Making up two National Key Economic Areas (NKEAs) and responsible for around 7% of the country’s GDP, the agriculture and plantations sector continues to be a vital part of Malaysia’s economy – and a major magnet for both domestic and foreign investment. The sector is also a major employer, helping to tackle rural poverty and address urban drift. A significant contributor to export revenues, it is now receiving greater encouragement from the government, as the country seeks to ensure food security and increase value-added production. Investment in research and development (R&D) is proceeding apace, while a range of incentives are also available to companies operating, or thinking of operating, in the sector.
A major push to boost efficiency is also under way, with the government allocating some RM6bn ($1.8bn) to the sector in its 2014 budget to support a drive for greater productivity, among other strategies. The sector is not without its challenges, however. An ageing agricultural population, competition for land and competition from neighbouring countries – a factor likely to increase with the ASEAN Economic Community in 2015 – are all concerns. Nonetheless, Malaysia has many advantages in agriculture and plantations that it is seeking to leverage in the years ahead.
Sector Oversight
The sector is effectively divided between estates and plantations on the one hand and smallholders on the other. Plantations has in recent years come to be dominated by oil palm, while rubber, timber, cocoa and pepper are also important crops (see analysis). Smallholders tend to dominate the other agricultural segments, such as vegetables, fruits, livestock and fisheries, while certain plantation crops, such as rubber, are also largely grown by this class of farmer.
The division between estates and smallholders is also reflected in the governmental structures. Palm oil, rubber, pepper, cocoa, tobacco and timber are considered industrial commodities, so regulated by the Ministry of Plantation Industries and Commodities (MPIC). Other agricultural commodities, meanwhile, are under the authority of the Ministry of Agriculture and Agro-based Industry (MOA). As of July 2014, the minister of the MPIC was Douglas Uggah Embas, from Sarawak, and the minister of MOA was Ismail Sabri bin Yaakob, from Pahang.
Commodity Bodies
Under the ministries are organisations dealing with specific commodities. Within the MPIC there is the Malaysian Palm Oil Board, the Malaysian Rubber Board, the Malaysian Timber Industry Board, the Malaysian Cocoa Board, the Malaysian Pepper Board, and the National Kenaf and Tobacco Board. There are also a number of industrial development divisions within the ministry, which usually combine several commodities: palm oil and sago; rubber and jatropha; cocoa and pepper; timber, tobacco and kenaf; and biofuels all have these divisions. The boards are responsible for the implementation of government policy in their respective commodities, along with production development.
When it comes to promotion, however, a series of other institutions take the lead. These are the Malaysian Palm Oil Council, the Malaysian Rubber Export Promotion Council, the Malaysian Timber Council and the Malaysian Furniture Promotion Council. The Malaysian Timber Certification Council takes responsibility for implementing regulations on timber sourcing, chain of custody and certifying products.
Representing growers, the Malaysian Palm Oil Association is the lead body among oil palm plantation firms, while in rubber, there are outfits bringing together downstream businesses, such as the Malaysian Rubber Products Manufacturers’ Association. On the other side of the sector, the MOA also breaks down into a number of divisions, each with responsibility for a particular area of agricultural production. There is the paddy and rice industry division, the crops, livestock and fisheries division, and the agro-based industry division, as well as other units dedicated to areas such as quarantine and inspection services, agricultural drainage and irrigation, and training. The MOA also manages the Malaysian Agricultural Research and Development Institute (MARDI). MARDI oversees R&D projects across Malaysia’s agriculture subsectors, primarily focusing on rice, horticulture, biodiversity and environment, livestock, mechanisation, biotechology and food processing. The institute also targets development in farming techniques, national food supply and agro-industry to help increase the country’s self-sustainability in food. According to Sharif Haron, the director-general of MARDI, new food processing technologies allow Malaysian products to be preserved long enough to be shipped to demand markets at greater distances. Thus, further technological development of food mechanisation is a key focus for R&D as it modernises packing processes and allows companies to produce goods faster and more hygienically. Haron told OBG, “Funding for agriculture R&D comes primarily from the government through a bidding process. The remaining funding comes from the private sector – mostly domestic contenders. Increase investment in agriculture research, particularly in food security, biodiversity and climate change, can increase the value and sustainability of the sector and its contribution to the economy.”
Global Giants
A number of Malaysian plantation companies are among the world’s largest. Sime Derby, IOI Corporation and KL Kepong regularly feature among the top-five plantation companies globally, by both market capitalisation and land bank, while Genting Plantations, United Plantations, IJM Plantations and Felda Global Ventures (FGV) Holdings are also international giants. FGV, the third-largest plantation firm in the world by land bank, made history in 2012 when, at RM50bn ($15.6bn), its initial public offering was the second largest in the world that year, after Facebook. The company is unusual too in that it was initially set up to bring together smallholders; some 500,000 ha of its 850,000-ha land bank in Malaysia are still leased and managed from around 112,635 smallholders.
Slice Of The Pie
According to the latest figures from Malaysia’s Department of Statistics (DoS), at constant 2005 prices agriculture accounted for RM56.1bn ($17.51bn) in 2013, or 7.12% of the country’s GDP that year. The agriculture sector grew by 2.1% in 2013, up from 1.3% the previous year but down from the 5.8% recorded in 2011. This continued a declining historical trend in terms of share of GDP, although an increasing trend in terms of the overall value. For example, the sector accounted for 8.26% of GDP in 2005, or RM44.9bn ($14.01bn) at constant 2005 prices.
The current level of contribution is less than that in Malaysia’ regional peers. In Thailand, agriculture and plantations’ share was 8.4% of GDP in 2012, while in Indonesia the figure was 12.5% and in the Philippines, 11.1%. The sector plays a much less significant role when compared to the region’s more developed economies – in the Republic of Korea, the contribution was 2.5% that year and in Taiwan it was 1.3%.
Plantation crops make up the bulk of the sector’s overall contribution to GDP – palm oil alone accounted for some 36.5% of the sector’s value in 2012, according to the DoS figures. Rubber, meanwhile, accounted for 8.2% and forestry and logging 11%, meaning that the sector’s contribution drops to around 3% of GDP once the main plantation crops are taken out of the equation. Other major segments were poultry, at 7.3%, vegetables at 8%, fishing at 14.4% and fruits at 4.1%.
Geographically, agriculture and plantations form a much larger share of GDP than the national average in a number of states, however. In Peninsular Malaysia, the sector accounts for 24.2% of Kelantan’s GDP, 23.9% of the GDP of Perlis and 20% of the GDP of Pahang. In Eastern Malaysia, agriculture accounts for 20.8% of Sabah’s GDP and 11.6% in Sarawak.
Employment
The DoS figures also show that the number of people employed in the sector has shrunk, proportionately, over the past few decades. In 1982, 31.2% of the Malaysian population worked in the sector; by 2012 this had declined to 12.6%. The number of workers had decreased in absolute terms too, from 1.635m in 1982 – from a population of 14.65m – to 1.601m from a population of 29.5m in 2012. Agriculture – particularly plantations – continues to provide employment to many foreign workers. DoS numbers show 143,021 foreigners employed in the sector in 2012, with 314,329 working on plantations. The states where agriculture contributes the most to local GDP are not necessarily those with the highest number of agricultural workers. Kedah has 10.1% of its population in the industry, while Kelantan has 7.9%. Pahang has 9.7% and Perak 8.8%. In Sabah and Sarawak the correlation is closer – at 24.5% and 18.3%, respectively.
Exports
The sector is also a significant export earner for Malaysia. According to DoS figures, agriculture and plantations are responsible for 17.1% of all exports by value in 2012, down from 19.2% in 2011, but up from 16.4% in 2008. At the same time, the sector also received approximately 13% of all of the country’s imports, by value, in 2012, down from 13.5% in 2011 and up from 11.3% in 2008. In production terms, by metric tonnage, in 2011 – again, the most recent DoS data – Malaysia was second in the world in terms of palm oil and palm kernel production, third in terms of natural rubber production; seventh in terms of pepper production; 10th in coconut production; and 15th in pineapple production. In poultry, Malaysia was third in duck meat, 14th in chicken meat and 24th in hen eggs.
Economic Transformation Plan
Given the large number of smallholders still active in the sector – and the difficulties such farmers often face in raising their incomes and competing with the larger, multinational agribusiness chains – the Malaysian government has embarked on a major reshaping of the sector in recent years. The Economic Transformation Plan (ETP) is the current long-term government programme to shift Malaysia up the value chain to high-income nation status by 2020. Agriculture, plus palm oil and rubber, are two of the 12 main pillars, or NKEAs, of this programme. These are the sectors of the economy that are being targeted for special attention.
The NKEAs set out a series of goals for each sector segment, along with a range of entry point projects (EPPs), which outline more specific opportunities for investment and development. The NKEAs also set a series of key performance indicators to enable effective assessment of progress. The palm oil and rubber NKEA targets a RM230.9bn ($72.1bn) contribution to gross national income by these two plantation sectors by 2020. The plan includes eight EPPs for oil palm and four in rubber, with the ETP’s Performance Management and Delivery Unit (PEMANDU), a federal government agency, reporting in 2013 that all were under way.
Overall, the NKEA aims to boost output, both by expanding the area under cultivation and by raising yields. Planting and replanting projects are thus a big part of the plan, as is enhancing worker productivity through increased mechanisation. The wide variety of uses for palm oil in particular is highly emphasised too, with biodiesel production alone targeting RM56.7bn ($17.7bn) by 2020. Other uses, in oleo and bio-based chemicals, are also the subject of specific NKEAs. Rubber is also highlighted for its potential in manufactured goods. In addition to being a mainstay of latex-based manufacturing, EPPs also target the development of more value-added and environmentally sound natural rubbers, such as ekoprena and pureprena.
Increasing Efficiency
Looking at the agriculture NKEA, the overarching aim is to transform the sector from its current smallholder-based, small-scale production model into an agribusiness-based sector, with larger, more efficient holdings producing more value-added products. To do this, the sector is being urged to focus on its competitive advantages, become a greater part of the regional market and align itself with another overall objective – that of ensuring greater food security. The areas of competitive advantage outlined are aquaculture, seaweed farming, swiftlet nests, herbal products, fruits and vegetables, and premium processed food. All are thus well-defined niche markets producing higher-valued commodities.
Niche Corridors
The strategy also aims to tie specific sectors to geographical areas. Of the 16 EPPs earmarked for the agriculture sector, a number bring together particular crops or products with different regions of the country – often special economic development corridors. For example, upstream development of herbal products is located within the East Coast Economic Region (ECER) – although actual production is ongoing in areas outside the ECER. The MOA has also set up five R&D clusters to specialise in issues surrounding the development of herbal products, such as in clinical studies and processing technologies. Some eight anchor companies are also working in the downstream sector, pressing forward with the branding and marketing of Malaysian herbal products as botanical drugs and nutraceuticals. With swiftlet nests, some 2000 new farms and six collection centres per year are planned, with four anchor companies already active downstream. The Department of Veterinary Services (DVS) is the agency in charge of this segment, with the aim to increase standardisation and a reliable system of traceability and good animal husbandry.
In The Seas
Seaweed production, meanwhile, is planned to be expanded under the ETP from 13,500 tonnes per year in 2010 to 150,000 tonnes by 2020. Three universities are now involved in efforts to boost commercialisation of seaweed products, while the emphasis on adding value has also brought government support for R&D in areas including processing dry seaweed. Sabah is a major player in this segment, with an additional 3000 ha gazetted in the state for seaweed production, according to PEMANDU.
In aquaculture, a variety of EPPs are under way. One area of note is the expansion of high-value fish species production via a shift away from capture fisheries to aquaculture. Capture fisheries are already a major earner for several states. DoS figures for 2012 show 1.47m tonnes of marine fish landed that year, up from 1.37m tonnes in 2011. The main states for catches were Perak, with 320,000 tonnes of the total, Sabah with 180,000 tonnes and Sarawak with 170,000. Focusing on fish such as sea bass, tilapia and lobster, however, might vastly increase the value of the fish Malaysia provides. One EPP plans to make this catch easy by developing more cage farming of these high-value fish, shifting this trade from capture to aquaculture. The Department of Fisheries, which comes under the MOA, is the lead agency here. It is also involved in developing integrated zones for aquaculture (IZAQs). By 2020, the IZAQs will have some 10,000 ha at their disposal, working both upstream to downstream in premium shrimp production. Each IZAQ will be led by a major anchor company.
Livestock
Malaysia is also looking to further develop its livestock sector. Figures from the DVS show domestic livestock production growing in recent years – beef in particular rose from 38,300 tonnes in 2008 to 51,300 in 2012 – but the latest DoS figures, for 2011, showed that the domestic sector supplied only 29.8% of the country’s demand for beef and 13.2% for mutton. Several EPPs therefore focus on livestock development, with plans to integrate cattle with oil palm plantations and feedlots, and source a reliable supply of live animals from dedicated farms abroad.
Five A Day
As livestock is being brought in, an EPP for the fruits and vegetables segment aims to boost exports to the Middle East and Europe, already the destination for over half of the world’s high-quality local fruits and vegetables exports. According to the DoS, in 2012 Malaysia produced some 1.66m tonnes of fruits and 880,00 tonnes of vegetables, up on the 1.62m tonnes and 940,000 tonnes, respectively, in 2011.
The EPP targets increased production of six high-value, non-seasonal tropical fruits – rock melon, starfruit, papaya, banana, pineapple and jackfruit – and three high-value highland vegetables – lettuce, tomato and capsicum. The mechanism for doing this are permanent food production zones, dedicated areas that concentrate on developing specific fruits and vegetables, integrating growing and other downstream aspects. The target is to increase Malaysia’s exports of these commodities to reach a value of RM400m ($124.8m) by 2020. As of the most recent PEMANDU progress report on the NKEA – from 2013 – progress on the birds’ nest farming EPPs was good and work was also under way in seaweed. The other EPPs had yet to commence, however, leaving room for new investments.
Rice Bowl
A series of EPPs connected to paddy farming were also moving forward. Malaysia is not a great paddy grower, in comparison with its neighbours, such as Thailand and Vietnam. According to the DoS, total planted area of paddy in 2012 was 692,300 ha, making it the largest non-plantation crop, but still far less than the 5.076m ha planted with oil palm. According to MOA data, paddy contributes 4% of agriculture’s share of Malaysia’s GDP. Average yields per hectare are also lower than in regional peers. Data in the ETP shows Malaysia as producing 3.7 tonnes of paddy per ha, in comparison to 4.0 tonnes in Myanmar, 4.7 tonnes in Indonesia and 4.9 tonnes in Vietnam. This is partly due to the small size of paddy farms – the average is 2 ha – and to an ageing paddy farmer population; the average age is more than 60, according to the ETP.
The NKEA therefore aims to boost the size and quality of paddy production via a shift to an estate farms model, producing higher-quality rice. Various EPPs are also aimed at this objective, such as the Muda Agricultural Development Authority project, with the privatised rice industry regulator, BERNAS, one of the lead agencies. BERNAS is a listed company and is involved in the purchasing, processing, warehousing, distribution and marketing of Malaysian rice, as well as in the importation of rice for domestic use. The firm also distributes a subsidy to paddy growers and is in charge of maintaining the country’s rice stockpile.
Thailand, meanwhile, has an even lower paddy yield than Malaysia – at 2.7 tonnes – but is still a major player in the global rice market, due partly to its concentration on lower-yield but higher-quality varieties, such as jasmine. Other paddy EPPs thus include the introduction of fragrant rice varieties – such as jasmine and basmati – in non-irrigated areas. This will also reduce Malaysia’s import bill for such varieties.
Research Focus
A major investment in R&D for the paddy and rice industries is also part of the NKEA, with work being done on developing seed for higher-yielding, more disease-resistant paddy. “R&D focus is also on rice paddy production systems that will require less water,” Haron told OBG. “We anticipate that there will be less water in the future – due to climate change and competition for domestic needs – so the new production system will require 50% less than the traditional system. This system has already proven successful as it reduces water usage, carbon emissions and the overall greenhouse effect.”
Meanwhile, demand for fertilisers both in Malaysia and the whole region is likely to keep rising. “We anticipate an increase in demand for fertilisers, in line with the growing demand for food, particularly in Asia, due to high economic growth and increasing income levels. While the bulk of the demand for Malaysian fertiliser comes from the palm oil industry, other crops such as cocoa, rubber and vegetable production are also contributors,” Raymond Tang Quee Huang, the CEO of Agromate Holdings, one of Malaysia’s largest importers, distributors and wholesalers of fertilisers, told OBG.
Outlook
With sustained investment both from the government as well as the private sector, the agriculture and plantations sector looks likely to undergo a perceptible change in the years ahead, with larger, agro-business entities coming to absorb many of today’s smallholders – and indeed, small and medium-sized plantation companies. This will likely lead to both boosted efficiency and output, with the deeper pockets of the larger corporations able to sustain significant R&D too – further boosting the sector’s productivity and ability to deliver higher-value commodities and products. This also implies some major changes in the rural infrastructure being achieved in tandem – a challenge in itself. In biofuels, for example, increased production of feedstock necessitates a well-developed transportation system to get the feedstock to refineries. Meanwhile, higher-value products require the implementation of higher-quality standards and well-certified production processes when it comes to ensuring environmental sustainability. Yet given the integrated approach the government has taken through the ETP, bringing the different elements together has been greatly facilitated. In the future, the sector may see its valuable contribution to the country’s economy continue to grow, along with the prosperity of rural and urban populations.
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