Malaysia, whose agriculture sector led the economy for decades into the 1970s, is falling behind Indonesia, Thailand, Vietnam, and other regional players like China, Taiwan, and Korea in terms of innovation, technology, knowhow and methodology and product and value chain development.
The country's long neglect of the sector and narrow focus on plantation crops at the cost of encouraging crop diversity has left the country with serious issues and challenges. Despite the fact that the sectorcontributes 7.3 percent to national GDP, it employs 1.5 million workers, fully 10 percent of the workforce.
Agriculture's dominance of the economy ended in 1981, when then-Prime Minister Mahathir Mohamed's massive push towards industrialization left the Ministry of Agriculture without sufficient budget to operate the office air-conditioning system fulltime during working hours. While the sector was rejuvenated somewhat by Mahathir's successor, Abdullah Ahmad Badawi, through massive fund increases, it has never really recovered.
The plantation sector is operated by primarily government linked companies (GLCs) and large publicly listed estate companies. Utilizing around 5 million hectares, palm oil production contributed RM40.2 billion to GDP in 2018. The high profitability of palm oil as a crop over the years has deterred the development of alternative crops.
However, palm oil production in 2018 declined by about 2.5 percent over the year before. In March this year the European Commission dealt the industry another blow, concluding that palm oil cultivation has caused deforestation and decided that palm oil as a feedstock in European biodiesel will be phased out by 2030. Malaysian plantations are working towards achieving Malaysian Sustainable Palm Oil (MSPO) certification, which requires estates to meet a list of specific environmental standards and workers' rights before January 1in an attempt to alleviate EU concerns.
In addition, there are concerns over health issues with consuming palm oil, which will take a lot of resources on the part of the palm oil lobby to counter. Malaysian palm oil trade to India is also in jeopardy due to Prime Minister Mahathir Mohamed's refusal to allow the extradition of the firebrand fugitive Islamist preacher Zakir Naik back to India, where he faces money laundering charges.
With the expected decline in world demand for palm oil, Malaysia, Thailand and Indonesia are trying to consume more domestically as biodiesel. However, Malaysia with its diesel subsidies is struggling due to the relatively high cost of palm oil vs subsidized diesel. Malaysia cannot afford to be complacent over palm oil any longer. It's a mature market where production is set to decline over the coming years, where alternatives are needed.
Malaysiais still the world's 5th largest producer of rubber behind Thailand, Indonesia, Vietnam, and China. Rubber production is almost totally in the hands of 600,000 smallholders. However, with prices drastically depressed due to severely weakened demand from China, reports claim that more than half of Malaysia's rubber holdings have been abandoned. Even with the Malaysian Rubber Board providing incentive paymentsto cover lower prices, rubber production has dropped by almost 20 percent in the last year. The rubber industry is set to shrink until demand outstrips supply once again.
Historically, Malaysia's rice production has only produced 60-70 percent of the country's consumption. Approximately 200,000 aging paddy farmers on plots ranging between 1 and 5 hectares cultivate paddy in the country. Paddy farming only produces marginal income, even with the subsidies provided by the government to farmers. Unlike paddy farmers of the past, farmers today usually don't multi-crop paddy, vegetables, fruits, coconuts, and raise fish, poultry, and livestock.
Paddy production lacks standardization and doesn't have Good Agricultural Practice (GAP) or HACCP certification. Often unregistered pesticides are used, leaving chemical residuals. Thus, food safety and traceability are issues. Although Malaysian paddy yields are on a par with Thailand, they are behind Philippine, Indonesian, and Vietnamese yields.
Farmers mostly don't own mechanical equipment, so must hire an array of contractors through the production process. Due to Shariah law on inheritance, land holdings continue to be broken up between families, making paddy farming even more difficult. Large belts of idle land, estimated at 119, 273 hectares, can be seen across the country partly due to family land disputes. Farmers have no involvement through the supply chain, so opportunities to add value to rice are non-existent. Under the present paddy farming system, there is no way farmers will be able to improve their incomes.
The only future for paddy farming to benefit farmers is to develop cooperatives that manage economically viable estates made up of a group of farmers' holdings. These cooperatives should be for the benefit for the farmers, run by the farmers, and owned by the farmers. These cooperatives could plant, cultivate, harvest, brand and package value-added products like red and brown rice varieties that have higher market end opportunities. Contract farming initiatives creating paddy estates have shown to reduce costs by 50 percent and increase yields up to 30 percent.