MYSay: Of limau Tambun, Musang King and the potential of agri-food

TheEdge Wed, Sep 30, 2020 11:00am - 3 years View Original


Malaysia imported some RM52 billion of agri-food in 2018. These included grains such as wheat and corn that go into our flour and animal feed mill industries and processed foods. The country imported fresh produce as well. For example, that year, more than RM310 million of fresh vegetables, RM245 million of fresh chillies and RM238 million of mushroom were imported. We also imported quite a bit of fresh fruits, including coconuts (RM204 million), mangoes (RM74 million) and bananas (RM38 million).

To put things in perspective, in the same year, Malaysia’s palm oil exports totalled 265 million tonnes and were valued at RM41 billion. In other words, as an economy, our palm oil exports did not pay for our food imports in 2018. It was short by more than RM10 billion.

We can ask so many questions. Why is a crop with a planted area of almost six million hectares — covering 18% of the country’s total land area — unable to pay for our food imports? Can we do better with palm oil? Are we capable of producing more of our food requirements? These are inter-related questions.

Plantation crops such as oil palm and the likes of rubber or cotton were initially driven by colonial powers, which had the means to obtain large tracts of land freely and also had access to a large supply of labour, however they were sourced — a land- and labour-intensive production logic. The economic logic of agri-food production is different from that of plantation crops, but the plantation mindset is a dominant force.

The Guthrie “dawn raid” in 1981 by national equity corporation Permodalan Nasional Bhd and the subsequent involvement of most statutory funds — Employees Provident Fund (EPF), Lembaga Tabung Angkatan Tentera (LTAT), Kumpulan Wang Persaraaan (KWAP) and Tabung Haji (TH) — in the plantation sector entrenched the plantation logic in the economy.

These influential institutional investors became key stakeholders whose interests converged at preserving the performance of plantations and their dividend payouts. Thus the plantation logic was perpetuated and grew. The acreage planted, in particular, increased. The nationalisation of the colonial-era companies, owners of large tracts of land in the country, was simply a change of owners; by and large, it did not fundamentally change the relationship between land, labour and capital that existed before.

The risk-weighted returns of doing something else with their land banks — such as growing agri-food produce — were too high for these companies. Property development seems to be the only diversification most of them undertook. It would seem our comparative advantage is in oil palm plantation.

The technical economic definition of comparative advantage is that an exporting economy has lower opportunity costs to produce the good than the importing economy. Are the opportunity costs for us to produce palm oil really that low compared with economies such as China and India? Can we not find anything better to do with the land and capital in Malaysia?

It is certainly true that, although India and China are much larger countries, the opportunity costs to set aside millions of hectares to plant oil palm is certainly prohibitive; it makes a lot of sense for them to import, but it says a lot that we cannot find anything better to do on our end that the comparative advantage is in our favour on producing palm oil. Can we do better?

From a land use point of view, paddy is the agri-food crop that takes up the most acreage. Total area for paddy cultivation has been stable at just under 500,000ha — less than a tenth of oil palm area. However, rice production in Malaysia is not competitive compared with other rice-exporting countries in the region. Malaysia’s self-sufficiency level for rice has been hovering at 65% to 70%, which means we import the remaining amount — imports that go into the calculation of food imports mentioned at the outset.

Our productivity is low while our costs are high. Without input subsidies by the government, rice production in Malaysia will not be competitive compared with the other rice-growing countries in the region. While there has been some mechanisation — more perhaps than for oil palm — the underlying research and the development of the supply chain have been weak.

Development of seed varieties — a fundamental pillar of productivity growth — has been lagging. Over the last 50 years, India, the Philippines and Thailand have produced more than 1,900, 200 and 80 varieties respectively. Malaysia has released less than 50 varieties. Linkages to both upstream industries (seeds and fertilisers) and downstream industries (processed foods) are weak. Inputs are mainly imported and production typically stops at rice; it is not processed into other foodstuff.

Which sector has been productive to the point of gaining access to export markets?

The poultry industry is a rare example of a successful large and integrated industry that has not only fulfilled domestic demand but gained access to export markets. What started with essentially imported inputs and low technology has evolved into a high-technology and more skill-based industry. The poultry and eggs industry dominates the livestock portion of agri-food with a 2019 ex-farm value of more than RM18 billion, or about three quarters of total livestock production value.

The modern closed-system farms are technology-intensive as opposed to being land- or labour-intensive. Both growth and productivity in this industry will come from higher applications of technology and the deepening of the supply chains from feed and breeding to food processing. On the other hand, policy-promoted livestock such as cattle and goats are nowhere as successful as the poultry industry.

Apart from paddy, the horticulture side of agri-food is currently small, but it has the largest potential to grow, not necessarily on an import substitution basis but based on competitiveness. In fact, import substitution would be the wrong approach to determine what should be cultivated. The criteria should be about getting access to export markets, not about replacing imports. The truth is that Malaysian producers need export markets to obtain price points that make sense financially to justify investments in technology and fulfilling standards.

The pomelos of Tambun are an example of what entrepreneurship and hard work can achieve, given the endowments of the land. As with all things horticulture, it took a long time to obtain just the right variety and the Tambun farmers did it. They produced a unique product that gained access to export markets.

The star fruit is another example that is commercially grown almost exclusively for exports. Farmers and aggregators had to solve a myriad problems such as obtaining the right variety, its propagation and production, pest control, supply chain management and fulfilment of standards, and they did it.

Before there was Musang King, there were the various durian clones in the southwest part of Penang island, an area I am familiar with. Famous Balik Pulau clones such as the Ang Hea and Hor Lor took literally generations to be perfected and then to mature and stabilise.

A lot of hard work and diligence went into this enterprise. But with only so many slopes on the hills of Penang, the production capacity is limited, with demand far outstripping supply. But there is another clear distinction between the durian farmers in Penang and the Tambun pomelo growers or the Musang King farmers in Raub — the Balik Pulau farmers own their land.

Horticulture potential in Malaysia has to be harnessed for the export markets, and such markets require producers to be highly productive as well as meet stringent food standards. Both of these require investments in technology as agri-food moves away from the logic of land and labour as the primary inputs. Technology, which requires capital, will be the main input in agri-food businesses. For that to happen, there must be security of land tenure and regulatory certainty.

Despite not having security of tenure, farmers in Tambun and Raub and the many who farmed on former mining areas by rearing ornamental fishes or ducks have done very well, proving that there are better things to do with land than planting oil palm. To use the argument mentioned earlier, these are people who increased the opportunity costs to planting oil palm. To realise the full potential of these and other agri-food businesses, the issue of access to land and security of land tenure, in whatever form, is crucial. Agri-food will become even more capital-intensive and less land-intensive as farming moves towards closed systems, but without security of land tenure, the capital investments in technology will not be forthcoming.

Obviously, there must be enforcement at protecting the environment — ensuring no encroachment into river basin reserves or water catchment areas — but farmers like those who have developed the right varieties of produce and successfully cultivated them and obtained markets for their produce should be rewarded, not punished.

At the very least, they should be better facilitated and organised so that there can be growth in their enterprises. It is this growth in the agri-food industry that will increase exports while contributing towards reducing our food import deficit. More importantly, the growth of these activities can fundamentally change the nature of the economy’s production function by changing the relationship between the factors of production. That is what economic transformation is about.


Dr Nungsari A Radhi is an economist. The views expressed here are not related to any of his organisational affiliations.

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