As the world’s second-largest palm oil producer after Indonesia, and a leading producer of natural rubber, Malaysia today also boasts increasingly sophisticated fruit and vegetable, rice, livestock and fisheries sectors. These building blocks are set to undergo some important changes in the years ahead, as the country seeks to implement the 11th Malaysia Plan (11MP). Under 11MP there is a strong focus on green, sustainable growth, coupled with increasing mechanisation, boosting its human resources and enhancing technological and scientific inputs and outputs.
The government has also instituted a new minimum wage of RM1000 ($248), which will have an impact on the agricultural sector. Foreign workers, many of whom work in the sector, are also entitled to the new wage. This change in the law, coupled with a new RM640 ($158) levy on foreign agricultural workers, has the potential to affect the labour market. However, industry leaders are content with the levy, as it is far lower than the RM2500 ($619) that the government initially announced.
The beginning of 2016 coincided with the commencement of the ASEAN Economic Community (AEC), indicating shrinking barriers to trade and the movement of capital and labour. In the future, the Trans-Pacific Partnership (TPP) agreement may also have implications for government support in the sector. Low oil and gas prices have also impacted the palm oil business, which for many years has been linked – via biodiesel and other energy-related products – to global energy markets and prices. Malaysia has been affected by weather patterns: the El Niño effect in 2015-16 hit harvests and farmers in late 2015 and well into the first half of 2016, and price rises are also likely in the second half of the year. However, this change in weather could positively effect the palm oil sector (see analysis).
Growth Data
According to data from the central bank, out of Malaysia’s RM1.2trn ($297bn) in total 2015 GDP at current prices, the agricultural sector accounted for RM97.5bn ($24.1bn), or 8.4%. This was down 0.6% percentage points on 2014, which had seen the sector responsible for RM98.2bn ($24.3bn), a figure 5.8% up on 2013’s RM90bn ($22.3bn).
The overall share has experienced a period of long-term decline, as Malaysia has developed into a manufacturing and services-driven economy. As recently as 2011, the sector contributed RM104.4bn ($26bn), or 11.5% of GDP, while as far back as 1966, World Bank data show the sector responsible for 31.5% of GDP. Over this period the percentage of land given over to agriculture and plantations increased sharply, from around 11% in 1966 to 23.9% today. Much of this change is due to forest and jungle being brought into cultivation. There has been deforestation, too – forests covered 68.1% of Malaysia’s territory as recently as 1990, with this dropping to 63.6% by 2005. The percentage has since risen, and is now returning to figures closer to the 1990 level, thanks largely to the growth in the plantations sector. Arable land, meanwhile, has remained at similar levels, standing at 2.7% in 1966 and 2.8% in 2006, while the most recent figure from 2013 remained the same at 2.8%. According to the Department of Statistics Malaysia (DOSM), in 2014 the country’s four main planted crops – paddy, cocoa, oil palm and rubber – all saw an expansion in their planted areas that year. Some 689,700 ha of paddy was cultivated in 2014, up 2.7% on 2013, while 5.4m ha of oil palm was cultivated – up 3.1% on the previous year. Some 701,400 ha was planted with rubber, up 0.4%, and 16,100 ha with cocoa, up 16.7%.
Output
In terms of production, however, the picture was more mixed. Total output of paddy rose 1.6% over the two years, from 2.6m tonnes to 2.65m tonnes, while 96.1m tonnes of fresh fruit bunches – the main oil-producing part of the oil palm – were produced in 2014, up 0.4% on 2013. Yet production of rubber went down, from 826,400 tonnes in 2013 to 668,600 tonnes in 2014. Cocoa production fell as well, from 2800 tonnes to 2700 tonnes. A fifth crop, kenaf, also saw its production increase, up 7% year-on-year (y-oy), from 7100 tonnes of dried stem to 7600 tonnes. Kenaf is a fast-growing, drought-resistant, fibrous plant that can be used in the production of textiles, sacks, cattle feed and paper products. Another cereal crop is maize, with around 56,000 tonnes produced in 2014, about average for the 2010-14 period.
El Niño is likely to have had a negative effect on the agricultural sector’s output in 2015-16, with the Ministry of Agriculture and Agro-based Industries (MoA) announcing in March 2016 that it would build some 281 tube wells across the peninsula to assist those farmers experiencing drought conditions, along with providing some 1718 mobile high-capacity pumps. Compensation payments might also be paid to those farmers badly affected by drought, although as of March 2016, the MoA was awaiting developments before deciding on this.
Future Plans
Under the 11MP, the country’s current development programme, which runs from 2016 until 2020, the country’s agriculture sector is set to undergo a major modernisation drive. This scheme involves a seven-pronged strategy, starting with improving productivity and ending with the intensification of performance-based incentive and certification programmes. Between these two will come efforts to promote the training and development of youth entrepreneurs in the sector, the strengthening of institutional support, capacity building for agricultural associations, the improvement of market access and logistical support, and a scaling-up of access to agricultural financing. The aim is for these measures to create a sector showing 3.5% annual growth through to 2020, contributing 7.8% of GDP, or RM519bn ($128bn) and employing 1.6m people. By value, the sector will be split into 57.6% industrial crops – such as palm oil and rubber – and 42.4% agro-food by the end of the plan period.
In terms of productivity, an emphasis is to be given to the increased use of ICT in plantations and agriculture, boosting more efficient management and mechanisation, while agricultural land is to be gazetted by state governments and incentives given to boost construction of farm roads. The Research Management Agency is also given the task of coordinating existing research and development and commercialisation projects, with an aim towards boosting efficiencies in the combating of pests and diseases, the production of new seeds and animal feeds, and the development of more green products.
In training, the National Agricultural Training Council and the Institute of Malaysian Plantations and Commodities will collaborate with universities and other agencies in creating up-skilling programmes for farmers, fishermen and other agricultural sector workers. The National Institute of Entrepreneurship and the Malaysian Global Innovation and Creativity Centre will also be tasked with helping to produce programmes that can help agricultural stakeholders become entrepreneurs, rather than just producers. Cooperatives and other associations will also be brought in to this general improvement of skills in the sector, while government agencies are to undergo a process of streamlining, with greater use of technologies, such as drones, to provide real-time information. There are also increased roles for the Federal Agricultural Marketing Authority (FAMA) and the Malaysian External Trade Development Corporation – the former through direct contract marketing of farm produce, and the latter through promotions abroad. In financing, Agrobank will continue to be a major source of government funding, with a switch from fixed-term financing to flexible repayment systems based on harvesting cycles. Long-term replanting will also be assisted with new financing formulas.
Finally, an effort is being launched to move away from government incentives in agriculture to produce more, in favour of production of higher-quality goods that meet Malaysian Good Agricultural Practices standards. The 11MP thus aims to move the sector closer to that of a developed economy, with greater emphasis on technologies, marketing, sustainability and high quality standards. The programme also includes items on flood mitigation and sustainable land use, which when combined with schemes to improve rural infrastructure add up to a considerable bonus for the sector.
Towards Rice Self-Sufficiency
Another aspect of Malaysia’s agricultural policy has been to ensure greater food security, with an emphasis on growing more of the country’s staples and relying less on imports. Malaysia ranks a respectable 34th out of 109 on the Economist Intelligence Unit’s 2015 Global Food Security rankings. However, it lags behind regional neighbour Singapore. The principle staple food for most Malaysians is rice. According to the Food and Agriculture Organisation (FAO), 2015 saw a record crop of this, at some 2.7m tonnes – up 2% on what was already a bumper harvest in 2014. Planting of rice takes place in the June-September period, with harvesting the following May. Weather conditions during these times are thus crucial, with the 2014-15 season seeing favourable conditions in the main areas, helping to boost yields. For the 2015-2016 season, the weather began favourably too, with normal levels of rainfall during the June to mid-December in the main rice-growing regions – northern Peninsular Malaysia and Sarawak. Yet since then, El Niño conditions have been apparent, with Malaysia registering record-high temperatures in the first few months of 2016. This may have a negative effect on eventual harvest tonnage in May 2016.
Per capita consumption of rice in Malaysia was some 78.6 kg in 2014, slightly down on 2013 78.8 kg. The country had a self-sufficiency ratio (SSR) in rice of 71.6% in 2014, with rice imports and stocks making up the rest. Total cereal imports – rice, wheat and maize – amounted to 6.3m tonnes in the 2014/15 marketing year (July-June), with the FAO forecasting this to rise to 6.5m tonnes in the 2015/16 period. Rice and wheat are forecast to make up the bulk of this increase, as domestic demand for both increases.
Fruit & Vegetables
Malaysia has also been following a self-sufficiency level (SSL) policy in fruit and vegetables for several years. The main agencies here for this policy and for the development of the sub-sector are the MoA and its Department of Agriculture (DoA), FAMA – which monitors, coordinates and develops product marketing while also purchasing harvested fruits – the Board of Farmers Organisation, the Malaysian Agriculture Research and Development Institute (MARDI), and the Malaysian Pineapple Industry Board (MPIB). The state Agrobank is also a major source of financing for the largely small and medium sized farms in the business.
Other key fruits grown in the country include durian, watermelon, starfruit, banana, papaya and mango. In the Cameron Highlands’ temperate climate, fruits such as strawberries are also grown. Per capita consumption of some fruits has been growing, too – pineapple went from 5.8 kg in 2013 to 7.8 kg in 2014, while banana consumption went from 8.9 kg per year to 9.4 kg per year. Much of the emphasis on fruit is for export, with Malaysia seeing SSLs of over 100% in most fruits in 2014. Important vegetable crops include cabbage, tomato, chilli, cucumber, long beans, okra and spinach. SSLs in these are also mostly over 100%, while domestic per capita consumption has largely been shrinking – tomatoes dropped from 4.6 kg per year to 3.7 kg between 2013 and 2014, and cucumbers from 3.5 kg per year to 2.9 kg. Most of these crops are for export, with many of the vegetables not native to the region.
Livestock
Important segments of the livestock subsector include chicken, which showed a 6.4% increase in number to around 290m between 2013 and 2014, and pigs, which declined by 0.8% in number over the same two periods, to 1.8m. Increasing in number over the same period were cattle, up 1.3% to 760,997, and duck, which increased 12.4% to 10.9m.
Domestic demand for many meat varieties continues to outstrip supply. The most recent figures available, for 2014, show Malaysia’s SSR for beef at 27.5% – slightly down on 2013 27.8% – while mutton stood at 12.8%. In terms poultry and eggs, the country is far more self sufficient, with the former recording an SSR of 98.4% and the latter 113.8%. Pork too is well provisioned, at 95.3%. Successive government policies have tried to address the lack of growth in the ruminant livestock subsector, yet continuing shortages of arable land, high feed prices and a lack of quality breeds continue to hamper development. Nonetheless, the country has had some success in producing new feed stocks from local sources, which has helped reduced costs.
Fisheries
In addition to sea fishing within the country’s exclusive economic zone, marine and freshwater aquaculture are also major parts of the subsector. Selangor, Terengganu, Perak, Sabah and Sarawak are the main regions for fisheries, although all states have some involvement in the industry.
Indeed, given Malaysia’s many major rivers and 4675 km of coastline, the sector is a common denominator across the country. Fish and seafood are also popular parts of the Malaysian diet: the country is one of few in the world with a per capita fish consumption rate of more than 50 kg a year. Penang in particular has seen a major boost in aquaculture due to the presence on the island of major international seafood brands such as GST Group, Texchem Food Division and Pacific West.
In terms of self-sufficiency, in 2014 the country had SSRs of over 100% in shrimp and cuttlefish, while those in tuna, mackerel and crab were 97.5%, 86.1% and 71%, respectively. Some 1.4m tonnes of marine fish were landed that year, along with 106,600 tonnes of freshwater and 427,700 of brackish water fish. All these totals were down on the 2013 figures however, by 2.5%, 5.5% and 8.3%, respectively.
The subsector is thus suffering from a general depletion of fish stocks. The MoA’s Department of Fisheries (DoF) and other agencies have been encouraging the development of aquaculture to boost production, with species such as shrimp, tiger prawn, blood cockles, tilapia and carp some of the key varieties now commercially cultured. In 2014, some 77.5% of all aquaculture operators were working in fresh water, the rest in brackish, mostly using ponds and cages. Around 450,000 sq metres were given over to freshwater aquaculture that year, and 3m sq metres to brackish water.
Rubber & Cocoa
The statutory authority for managing the rubber industry is the Malaysian Rubber Board (MRB). Malaysia is also a member of the International Tripartite Rubber Council (ITRC), along with Thailand and Indonesia. The body regularly adjusts production to influence price. From March 2016 onwards, the council agreed to cut combined rubber exports by 615,000 tonnes for six months (with Malaysia’s share of this amounting to 52,260 tonnes) in order to strengthen prices, which have been generally low over the last five years. Latex in bulk, for example, stood at RM11 ($2.72) per kg in 2011, while at the start of 2016 it hit RM3.25 ($0.80) per kg.
One move this year that may also help the sector is the decision by the government to rubberise 1000 km of state roads using an estimated 42,000 tonnes of rubber, beginning in February 2016. This should boost domestic consumption and help reduce stockpiles. Domestic consumption is already steadily growing. MRB figures show it rose by around 3% in the January-November 2015 period. Overseas markets also saw increases, with China consuming 3.2% more y-o-y during the same period. Recent times have seen the industry develop a profitable subsidiary industry in rubber wood, which has grown in popularity in the furniture and building materials sectors.
Cocoa production is the preserve of the Malaysian Cocoa Board, which regulates a subsector that saw rapid growth in the 1970s and 1980s but has since shrunk considerably. Total estate coverage reached a peak of 414,236 ha in 1988, falling to 16,102 in 2014. Partially responsible for this delinquency are global supply gluts and the attractiveness of oil palm as an alternative crop, along with the difficulty and low productivity of cocoa.
However, Malaysia remains the largest cocoa grinder in Asia, and the fifth-largest globally. Hershey, Nestlé, Kraft, Ferrero and Barry Callebaut are all buyers of the country’s cocoa, although this last company announced it was scaling down its Malaysian operations in early 2016. Sabah remains the largest producer of cocoa in the country, producing some 1139 tonnes in 2014. The state is also supporting the subsector, investing some RM8m ($2m) in the crop for 2016, with half of this going towards the development of a cocoa cluster, an area integrating plantations with downstream facilities. Under the 11MP the cocoa subsector is set to receive some RM37.8m ($9.4m) in federal government support.
Timber
Malaysia has long been a global supplier of tropical hardwoods, while in recent decades it has also provided much of the timber for building, furniture and construction around Asia. In the first half of 2015, wood product exports totalled some RM10.5bn ($2.6bn), with the largest slice taken by furniture, at RM3.3bn ($817m), followed by plywood, at RM2.3bn ($569m) and then sawnwood, at RM1.5bn ($371m). Log exports came in at RM998m ($247m), illustrating a general shift in the sector towards more value-added products.
The Malaysian Timber Industry Board is the key sector overseer, with similar institutions – such as the Sarawak Timber Industry Development Corporation – operating in particular states. Eastern Malaysia continues to be the principle source for raw materials in timber, too, with the two states responsible for less than 1% of furniture exports in the first half of 2015, but with Sarawak alone responsible for 72% of plywood exports and 88.7% of log exports. Cognisant of growing environmental concerns in the timber trade and the growth of sustainability and legal requirements in markets such as the EU, US and Australia, the Malaysian Timber Certification Council operates its own scheme. This aims to ensure sustainable practices in forest management and ensure the supply of certified timber and timber products, both for export and domestic consumption.
Outlook
The impact of climate change is likely to be an increasingly pressing subject for the sector in the years ahead: with events such as El Niño are reminders of the sector’s sensitivity to greater factors than the exchange rate. In the shorter term, this will likely mean higher prices for many food items, as supply falls, while demand continues to grow. Boosting yields is thus likely to see further emphasis in 2016, through the application of new technologies and methods, along with the further development of rural infrastructure, feeding this expansion. The country’s efforts to achieve self-sufficiency, establish greater food security and its investment in technology have put it on firm footing for future growth.
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