BBB3633 Malaysian Economics

Transcription

1 BBB3633 Malaysian Economics Prepared by Dr Khairul Anuar L2: Agriculture Sector

2 Content 1. Introduction 2. Value-Added 3. Production 4. Rubber 5. Palm Oil 6. Labour Force and Employment 7. Government Institutions 8. National Agricultural Policy

3 1. Introduction The Malaysian economy experienced 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. Other sectors, such as manufacturing, finance, transport and communications, and government services have grown at a faster rate. The growth of the agricultural sector has been mainly 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% in 1970 to 22.9% in 1980, 18.7% in 1990, 8.3% 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 in 2012.

4 4. Rubber

5 2. Value-Added The performance of the agricultural sector has improved in terms of valueadded. This is largely due to the utilisation of new technologies, transformation to large-scale commercial production, wider adoption of the group farming system, improving market accessibility, and better commodity prices. The agricultural sector maintained its value-added growth rate at an average of 1.3% per annum for the period , while the valueadded industrial sector and services sector grew at an average rate of 9.2%t per annum and 7.I% per annum, respectively, during the same period (Table 2.2). However, during the last decade ( ), the agricultural sector saw an improvement in the average value-added growth rate of 2.95% as compared to the previous period, while the value-added growth rate in the other sectors declined. Various tax incentives were given to the firms to attract foreign direct investment in the agricultural sector.

6 3. Production The National Agricultural Policy (NAP) emphasises the redevelopment of alienated agricultural land, particularly to expedite modenisation and to improve productivity. The agricultural sector supplies raw materials to the manufacturing sector to support the resource-based industries, which include rubberbased products (tyres, footwear, and gloves), palm oil-based products (detergents, oleo-chemicals, and personal care products), and woodbased products (sawn timber, plywood products, and furniture and mouldings). This has strengthened the upstream role of agricultural and forestry industries, in which it encourages vertical integration and increases farm income. Rubber, oil palm cultivation, and paddy have recorded greater hectarage proportion in terms of agricultural land use than other agricultural commodities. In 2010, agricultural land use was: >rubber million hectare >paddy million hectares >oil palm-4.6 million hectares,

7 4. Rubber ASEAN countries produce almost 80% of the world natural rubber production. During the period , world production : Thailand produced %, Indonesia produced - 29%. Thailand appears to be the world largest exporter of rubber production, followed by Indonesia. 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 faced a declining trend in natural rubber production to 1.05 million tonnes in 2011 due to increasing competition from neighbouring countries.

8 Rubber

9 Rubber

10 4. Rubber Production, Land Use and Planted Area Natural rubber has continued to be one of the major contributors to primary industry even though hectarage fell to 1.43 million hectares in 2000 from 1.84 million hectares in 1990, and continued to fall to a record low of 1.01 million hectares in Natural rubber recorded a production of 1.29 million tonnes in million tonnes in The continued decline in production was attributed mainly to the conversion of rubber land to other crops and for other purposes. On the other hand, shortage of plantation workers due to the migration of workers to more lucrative jobs in other sectors of the economy has also largely contributed to the reduction in the output of rubber. However, in 2004, rubber output rose sharply by 18.6% to 1.17 million tonnes, largely due to yield improvement. Then in 2005, production of rubber declined slightly to 1.13 million tonnes due to unfavourable weather conditions. Slower growth in rubber production is still expected compared to palm oil production in the refute.

11 4. Rubber Production, Land Use and Planted Area Recognising the reduction in production for natural rubber during the second half of 1990s, R&D activities were focused on the upstream sector, addressing issues faced by rubber producers such as: the need to increase land and labour productivity to improve planting materials, and to accelerate the adoption of labour'-saving technologies to overcome labour shortage via technologies such as the RRIMFLOW and the REACTORRIM short cut tapping systems. The production of rubber sustains at an average of 3.9% per annum, attributed mainly to the increasing demand for natural rubber, and partly due to the increased tapping and wider adoption of the Low Intensity Tapping System among smallholders. On the other hand, the transfer of appropriate technologies to smallholders is facilitated by related agencies such as Federal Land Development Authority (FELDA), Federal Land Consolidation and Rehabilitation Authority(FELCRA), Rubber Industry Smallholders Development Authority (RISDA), and state development agencies

12 4. Rubber - Export The rubber products industry comprises four subsectors, namely latex products, tyres and tyro-related products, industrial and general rubber products, and footwear. Rubber production has been declining over the years because many plantation lands have been converted for commercial use. The rubber sector hopes to stay competitively by increasing the current yield using modem techniques. The internal consumption of natural rubber rests in the range of 10-15%, while the rest is exported as raw and semi-raw material, especially as smoke of sheet rubber latex and rubber blocks.

13 4. Rubber - Export Latex products include rubber gloves, catheters, latex thread, condoms, and foam products. Malaysia is the worlds leading producer and exporter of catheters, latex threads, and natural rubber medical gloves, supplying more than 80 per cent of the world market for catheters and 70 per cent for latex threads. Nevertheless, the use of synthetic gloves to replace latex gloves has affected the Malaysian rubber industry. Although studies have found the failure rate of vinyl gloves to be in the range of 26 to 61% compared to latex gloves' failure rate of 0 to 4%, there is a growing shift towards the use of synthetic vinyl gloves, called PVC, due to increasing propaganda about possible allergic reactions to latex protein. In addition, the growth of production of pneumatic tyros was marginally primarily due to the stiff competition from competitively" priced tyres originating from other ASEAN countries and the People's Republic of China. Therefore, artificial rubber in the market has caused the price of natural rubber to drop.

14 5. Palm Oil The palm oil industry makes a significant contribution to the Malaysian economy, contributing RM17.O billion or 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.

15 5. Palm Oil Malaysia enjoys a first-mover' advantage in the palm oil industry in expertise and technological advancements, due to early commercialization (see Figure 2.1). 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 with other oil and fat products such as soybean, sunflower and rapeseed oils. The arable land available for oil palm planting is also exhausted, slowing down production of palm oil in the country. In order for Malaysia to win back its competitive advantage in the palm oil industry, the sector must improve R&D, increase the contribution of smallholders (who comprise nearly 40% of the planted area in the country, and most importantly, move downstream into higher value-added products.

16 Palm Oil - History of the Malaysian Palm Oil Industry

17 5. Palm Oil - Production Malaysia is one of the world's major palm oil producers. Until 2005, Malaysia was the world's largest producer of palm oil with 14.9 million tonnes produced in 2005 and Indonesia the second largest producer, producing 14.1 million tonnes. However, from 2006 onwards, production of palm oil by Indonesia has exceeded that of Malaysia. During the period , Malaysian production of palm oil grew only by 17.4%, while Indonesian production increased by 48.2% (see Table 2.7).

18 Palm Oil - Production

19 5. Palm Oil - Production Malaysian production of CPO has been steadily increasing from 1990 till 2013, except when production fell sharply by about 800,000 tonnes to 8.3 million tonnes in 1998 from 9.1 million tonnes in This was due to the aftermath effect of the Asian financial crisis. Another cyclical stress happened where production declined by about 4% from its value in 2008 to million tonnes in 2010 due to unfavourable weather conditions. Unexpected hot and dry weather conditions from the El Nino phenomenon in the first half of the year combined with excessive rainfalls from the La Nina phenomenon in the second half of the year resulted in less CPO production in 2010.

20 5. Palm Oil - Export Exports of oil palm products comprised palm oil, palm kernel oil, palm kernel cake, oleo chemicals and finished products. When there are the weather abnormalities, following the effect of El Nino for instance, the result is unprecedented dryness in the palm oil-producing countries. Such decline in world production would drive up the premium on palm oil prices. On the other hand, during the financial crisis of 1997, the depreciation of the Malaysian Ringgit and Indonesian Rupiah benefited both countries in the palm oil industry as prices were quoted in U.S. dollars. Malaysia's share made up 60.5% of the world's total exports in 2000 (51% in 2005 and 45% in 2009), while Indonesia's share of exports was also impressive, being close to Malaysia's share, and slightly exceeding the latter's share of total exports in Indonesia's share of total exports was 27.6% of the world production in the year 2000 (39.4% in 2005 and 45.3% in 2009).

21 5. Palm Oil - Export In 2001, Indonesia exported only 4.94 million tonnes compared to Malaysia with million tonnes of exports (Table 2.9). In fact, Indonesia enjoys some advantages vis-a-vis Malaysia, in terms of lower costs of land, labour, and raw materials. For this reason, companies from US and Singapore have invested in oil palm plantations in Indonesia.

22 8. Consumer Price Index (CPI) and Inflation 2.9

23 5. Palm Oil - Export Even though Malaysia holds a comparative advantage in producing palm oil, it has faced export competitiveness during the past decades. Passionate campaigns in the late 1980s by the American Soybean Association (ASA) against tropical fats' Endorsement of the ASA and US Food and Drug Administration on the findings that palm oil contains important natural antioxidants, vitamin E and beta-carotene which inhibit the spread of cancer and claims to increase the risk of cardiovascular illnesses. On the other hand, the prices of soybean oil were below its cost of production, but the export of soybean oil from US had increased. This is possible due to the US government's support for food aid programmes as well as export-assistance programmes such as credit guarantees, Loan Deficiency Programme, and Export Enhancement Programme.

24 5. Palm Oil - Export Malaysian palm oil and palm oil products are exported to more than 130 countries worldwide with major markets being the People's Republic of China, the EU, Pakistan and India (Table 2.10) It is noted that the South Asian region (India, Bangladesh and Pakistan) is the largest importer of Malaysian palm oil. Recently, Malaysian export of palm oil to India has declined due to higher import of Indonesian palm oil. India was the second highest importing country of palm oil from Malaysia after China.

25 Palm Oil - Export

26 5. Palm Oil Planted Area In 2013, the private sector is the largest player with 62% of total hectares followed by government agencies such as FELDA (13%) and FELCRA (3%), RISDA (2%), and state agencies (6%), collectively accounting for 25%, and unorganized independent smallholders at 14% with a total area of 5229,729 hectares land. Figure 2.3 shows that oil palm planted areas in Malaysia had increased rapidly. Peninsular Malaysia continued to account for most of the palm oil planted-areas (60%) compared to 29% in Sabah and 11% in Sarawak in 2002; as compared to oil palm planted areas in 1982 of 88.6% in Peninsular Malaysia, 9.3% in Sabah, and 2.03% in Sarawak. However, in terms of growth of oil palm-planted areas, Sabah appears to be the fastest growing area. By 2010, Peninsular Malaysia accounted for 52%, Sabah accounted for 29%, and Sarawak accounted for 18.9% of total oil palm planted areas in Malaysia. Due to the excessive supply of palm oil, its price declined in the commodities market.

27 Palm Oil Planted Area 25

28 5. Palm Oil The Future As far as the future is concerned, the industry strives for: better oil quality of palm oil, discovery and utilisation of secondary plant products, oleo chemicals into consumer products, cultivation of oil palm in new areas, especially in East Malaysia, and an expected rise in the total hectares planted, and discovery of new markets for palm oil and its by-products. For instance, Malaysia hopes that the oil palm sub-sector will become a lucrative export industry by transforming oil palm into pulp and paper products, turning trunks into furniture, utilizing palm oil as fuel, and using its fibre for block board production.

29 5. Palm Oil The Future Having introduced new technologies, the Malaysian Palm Oil Board (MPOB) has been able to make several breakthroughs, particularly in developing cost-effective milling and refining techniques, improving yields, minimising wastage, eradicating diseases, and creating higher value-added palm-based products, as well as palm-based biomass. A significant development in the Malaysian oil palm industry in 2005 was the commercialisation of palm oil-based biofuel at a global level. The Malaysian government has decided to set aside 6 million tonnes of its existing 15million tonnes of annual output for the biodiesel industry which has gained greater momentum in the wake of rising crude petroleum prices. Malaysia developed Envo Diesel, a biofuel of 5% processed palm oil and 95 per cent petroleum diesel that was introduced in 2007 for government vehicles

30 6. 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. Between 2000 and 2010, employment in the agricultural sector contracted at an average rate of 0.7% per annum from 1.42 million to 1.32 million workers (Table 2.12). The share of the workforce employed in the agriculture sector declined from 15.3% in 2000 to 10.9% in 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 annum.

31 Labour Force and Employment

32 7. Government Institutions FELDA plays the most significant role in the development of oil palm in Malaysia. It was formed in 1956 to help the rural Malays by giving them alongterm advance to maintain their smallholdings underland development schemes. Another government land scheme is FELCRA Berhad. It was established under the National Land Rehabilitation and Consolidation Authority (Incorporation) Act 1966 to improve the productivity and livelihood of settlers not covered under FELDA. The Malaysian Rubber Board (MRB)has also continued its efforts to encourage foreign direct investments in rubber products and to promote products to local and overseas consumers. For promoting and marketing activities of the Malaysian palm oil industry, the Malaysian Palm Oil Promotion Council was formed in Other related research institutes are the Oil Palm Research Institute, the Palm Oil Refiners' Association of Malaysia, and the Agriculture Research & Advisory Bureau (Malaysia).

33 7. Government Institutions On the other hand, Bank Pertanian Malaysia /Agro Bank which was established in 1969, carries out the primary objective of promoting sound agricultural development in Malaysia. This semi-government body provides credit facility solely to the agricultural sector to develop products' marketing and distribution. Somehow, its efforts are hindered because it requires some form of guarantee from the insurance industry to ensure that the loans given are protected. The Palm Oil Research and Development Board under the Palm Oil Research and Development Act 1979-set up the Palm Oil Research Institute of Malaysia (PORIM). PORIM expands the current uses of palm oil products, improves product efficiency and quality of products, promotes the use of oil palm products vis-b vis other oils and fats, and coordinates publicity and marketing activities related to palm oil products.

34 7. Government Institutions On the other hand, the Palm Oil Registration and Licensing Authority (PORLA) was incorporated by the Act of Parliament at the end of October 1977 to ensure proper conduct with respect to regulatory requirements and licensing of the Malaysian palm oil industry. However, the functions of both PORIM and PORLA have been taken over by the MPOB. MPOB is responsible for conducting and promoting R&D activities related to the palm oil industry, commercializing research findings, providing advisory and consultancy services to the oil palm industry, liaising and coordinating other bodies within and outside Malaysia, as well as implementing training programmes and improving HRD in line with the needs of the industry. MPOB Technical Advisory Service Units continue their efforts to increase market acceptance and consumption of palm oil.

35 8. National Agricultural Policy NAP3 was launched in 1998 and contained an overriding goal of income maximisation vis-s vis optimal utilisation of the sector's resources. Specifically, NAP3 takes into account the volatility of the currency market and liberalizationof the financial market. This policy is designed to conform to the favourable environment to promote growth in the agricultural sector and to continue emphasizing productivity and market-driven growth. NAP3's emphasis is 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.

36 8. National Agricultural Policy - Strategies of NAP3 The followimng objectives of the agriculture sector will be achieved through the implementation of NAP3 strategies: Optimisation of Resource Use (Develop new industries from Malaysia's rich natural resources. Focus on the consolidation of abandoned agricultural land and undertake measures to address problems of specific labour shortages). Acceleration of Agro-Based Industries Development Practices (Develop high value-added products from agro-based and its related downstream industries. Create new markets for agricultural products for the purpose of export earnings.) Research and Development (R&D) (R&D in resource management, production methods, processes, packaging and the development of animal breeds to enhance productivity and production capabilities).

37 8. National Agricultural Policy - Strategies of NAP3 Reformed Marketing (Issues related to market access, competition, market shares, prices, and trade practices are addressed through an integrated approach combining demand and supply aspects, and by creating conditions for market transparency, specifically oriented to consumer preferences and responsive to market needs and opportunities). Development of a Dynamic Food Industry (Food Policy emphasizing both quality and nutritional food will also be formulated and implemented).