3.

0: Agricultural Sector

Assoc. Prof. Dr. Irwan Shah Zainal Abidin

Universiti Utara Malaysia
Learning Outcome
By the end of this topic, you should be able to:
• Explain the background of agricultural sector in
Malaysia.
• Illustrate the growth performance and the
production of agriculture sector.
• Analyse labour force and employment in the
agricultural sector.
• Explain the policy related to agricultural sector.
• Compose the objectives of National Agricultural
Policy (NAP)
Introduction
• The agricultural sector has contributed to the growth of the
Malaysian economy.
– major contributors to national income and export
earnings.
– foundation of economic growth and was the main
contributor to the national economy prior to the 1970s.
– Remained a stronghold of the major sectors contributing
to the economy after the manufacturing and service
industries despite rapid growth in the agricultural sector
was initially derived from the increase in the production of
livestock, fisheries, and other miscellaneous crops.
• The agricultural industry
– is moving to more valuable cash crops owing to the increase
in earnings from major commodities such as palm oil,
rubber, and food commodities.
• The increasing demand for food due to urbanisation and
population growth had increased the country’s import bill.
– focus on self-sufficiency in certain commodities to avoid
insufficient global supply of food due to the increasing
population growth rate.
• For Malaysia, the agricultural sector provides a livelihood for
farmers, fishermen, and agro-based industry employees, while
also ensuring sufficient food supply for the country.
Trend
• GDP Growth
• Production
– Rubber: Production, Land use, Plant Area; Export
– Palm Oil: Production; Export; Pricing; Planted
Area; The Future
– Paddy
– Other Corps: Labor Force and Employment;
Government institution; National Agriculture
Policy (NAP)
GDP Growth – Malaysia Economy
• Experiences structural changes in the past decades.
• The contribution of the agricultural sector to the economy is
relatively small in GDP terms though its absolute value has
been increasing over the years.
• The growth of the agricultural sector – driven by the robust
growth in the production of crude palm oil (CPO) and other
agricultural products.
• The share of the sector in GDP decreased from 29.9 percent in
1970 to 22.9 per cent in 1980, 18.7 per cent in 1990, 8.3 per
cent in 2000 (Table 2.1).
• However, after 2000, the agricultural sector’s share of GDP
experienced a slight uptrend, with the share of the sector in
GDP was 10.2 per cent in 2012.
 Table 2.1: The Sectoral Output (% GDP), 1970-2012

Sector 1970 1975 1980 1985 1990 1995 2000 2005 2010 2011 2012

Agriculture, forestry, livestock,

29.9 27.7 22.9 20.8 18.7 12.7 8.3 8.4 10.5 12.0 10.2
fisheries

Industry 32.2 26.8 35.8 36.7 42.2 40.5 46.8 46.9 41.5 40.7 41.2

Services 37.7 45.5 41.3 42.6 39.0 46.8 44.9 44.7 48.0 47.3 48.6
A) RUBBER
• ASEAN countries produce almost 80% of the world natural
rubber production.
• Malaysia is the third largest producer of natural rubber in the
world.
– From a production amount of 1.2 million tonnes of natural
rubber in 2006, Malaysia faces a declining trend in natural
rubber production since 2006 due to competitions.
 Table 2.4: Production of Natural Rubber by Natural
Rubber Producing Countries, 2006-2011
Quantity (‘000 tonnes) Annual Rate of Growth (%)

2006 2007 2008 2009 2010(1) 2011(1) 2006 2007 2008 2009 2010(1) 2011(1)
Thailand
3,137 3,056 3,090 3,164 3,072 3,247 6.8 -2.6 1.1 2.4 -2.9 5.7
Indonesia
2,637 2,755 2,751 2,440 2,843 2,938 16.1 4.5 -0.1 -11.3 16.5 3.3
Malaysia
1,284 1,200 1,072 857 970 1,050 14.0 -6.5 -10.7 -20.1 13.2 8.2
India
853 811 881 820 845 890 10.5 -4.9 8.6 -6.9 3.0 5.3
Vietnam
555 606 660 724 750 780 15.3 9.1 8.9 9.7 3.6 4.0
China
538 588 548 643 647 690 -0.6 9.3 -6.8 17.4 0.6 6.6
Sri Lanka
109 118 129 137 148 153(2) 4.6 7.7 9.9 6.0 8.1 3.3
Philippines
88 101 103 98 102 107 11.4 14.9 1.7 -4.9 4.7 4.6
Cambodia
21 19 19 34 45 63 4.4 -10.8 0.0 81.1 28.8 42.0
Total
9,222 9,254 9,253 8,917 9,422 9,918 10.7 0.3 0.0 -3.6 5.7 5.3
Rubber’s Production, land use and Planted
Area
• The rubber products industry comprises four sub-sectors:
 Latex products
 Tyres and tyre-related products
 Industrial and general rubber products
 Footwear
• Natural rubber recorded a production of 1.29 million tonnes
in 1990. Natural rubber production dropped to 0.92 million
tonnes in 2000.
• It is mainly due to conversion of plantation land to
commercial use Besides, Shortage of plantation workers due
migration of workers to more lucrative jobs in other sectors of
the economy
• In 2004, rubber output rose sharply by 18.6% (1.17 million
tonnes) – yield improvement (Table 2.5).
• In 2005, production of rubber declined slightly – unfavourable
weather conditions. Slower growth in rubber production is
still expected compared to palm oil production in future as
rubber planted area.
• Natural rubber has continued to be one of the major
contributors to primary industry despite area fell from 1.84
million hectares in year 1990 to a record low of 1.01 million
hectares in 2010.
• Production rebounded in 2010, as higher prices of rubber
drove tapping activity, and output was at 0.94 million tonnes
in 2010 as shown in Table 2.4. as prices exceeded the
historical high of RM10.71 per kilogram to close at RM15.01
per kilogram.
Table 2.5: Production, Planted Area and
Export of Natural Rubber, 1990-2010
Production Export
Year Planted area Production Value Volume
(‘000 hectares) (‘000 tonnes) (RM million) (‘000 tonnes)
1990 1,836.7 1,291.0 3,028.20 1,321.8
1991 1,818.7 1,255.7 2,689.90 1,131.9
1992 1,792.3 1,170.9 2,357.20 1,035.0
1993 1,762.8 1,074.3 2,131.73 937.1
1994 1,737.1 1,100.6 2,926.79 1,017.0
1995 1,688.8 1,087.5 4,038.32 1,013.4
1996 1,644.3 1,082.3 3,509.87 980.4
1997 1,616.5 971.1 2,970.67 1,018.2
1998 1,543.6 883.5 2,828.66 988.9
1999 1,464.8 777.8 2,343.00 983.7
2000 1,430.7 926.2 2,571.30 978.0
2001 1,389.3 882.0 1,886.40 820.9
2002 1,348.8 890.0 2,491.90 886.9
2003 1,325.6 985.7 3,581.50 946.5
2004 1,278.8 1,168.7 5,210.50 1,109.1
2005 1,271.3 1,126.0 5,786.60 1,128.0
2006 1,263.6 1,283.6 8,234.60 1,137.6
2007 1,247.4 1,198.2 7,335.20 1,018.1
2008 1,247.0 1,072.4 8,111.30 915.5
2009 1,014.0 849.1 4,459.50 697.6
2010 1,013.0 939.2 9,210.10 900.8
B) PALM OIL
• The palm oil industry Contributed RM17.0 billion(3.3%) to
Malaysia’s total GDP, and accounted for RM49.6 billion in
exports.
• The industry provides socio-economic benefits by providing
direct employment to over 600,000 workers and helping to
reduce poverty in rural areas.
• The value of palm oil has been increasing ever since the import
tariffs for palm oil were reduced and the hectares for palm oil
plantation were increased.
• However, Malaysia now stands to lose this competitive
advantage as she competes with palm oil from other countries
in Asia, Africa, and South America, and close substitutes such as
oil and fat products such as soybean, sunflower and rapeseed
oils.
Figure 2.1: History of the Malaysian Palm Oil
Industry
 Palm oil-Production
• Malaysia is one of the biggest palm oil producers dominating the
global supply of palm oil together with Indonesia with more than
half of the world’s production since the 1990s.
• Malaysian production of crude palm oil (CPO) has been steadily
increasing from 1990 till 2013, except when production fell by
8.25 per cent in 1998 (Table 2.8).
• Asian financial crisis in 1998 and the worldwide moisture stress
(El Nino Phenomenon) coincidentally occurred at a time when
palm trees were facing cyclical stress, which causes the
production fell sharply from 9.1million to 8.3 million tonnes in
1998
• In 2011, a favourable turn in weather conditions and stronger
palm oil prices raised the production of CPO by 11.3% to 18.9
million tonnes.
• Due to the recovery in the production of palm oil, the
agricultural sector as a whole was able to expand at a stronger
pace of 5.6 per cent in 2011
• Thereafter, Malaysia’s production of CPO had increased to
approximately 19 million tonnes in 2013.
• The palm oil industry also benefited from the limited world
supply of edible oils and fats. The production of palm oil is
expected to increase with the expansion of planted areas and
higher oil extraction rate.
Palm Oil - Export
• Malaysia is the largest contributor of palm oil in the global
market, followed by Indonesia.
• Exports of oil palm products comprised palm oil, palm kernel
oil, palm kernel cake, Oleochemicals and finished products.
• Due to Weather abnormalities and the effect of El Nino, the
large decline in production drive up the premium on palm oil
prices.
• Financial crisis of 1997 which leads to the depreciation of the
Malaysian Ringgit made Malaysia’s share up to 60.5% of the
world’s total exports in 2000 in the palm oil industry as prices
were quoted in U.S. dollars.
C) PADDY
• Rice is the Staple and security food crop of the country.
• It is the third most widely planted crop in Malaysia after palm oil
and rubber.
• However, Malaysian imports rice from the neighbouring
countries due to insufficient supply
• The high competition from imported rice causes problems to
farmers as domestic farmers do not have market power.
• It caused the price of domestic paddy to plunge and the
demand for domestic paddy production to fall.
• Thus, government is subsidizing heavily in this sector but if the
subsidies were eventually reduced, paddy farmers would not be
able to compete in the open market.
Table 2.12: Self-Sufficiency Levels in Rice,
2000-2010 (%)

Commodity 2000 2005 2010

Rice 70 72 90
 Labour-Force and Employment
• Agriculture has increased job opportunities and created
alternative sources of income.
• However, total employment in the agricultural sector declined
over the years from 15.3% in 2000 to 10.9% in 2010 based on
workforce.
• However, the increase in value-added per worker from
RM13,115 in 2000 to RM21,299 in 2010 implied an
improvement in labour productivity at an average rate of 6.2 per
cent per annum.
• Under the 10th Malaysia Plan (2011-2015), it is estimated that
the share of the workforce employed in the agricultural sector
will be 10.5% in 2015.
Table 2.13: Employment and Value-added
per Worker in Agriculture, 2000-2015

Estimate
Year
Item (10 MP)
2000 2005 2010 2015
1,385.2
Number (‘000) 1,423.0 1,405.7 1,323.8
% of total 10.5
15.3 13.3 10.9
employment
Value-added per
worker (RM in 1987 13,115 15,752 21,299
prices)
Policy - National Agricultural Policy (NAP)

• National Agricultural Policy (NAP1) was introduced in 1984.

– NAP was formulated to lessen poverty and raise efficiency,
particularly in the non-estate sector or smallholdings
– protect the income of rural residences.
– emphasises the expansion of export crop estate, especially
in oil palm and cocoa.
– Farmers face great difficulties without government
support, partly due to the fluctuation of commodity prices
in the market.
– NEP’s efficient resource allocation had increased the value-
added from 3.15% in the years 1981-85 to 4.6% in the
years 1986-1990 in agriculture sector.
• NAP2 was implemented in year 1992-1998
– had similar objectives to its predecessor.
– emphasis on the role of the private sector’s participation in
short- and medium-term food production and marketing
reform
– emphasis on the importance of biological diversification.
– Recognising the need to achieve balanced development in
other sectors, it had to increase agricultural productivity,
efficiency, and competitiveness through the
commercialisation of agricultural activities and linkages.
– To meet the challenges posed by the continued focus on
industrialisation in the national economy, NAP2 was
reviewed and NAP3 (1998-2010) was formulated based on
the revised NAP2.
• NAP3 was launched in 1998 and implemented to 2010
– contained an overriding goal of income maximisation to
optimal utilisation of the sector’s resources.
– takes into account the volatility of the currency market
and liberalisation of the financial market.
– designed to conform to the favourable environment to
promote growth in the agricultural sector
– emphasise on food security, increased productivity and
competitiveness, private sector investment,
enhancement of exports of domestic food production,
deepened links with agro-based industry, reduced
dependency on imports, the venture into new frontier
areas, as well as the efficient utilisation of natural
resources.
Strategies of NAP3
• The objectives of the agriculture sector will be achieved
through the implementation of NAP3 strategies:
– Optimisation of Resource Use
– Acceleration of Agro-Based Industries Development
Practices
– Research and Development (R&D)
– Reformed Marketing
– Development of a Dynamic Food Industry
 Issues and Challenges: Food Security
• Food security exists when all people, at all
times, have physical, social and economic
access to sufficient, safe and nutritious food
that meets their dietary needs and food
preferences for an active and healthy life.
Food Security
 Strategies and Measures
• Increase local youth participation in agricultural
sector
– Attraction factors: higher wages, improvement of
working environment, job status, facility and benefit in
plantation field and etc.

• Shift from labour intensive to capital intensive

- Technology, mechanization, automation and
economies of scale must be accelerated to replace
the aged farmers.
CONCLUSION
• The agricultural sector has been one of the main contributors to
national income since independence.
• It has maintained real GDP growth constantly for years. For
decades, the sector has been able to provide labour
enforcement and promote employment, particularly in rural
areas.
• The effects of trade liberalisation on Malaysian agriculture
would bring benefits only to those industries that are truly
competitive and vice versa. Therefore, different types of
problems will arise when the country opens up the market.
• Remedies for the sustainability of the agricultural sector are
extremely crucial. It is impossible to move towards the
realisation of the vision of a developed country without a
systematic self-sufficiency in major crops and commodities in
the future.