Malaysia looks to farming sector for economic boost

22 Jul, 2004

Rice farmer Ahmad Ishak missed out on the booming 1990s, the decade in which Malaysia experienced eight percent annual growth.
While wages jumped for skilled workers in manufacturing, Ahmad has had to take on other jobs to get by.
But things may be looking up now for farmers, as rising world commodity prices and the loss of manufacturing jobs to cheaper labour in China force Malaysia to look afresh at agriculture.
Perched on the step of his hut overlooking a sea of ripening paddy stalks nodding in the breeze, 55-year-old Ahmad says, "I make 5,000 to 6,000 ringgit every six months, only 500 to 600 ringgit more than I did 10 years ago."
These figures represent a range of $1,316 to $1,579.
His story is common, not only in his sleepy pocket of farms and fishing villages 100 km (60 miles) north-west of the capital Kuala Lumpur, but also to farmers throughout the country.
While farmers like Ahmad saw their incomes grow just 10 percent in as many years, pay for skilled manufacturing workers rose more than twice as fast in half the time.
Like other Asian exporters, Malaysia's agriculture sector slipped to the backburner as the country vied for foreign direct investment in manufacturing-for-export projects.
But it was not always so. For 30 years after Malaysia won independence from British rule in 1957, its main economic drivers were palm oil, rubber and cocoa farming.
The farm sector's share of gross domestic product has fallen to less than a tenth versus one-third in the 1960s, however. Farm goods made up less than a tenth of total exports last year versus 15 percent in 1994.
But that trend may be about to change, analysts say.
Newly appointed Agriculture Minister Muhyiddin Yassin has said he wants farming put on par with the electronics industry, contributor of about half of total Malaysian exports.
Industry officials also believe vast untapped potential exists to boost productivity through the use of fertilisers and better irrigation.
"Five years ago, paddy farmers produced four tonnes per hectare, now they get 5.5. The potential is for 13.5 tonnes per hectare," said Nazari Khalid, director of the Malaysian Agricultural Research and Development Institute for the central state of Selangor.
Analysts also point to political benefits in improving the lot of farmers as agriculture is still a key sector despite its contraction.
There are around 1.4 million farmers in Malaysia compared with 1.7 million in 1990 but it is estimated that even by 2020, 60 percent of Malaysians will still live in rural areas.
More than two-thirds of these will be Muslim Malays and other indigenous groups known as bumiputeras, the core constituency of Prime Minister Abdullah Ahmad Badawi's party.
Developing the sector is key to narrowing the income gap between urban and rural populations.
A thriving agriculture sector will also help turn Malaysia's six-billion-ringgit food deficit into a government-targeted surplus of 1.75 billion ringgit by 2010.
Malaysia imports wheat, maize, sugar, rice, dairy products, fish, fruits, vegetables and meat, from a host of countries, including the United States, China, Australia, New Zealand and India.
Experts agree on the advantages of improving the agricultural sector, but they also acknowledge there will be no quick fix.
"There are so many things to look into: the government has to look into the marketing and production aspects and change the mindset of people. It will take a good seven years to achieve a net surplus in the food bill," said Hamdan Yusoff, an economist with financial services group MIDF Bhd.
The agriculture minister is drawing up plans to attract more investment into the sector and improve incentives.
"The biggest challenge for the sector is getting private investment in. Incentives have to be improved in order for the private sector to undertake agriculture on a big scale," said Yeah Kim Leng, chief economist at Rating Agency Malaysia.
There was 135.7 million ringgit worth of applications for agriculture investments in 2003, less than a tenth of the amount sought for manufacturing projects.
Farm investors get few of the incentives available to manufacturers, who enjoy pioneer status and tax breaks.
Some economists say the government could learn from Thailand, which has a scheme to give one million baht ($24,600) to each village to boost rural demand and gives farmers debt holidays.
But even if ideas are taken from Thailand, economists say longer term measures will be needed in Malaysia and they will take time.
"The government will look to slowly take away subsidies and push for greater modernisation to increase the yield per hectare," said Wong Chee Seng, an economist at Singapore's DBS Bank.

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