JurnalEkonomiMalaysia48(2)2014I2Z - 136

Nota Penyelidikan / ResearchNote

SelectedResearchIssuesin the MalaysianAgricultural Sector

(Isu-isu Penyelidikan Terpilih di dalam Sektor pertanian Malavsia)

JamalOthman
YaghoobJafari
SchoolofEconomics

UniversitiKebangsaan
Malaysiaz.B
STRACT

The agriculture sector remains a signfficant developmentfactor in Malaysia even though its share to the nationb GDp
has shrunkpronouncedlyfrom some 30% in the 1970sto only 7% in 20 I 3. Such statisticsmoy not, however,reflect the
true significanceof the Malaysian agricultural economy.Ihhile the agricultural sector of thepast decadeswas mainly
associatedwith the production of raw commoditiesand primary processing activities, its curyent importance maybe
seenin terms of the sector b contribution to the total economy,via its inter-sectoral linkagesand multi-functional roles.
Thispaper highlights a number of issuesthat have bearings on thefuture roles of the agricultural economyin Malaysia.
Theseinclude the emergingnotion of agricultural multi-functtonality, fficient allocation of land to various agricultural
sub-sectors,deforestationand oil palm expansion,shortages ofdomestic laboafood-fuel dilemma, and extensiveuse
ofagrochemicals. Policy implications and/or suggestionsforfuture researchare deliberatedfor each issue.

Keywords: Malaysian agricultural economy; Malaysian agricultural issues;multi-roles of agriculture; sustainable

agricultural development

ABSTMK

Sektorpertanian masih berperanansecarasignifikankepadapembangunanekonomiMalaysia walaupunsumbangannya

terhadap Keluaran Dalam Negara Kasar telqh berkurangan secara nyata dari 30% di tahuntahin ZOankepida i%
sahaja pada tahun 2013. Namun statistik demikian tidak memaparkan kepentingan atau percrnqn sebenar ekonomi
pertanian Malaysia. Di dekad-dekad awal, sektor pertanian lebih terkait dengan pengeluaran komoditi mentqh dan
aktiviti pemprosesanprimari, mqnakala kepentingannyadi masa kini perlu ditihat dari perspektif sumbangannya
terhadap ekonomi keseluruhan melalui keterkaitan antara-sektor ekonomi dan kepetbigaian
fungsi. Keitas ini
membincangkanbeberapa isu utamayang mempunyaiimplikasi terhadapperanan sektorpertanian di Malaysia pada
masahadapan.Ia merangkumikonsepkepelbagaianfungsipertanian, alokasi tanah yang cekapkepadapeliagai sub-
sektorpertanian, penebangan/pembersihanhutan dan perluasan perladangan kelapa sawit, kikurangan tenaga kerja
tempatan, dilema makanan-tenaga, dan penggunaan kimia pertanian secara el<stensif.Bagi setiap isuyang dipaparkan,
implikasi terhadap dasar atau/dan saranctnkajian lanjutan turut dibincangkan.

Kata kunci: Ekonomi pertanian Malaysia; Isu pertanian Malaysia; kepelbagaian

fungsi pertanian; pembangunan
pertanian lestari

INTRODUCTION viewed from the broader perspectivesof the sector's

contribution to the total economy,via its inter-sectoral
The Malaysian economy has undergone significant linkagesand multi-functionalroles, including its role in
structuralshifts over the years- from a simple farm-based sustainingthe vitality ofrural areasand resources.Such
economyat the outsetof the nation's independence, to roles of agriculture may not be explicitly ceetured by the
manufacturingindustriesthrough the 1980sand 1990s, standardnationalincome accountingsystem.
and to the servicessectorsin recentdecades.The share At the global and nationallevel, increasing
of the agricultural sector to the nation's GDp shrank awarenesson environmental sustainability and green
pronouncedly from 34%oin 1970, 20,'/oin 1980 to 7.2o/o consurnerisrnconcernshave given rise to a number of
in 20I 3. Nonetheless, asthispaperargues,suchstatistics unprecedented challenges,which further irnpingesr"rpon
may not reflect the true significanceof the Malaysian the agriculturalsectorin Malaysia.Thesetrends,without
agriculturalsector.Contelxporaryagricultr-rre uray be adequate adaptation strategies.rnayirnpedetheabilityof
128 Jtu"nalEkonomiMalavsia48(2)

the sectorin the long-runto continuecontributingto the markets.The useand consumptionofsuch goodsgenerate
socio-economicdevelopmentof the nation,particularly beriefits in the form of direct use values to farmers, final
the ruraleconomy. consumers,and manufacturers.Direct use values may
Given the aforementionedbackground,this paper also be termed as marketedbenefits.Traditionally,the
highlights somemajor developmentsandissuesaffecting marketed benefits ofagriculture have been the focus of
the Malaysian agricultural sector. These include the agriculturaleconomicstheory and policies.
notion of agricultureas a multifunctional resource, The secondbroadfunctionis the productionofnon-
e f f i c i e n t a l l o c a t i o n o f l a n d r e s o u r c e ,s h o r t a g eo f marketedbenefitsof agricultureor put simply agricultural
domestic labor, deforestationand climate change,food- externalitieswhich accrueto societyat largein the form of
energy dilemma, and extensive use of agrochemicals. indirect or non-consumptivebenefits.Specific examples
Such multitude of issues without doubt signifies the of non-marketedbenefitsof agricultureinclude ecological
momentouschallengesfacing contemporaryagricultural functionssuchas flood mitigation (provenin the caseof
policy makersandrelatedinstitutions in Malaysia. Policy paddy growing areas),soil conservation,nurturing and
implications and/or suggestionsfor future researchare purification of water resource,air pollution reduction,
deliberatedfor each issue. watershed protection, heat reduction, and biodiversity
preservation.It alsoencompasses socio-culfuralfunctions
such as rural landscape formation, employment buffer,
THE ISSUES vitality of rural communities,preservationof traditional
values and attributes, health and agro-recreational
AGRICULTURE
ASA MULTIFUNCTIONAL
RESOURCE function, educationalfunction, cultural and historical
heritage, and food security. Such a systems view of
Agricultural multi-functionality is the notion that the agricultural economy is indeed consistent with the
agricultureis notjust about food production or any farm general notion of sustainabledevelopment that calls for
level produce. Neither it is any value adding activities a balancedapproachtowardsthe environment, economy
within the traditional agricultural supply chain or put and socio-culturalproperties.
simply the agribusinesssystem. Rather, agriculture Traditionally, agriculturehasalwaysbeenassociated
also producesjointly a host of other produce in the with farm level production. In addition, the measureof
form of environmental and social externalities.This its efficiency and competitivenessincluding the analysis
is illustrated in Figure 1. The figure depicts two broad of comparative advantagebefween countries generally
economic functions of agriculture. First, the production follow the sameprinciples as applies to any industrial or
of farm level produce including its associatedvalue marketedgoods.This view, and forthat matterthe gist of
addedproducts which are traded in the conventional the agricultural economicsdiscipline hasnow undergone
marked changes,given the advent of agricultural multi-
functionality.
The idea of agricultural multi-functionality has
significant influence on agricultural policy decisions
in many countries, particularly in the EU, South Korea
and Japan.A wide range of agricultural multi-functional
Marketed Benefits Marketed Benefits elements has become key components of agricultural
. Use and consumption .
policies. For instance, the nU under the Common
Envircnmental Function
offood, fiber, and raw . Social Function Agricultural Policies (cee) establishedpayment schemes
materials . Enducation Function that link the production of environmental goods and
. Cultural Functiott
. agriculture. Theseschemesprovide economic incentives
Ru'al Vitality
. Footl Security Function or payments to farmers for the provision of basic public
. Biodeversitl, goods under a sustainablefarming program (European
Commission2014).Cunently,many countriesincluding
Malaysia are deliberatingthe concept of payment for
environmentalservices(tes) which signifiesrecognition
Producers( farmers/Fishermen). to the economicimportanceofresourcesustainabilityand
manufacturers,and fi nal
consumers
servicesprovided by the naturalenvironment.
Undeniably,the elementsof non-marketedbenefits
of agriculturehave long been recognizedin one form
o r a n o t h e r i n t h e M a l a y s i a n d e v e l o p m e n ta g e n d a ,
Total Benefits of Agriculture
albeit somewhat segregatedacross the various line
rninistriesandagencies.However,the multi-functionality
FIGUREL SystemsApproachto Agriculture (Agricultural notion. which reflectsan integr-ativesocio-biophysical
MuIti-ftrnctionaIity) svsternof asricultureto date.has not rnadesignificant
.5orrllc. (20I0)
.lanral
Selected Issuesin theMalaysianAgriculturalSector
Research 129

h e a d w a y i n t o t h e n a t i o n a l a g r i c u l t u r a lp o l i c i e s o r agriculturalagenciesrelatedto rural resollrcessuch as

regulatory frameworks.While the counhJ acknowledges the Ministry of Rural and Regional Developmentand
sustainability,including sustainableagriculture as the the Department of Environment (Ministry of Natural
overriding developmenttheme,the broaderroles of rural Resource and Environment) thus far are not members
socio-ecological extemalities of agriculture apparently of the said coordinating framework.Incongruencein
are yet to be a driving factor in the formulation of sectoral policies, which inhibit full complementarily
agriculturaland rural developmentpolices. relationshipbetween economics,socio-culturaland
Malaysiahasaccordedthe agriculturalsectoras the environmental interestsare best resolved through inter-
third engine of economic growth in the Ninth Malaysia agency coordination and consultationat all levels.
Plan (2006-2010).This follows the realizationthat the Therefore, there is a need for a common understanding
sectorhasbeen able to cushion effectively the impact of on agricultural multi-functionality and interrelatedissues
the 1997198Asianfinancial crisis. For instance,palm oil across the relevant ministries and agencies.Inevitably,
exports remainedrobust during the crisesperiod. There it will be imperative to establisheffective coordination
was also evidence that the agricultural sector, notably mechanisms for the sharing and planning of related
the oil palm subsectorwas ableto provide some 12,500 concems.At the national level, the policies and strategies
new employmentsat the peakof the crisis (Jamal2007). of the various ministries and agencies in charge of
Hence,protection and enhancementof the multiple roles agricultural and rural developmentas well as the natural
of agriculturebecomeincreasinglyevident. environment ought to be streamlined to ensure that
A major challenge in implementing the concept Malaysian agriculture operatesin a way that servesthe
of agricultural multi-functionality in Malaysia relates farmers and the wider interest of the public.
to institutional and legal issues.There exists a host
of government agencies and departments that deal EFFICIENTALLOCATION
OFAVAILABLE
LANDTOACRI.
with agricultural (forestry, fisheries, animal farming), CULTURAL
SUBSECTORS
plantation and commodities, rural development, as
well as the natural environment. Additionally, these In the early years following the Independenceof
agenciesand their area of authority - agriculture, Malaysia(1957),the countrylaunchedan ambitiousland
plantation and commodities, rural development, and developmentprogram to developthe rural-agricultural
environment, respectively,are under the purview of sector. It was the most crucial national development
multiple ministries, namely the Ministry of Agriculture strategy for the fledging country. The program focused
and Agro based Industries, Ministry of Plantation on conversionoflarge tracts offorest into agricultural
Industries and Commodities, Ministry of Rural and lands, primarily the cultivation of industrial crops such
Regional Development, and the Ministry of Natural as rubber and oil palm. However, over the years, the
Resourceand Environment. Such multitude of agencies less environmentally sensitive forest areas,particularly
naturally gives rise to the issueofpolicy inconsistency those in Peninsular Malaysia has been substantially
and inter-agencycoordination. utilized. Figure 2 depicts the aggregateland supply
It is important to note herethat there exists currently into agriculturehas been virtually on a standstill since
an inter-agency coordinating mechanism within the the mid-1990s.This may be due to strict environment-
Ministry of Agriculture and Agro-based Industry at the forest policy enforcement in the country. It is also a
Federal,StateandDistrict levels.However,memberships reflection ofthe increasingglobal and domesticconcerns
of this framework are mainly statutory bodies and on large-scaledeforestationand climate changeeffects.
departmentsfrom the sameministry while much of the ln responseto the scarcityof availableland, Malaysia's
coordinationactivitiesremainfocusedon the traditional agricultural policies focused on developing idle and
p r o d u c t i o n a n d a g r i b u s i n e s sa u g m e n t a t i o n .N o n - mareinal lands.

9000
8000

o
7000
o
I 6000
5000
4000
F
3000
2000 *t*"1 _rru_t'Yf}*rfl
OrarrC\-Orrr o -car,fO-aa rrra-mrr'ro,l_
€A\O\O\Orrrr r €€€€€56
I ^tNctd-tN

2 . A v a i l a b i l i t yo f A g r i c u l t u r aLl a n d A r e ai n M a l a v s i a( 1 9 6 1 - 2 0 1 2 )
FIGURE
Srrrrtr': F,\()-FAOS fAf. Olllcialuebsitc
t30 Jurnal Ekonomi Malaysia 48(2)

TABLE I . Changesin PlantationPattemof Main Agricultural Crops in Malaysia (thousandhectares)

1987 2012
Crops Sharewith respectto total Share with respectto total
Planted area Planted area
agricultural land area (%) agricultural land area (%)
Rubber l 8 8 .13 29.4 1041.5 13.2
Oilpalm t640.2 25.7 5076.9 64.5
Coconut 320.6 f, 112 1.4
Cocoa 370 5.8 21.7 0.28
Paddy 644.8 l0.l 684.5 8.7

Source: Department of Statistics, Malaysia 1985-2012

There was an apparent structural change in the Figure 3 depictsthe changesin the pattem ofplanted
reallocationof land usewithin the agriculturalsector.This area for rubber, palm oil, cocoa, coconut, and paddy
mainly relates to oil palm, rubber, cocoa, and coconut over the 1984 to 2012period.The analysis excludes all
(Table l). other crops due to the small absolute changesin their
Additionally, Table 2 shows the changes in area cultivated area.
under the cultivation of other important agricultural crops The figure indicates clearly oil palm areahas been
in Malaysia. The major shift in terms of absolute quantity on a positive trajectory, while rubber, coconut and
of lands occurred mainly in the cultivation of fruits and cocoa demonstrateda steadydecline. Paddy areaon the
vegetables.Even so, the absolute changes in the area other hand has been rather stable. Technically, wetland
under cultivation of these crops were minute compared paddy is cultivated in areas where oil palm and other
to that of oil palm, rubber, cocoa, and coconut. perennialcropscannotbe grown. Therefore,therewas no

TABLE2. LandUseChangesfor OtherAgriculturalCropsin Malaysia(hectare)

^ Maior Major Grand

Pepper Pineapple Tobacco sugarcane
vegetables* Fruits* Total
1990 I 1408 9076 10168 17795 3270 2rs74 30053 177505 280894
1995 9837 7895 10525 11525 2946 22050 35906 25'7654 358338
2000 t3411 ts720 t5164 r2260 3524 21380 39947 314918 436924
2005 t2'772 14900 8520 8557 1961 r423s 35600 28745s 384000
2008 t3490 15586 6702 3 5 38 I 990 4439 39800 268650 354195
2009 13618 t5791 7616 3426 l5l9 4500
2010 t4174 t5456 3698 5098 2459 4540
201I 14800 16000 4242 5149 2500 4600
Source: Ministry of Plantation Industries and Commodities, Malaysia 2012
* Ministry of Plantation Industries and Commodities (1995, 2001 and 2008a)

5000
4000
3000
2000
1000
F
0
*h9r€ clo+rr\o r€O,O-dn<f €O.O-d
@€€€€ =X^^^
66600.
ddNNN NNNNN

'* Rubber -*-**oil Palm Coconut * * Cocoa

FIGURE3. Land useAnrongthe MajorAgriculnrralCropsin Malaysia

Sarrr'c:Deparltnerrt Malaysia1985-2012
of Statislics.
 Research
Selected Issuesin theMalaysictn
Agricultw'alSector 131

possibilityfor landsubstitutionbetweenpaddyandother Malaysianagriculturaleconomy,it will be importantto

main agriculturalcropsexceptin the highlands.However, reviewthe overalltrajectoryofland usein light ofglobal
dry paddy cultivation in the highlandsrepresentsonly uncerlainties in supply and demand factors as well as
about l0% of paddyplantation(Departmentof Statistics inter-sectorallinkageswithin the overall economy.This
2009). Sincedry paddy cultivation did not significantly has far-reaching consequenceson the overall long-term
changeduring the investigationperiod, the increasesin sustainabilityof the Malaysian agriculture. lt will be
oil palm areawere more likely at the expenseof rubber, desirableto considera macro portfolio managementof
coconutand cocoa. agricultural land allocation in the country to minimize
Figure 4 showshow oil palm cultivation expandedas the repercussionsof macro-systemicrisks while taking
a result of a decline in plantation areasfor rubber, cocoa, into considerationthe importance of food crops for food
and coconutin aggregate.This is particularly apparentin securityand industrialcropsfor overall economicgrowth.
the period after the mid 1990s.The period prior to that
demonstrateda marked uptrend for oil palm area while ANDOILPALMEXPANSION
DEFORESTATION
the other crops remained relatively stable, suggesting
that oil palm augmentationwas largely attributed to Deforestationrelatesto the conversionofforest areasto
deforestation.The next section discussesthis further. alternative uses such as agricultural, urbanization and
Note that the statistic for paddy is not included here due others.As illustrated in Figure 5, forest areasin Malaysia
to the low probability of substitutionbetween paddy fell significantly over the yearsalbeit with decliningrates.
and oil palm. Furthennore, the reasonfor the exclusion Someanalystsarguedthat the decline in forest areas
of other agricultural crops such as fruits, vegetables, was largely associatedwith oil palm expansion while
pepper,tobacco,pineapple,sugarcane,tea and coffee in others assertedthat the oil palm expansion in Malaysia
the analysis is that the overall absolutechangesin their came from both forest areas and shifts in pre-existing
planted areas are far less relative to that of oil palm, crops (Casson2000; Corley and Tinker 2003). Further,
rubber. cocoa. and coconut. Koh andWilcove (2008) assertedthat specifically during
Given the facts that only a few industrial crops the 1990to 2005 period, 55-59% of oil palm expansion
(oil palm and rubber) constitute the backbone of the in Malaysia was due to deforestation,while some 4l-

Fi

E * ** ** _* *!. ** *r -| *
:h1,p"qr$
d
2000 *+ **- *+ **-
*iPrd.#**s
*+,*t *$ ** *+ *a"
F 1000

0
$ h I r € O, O iol m + h \O r € O\ O - al o + h \O r € C)' O * ol
€ €€ € € € O OO OO O O O O\O O OOO O O O^ O
^ -OOOC- C= O C =
- 6l ol N N o.l ol al N N N ..1 d c.l

* -t * *Rubber, Cocoa, Coconut

FIGURE4. Land Use Under Cultivation of Oil Palm, and Other Crops Including Rubber,
Cocoaand Coconutin Aggregate
Source:Department of Statistics,Malaysia1985-2012

_\\___
a
E 3000

2000 -
o
F I 000

0
-NNPPPPNUPNPPP
rc a@ 6 6 @ \C.O\O \O € € € € \O \O O O C O C C OO C C - - -
4 rjO' ! @ Q C *p ur A'J) O ! @ € O * pa 5 rj O! @ € O - lJ

FIGURE5. Depletionof ForestArea in Malaysia1987-2012

.Sorirrc. on Yerr-lJookStatistics
llasecl lbr 1985-20
of I\4alavsia Il
132 Jurnal Ekonomi Malaysia 18(2)

I Decreasein Cultivation ofRubber. Cocoa.and Coconut Increase

in Cultivationof Oil Palm

500
=
F

I 985-I 990 I 990-1995 l 995-2000 2000-2005 2005-2012

FIGURE6. Comparisons
of LandUseChanges
amongAgriculturalCrops
Soarce:Compiled basedon the Departmentof StatisticsYear Book Statisticsof Malaysia for 1985-2012

45o/owasfrom conversionofpre-existing croplandsuch deescalatedwhile the shareof forestsand other land use
as rubber. sourcesexpanded significantly. Over the 1990 to 1995
There are also argumentsthat the clearing of virgin period, the marginal ZVoincreasein the cultivation of oil
tropical forestswere primarily for the logging of timber palm was likely to have originated from the other land
(wwr 2005; Tan 2009). Consequently,the clearedarea sourcesbecausethe fall in pre-existingcropswere able
was allocatedfor oil palm cultivation. The many diverse to generatesome98% ofthe oil palm expansionarea.In
argumentslead to the seemingly elusive question on the subsequentperiods,respectively,44o/o,66ohand73o/o
whether or not oil palm plantation actually caused of oil palm area likely originated from non-preexisting
massivedeforestationin Malaysia. We examinedthis by crop land area.This trend signifies that land under pre-
comparing the shifts in land use for pre-existing crops existing crops may no longer be responsiveto any shifts
including rubber, coconut, and cocoa with changes in in oil palm demand as they did before.
land areaunder oil palm plantation. The preceding discussionssuggestthat future oil
Figure 6 comparesthe changesin land taken away palm expansionmight pose direct pressureon forest
from pre-existing crops with the increasein land under resourceswith wide implication on biodiversity and
oil palm cultivation. In the figure, the first column in each microclimate change effects, unless there is a clear
period representsa fall in pre-existing crop plantation policy shift, which emphasizes growth from value
while, the secondcolumn shows the increasein land use adding activities, particularly the high-end downstream
under oil palm plantation. industries.
The total increasein oil palm cultivation is greater
than the total decreasein cultivation of other crops in SHORTAGE AGRICULTURAL
OFDOMESTIC LABOR
aggregate.This somewhatsuggeststhat further expansion
ofoil palm hasbeenfueled by other types ofland supply. One of the most debated issues facing the Malaysian
Since the other type of land use also experiencedsmaller agricultural sector is the shortagesof domestic labor.
decreasethan the increase in oil palm plantation, it is While the contribution of agricultural employment
highly likely that the oil palm plantationexpansionoccurs (including livestock, forestry and fishing) declined very
on deforestedland. As indicatedearlier by the second substantiallyfrom26Yo of total employmentin 1990to
column in Table 3, the probableshareof pre- existing 11.4o/oin2Oll (Tables4 and 5), therewas alsoa clearshift
crops in expansionofnew land for oil palm cultivation in terms of ernployment proportion within the various

TABLE 3. Changesin Shareof Pre-Existing Crops (Rubber, Cocoa and Coconut) in Responseto Increasein Oil Palm Area

Time Changein oil Changein plantationof pre-existing Shareof pre-existingcrops Shareofother sources
Period palmplantation* crops(rubber,cocoa,coconut)* (rubber,cocoa,coconut) (including forestryarea)
tBl ( D ) =l
(A) (B) (c): ! c
A
1990-1995 453.8 -443.5 0.98 0.02
1995-2000 836.8 -467.5 0.56 0.44
2000-2005 674.6 -226.4 0.34 0.66
2005-2012 I025 -241 0.23 0.73
* Valuesare in thousandsofhectales
Sirrrca: Calculatedbrsed on tlrc StatisticsnublishcdLrvtlre [)cnartnrerrtol'Statistic.N'lalavsiaI 985-20| ]
 Research
Selected Issuesin theMalaysianAgriculturctlSector 133

agricultural sub-sectors.Most notably the proportion . A grave concern is the increasing reliance of
of labor employedin the oil palm sub-sectorincreased the agricultural sector particularly the oil palm sub-
remarkably,whereasthe number of employmentin other sector on foreign labor. The oil palm farm sub-sector
sub-sectors(rubbeq cocoa, and other crops including is labor intensivewith very low prospect for effective
pepperand tobacco)declinedsubstantially(Ministry of mechanization even in the very long run. Further, there
Plantation Industries and Commodities 2010). is also little scopefor domesticworkers to be drawn into
finding employment in this sector due to the relative
structural unattractiveness,while rapid economic
TABLE4. Shareof AgriculruralEmploymentwith Respect developmentand strengtheningof domesticcurrencies
to TotalEmployment in the labor-sourcecountries, particularly Indonesia
potentially affect labor supply in the intermediate to
Agricultural Percentagewith respectto longer-run. Another related issue is the imposition of
Year
Eriolovment total emDlovment current minimum wage policy for domestic and foreign
1990 1738.0 26 labor acrosseconomic sectorsincluding oil palm and
rubber sub-sectors.
1995 1492.7 18.7
In short, how labor supply uncertainties and the
2000 1407.5 15.2 implementation of the minimum wage policy will affect
2005 t40t.4 12.9 Malaysian agriculturalsustainabilityand competitiveness
2006 t392.4 12.5 in the longer run is quite unknown empirically.
2007 1389.9 12.2
FOOD-FUEL
DILEMMAANDPALMOIL'PRICEWAR'
2008 1390.9 t2
2009 1390.8 t2.0 Another daunting challenge in Malaysian agriculture
2010 1390.3 11.6 is the increasing public interests on food security. The
widely debated food-fuel dilemma across the globe in
201r 1389.4 n.4
light of global climate change and renewable energy
,Soarce:Ministryof PlantationIndustriesandCommodities
Malaysia development issuesis indeed very relevant to Malaysia.
(2012\
Malaysia is endowedwith abundantsupply of palm
oil and thus the country has a comparative advantage
TABLE 5. Shift in Employment Within the Agricultural
in using palm oil as a renewable feedstock for the
Sub-Sectors
production of the relatively environment friendlier
biodiesel.Technically,biodieselis a product of a mix of
Pepper fossil fuel (diesel)with either crudepalm oil or processed
Year Oil Palm" Rubbero Cocoa" and
palm oil. However, as the biofuel industry expands,both
tobaccod
biodiesel and palm oil-based food products ultimately
1990 I I 5,285 98,386 50,91I 84,4s6 will be competing for the same crude palm oil (ceo)
1996 t5t,t62 49,891 2r,369 78,866 as intermediate input. As illustrated in Figure 7, cto is
2000 2s1,039 ?5 R?? 6,903 92,167 produced from crushedfresh fruit bunches(rrns) which
2004 365,000 13,385 4,001 7s,974 is further processedto producebiodiesel,cosmeticsand
2005 chemicalproducts,andwide rangesof food productssuch
362,000 II,781 3,069 74,025
as cooking and frying oil, margarine, food emulsifiers,
2006 42,800 I I,882 66,655
and cocoa butter equivalent.
2007 426,000 I 1,503 69,903 Given that Malaysia'sbiodiesel industry is
2008 438,000 n,076 7t , t 0 9 synonymouswith palm oil, there are concernsthat
2009 451,000 10,377 70,968 there will be increasedcompetition in the use of the
2010 446,368 10,8
II 69,340 same palm oil input for the manufactureof biodiesel
and the aforementionedfinal products including food.
20rt 477,9t3 10 , 8 8 8 68,8',76
Should there be insufficient supply of feed stocks,
' The number of ernployment represents workers in the plantation
and contingent on relative price changes,increases
subsectoronly
n PeninsularMalaysiaonly and not including smallholderfamilies in demand for biodiesel may result in the expansion
' For the year 2008, employment in cocoa industry included estate of oil pahn cultivation. This rnight further aggravate
workers, smallholder,grinders and chocolate manufacturing environmentalissuesincluding loss of biodiversity,
(includingentrepreneurs) carbonerrissionsand micro climatic change.Therefore,
d Number of smallholderfarniliesinvolved in pepperplantation.and
the potential provision of economic incentivessuch as
number of employment at curing stationsexcluding some 38.000
biofuel mandatesand subsidiesrnay have considerable
tobacco fanners.
Sorrrr:e:Ministry of Plantationlndustriesand CornrnoditiesMalaysia
irnpactson relatedmarketsin Malaysia especiallyfood
(2012) p r o d u c t s ,w h i c h u t i l i z e st h e s a r n eC l , o i n t e r n r e d i a t e
134 Jurnal Ekonomi Malaysia 48(2)

Export Market

Crude Palm Oil

(cPo) BiodieselProduct

FIGURE7. SchematicFlowchart of CPo Products.

input. Consequently,in the longer run this may lead to To what extent such policy shocks may affect the
changesin the composition of agricultural outputs in competitivenessof the Malaysian oil palm economy,
related sub-sectorsdue to the links with primary input welfare andthe environmentwill be an importantresearch
markets- land and labor resources. challenge.
Further, the Malaysian government also provides
cooking oil (largely palm oil-based) subsidies(via EXTENSIVE
USEOFAGROCHEMICALS
the Cooking Oil Subsidy Scheme) to the tune of 37
percent (ad valorem) to benefit targeted low-income The Malaysian farming sector is still dependent on
householdgroups(JamalandYaghoob2011).In light of agrochemicals including chemical fertilizers and
budgetarypressures,there have been calls for a review pesticides. These agrochemicalswhile playing an
of the cooking oil subsidies. Such a move may have important role in sustaining the needed yields and
considerableimpacts on domestic cooking oil prices ensuring adequateprofit levels to producers inevitably
and outputs.Studieshave shown that domesticcooking lead to increasing environmental damages (such as
oil marketliberalizationposenegativelong-run impacts aquaticbiodiversity) and food safety issues.In addition,
on domestic cooking oil prices and outputs, while the substantial agrochemical subsidies provided to the
the production of biofuel from palm oil may increase paddy production sub-sectorrenderthe use ofsuch inputs
substantially(Jamaland Yaghoob201l). inefficient. In the longer-run, it results in even more
Another pertinent issue is associatedwith oil intensive useof chemical-basedinputs as the natural soil
palm trade policies. The introduction ofexport tax on base further erodes.
cPo productsby Malaysia encouragesthe domestic Mineral fertilizers constitute more than 90o/oof
downstreamprocessingof oil palm products while fertilizer consumption in Malaysia. Table 6 shows the
discouragingthe export of crude palm oil. However, in upward trend of fertilizer usein the country for2002,2001
recentyearstherehasbeenan importantdevelopmentin and 2008. Table 7 further depicts the decomposition of
relationto Indonesia'spalm oil exportpolicy.ln2012, the total nutrient consumptionfor industrial crops where
Indonesia imposed new differential export tariffs on oil palm standsat 84 %, rubber 9o/o,rice 6%, while the
her exports of palm oil, which affected substantially remaining goesto coconut,sugarcane,cocoaand tobacco.
Malaysia's downstream industry, as well as exports. It is also important to note here that oil palm, as
Media reports highlighted that the local palm oil Malaysia's most important industrial crop is notably
industry lost some wt9 billion in export revenue due potash (potassium) intensive. Technically, under-
to the lndonesianpolicy (Ooi 2014).As Malaysiaand utilization of potashwould leadto substantialdeclinein
lndonesiaboth contributesome90 percentofthe global yield. The main issuewith potashas a fertilizer element
supplyofpalm oil, and the fact that Malaysiahashuge is the dependenceof Malaysia on a few global players
vested interest in related investmentsin Indonesia, (producersand exporters)who possesssufficientmarket
incoherenttradepoliciesbetweenthe two countriesmay power in terms of price determination.
effectivelymanifestinto a "price war" with potential Similar to chemicalfertilizers,the use of pesticides
adversewelfare impactsespeciallyto Malaysia. hasalsoincreased(MalaysianCrop Life andPublic health
Taking into consideration the wide range of association, 2008).Theimpactofpesticideson food safety
aforementionedissues,it is crucial to review and in Malaysia is a growing concern(Economic Planning
appraisethe irnpactsof pertinentpolicy responses U n i t 2 0 0 4 ) . T a b l e 8 s h o w st h e v a l u e o f p e s t i c i d e s
affecting biodieseldeveloprnent,cooking oil rnarket consumedfor crops vigilance in Malaysia for different
liberalization a .n d t r a d ep o l i c i e sv i s - a - v i sI n d o n e s i a . Yeafs.
SelectedResearchIssuesin the MalaysianAgriculturul Sector 135

TABLE6. Consumptionof Npf Fertilizersin Malaysia on good agriculturalpractices(sustainableagricLrlture)

(Thousand tons of nutrient) and food safety issues.There is a need for <incentive
shiftinp via the provision of appropriate econornic
Crop groups 2002 2007 2oo8
;till
incentivesto stimulatethe developmentof the dornestic
organic fertilizer industry for targeted sub-sectors.
Industrialcrops 1055 1449 1539 0.97 Again, to what extent thesepolicy reviews may affect
Fruit crops 3 9 . 8 4 r . 6 0.02
32.6 the competitivenessof Malaysian agricultural sector,
including related factor markets, the environment,
Vegetable
crops 6.1 3.8 6.2 0-004
and national welfare will be an interestins research
Cashcropsandpepper 3.6 5 s . 3 0.003 indulgence.
Total 1095 1499.9rs92.l
Ali Sabri(2009)
Soarca.'Mohamed
CONCLUSION
TABLE 7. Fertilizer Nuhient Consumption by Industrial
Crops in (share) The purposeof this paperwas to highlight some selected
issues affecting the Malaysian agricultural sector.
Typeofcrop Share Firstly, we thought that the emerging notion of multi-
functional agriculture, which considers agriculture and
Oil palm 0.84
rural resourcesin totality, would be an important future
Rubber 0.09 policy agenda. Secondly, we espousedthe importance
Rice 0.06 of efficient allocation of scarceagricultural lands based
Otherindustrialcrops 0-01 on portfolio theory taking into considerationthe roles of
both agro-industrial crops for overall economic growth
Source: Mohamed Ali Sabri (2009).
and food crops in light ofnational food security needs,
while minimizing macro-systemicrisks that emanate
A relatedissueis the rising concemofhealth hazards from uncertainties in global factors. The third issue
posed by agrochemicals on the farmers themselves.A pertains to the dominance of the oil palm sub-sectorin
recent study found unsustainable use of chemicals in the Malaysian agricultural economy,while stressingthe
the rice sectorwas associatedwith health effects among problem of unrelenting dependency on foreign labor
somerice farmersresulting in substantialdecline in farm as well as emerging issuesthat emanatesfrom changes
output and farmers income (Department of Agriculture in Indonesia's palm oil export policy. An important
Malaysia,20l0). challengeto Malaysian agriculture also relates to the
There is now a growing effort to review the use of increasing public concerns on food security and the
chemical-basedfarm inputs and to place more emphasis potential effects of the food-fuel dilemma. Finally,
on the useof organic fertilizers. Malaysia is encouraging the implication of increased intensity in the use of
small-scaleproducers to move toward sustainable agrochemicalsincluding fertilizers and pesticideswas
farming to overcome the problems of chemical residues also deliberated.
in food production and to protect the environmentwhile In short, Malaysian agriculture and rurai socio-
improving the trade balance (Md. Wahid Murad et. al environmental resourcesare a symbiosis, having direct
2008). implications on agricultural sustainabilityand the vitality
There are merits for the govemment to review the ofrural areas.The sectoris also increasinglyassociated
major farm support program accordedto rice farmers in with domestic food security and safety concerns as
the form of agro-chemicalsin light of rising awareness well as trade and global environmentalissues.Studies
are warranted to identify appropriate policy reviews or
new interventions.Consequently,it is also importantto
quantify the impact of the relevant policy changes on
TABLE8. Consumptionof Crop CareProductsin
socio economicsand environmentalvariables,as well
Malaysia(ru1Million)
as the overall macro econolnv.
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