their livelihoods. Agriculture were given less emphasis as compared to manufacturing in the 1970s onwards.  The Old Agriculture The share of agriculture in GDP declined from 31.5% in 1965 to 8.4% in 2005. The decline in agriculture share was also contributed due to lower productivity. Factors that contributed to low productivity: – Rapid soil degradation – Lack of technological knowledge – Small scale agriculture – Aging labour Development of Agriculture Agricultural vs Manufacturing Growth Development of Agriculture Composition of exports (%)  The New Agriculture Major overhaul of the sector – Making the sector more productive and competitive – Emphasize were given to small scale farms (NAP3) Enhancement of the sector – Look for new areas of expertise – Get more private sector participation – Strengthening marketing and delivery system  The New Agriculture The New Agriculture focused on two major categories of commodities: 1. The agricultural-industrial commodities – Agricultural commodities that have higher percentage of entering processing or manufacturing lines – Palm oil, natural rubber, cocoa, tobacco, coconuts. 2. Food commodities – Rice, vegetables, fruits, fisheries and livestock (eggs, beef, mutton, milk) Development of Agriculture Production of Agricultural Commodities Development of Agriculture Farm productivity (tonnes/ha)  The New Agriculture Productivity of paddy production varies between irrigated and non-irrigated areas. – Non-irrigated: 3-4 tonnes/ha – Irrigated: 6-8 tonnes/ha The use of hybrid paddy seeds and modern farm technology has increase the production of paddy to 10 tonnes/ha. – Sekinchan and MADA areas.  Development of Agriculture Local processing and utilization of agricultural commodities  Challenges and Choices – Agricultural entrepreneurs and professionals. – Poverty has always been highest in the agriculture and fishing sectors. – Land for agricultural development versus land for development and commercial projects. – Scale and small farms related issues. – Massive inflows of foreign labors. – Food security and level of self-sufficiency. – Environmental issues. Challenges and Choices Incidence of poverty in agriculture Challenges and Choices Agricultural land use for major crops Challenges and Choices Distribution of farmers and farm size  Challenges and Choices Employment of foreign workers by sector  Challenges and Choices Self-sufficiency levels in food commodities (%)