Technical ReportPDF Available

The Status of the Paddy and Rice Industry in Malaysia

April 2019

Authors:

Sarena Che Omar

Khazanah Research Institute

Siti Aiysyah Tumin

Khazanah Research Institute

This report provides an overview of the paddy and rice industry in Malaysia covering various segments of the paddy and rice supply chain. The report is published by Khazanah Research Institute and can be accessed here: http://www.krinstitute.org/Publications-@-The_Status_of_the_Paddy_and_Rice_Industry_in_Malaysia.aspx

Quantity and share of the world's rice export/import and country's self-sufficiency level (SSL) of the top rice exporters and importers in Southeast Asia, 2016

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Multidimensionality of food security food security FOOD SECURITY

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Gantang in Act 528, an old measurement system which is no longer used

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Number of employed persons by industry, 2016 (million persons)

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Illustration on the sources of income for paddy farmers

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Figures - uploaded by Sarena Che Omar

Content may be subject to copyright.

Content uploaded by Sarena Che Omar

Content may be subject to copyright.

The Status of the Paddy and Rice

Industry in Malaysia

Sarena Che Omar, Ashraf Shaharudin and Siti Aiysyah Tumin

Paddy Harvesting in Kedah, Malaysia

The Status of the Paddy and Rice

Industry in Malaysia

Perpustakaan Negara Malaysia Cataloguing-in-Publication Data

THE STATUS OF THE PADDY AND RICE INDUSTRY IN MALAYSIA

ISBN 978-967-16335-7-1

1. Rice--Economic aspects--Malaysia. 2. Rice--Breeding--Malaysia.

I. Khazanah Research Institute.

338.1731809595

This work is available under the Creative Commons Attribution 3.0 Unported license (CC BY3.0) http://

creativecommons. org/licenses/by/3.0/. Under the Creative Commons Attribution license, you are free to

copy, distribute, transmit, and adapt this work, including for commercial purposes, under the following

attributions:

Attribution – Please cite the work as follows: Khazanah Research Institute. 2019. The Status of the Paddy

and Rice Industry in Malaysia. Kuala Lumpur: Khazanah Research Institute. License: Creative Commons

Attribution CC BY 3.0.

Translations – If you create a translation of this work, please add the following disclaimer along with the

attribution: This translation was not created by Khazanah Research Institute and should not be considered

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content or error in this translation.

Published April 2019. Published by Khazanah Research Institute at Level 25, Mercu UEM, Jalan Stesen

Sentral 5, Kuala Lumpur Sentral, 50470 Kuala Lumpur, Malaysia.

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Publication orders may be placed through our website www.KRInstitute.org

Cover photo by Wusvus Productions.

This report was authored by Dr Sarena Che Omar from Khazanah Research

Institute (KRI). Chapter 2 Box Article 2 was co-authored with Ahmad Ashraf

Ahmad Shaharudin. Chapter 5 was co-authored with Siti Aiysyah Tumin and

Ahmad Ashraf Ahmad Shaharudin. The report was assisted by researchers Chut

Afifah Muhammad Radzi, Siti Aiysyah Tumin, Ahmad Ashraf Ahmad Shaharudin

and Chong Tze Huey. It was supported by the following interns: Ahmad Nazmi

Bahruddin, Bryan Goh, Huda Jamari, Mohamad Afiq Husaini, Wong Yi Peng

and Mohd Jefrey Sani Ting.

It was approved by the editorial committee comprising of Datuk Hisham

Hamdan, Dr Nungsari Ahmad Radhi, Junaidi Mansor and Dr Suraya Ismail.

Junaidi Mansor, Director of Research and Datin Paduka Professor Fatimah

Mohamed Arshad, Visiting Senior Fellow at KRI were the internal advisors for

this report.

Dr David Dawe, Regional Strategy and Policy Advisor/ Senior Economist at the

Food and Agriculture Organization of the United Nations (FAO) was the

external reviewer.

It was authorised for publication by Dr Nungsari Ahmad Radhi.

ACKNOWLEDGEMENTS

Special thanks to Junaidi Mansor and Professor Datin Paduka Fatimah Mohamed

Arshad for providing guidance, supervisory and support in the preparation of

this report. Sincerest gratitude to the other internal reviewers including the

EXCO members of KRI, Senior Advisor, Professor Jomo Kwame Sundaram and

to the rest of the researchers at KRI for their input and positivity.

Additionally, thank you to all stakeholders engaged, including input suppliers,

farmers, millers, government agencies and academicians.

Specifically, heartiest appreciation to Muda Agricultural Development Authority

(MADA) for their support, cooperation and dedication towards this research.

Lastly, thank you to the team at Satellite Imaging Pte. Ltd. for their technical

assistance in the remote sensing satellite imagery research.

CONTENTS

EXECUTIVE SUMMARY i

RESEARCH BACKGROUND iv

CHAPTER 1

INDUSTRY OVERVIEW 1

The World Rice Situation 1

Regional Rice Situation 4

Rice in Malaysia – Statistics 10

BOX ARTICLE 1:

How Much Land is Used for

Paddy Cultivation? 15

Rice in Malaysia – Paddy and

Rice Supply Chain 19

Chapter Key Takeaways 21

CHAPTER 2

RICE POLICY AND

REGULATIONS 23

Agricultural Policies – History 23

Policy Objectives – Rice Self-

Sufficiency and Food Security 26

BOX ARTICLE 2:

Self-Sufficiency Level (SSL) 29

Measuring Food Security –

How Does Malaysia Fare? 30

Market Interventions 38

National Budgetary Burden 40

Governance & Data Reporting 43

CHAPTER 2

BOX ARTICLE 3: Digitalisation

of the Supply Chain 51

Chapter Key Takeaways 61

CHAPTER 3

SUPPLY CHAIN: FARM INPUT 65

Seed Production and Supply 66

The Journey of the Paddy

Seeds – from Breeding to Farm 66

Paddy Seed Certification Scheme 73

Challenges – Supply Issues

with Made-to-Order Seeds 75

Challenges –

Few Released Varieties 76

BOX ARTICLE 4: The

International Rice Gene Bank,

an Untapped Potential 83

Chemical Input 85

BOX ARTICLE 5: The Use of

Unregistered Pesticides 86

Mechanisation & Automation 88

Chapter Key Takeaways 92

The full report, the infographics booklet and the Appendix may be

downloaded from our website at www.krinstitute.org

CHAPTER 4

SUPPLY CHAIN: PADDY

PRODUCTION (FARMING) 94

Farmers’ Demographics 95

Farmers’ Income 99

Farm Yield 102

Cost of Production 107

Contract Farming – Improving

Farmers’ Income and

Strengthening the Supply Chain 123

BOX ARTICLE 6: Contract

Farming in Paddy Cultivation 125

Chapter Key Takeaways 133

CHAPTER 5

SUPPLY CHAIN:

MIDSTREAM & IMPORT 137

Processing Paddy into Rice 137

Tight Profit Margin 141

Policy Recommendations 144

Import of Rice 145

Import Statistics 145

Malaysia May Continue to

be a Net Importer 147

Policy Implications 148

Stockpile 150

BERNAS in the Supply Chain 151

History of BERNAS 151

CHAPTER 5

BOX ARTICLE 7:

History of Lembaga Padi dan

Beras Negara (LPN) 152

BOX ARTICLE 8:

Market Structures and State

Trading Enterprise (STE) 156

The Activities of BERNAS 159

Chapter Key Takeaways 165

CHAPTER 6

SUPPLY CHAIN: RICE

CONSUMPTION 168

Rice Consumption – How

Much Do We Eat as a Nation? 168

Rice Consumption – How do

Different Groups in Malaysia Eat? 174

BOX ARTICLE 9: Invisible

Consumption 180

Rice Subsidy – How Much of

Our Rice is Publicly Funded? 184

Rice Prices 187

Chapter Key Takeaways 189

ABBREVIATIONS 191

GLOSSARY 194

REFERENCES 196

“Singkirkan segala banjir besar yang

boleh melimpahi padiku.

Singkirkan kemarau panjang yang

mengeringkan tanah bendangku.

Jauhkanlah segala malapetaka yang

menghalang kami.

Jauhkan segala ketam-ketam putih yang

mematahkan anak padi kami selama ini.

Jauhkan segala ribut dan taufan.”

Ranjau Sepanjang Jalan (1966)

Shahnon Ahmad

Rice is a staple food for Malaysia and a defining feature of our culture. Malaysians

consume the grain daily either as cooked rice or indirectly in the form of rice

flour. Nasi lemak, bihun goreng, laksa, kuih apam and lepat pisang, are some of

the many rice-based foods we consume. During festive occasions, we see pulut

kuning at Malay weddings and red tortoise cakes during Chinese New Year.

Therefore, it is not surprising that in 2016, we consumed 80kg of rice per person,

which is about 26% of the total caloric intake per day, costing an average of

RM44/month per household1. Among the states, households in Sabah spent the

most on rice at RM73/month while households in Perlis spent the least at just

RM13/month. This means that in the same year, 2.7m MT2 of rice was consumed,

whereby 67% was produced locally, and the rest imported primarily from

Thailand, Vietnam and Pakistan3.

It is now less than a year until the end of the National Agro-Food Policy (2011-

2020). Knowing this and given the importance of rice, Khazanah Research

Institute (KRI) conducted a review of the paddy and rice industry. The objectives

of the report are to look into the history of the industry, meet key stakeholders,

study statistical trends, identify challenges and finally, provide suggestions in

charting a way forward for the industry.

Production has increased over the decades. Historically, Malaysia has always had

production-driven agricultural targets. Measures were introduced since the 1940s

to help increase national rice production and protect farmers’ welfare. Indeed, over

30 years, the total production has increased, allowing the self-sufficiency level

(SSL) to hover between 60 – 70%.

Paddy farmers remain in the B40. In 2016, the household income of farmers in

MADA4 was RM2,527/month, while the national mean was at RM6,958/month.

Without subsidies, the cost of production (COP) is high. The net profit from

paddy cultivation in MADA in 2014 stood at RM2,892/Ha/season and this is

affected by the COP at RM3,766/Ha/season5. The largest contributions to the

COP are land rental and machinery, at 42% and 30% respectively, while input

and labour costs contributed less.

1 Chapter 6 Supply Chain: Rice Consumption

2 Chapter 6 Supply Chain: Rice Consumption

3 67% = [Domestic production (1.8m MT)/ Domestic consumption (2.7m MT)] ×100%

4 Refer to the Abbreviation section for a list of abbreviation and acronyms used in this report

5 Chapter 4 Supply Chain: Paddy Production (Farming)

KHAZANAH RESEARCH INSTITUTE i

EXECUTIVE SUMMARY

With input subsidies, MADA farmers are as competitive as key rice growing regions

in Thailand, the Philippines, China and Indonesia. However, the removal of subsidies

would result in the net profit of MADA to be lower than the key rice growing

regions in the countries mentioned. These shortcomings may be attributed to issues

within and between segments of the supply chain.

These issues include the slow release of new paddy varieties, weak farm extension

programmes and poor farm management practices. There is also the tendency to

focus on protecting the largest stakeholders: consumers (31 million) and farmers

(~200,000), neglecting the interests of the other stakeholders in the industry.

The matter is compounded by distrust amongst stakeholders, resulting in

disconnections within the supply chain. There are also data transparency, reliability

and frequency issues, leading to delayed policy and private sector responses to

changes in the industry.

The following are some suggestions for the industry:

Shift away from production-centric, self-sufficiency targets6. At 60 – 70% SSL,

we have attained a certain level of production capacity. Thus, it is timely to

review our agricultural strategies. It is also not sufficient to use rice SSL as a

proxy for food security because food security is multidimensional. In fact, when

other factors of food security were considered, Malaysia performed better

compared to rice exporting countries in Southeast Asia. This suggests that the

country’s ability to produce rice (and other food), does not equate to being food

secure as other factors (quality, safety and sustainable practices) should also be

considered. Apart from increasing production measured in volumes, a suggestion

is to include other indicators such as the adoption of Good Agricultural Practices

(MyGap), Good Manufacturing Practices and transparency when evaluating the

industry’s performance.

Strengthen the supply chain with traceable, accessible and real-time data7. Such can

be achieved through Information and Communication Technology (ICT) applications

such as Blockchain, established by a team comprising representatives from each

segment of the supply chain and technical specialists.

6 Chapter 2 Rice Policy and Regulations

7 Chapter 2 Rice Policy and Regulations

KHAZANAH RESEARCH INSTITUTE

ii KHAZANAH RESEARCH INSTITUTE

EXECUTIVE SUMMARY

Increase private sector participation in the breeding segment8. MARDI has established

and led the plant breeding work since the early 1970s with recognised achievements.

Having said this, Malaysia is still slow in the release of new varieties. Over 50 years,

India produced >1,900 varieties, the Philippines >200 and Thailand >80. Malaysia

released less than 50 varieties. The segment may benefit from encouraging private

sector participation, which can be achieved by: 1) improving transparency and

accessibility (especially web-based) to the breeding and seed production standards

and processes; and 2) review the membership of the Jawatankuasa Teknikal

Bantuan Kerajaan kepada Industri Padi dan Beras (JKTBKKIPB) to avoid conflicts

of interests.

Strengthen the linkage between the production (farm) and midstream players

through contract farming9. Leveraging on the resources of the midstream players and

the production capacity of the farmers, a shared-risk approach may help improve

farm management, extension programmes and trust. Achieve a win-win outcome: in

return for providing capacity building to the farmers, the buyers attain a steady

supply of grains at the desired quality. With higher yield, improved grain quality

and a secured buyer, farmers’ net profit (income) may be improved.

Malaysia may continue to be a net importer of rice, and this should not be viewed

as a failure of the industry10. Statistical trends, geography and consumer preferences

for premium rice means that Malaysia is likely to continue being a net importer.

Considering this, the nation may be in a better position not to target 100% SSL,

but with domestic rice produced sustainably, responsibly, safely and where farmers

earn a sustainable income.

Invisible consumption11. Migrants living in Malaysia are an important source of

labour and contribute towards the nation’s economic growth. It is not possible for

the country to meet the United Nation’s 2030 Agenda for Sustainable Development

Goal (SDG) of ‘leaving no one behind’ if the basic needs of the migrants such as

their staple food, are not met. Unfortunately, their rice consumption pattern is not

fully understood. Based on KRI’s calculations, around 228,899 MT of rice was

consumed by 2.1 million documented workers. The actual consumption that

includes undocumented migrants can be more. Meaning that the actual portion of

rice consumed by migrants is not known. The issue with invisible consumption

should be addressed if we hope to protect vulnerable communities.

8 Chapter 3 Supply Chain: Farm Input

9 Chapter 4 Supply Chain: Paddy Production (Farming)

10 Chapter 5 Supply Chain: Midstream & Import

11 Chapter 6 Supply Chain: Rice Consumption

KHAZANAH RESEARCH INSTITUTE iii

EXECUTIVE SUMMARY

To reach the rice production targets, improve farmers’ income and protect

consumers from rice price volatilities, historically the government allocated a

large number of resources and market interventions in the form of input

subsidies, price controls, import monopolies and stockpiling since the 1950s.

These measures were meant to be short-term solutions; however, they persisted,

and periodic increases in subsidies and incentives came to be the norm.

After decades of government interventions, there has been an increase in

production quantity, farm yield and the alleviation of hardcore poverty.

However, albeit significant public resources allocated to the industry:

a) Paddy farming is perceived to be uneconomical;

b) Farmers are still associated with poverty; and

c) Malaysia is still a net importer of rice with the SSL hovering between

60 – 70%.

The objectives of this report are therefore to review the performance of the

paddy and rice industry, identify challenges and through the observations made,

provide policy recommendations where appropriate.

The study involves a combination of qualitative and quantitative analyses using

publicly available data. Through key informant surveys, the team met a total

of 86 stakeholders across the paddy supply chain, engagements with subject

matter experts in the region and internationally including the International Rice

Research Institute (IRRI) in the Philippines and the National Institute of

Agricultural Botany (NIAB) in Cambridge, United Kingdom. Quantitative

analyses involved the use of data from the Ministry of Agriculture & Argo-

Based Industry (MOA), Department of Agriculture (DOA), Department of

Statistics (DOS) Malaysia, the Organisation for Economic Co-operation and

Development (OECD), Food and Agriculture Organization (FAO), World Bank

and European Satellite Agency (ESA) satellite imagery data.

KHAZANAH RESEARCH INSTITUTE

iv KHAZANAH RESEARCH INSTITUTE

RESEARCH BACKGROUND

The report found that:

a) Paddy farming is perceived to be uneconomical – on the contrary, paddy

farming in MADA is competitive compared to other rice growing areas,

provided input subsidies remain;

b) Farmers are still associated with poverty – recent data shows that this is

still true; and

c) Malaysia is still a net importer of rice with the SSL hovering between

60 – 70% – While we are still a net importer, it should not be seen as

a failure of the industry.

Report limitations

Due to some constraints, there are interrelated factors not covered but are

acknowledged in this report. Some of the limitations are:

a) Improving a farmer’s household income should be addressed holistically

to include non-paddy and off-farm activities;

b) While contract farming has many advantages, it should not be seen as the

only answer towards improving the industry; and

c) This report only focuses on matters related to paddy cultivation in

Peninsular Malaysia for the production of cheap to medium quality rice.

The report did not cover matters related to speciality rice nor explore

paddy cultivation in East Malaysia. This is briefly discussed elsewhere in

the “Monograph of Paddy Smallholders in Bario” by KRI.

KHAZANAH RESEARCH INSTITUTE v

RESEARCH BACKGROUND

CHAPTER

INDUSTRY OVERVIEW

The World Rice Situation

Regional Rice Situation

Rice in Malaysia – Statistics

BOX ARTICLE 1: How Much

Land is Used for Paddy

Cultivation?

Rice in Malaysia – Paddy and Rice

Supply Chain

Chapter Key Takeaways

This chapter provides an industry overview of historical and future trends of

the paddy and rice industry at the world, regional and national level.

The World Rice Situation

In 2017, the United Nations estimated the global population to reach 7.5

billion, with the biggest proportion in Asia (Figure 1.1). As rice is the staple

food for most countries in Asia, the region consumes more than 80% of the

world’s rice (Figure 1.2). In fact, the world’s five largest rice producers are also

the world’s five largest rice consumers, namely China, India, Indonesia,

Bangladesh and Vietnam. Future demand for rice is expected to rise from the

already high level of rice consumption as the population continues to grow. As

such, countries in Asia have always been concerned with acquiring an adequate

supply of rice at the back of this increasing demand. This is further motivated

by concerns of spikes in rice prices which were shown to be correlated with

social unrest12 (Figure 1.3).

Regionally, Asia has the largest population in the world

Figure 1.1. Total population estimates, by region, 1950 – 2100 (billion)

World

ASIA

Africa

Latin America

Europe

Northern America

Ocenia

1950

1956

1962

1968

1974

1980

1986

1992

1998

2004

2010

2016

2022

2028

2034

2040

2046

2052

2058

2064

2070

2076

2082

2088

2094

2100

bProjection

(2015 – 2100)

Source:

Special Aggregates: Geographical groups: Total population – Both sexes, World Population Prospects 2017, UN Desa/

Population Division (Accessed 19 Oct 2018)

Chart by KRI

12 Bellemare (2015)

CHAPTER 1

KHAZANAH RESEARCH INSTITUTE 1

INDUSTRY OVERVIEW

Most of the world’s rice production and consumption is concentrated in Asia

Figure 1.2. World’s top producers and consumers of rice, by country and region, 2013 (m MT)

Thailand

Myanmar

Vietnam

Bangladesh

Indonesia

India

China

Asia

World

0m MT 100 200 300 400 500

106

137

135

449

420

495

476

Production Consumption

Note:

1. The most recent data on production and consumption in FAOSTAT are up to the year 2013. OECD-FAO

Agricultural Outlook 2018-2027, although provides data up to 2018 (and projection up to 2027), is limited in the

number of countries covered.

2. Based on OECD-FAO Agricultural Outlook 2018-2027, the world’s and Asia’s rice production in 2016 is 502m

MT and 453m MT respectively, whereas rice consumption is 498m MT and 434m MT, respectively.

Source:

Food balance sheets: Production quantity & Domestic supply quantity, FAOSTAT (Accessed 2 Oct 2018)

Chart by KRI

KHAZANAH RESEARCH INSTITUTE

INDUSTRY OVERVIEW

CHAPTER 1

World rice prices experienced the largest price hikes compared to wheat and maize

Figure 1.3. World monthly cereal prices, by commodity, 1980 – 2016 (USD/MT)

1,200

1,000

800

600

400

200

USD/MT

1990M1

1989M1

1988M1

1987M1

1986M1

1985M1

1984M1

1983M1

1982M1

1981M1

1980M1

1991M1

1992M1

1993M1

1994M1

1995M1

1996M1

1997M1

1998M1

1999M1

2000M1

2001M1

2002M1

2003M1

2004M1

2005M1

2006M1

2007M1

2008M1

2009M1

2010M1

2011M1

2012M1

2013M1

2014M1

2015M1

2016M1

Early 1980s

ﬁnancial crisis

2008 Global Food Crisis

RICE

Maize

Wheat

Notes:

1. Rice: Rice, 5 per cent broken milled white rice, Thailand nominal price quote (USD/MT)

2. Maize: Maize (corn), U.S. No.2 Yellow, FOB Gulf of Mexico, U.S. price (USD/MT)

3. Wheat: Wheat, No.1 Hard Red Winter, ordinary protein, Kansas City (USD/MT)

Source:

World: Prices & Forecasts: Monthly Data, IMF Primary Commodity Prices (Accessed 9 Nov 2018)

Chart by KRI

KHAZANAH RESEARCH INSTITUTE 3

INDUSTRY OVERVIEW

CHAPTER 1

Regional Rice Situation

For the past century, the Southeast Asia (SEA) region has been the centre of

the world’s rice economy13. In 2016, this region contributed 16m MT (39.9%)

of the world’s rice exports14, with Thailand and Vietnam being the region’s top

exporters. Thailand contributed up to 24.5% of the world’s total export of

rice, while Vietnam and Cambodia contributed 12.9% and 1.3% respectively

(Figure 1.4).

Despite the high exports of rice recorded by the SEA region, not all SEA

countries are rice exporters. Countries such as Indonesia, Malaysia and the

Philippines are net importers (Figure 1.5). In 2016, Indonesia imported 3.4%

of the world’s total rice import while Malaysia and the Philippines’ share of

imports stood at 2.2% and 1.2% respectively (Figure 1.4).

“The Southeast Asia (SEA) region has been

the centre of the world’s rice economy”

13 Baldwin et al. (2012)

14 Refers to semi-milled or wholly milled rice. Source: FAOSTAT (n.d.)

KHAZANAH RESEARCH INSTITUTE

INDUSTRY OVERVIEW

CHAPTER 1

Figure 1.4. Quantity and share of the world’s rice export/import and country's self-sufficiency

level (SSL) of the top rice exporters and importers in Southeast Asia, 2016

Rice Exporters

Thailand

9,870,079 MT (24.5%)

SSL: 196%

Cambodia

529,888 MT (1.3%)

SSL: Not available

Vietnam

5,210,843 MT (12.9%)

SSL: 124%

Rice Importers

Philippines

446,268 MT (1.2%)

SSL: 93%

Malaysia

821,869 MT (2.2%)

SSL: 70%

Indonesia

1,282,427 MT (3.4%)

SSL: 97%

Notes:

1. ‘Rice’ refers to rice (milled equivalent) of which the import and export of paddy rice are converted into the weight

it would be as milled rice (FAOSTAT)

2. Import and export data are from FAOSTAT since it covers a larger number of countries compared to other sources

3. Percentages in brackets are the shares of rice export or import over the world’s total rice export or import

4. Rice SSL calculation: production, import and export data are taken from OECD-FAO Agricultural Outlook 2018-

2027. This is because the most recent available data for rice production from FAOSTAT is only up to the year 2013.

FAO’s SSL formula is used (refer Box Article 2). Data to calculate rice SSL for Cambodia is not available

Sources:

1. FAOSTAT (Accessed 28 Aug 2018)

2. OECD-FAO Agricultural Outlook 2018-2027 (Accessed 16 Aug 2018)

Figure and calculations by KRI

KHAZANAH RESEARCH INSTITUTE 5

INDUSTRY OVERVIEW

CHAPTER 1

Thailand and Vietnam are big players in world export of rice, while Indonesia, Malaysia and

the Philippines rely on imports to meet their national requirement

Figure 1.5. Rice trade balance in Southeast Asia, 2016 (m MT)

-2

m MT

Thailand Vietnam Philippines IndonesiaMALAYSIA

9.9

5.2

-0.4 -1.3

-0.7

Note:

Trade balance = total export – total import

Source:

KRI calculations based on Crops and livestock products: Import quantity & Export quantity: Rice – total (Rice milled

equivalent), FAOSTAT (Accessed on 16 Aug 2018)

Chart by KRI

In the SEA region, countries showed varying trends in the paddy industry data

(Table 1.1, Figure 1.6 to 1.9)15.

Indonesia is the largest producer and consumer of rice. The country has the biggest

rice harvested area which is 19.8 times larger than Malaysia and is close to being

100% self-sufficient. The country also has the highest producer price, which

increased drastically following the world rice crisis in 2007/2008.

Although Thailand is still one of the main exporters of rice, over the last five years

the country has seen a decline in production and total rice harvested area. Malaysia,

relative to the other SEA countries, has shown an almost constant trend for rice

production, harvested area and even rice SSL, but has the second highest average

annual growth of rice yield at 1.6% after Vietnam at 1.8%, from 2000 to 2016.

Vietnam has been an exceptional case, whereby it has shown the highest growth

in rice production and SSL at the back of a relatively slower increase in paddy land

area. For the Philippines, since the 1990s, it has shown a gradual increase in

production and harvested area with SSL hovering below 100%.

15 OECD-FAO Agricultural Outlook 2018-2027 only includes SEA country data for Indonesia, Thailand, the Philippines,

Vietnam and Malaysia. Source: OECD & FAO (2017)

KHAZANAH RESEARCH INSTITUTE

INDUSTRY OVERVIEW

CHAPTER 1

The amount and percentage growth of Malaysia’s rice production, consumption and area

harvested are relatively small compared to its neighbouring countries

Table 1.1. Rice production, consumption, area harvested and yield for the Southeast Asia region,

2000 – 2016

Country

Population Production Consumption Area Harvested Rice Yieldc

Thousand Million

MTa

Average

Annual

Growth

(%)b

Million

MTa

Average

Annual

Growth

(%)b

Thousand

Haa

Average

Annual

Growth

(%)b

MT/Haa

Average

Annual

Growth

(%)b

World 7,466,964 501.5 1.46 497.5 1.36 162,510 0.36 3.1 1.09

Asia 4,462,677 453.2 1.43 434.4 1.20 143,072 0.25 3.2 1.16

Indonesia 261,115 45.6 2.11 46.7 1.88 13,870 1.04 3.3 1.06

MALAYSIA 31,187 1.8 1.62 2.7 1.75 700 0.03 2.5 1.60

Philippines 103,320 12.1 2.61 13.5 2.82 4,722 1.03 2.6 1.53

Thailand 68,864 21.6 1.80 13.6 2.03 10,780 0.69 2.0 0.99

Vietnam 94,569 28.1 1.83 22.1 1.21 7,743 0.07 3.6 1.75

Notes:

a Year 2016

b Average annual growth rate (AAGR), year 2000 – 2016

c Note that the yield reported in Table 1.1 is rice yield, which is different from paddy yield (in Figure 1.14, Figure

2.2 and Figure 4.6). KRI calculation based on rice production and harvested area data from Agrofood Statistics 2016,

MOA gives 2.57 MT/Ha of rice yield for Malaysia in 2016 which is similar to the figure reported by OECD-FAO

Agricultural Outlook

Sources:

1. Population data from Special Aggregates: Geographical groups: Total population – Both sexes, World Population

Prospects 2017, UN Desa/Population Division (Accessed on 19 Oct 2018)

2. Production, consumption, area harvested, and yield data from OECD-FAO Agricultural Outlook 2018-2027

(Accessed on 25 Oct 2018)

Calculations by KRI

KHAZANAH RESEARCH INSTITUTE 7

INDUSTRY OVERVIEW

CHAPTER 1

Malaysia’s rice production remained relatively constant compared to other countries, which

have shown an increasing trend since 1990

Figure 1.6. Total rice production in the Southeast Asia region, 1990 – 2016 (m MT)

m MT

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

Indonesia

Vietnam

Thailand

Philippines

MALAYSIA

Source:

Data from OECD-FAO Agricultural Outlook 2018-2027 (Accessed on 17 Aug 2018)

Chart by KRI

Malaysia’s rice harvested area remained relatively constant compared to countries such as

Indonesia, which have shown an increasing trend since 1990

Figure 1.7. Total rice harvested area in the Southeast Asia region, 1990 – 2016 (m Ha)

m Ha

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

Indonesia

Vietnam

Thailand

Philippines

MALAYSIA

Source:

Data from OECD-FAO Agricultural Outlook 2018-2027 (Accessed on 17 Aug 2018)

Chart by KRI

KHAZANAH RESEARCH INSTITUTE

INDUSTRY OVERVIEW

CHAPTER 1

The rice self-sufficiency level for Malaysia remained the lowest compared to Thailand,

Vietnam, Indonesia and the Philippines

Figure 1.8. Self-sufficiency level (SSL) in the Southeast Asia region, 2000 – 2016 (percentage)

Indonesia

Vietnam

Thailand

Philippines

MALAYSIA

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

220

200

180

160

140

120

100

Source:

SSL calculations by KRI based on production, import, and export data from OECD-FAO Agricultural Outlook 2018-2027

(Accessed 17 Aug 2018) and FAO’s SSL formula (Refer to Box Article 2)

Chart by KRI

Since 2004, Malaysia’s producer price for rice is relatively low compared to other countries

but spiked in 2014 due to Guaranteed Minimum Price (GMP) standardisation

Figure 1.9. Producer price for rice across different countries, 1991 – 2016 (USD/MT)

Indonesia

Vietnam

Thailand

Philippines

MALAYSIA

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

1,000

900

800

700

600

500

400

300

200

100

USD/MT

Source:

Producer prices – Annual: Rice, paddy, FAOSTAT (Accessed 17 Aug 2018)

Chart by KRI

KHAZANAH RESEARCH INSTITUTE 9

INDUSTRY OVERVIEW

CHAPTER 1

Rice in Malaysia – Statistics

In 2016, Malaysia’s Gross Domestic Product (GDP) was RM1,196.4b, whereby

the agriculture, forestry and fisheries sectors contributed only RM106.5b

(8.9%)16. Within agriculture, palm oil was the biggest contributor at RM41.9b

(40.2%), while paddy contributed only RM2.4b (2.3%). Indeed, palm oil has

always been a bigger contributor to the national GDP and this can be seen over

time, as the oil palm harvested area has increased tremendously while the paddy

harvested area remained relatively constant (Figure 1.10).

While the oil palm harvested area has increased over the years, paddy harvested area

remained relatively stagnant

Figure 1.10. Total area harvested for oil palm and paddy in Malaysia, 1961 – 2016 (m Ha)

Oil palm

PADDY

1961 1966 1971 1976 1981 1986 1991 1996 2001 2006 2011 2016

m Ha

Source:

Crops: Area harvested: Oil palm fruit & Rice, paddy, FAOSTAT (Accessed 17 Aug 2018)

Chart by KRI

Despite the paddy and rice industry having a small contribution towards the

nation’s GDP, it has garnered much interest from policymakers given its

complex relationship with food security, culture and socio-economic factors.

This is motivated by the increasing national demand for rice (Figure 1.11) at

the back of a constant size of the harvested area. In fact, the OECD-FAO

Agricultural Outlook report projected a widening gap between Malaysia’s

production and consumption of rice (Figure 1.12).

16 National Accounts from Time Series Data: Malaysia Economic Statistics – Time Series 2016, DOSM website (Accessed

9 Nov 2018)

KHAZANAH RESEARCH INSTITUTE

INDUSTRY OVERVIEW

CHAPTER 1

Rice consumption continues to rise while the total harvested area remained constant

Figure 1.11. Rice consumption and total harvested area in Malaysia, 1990 – 2016 (m MT & m Ha)

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

Consumption

3.0

m MT

2.5

2.0

1.5

1.0

0.5

0.0

Area harvested

1.0

0.9

0.8

0.7

0.6

0.5

0.4

0.3

0.2

0.1

0.0

m Ha

Consumption

Area harvested

Source:

OECD-FAO Agricultural Outlook 2018-2027 (Accessed 24 Aug 2018)

Chart by KRI

The gap between rice consumption and production is projected to widen

Figure 1.12. Malaysia’s rice production, consumption, import (m MT) and self-sufficiency level

(SSL, percentage), 1990 – 2026

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026

Production, Import & Consumption

3.5

m MT

3.0

2.5

2.0

1.5

1.0

0.5

0.0

SSL

100

Import

Projection

Widening gap

SSL

Production

Consumption

Source:

Production, consumption, import and export data from OECD-FAO Agricultural Outlook 2018-2027 (Accessed 24 Aug

2018). SSL calculations by KRI using the FAO formula (refer to Box Article 2)

Chart by KRI

KHAZANAH RESEARCH INSTITUTE 11

INDUSTRY OVERVIEW

CHAPTER 1

For domestic paddy production, Malaysia relies primarily on ten key granary

areas for its supply of paddy. In 2016, the nation produced a total of 2.7m

MT of paddy17. Out of this, 2.0m MT or 74.1% of the total paddy produced

was from the granary areas (Figure 1.13). Muda Argricultural Development

Authority (MADA), in the Northern Peninsular of Malaysia, produced about

38.8% of the total national paddy production and is known as the ‘Rice Bowl’

of the nation, followed by Kemubu Agricultural Development Authority

(KADA) at 9.1% and Integrated Agricultural Development Area (IADA) Barat

Laut Selangor (BLS) at 8.1% (Figure 1.13)18. Given the differences in their

locations (different environmental conditions), farm practices and various other

factors, these granary areas have different levels of farm yield (Figure 1.14). The

national average yield is around 4.0 MT/Ha with high performing areas such

as IADA Barat Laut Selangor, IADA Pulau Pinang, IADA Ketara and MADA,

having yields above 5.0 MT/Ha. On the contrary, granaries such as IADA

Pekan and Rompin are among the low yield producers, with yields below 3.0

MT/Ha19.

In the future, should the nation opt to increase paddy production at the back

of a constant size of the total harvested area, improving the yield by addressing

each granary area’s unique concerns is recommended (Box Article 1). This

should be done without compromising other farm factors such as good

agricultural practices and reducing the cost of production, which is discussed in

subsequent chapters.

17 Statistik Tanaman (Sub-Sektor Tanaman Makanan), DOA (2017)

18 Refer to Abbreviations for the list of granary areas and their names

19 Agrofood Statistics 2016, MOA (2016a)

KHAZANAH RESEARCH INSTITUTE

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MADA granary area is the largest contributor to the nation’s paddy production

Figure 1.13. Paddy production by granary area, 2016 (MT and percentage of total

domestic production)

38.8%

MADA

1,063,247

24.8%

Non granary

679,288

8.1%

IADA BLS

222,033

6.0%

IADA Kerian

165,027

9.1%

KADA

248,172

5.4%

IADA P.Pinang

148,297

MADA

Non granary

KADA

IADA BLS

IADA Kerian

IADA P. Pinang

IADA Seberang Perak

IADA Ketara

IADA Kemasin Semerak

IADA Rompin

IADA Pekan

Notes:

1. IADA Seberang Perak: 103,388 MT (3.8%)

2. IADA Ketara: 54,836 MT (2.0%)

3. IADA Kemasin Semarak: 27,456 (1.0%)

4. IADA Pekan: 13,425 (0.5%)

5. IADA Rompin: 14,437 (0.5%)

Source:

Table 3.1.10: Production of paddy of granary area, 2011-2016, Agrofood Statistics 2016, MOA

Chart by KRI

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CHAPTER 1

The average yield per hectare varies across the different areas with IADA Pulau Pinang, IADA

Barat Laut Selangor, IADA Ketara and MADA having average yields above 5 MT/Ha

Figure 1.14. Paddy production (MT) and yield (MT/Ha) in the granary areas, 2016

MADA

1,063,247 MT

5.3 MT/Ha

KADA

248,172 MT

4.6 MT/Ha

IADA Kemasin-Semerak

27,456 MT

3.8 MT/Ha

IADA Ketara

54,836 MT

5.6 MT/Ha

IADA Pekan

13,425 MT

2.1 MT/Ha

IADA Rompin

14,437 MT

2.8 MT/Ha

IADA P. Pinang

148,297 MT

5.8 MT/Ha

IADA Seberang Perak

103,388 MT

3.7 MT/Ha

IADA Kerian

165,027 MT

4.0 MT/Ha

IADA Barat Laut Selangor

222,033 MT

5.8 MT/Ha

Key

Above national average (4.0 MT/Ha)

At/Below national average (4.0 MT/Ha)

Production (MT)

Yield (MT/Ha)

10,000 1,100,000

Production (MT)

Source:

Table 3.1.4: Production of paddy and rice, 2011-2016, Table 3.1.9: Average yield of paddy, 2011-2016, & Table 3.1.10:

Production of paddy of granary area, 2011-2016, Agrofood Statistics 2016, MOA

Chart by KRI

KHAZANAH RESEARCH INSTITUTE

INDUSTRY OVERVIEW

CHAPTER 1

BOX ARTICLE 1: How Much Land is Used for Paddy Cultivation?

In the paddy and rice industry, it is important to know the actual total

area planted with paddy and the growth stage for each paddy plot. This

helps to provide accurate measurement of yield, land use prediction, farm

monitoring, and to predict the expected harvest. In addition, accurate and

up-to-date paddy data are especially important during events such as

natural disasters to allow the authorities to predict yield loss and end-of-

season harvest. Furthermore, it helps avoide leakages in the input subsidies;

whereby ghost lands can be prevented20. This, in turn, allows prompt and

effective policy and management decisions as well as appropriate downstream

market responses.

According to the Rancangan Fizikal Negara ke-3, the allocation of land for

paddy cultivation was designated as kawasan jelapang padi or granary

areas. Initially, there were eight granary areas, which have now been

expanded to 10. The largest granary area is MADA. Recent data made

available is on 201621 whereby a total parcel of 100,603 Ha in MADA was

planted with paddy, producing a total of 1.1m MT of paddy at a yield of

5.3 MT/Ha. The data needed to generate this information involves on-site

checks and individual information from the farmers which can be laborious,

costly, prone to error and time-consuming.

KRI explored the use of satellite technology to enable quick, accurate and

transparent determination of the total planted area.

Publicly-available satellite images covering the MADA area from ESA

Sentinel-1A satellite were analysed22. The captured images were taken

between March and August for the years 2015 and 2016. This corresponds

to the paddy planting season (Musim 1) in the MADA area.

20 KRI’s stakeholder engagements revealed that leakages can happen in the input subsidy programme. A person may

claim to have a larger land area planted with paddy than is actually the case. The extra chemicals may be sold

on the black market for profit or used on other crops.

21 Laporan Tahunan 2016, MADA (2016) and Agrofood Statistics 2016, MOA (2016a)

22 This work was done with Satellite Imagery Sdn. Bhd.

KHAZANAH RESEARCH INSTITUTE 15

INDUSTRY OVERVIEW

CHAPTER 1

The paddy plant is a unique short-term crop with a maturity period of 90

– 140 days post germination. Within this period, it undergoes physically

distinct life-stages (Figure 1.15) that can be seen in two-week intervals.

On the contrary, the physical characteristics of a permanent water body,

such as a lake, a road, an oil palm estate, a forest, a home or a football

field stay the same over the same two-week intervals. Therefore, theoretically,

a satellite image shooting a light beam (of a certain wavelength) over a

cultivated paddy plot should be able to detect the physical changes of a

paddy plant over time and have it differentiated from a non-paddy surface.

The use of this technology in paddy cultivation is demonstrated through the

use of Sentinel-1A by researchers in IRRI23.

KRI researchers stacked several Sentinel 1-A satellite images of the same MADA

area that are about 2 weeks apart for each planting season. In the stacked

image, colours indicate changes in the land surface area over time, while white-

grey areas are surfaces that did not change over the same period (Picture 1.1).

This work is currently being written for a technical publication. In due

course, it is hoped that the public can access the data from the KRI website

and expand the use of satellite imagery for live updates of paddy cultivation.

23 Setiyono et al. (2018)

KHAZANAH RESEARCH INSTITUTE

INDUSTRY OVERVIEW

CHAPTER 1

Figure 1.15. Temporal Sentinel-1A backscatter data for different structures, 2015

A B C

D E F

02 April 2015 26 April 2015 20 May 2015 13 June 2015

MADA’s Planting

Schedule for the

main planting season

(Musim 1) 2015

Start Date

Tarikh mula

menabur Fasa II

Middle Date

Tarikh akhir menabur Fasa II

End Date

Tarikh Henti

Bekalan Air Fasa II

12 April 2015 10 May 2015 08 August 2015

Ploughed Flooded Germination Tillering Flowering Maturing

0 20 40 60 80 100 120 Days

The cycle starts with the paddy plot having exposed soil (A) that is then flooded with water (B) which will soon

have paddy seedlings growing through the water (C). This is followed by the gradual reduction of visible water

surfaces as the height of the darker green paddy plants grows (D-E). As the plants continue to mature, they

produce grains, giving a golden-yellow colour to the paddy plots (F) and, soon after, the field is harvested before

it reverts to being a plot of exposed soil.

Illustration by KRI

KHAZANAH RESEARCH INSTITUTE 17

INDUSTRY OVERVIEW

CHAPTER 1

Four satellite images of the MADA area taken over 2-weeks intervals were stacked.

The coloured images indicate areas planted with paddy. On the contrary, areas in grey-

white indicate the absence of changes in ground conditions, suggesting a non-planted area

Picture 1.1. Four stacked Sentinel-1A images for the MADA area from 2 April 2015 to

13 June 2015

Stacked Dates:

•

02 April 2015

•

26 April 2015

•

20 May 2015

•

13 June 2015

2.5km 7.5km 12.5km 17.5km

Source:

Raw data from Sentinel 1A

Image by KRI

KHAZANAH RESEARCH INSTITUTE

INDUSTRY OVERVIEW

CHAPTER 1

Rice in Malaysia – Paddy and Rice Supply Chain

The production of paddy and the supply of rice to the consumers should not

be viewed as separate segments but as a series of linked segments within a

supply chain model.

Based on 2016 data, the paddy and rice supply chain takes an hourglass shape

whereby there is a large number of farmers and consumers with a small number

of midstream players. The typical flow in the production of paddy can be

described as follows (Figure 1.16): 194,931 farmers in Malaysia produced a

total 2.7m MT of paddy from around 68,000 MT of seeds. Once harvested,

the paddy grains were sold to 157 millers at a Guaranteed Minimum Price

(GMP) of RM1,200/MT, where they were processed into 1.8m MT of rice and

subsequently distributed through retail stores via 1,660 active wholesalers. At

56,746 retail stores, rice was then sold to 31 million consumers with a total of

2.7m MT of rice consumed in 2016. This is more than the national domestic

rice produced. The remaining 821,869 MT of demand for rice was fulfilled by

importing rice, primarily from Thailand and Vietnam.

KHAZANAH RESEARCH INSTITUTE 19

INDUSTRY OVERVIEW

CHAPTER 1

Figure 1.16. Domestic paddy and rice supply chain

INPUT PRODUCTION MILLING

TRADE & STOCKPILE

WHOLESALE & RETAIL CONSUMPTION

• 9 seed suppliers

• 68,000 MT of seeds

b, h

• 194,931 farmersc

• 2.7m MT paddyd

• 688,770 Ha of

planted area

• 1,660 wholesalerse

• 56,746 retailerse

• 1 importer -BERNAS

• 821,869 MT importf

• 45,422 MT exportf

• 157 licensed millerse

• 1.8m MT riced

• 31 millions consumersg

• 2.7m MT of rice consumed

2016 Paddy and Rice Supply Chain

Sources:

a Arkib Keputusan Tender Pembekalan Benih Padi Sah Kepada Petani di Bawah Program Benih Padi Sah, Kementerian Pertanian Dan Industri Asas

Tani Bagi Tempoh Dua(2) Tahun (2015 - 2016)

b MOA Media Statement – Benih Padi Tidak Sah Ancam Bekalan Beras

c Booklet Statistik Tanaman (Sub-sektor Tanaman Makanan) 2017, DOA

d Agrofood Statistics 2016, MOA

e As of July 2016. Data from Maklumat Seksyen Kawalselia Padi dan Beras

f FAOSTAT

g Malaysia's population from Special Aggregates: Geographical groups: Total population – Both sexes, World Population Prospects 2017, UN Desa/

Population Division

Note:

h Under the Paddy Seed Certification Scheme, the government sets the total quota level for seed production at 80,000MT each year, however, only 85%

of the quota set are produced

Illustration by KRI

KHAZANAH RESEARCH INSTITUTE

INDUSTRY OVERVIEW

CHAPTER 1

CHAPTER KEY TAKEAWAYS

The World Rice Situation

• Rice is synonymous with Asia. In 2017, countries in Asia consumed more

than 80% of the world’s rice and demand is expected to continue to rise.

Regional Rice Situation

• SEA is a key player in the world rice market as both exporter and

importer.

• In 2016, this region contributed 39.9% of the world’s rice exports, with

Thailand and Vietnam being the world’s largest exporters.

• On the other hand, countries such as Malaysia, Indonesia and the

Philippines are net importers.

Rice in Malaysia: Statistics

• In 2016, Malaysia’s GDP was RM1,196.4b, whereby agriculture, forestry

and fisheries sectors contributed only RM106.5b (8.9%). Within the

sector, paddy was a small contributor valued at RM2.4b (2.3%).

• Despite the paddy industry having a small contribution towards the

nation’s GDP, it has garnered much interest from policymakers given

its complex relationship with food security, culture and socio-

economic factors.

• For domestic paddy production, Malaysia relies primarily on key

granary areas. Approximately 70% of the domestic supply is from the

granary areas.

• Therefore, the performance of the national paddy production is often a

reflection of the performance of the granary areas in Malaysia.

• With regard to the industry, the production of paddy and the supply of

rice to the consumers should not be viewed as separate entities but as a

series of linked segments within a supply chain model. This will be

explored in detail in the subsequent chapters.

KHAZANAH RESEARCH INSTITUTE 21

INDUSTRY OVERVIEW

CHAPTER 1

CHAPTER

RICE POLICY AND

REGULATIONS

Agricultural Policies – History

Policy Objectives – Rice Self-

Sufficiency and Food Security

BOX ARTICLE 2:

Self-sufficiency Level (SSL)

Measuring Food Security – How

Does Malaysia Fare?

The Global Food Security Index

(GFSI)

The Rice Bowl Index (RBI)

Policy Recommendations

Market Interventions

Paddy and Rice Policy Measures

National Budgetary Burden

Governance & Data Reporting

Regulators and Regulations

Reporting and Transparency of

Industrial Data

BOX ARTICLE 3: Digitalisation of

the Supply Chain

Adoption of the Blockchain

Technology in the Paddy Industry

Chapter Key Takeaways

Agricultural Policies – History

Malaysia’s agricultural policies can be divided into two phases: pre-independence

and post-independence (Figure 2.1). Before 1957, agricultural policies were

implemented to serve the interests of the British colonial government.

Consequently, commercial export commodities such as rubber, oil palm and

cocoa received particular attention with policies designed to make improvements

in infrastructure (road systems and rail tracks) and attract foreign labour and

investments. Meanwhile, food crops intended for domestic consumption such as

paddy were only cultivated by small-scale Malay farmers24. During this period,

the rice SSL was below 50%25.

Post-independence, the agricultural policies were formulated to steer the sector’s

growth in two main areas: agriculture for domestic interests as well as export

crops. As a result, the development of paddy cultivation received special

attention from the government, especially through the launch of the Green

Book Plan (1979) by the late Prime Minister Tun Abdul Razak during the First

Malaysia Plan (1966 – 1970).

The 1960s and 1970s were a turning point for the paddy and the rice industry.

Among the initiatives made were the establishment of a dedicated agricultural

research institution and the formation of key granary areas. In 1969, the

Malaysian Agricultural Research and Development Institute (MARDI) was

established to spearhead research in agriculture and has been the leading entity

for research on paddy and rice. A few years later, in 1971, Lembaga Padi dan

Beras Negara (LPN) was formed to oversee the adequate supply of rice and

improve farmers’ income, followed by the establishment of the development

authority of the largest granary area, MADA, and the consolidation of farmers’

organisations through the National Farmers Organization (NAFAS) in 1972. This

was a turning point in the history of Malaysia's paddy cultivation as it resulted

in the ability to have two harvests per year (as opposed to the reliance on an

annual monsoon season) and a significant improvement in farming practices.

“The 1960s and 1970s were a turning point

for the padi and the rice industry”

24 Dardak (2015)

25 Ariffin (2004)

CHAPTER 2

KHAZANAH RESEARCH INSTITUTE 23

RICE POLICY AND REGULATIONS

Figure 2.1. A timeline of Malaysia’s agricultural policies and action plans

Fertiliser Subsidy

(Skim Baja Padi

Kerajaan Persekutuan)

Price Subsidy

(Skim Subsidi Harga Padi)

Seed Incentive

(Program Benih

Padi Sah)

LPN corporatised

to form Padiberas

Nasional (BERNAS)

GMP and

Buffer Stocks

Muda and Kemubu

Irrigation Projects

LPN NAFAS

MADAKADA

Post-independence

• Address poverty issue among farmers to minimise inequality

• Increase the domestic supply of rice

• Continue developing the plantation sector

Pre-independence

• Emphasis on plantation crops such

as rubber, oil palm and cocoa

First to Third Malaysia Plan (Rice SSL target: 90 – 100%)

Second National Agricultural Policy (NAP2)

(Rice SSL target: 65%)

Third National Agricultural Policy (NAP3)

(Rice SSL target: 65%)

First National

Agricultural Policy (NAP1)

(Rice SSL target: 80 – 85%)

National Food

Security Policy

National Agro-Food Policy

(Rice SSL target: 70%)

FAMA MARDI

NKEA EPP10

programme

introduced

19651957 1966 – 1967 1969 1971 – 1972 1979 1980 1984 19911949

19941992 1998 2007 20102008 2011 2019 2020

Illustration by KRI

KHAZANAH RESEARCH INSTITUTE

RICE POLICY AND REGULATIONS

CHAPTER 2

Figure 2.1. A timeline of Malaysia’s agricultural policies and action plans

Fertiliser Subsidy

(Skim Baja Padi

Kerajaan Persekutuan)

Price Subsidy

(Skim Subsidi Harga Padi)

Seed Incentive

(Program Benih

Padi Sah)

LPN corporatised

to form Padiberas

Nasional (BERNAS)

GMP and

Buffer Stocks

Muda and Kemubu

Irrigation Projects

LPN NAFAS

MADAKADA

Post-independence

• Address poverty issue among farmers to minimise inequality

• Increase the domestic supply of rice

• Continue developing the plantation sector

Pre-independence

• Emphasis on plantation crops such

as rubber, oil palm and cocoa

First to Third Malaysia Plan (Rice SSL target: 90 – 100%)

Second National Agricultural Policy (NAP2)

(Rice SSL target: 65%)

Third National Agricultural Policy (NAP3)

(Rice SSL target: 65%)

First National

Agricultural Policy (NAP1)

(Rice SSL target: 80 – 85%)

National Food

Security Policy

National Agro-Food Policy

(Rice SSL target: 70%)

FAMA MARDI

NKEA EPP10

programme

introduced

19651957 1966 – 1967 1969 1971 – 1972 1979 1980 1984 19911949

19941992 1998 2007 20102008 2011 2019 2020

Illustration by KRI

KHAZANAH RESEARCH INSTITUTE 25

RICE POLICY AND REGULATIONS

CHAPTER 2

Policy Objectives – Rice Self-Sufficiency and Food Security

The National Agro-Food Policy 2011-2020 was formulated with a special focus

on improving the food production sector, including rice, and has the following

objectives:

a) To address food security and safety to ensure availability, affordability

and accessibility;

b) To ensure the competitiveness and sustainability of the agro-food industry;

and

c) To increase the income level of agropreneurs.

Chapter 3 of the National Agro-Food Policy 2011-2020 for the rice sector

mentions a need to increase the domestic production of rice to ensure sufficient

supply to the country. The objective was to strengthen the paddy industry

through:

a) An increase in productivity and rice quality;

b) An increase in automation and mechanisation;

c) An intensification of the use of rice by-products;

d) An improvement in the management of the national rice stockpile;

e) Restructuring of the rice subsidies and incentives; and

f) Strengthening of the institutional management of paddy and rice.

It is observed that the objectives of the National Agro-Food Policy 2011-2020

and previous agricultural policies have always been driven by the end goal of

increasing production, measured in volumes (in MT) and to subsequently meet

SSL targets (Figure 2.1). Indeed, targeting high SSL has always been the primary

goal of Malaysia’s rice policy since pre-independence. The Great Depression in

the 1930s and the Japanese occupation in 1941 initiated the self-sufficiency

approach to agriculture that persists until today.

As a result, the performance of a farmer, local farming authorities or government

agencies is measured by their ability to constantly increase rice yield. Thus,

historically, the overall performance of the industry is measured by its ability

to increase rice production and SSL.

KHAZANAH RESEARCH INSTITUTE

RICE POLICY AND REGULATIONS

CHAPTER 2

According to published data, the total domestic rice production has indeed been

increasing at the back of constant land area as a result of increasing farm yield

(Figure 2.2). The increasing national consumption offsets the increase in total

rice production. Due to this, the nation’s SSL (Box Article 2) fluctuated between

60 – 80% since the 2000s (Figure 2.10). Therefore, while the nation was not

able to increase rice SSL towards 100%, various policy measures have helped

in maintaining a relatively stable SSL.

Looking forward, now that the nation has established a certain level of rice

production capacity, perhaps it is time to incorporate other aspects that are

equally important into the production of rice for domestic consumption. This

is because food security is not just a measure of production and self-sufficiency,

but of other important factors such as environmental sustainability, food safety

and affordability. It is possible that the nation may not need to target a high

SSL if it comes at the expense of these other factors. A slightly lower SSL with

a lower number of farmers but with higher yield and quality grains produced

per farmer may, in fact, provide a higher income. This will be discussed in

greater detail in the following subchapters and chapters.

“...historically, the overall performance of the industry is measured by its

ability to increase rice production and SSL”

KHAZANAH RESEARCH INSTITUTE 27

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CHAPTER 2

Despite a relatively constant total area harvested for paddy, national rice production has been

increasing due to improvements in farm yield

Figure 2.2. Total area harvested (Ha) and paddy yield (MT/Ha), 1990 – 2016

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

1990

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

0.8

0.7

0.6

0.5

0.4

0.3

0.2

0.1

0.0

m Ha 3.5

3.0

2.5

2.0

1.5

1.0

0.5

0.0

MT/Ha

Area harvested Yield

Source:

Malaysia: Rice: Area harvested & Yield, OECD-FAO Agricultural Outlook 2018-2027 (Accessed on 29 October 2018)

Chart by KRI

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BOX ARTICLE 2: Self-Sufficiency Level (SSL)

Self-sufficiency, from the word self-sufficient, is defined as “needing no outside

help in satisfying one’s basic needs, especially with regard to the production

of food”26.

The self-sufficiency status of a food item can be measured using the SSL,

also known as the self-sufficiency ratio. The ratio is the total domestic

production divided by total available supply, measured in percentage.

However, there are variations in the way this ratio is calculated. Unless

otherwise stated, this report will assume the formula as stated in the FAO

Statistical Pocket Book 2015.

Source: Agrofood Statistics 2014, MOA

SSL = x 100

(Production + Import ± Stock – Export)

Production

Source: FAO Statistical Pocket Book

SSL = x 100

(Production + Import – Export)

Production

“... self-sufficiency level (SSL) falls short of capturing other dimensions

of food security including accessibility, stability, food safety and

environmental sustainability for rice as well as other food items”

It is often for reasons of national security and a country’s political interest that

it is able to provide staple food for its citizens without relying on other countries.

Given this reasoning, many countries in Asia use rice SSL as an indicator for

food security and the basis for policy design. This is justifiable as shortages of

rice or rice price hikes are usually followed by social unrest. However, while not

contesting its importance, rice SSL alone may not be enough to fully achieve

food security for a nation. This is because SSL falls short of capturing other

dimensions of food security including accessibility, stability, food safety and

environmental sustainability for rice as well as other food items.

26 Oxford Dictionaries (2016)

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Apart from calculating food SSL, there are other ways to capture the status of

food security for Malaysia. The following sections discuss this in greater detail.

Measuring Food Security – How Does Malaysia Fare?

If indeed food security is the primary goal for agri-food policies, then the

definition of food security made during the World Food Summit in 1996 should

be holistically addressed. In 1996, due to the widespread malnutrition and

increasing concerns over the ability of agriculture to meet future needs, the

World Food Summit was organised in Rome. Here, the term food security was

defined as the condition in which “people, at all times, have physical and

economic access to sufficient, safe and nutritious food to meet their dietary

needs and food preferences for an active and healthy life”27.

Figure 2.3. Multidimensionality of food security food security

FOOD SECURITY

• Physical access

• Economic access (income)

• Rights to the food

• Domestic agricultural production

• Imports

• Knowledge in food preparation

• Food safety

• Hygiene

• Resilience against climate change

• Resilience against economic crisis

SSL

AvailabilityAccess

Utilisation Stability

Source:

Food Security, Policy Brief June 2006 Issue 2, FAO

Figure by KRI

27 World Food Summit (1996)

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The definition acknowledged the complexity of food security, which goes

beyond food production. Using SSL to measure a nation’s food security may

not be sufficient as it only addresses the availability factor and thus, may not

reflect the true status of the nation’s food security. In doing so, other key

factors may be overlooked such as environmental sustainability (long-term

supply of limited natural resources), resilience against climate change, supply

chain efficiency (minimising food loss), and welfare of the producers and

consumers (food safety, quality and nutrition).

Considering this, Malaysia may want to include additional ways of measuring

its status and robustness in food security beyond just the SSL of rice and other

food items. Two tools to measure Malaysia’s food security status are explored

in this report, namely the Global Food Security Index (GFSI) and the Rice Bowl

Index (RBI) (Table 2.1).

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Table 2.1. Comparative table for measuring food security2829

Detail Self-sufficiency Level (SSL) Global Food Security Index (GFSI) Rice Bowl Index (RBI)

Developer &

Sponsor

Non-applicable Developed by the Economist Intelligence

Unit

Funded by DowDuPont Inc.

Governed by the advisory board

comprising Professor Paul Teng

(Nanyang Technology University), Bruce

Blakeman (Cargill), Dr Ramon Clarete

(University of the Philippines) and others

Funded by Syngenta Asia Pacific

Function/

Objective

Predominantly used as a proxy for food

security in Malaysia

Designed as a benchmarking model to

compare and rank the level of food

security across countries

Designed to measure a country’s

robustness in its ability to address food

security issues

Number of

countries

Non-applicable (it is country- and

commodity-specific)

113 countries 15 countries (Asia Pacific)

Indicators

Commodity-specific domestic production,

import, export and stockpile (if

applicable)

Categories (49 indicators):

1. Affordability (6 indicators);

2. Availability (11 indicators);

3. Quality and safety (11 indicators); and

4. Natural resources and resilience

(21 indicators).

Rubrics (33 indicators):

1. Farm-level;

2. Environmental;

3. Policy and trade; and

4. Demand and price.

Calculation

SSL = production x 100/ (production +

imports – exports)28

Index and ranking calculated based on

GFSI Excel Model29

Index based on qualitative and

quantitative measures relative to other

countries

Sources:

Statistical Pocketbook: World food and agriculture, FAO (2015); Global Food Security; and Rice Bowl Index

Table by KRI

28 FAO Statistical Pocket Book 2015: http://www.fao.org/3/a-i4691e.pdf

29 Download here: https://foodsecurityindex.eiu.com/Downloads

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The Global Food Security Index (GFSI)

The yearly GFSI country ranking was first designed in 2012 by economists

from the Economist Intelligence Unit and sponsored by DowDuPont Inc. The

index uses a combination of qualitative and quantitative benchmarking models

with 49 indicators representing 4 categories of food security (Table 2.2)30.

Table 2.2. Global Food Security Index categories and indicators

Category Indicator

Affordability

• Food consumption as a share of

household expenditure

• The proportion of the population under

the global poverty line

• Gross domestic product per capita

(US$ PPP)

• Agricultural import tariffs

• Presence of food safety net

programmes

• Access to financing for farmers

Availability

• Average food supply

• Dependency on chronic food aid

• Public expenditure on agricultural R&D

• The existence of adequate crop

storage facilities

• Road infrastructure

• Port infrastructure

• The volatility of agricultural production

• Political stability risk

• Corruption

• Urban absorption capacity

• Food loss

Quality & Safety

• Diet diversification

• National dietary guidelines

• National nutrition plan or strategy

• Nutrition monitoring and surveillance

• Dietary availability of vitamin A

• Dietary availability of animal iron

• Dietary availability of vegetal iron

• Protein quality

• Agency to ensure the safety and health

of food

• Percentage of population with access

to potable water

• Presence of formal grocery sector

Natural Resources &

Resilience

• Temperature rise

• Drought

• Flooding

• Storm severity (AAL)

• Sea level rise

• Commitment to managing exposure

• Agricultural water risk—quantity

• Agricultural water risk—quality

• Soil erosion/organic matter

• Grassland

• Forest change

• Eutrophication and hypoxia

• Marine biodiversity

• Marine protected areas

• Food import dependency

• Dependence on natural capital

• Disaster risk management

• Early warning measures/

climate smart agriculture

• National agricultural risk management

system

• Population growth (2015-20)

• Urbanisation (2015-20)

Source:

Taken from Global Food Security Index

Table by KRI

30 Global Food Security Index (n.d.), https://foodsecurityindex.eiu.com/

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According to the 2017 GFSI report, Malaysia performed relatively well

compared to other countries in SEA with an overall score of 66.2/100. Malaysia

was ranked 6th within the Asia Pacific region (Table 2.3) and ranked 41st

compared to 112 other countries worldwide (overall average countries score at

57.3/100). Both Thailand and Vietnam, which are rice exporting countries,

were ranked below Malaysia in their overall food security score. Other

neighbouring island countries, except Singapore, were also ranked below

Malaysia, namely the Philippines and Indonesia.

Malaysia scored well in nutritional standards, food safety and the proportion

of a population under poverty with 97.1, 98.5 and 100.0 relative to the

countries average of 73.0, 80.5 and 79.1 respectively. On the contrary, Malaysia

scored poorly on public expenditure on research and development in food

(12.5/100 versus 15.0/100 on average).

Compared to other countries in the Asia Pacific, Malaysia performed relatively well in the

GFSI index

Table 2.3. Global Food Security Index Country ranking for the Asia Pacific, 2017

Overall Affordability Availability Quality & Safety Natural Resources &

Resilience

Rank Rank Rank Rank Rank

1Singapore 1Singapore 1Australia 1Australia 1New Zealand

2Australia 2Australia 2New Zealand 2South Korea 2Japan

3New Zealand 3New Zealand 3Singapore 3Japan 3Myanmar

4Japan 4Japan 4Japan 4New Zealand 4Laos

5South Korea 5South Korea 5South Korea 5Singapore 5Kazakhstan

6Malaysia 6Malaysia 6Malaysia 6Malaysia 6Thailand

7China 7Kazakhstan 7China 7China 7Cambodia

8Thailand 8Thailand 8Azerbaijan 8Kazakhstan 8Pakistan

9Azerbaijan 9China 9India 9Thailand =9 Australia

10 Kazakhstan 10 Azerbaijan 10 Indonesia 10 Vietnam =9 China

11 Vietnam 11 Vietnam 11 Thailand 11 Philippines 11 Azerbaijan

12 Sri Lanka 12 Sri Lanka 12 Sri Lanka 12 Myanmar 12 Nepal

13 Indonesia 13 Indonesia 13 Vietnam 13 Sri Lanka 13 Sri Lanka

14 India 14 Uzbekistan 14 Pakistan 14 India 14 Vietnam

15 Pakistan 15 Pakistan 15 Myanmar 15 Nepal 15 Bangladesh

16 Uzbekistan 16 Cambodia 16 Bangladesh 16 Pakistan 16 Uzbekistan

17 Philippines 17 Philippines 17 Uzbekistan 17 Uzbekistan 17 South Korea

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Overall Affordability Availability Quality & Safety Natural Resources &

Resilience

18 Myanmar 18 India 18 Philippines 18 Indonesia =18 India

19 Nepal 19 Nepal 19 Nepal 19 Azerbaijan =18 Tajikistan

20 Cambodia 20 Myanmar =20 Cambodia 20 Tajikistan 20 Malaysia

21 Bangladesh 21 Bangladesh =20 Kazakhstan 21 Cambodia 21 Philippines

22 Tajikistan 22 Tajikistan 22 Tajikistan 22 Bangladesh 22 Singapore

23 Laos 23 Laos 23 Laos 23 Laos 23 Indonesia

Source:

Global Food Security Index

Table by KRI

The Rice Bowl Index (RBI)31

The RBI is governed by an advisory board comprising Professor Paul Teng

(Nanyang Technology University), Bruce Blakeman (Cargill Incorporated) and

Dr Ramon Clarete (University of the Philippines) among others. The programme

is funded by Syngenta Asia Pacific and attempts to measure the robustness of

15 countries in their ability to address food security issues. The index can be

divided into four rubrics (Farm-level Factors, Environmental Factors, Policy and

Trade, and Demand and Price) and utilises 33 indicators32.

According to the RBI, Malaysia performed relatively well compared to 14 other

countries in overall food security, with a score of 62 compared to the countries

average of 50 (Table 2.4 and Figure 2.4). Similar to the GFSI report, Malaysia

performed better compared to its neighbouring countries such as Thailand,

Vietnam, Indonesia and the Philippines.

Table 2.4. Overall RBI score for Malaysia and according to each rubric compared to the

average threshold, 2016

RBI Scores Overall Policy &

Trade Farm-level Environmental Demand &

Price

Malaysia’s Score (/100) 62 69 43 80 54

Average Threshold (/100) 50 60 40 60 55

Source:

The Rice Bowl Index (2016)

Table by KRI

31 The Rice Bowl Index is no longer running. The last report publication was in 2016, which could be downloaded from

Grow Asia’s website: http://exchange.growasia.org/rice-bowl-index-2016-collective-responsibility

32 The Rice Bowl Index (2016)

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Malaysia scored well compared to other countries in Southeast Asia including rice exporting

countries such as Thailand and Vietnam

Figure 2.4. The RBI Composite Index for fourteen countries, 2016

New Zealand

Taiwan

Australia

Japan

South Korea

Malaysia

Thailand

China

Vietnam

Indonesia

Philippines

India

Bangladesh

Pakistan

Myanmar

Legend

RBI Score

Threshold

The last country above the

threshold is Vietnam, and the

ﬁrst to fall below is Indonesia

Source:

Figure from The Rice Bowl Index (2016), pg. 28

In both the GFSI and RBI scores, Malaysia performed better compared to its

neighbouring countries. Thailand and Vietnam, which are food exporting

countries, were ranked below Malaysia in their overall food security scores.

This suggests that the ability to produce food alone does not equate to being

food secure. As such, using only food SSL as an indicator of food security may

not be appropriate.

“Thailand and Vietnam, which are food exporting countries, were ranked

below Malaysia in their overall food security scores”

On another scale of self-sufficiency, Singapore is an opposite example. Despite

not producing rice or any other food crops, the country ranked high in terms of

food security. However, this does not mean that Malaysia should fully emulate

Singapore and discard its food production programmes as the income capabilities

and food requirements of both countries are different. For instance, in the event

of an emergency, Singapore only needs to purchase a smaller amount of food to

feed its population of 5.6 million compared to 31.6 million in Malaysia33.

33 Population figures from World Development Indicators, World Bank (n.d.)

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Despite this, it does not mean that GFSI and RBI should be the only golden

methods of gauging a country’s food security as each method has its

shortcomings. For example, these indices use national indicators that could

either be limited or of poor quality, which is common in developing countries.

Alternative methods include conducting household food security surveys such as

the FAO’s Food Insecurity Experience Scale (FIES) or the United States Agency

for International Development (USAID)’s Household Food Insecurity Access

model. It is worth noting, however, that such surveys will likely incur a

significant amount of cost and labour.

Policy Recommendations

Future agricultural policies related to food should no longer be driven solely by

production targets. Other important dimensions of food security should also be

given equal consideration in a balanced manner. Malaysia may be in a better

position to target moderate SSLs for key food items to reduce the budgetary

burden while maintaining a certain level of domestic production. By doing so,

public expenditure can be moved to other areas such as research and development

(R&D), extension programmes, farm certifications and health and safety

measures which address the other pillars of food security.

In policy implementation, the government may consider including other

indicators when measuring the performance of the agriculture sector, the

ministry, departments, agencies, farmers and even the private sector.

Examples include:

1) Giving as much recognition to farmers and farm-related agencies for the

adoption of Good Agricultural Practices (MyGAP), effective water usage

and soil management, as given for the increase in paddy production; and

2) At the midstream segment, giving recognition to stakeholders who manage

to minimise post-harvest loss, adhere to Good Manufacturing Practices,

perform Hazard Analysis Critical Point (HACCP) and implement

manufacturing and marketing transparency (example: the adoption of

Blockchain technology).

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By diversifying these indicators, there will be more incentives for the stakeholders

to produce and manufacture products responsibly and to follow the health and

safety guidelines of chemical use along the supply chain.

Recognising the complexity of food security and its importance to the nation,

a research team in KRI led by Professor Jomo Kwame Sundaram is currently

researching on food security. The researchers hope to explore the availability,

affordability and accessibility of food in Malaysia and its changes through time,

as well as its crucial role in affecting the nutritional status in the country.

Market Interventions

In a bid to increase rice production, improve farmers’ income and protect

consumers from rice price volatility, market interventions across the supply

chain have been introduced. In fact, Malaysia’s domestic rice industry is highly

regulated relative to most countries34. These measures can be found in almost

every part of the supply chain and the few measures not applied in Malaysia

include those related to insurance. The high level of regulation within the

Malaysia's rice industry is not a new matter as reflected in more than five

decades of national economic plans and agricultural policies.

Paddy and Rice Policy Measures

Various intervention programmes have been introduced in the paddy and rice

industry of which some have been implemented pre-independence and persist

until today (Figure 2.6).

34 Abdullah (2007)

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Table 2.5. Policy measures in the paddy and rice industry

similar solutions.

In Malaysia’s paddy and rice industry, Blockchain technology could be

applied to trace the authenticity of organic rice and artisanal rice such as

the Bario rice. Even though geographical indication (GI)59 is registered for

Bario rice, consumers are not fully protected from false labelling. In the case

58 Cooper et al. (1997) as cited in Van Roekel et al. (2002)

59 Geographical indication (GI) is “a sign used on products that have a specific geographical origin and possess

qualities or a reputation that are due to that origin”. Definition by World Intellectual Property Organization

(WIPO) (n.d.).

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where GI has been falsely used to deceive the public, any aggrieved party

would need to file an action at the High Court (Intellectual Property), which

is costly. Besides, this traceability solution is also useful in ensuring the

HACCP and Good Manufacturing Practice adherence in milling and product

manufacturing.

B. Improving the transparency of payment transactions

For small farmers, securing fair prices as well as being paid on time are

issues they face since they depend on intermediaries to market their products.

Companies such as AgriLedger aim to help farmers retain a bigger share of

their crop value by leveraging on Blockchain technology. The four key issues

targeted by AgriLedger are: trust deficit among players in the agri-food

market; lack of audit trail on transactions; paper-based systems that are

error-prone; and lack of transparency regarding the market and price

information. Australia-based Blockgrain runs on the same premise of

increasing supply chain efficiency although their focus is not limited to small

farmers.

As of late, growing dissatisfaction among paddy farmers and millers was

reported in the media60. One of the grievances noted was the alleged unfair

increase of deduction rates61 that entails reduced compensation to farmers for

their harvest, which is denied by buyers. Blockchain technology, in conjunction

with other technologies such as the Internet of Things (IoT)62, has the

potential to bridge the gap in trust between farmers and millers such as in

the case mentioned. This may ensure transparency on the deduction rate and

other relevant information and ultimately ensure fair payment to everyone

along the supply chain.

C. Encourage the adoption of good agricultural practices

Limited capital and incentives are some of the factors that inhibit the

adoption of good agricultural practice among farmers. Indigo carries out an

initiative to pay farmers a premium for an end-to-end production contract

that is based on using certain products, following specific agricultural

60 The Edge (2017)

61 Deduction rate is the percentage of the product that is rejected due to impurities.

62 Internet of Things (IoT) is a system of interconnection of electronic devices via the Internet

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practices, and providing traceability data on the production and movement

of the grain. This initiative is built upon three objectives that are to increase

farm profitability, to provide access to healthy food and the right information

for consumers, and to preserve the environment. Demeter.life conducts a

similar initiative through micro investment for farmland in which a community

of investors defines the rules of production, hence ensuring quality farming.

In 2016, only 2.3% of the total number of farms in Malaysia were registered

under MyGAP63. This low take-up rate may be explained by the limited

incentives and awareness among the farmers to commit to MyGAP certification

requirements and lack of consumer awareness regarding farm-level

certifications. Having Blockchain to show that a food product uses raw

material derived from responsible farming, can provide confidence to the

consumers about the purchased product, as well as improve food safety and

environmental responsibility.

D. Better market information

Farmers may benefit from greater market access. Companies such as

AgriDigital offer seamless communication and connection with all players in

the industry, which means farmers can directly connect with consumers to

better understand their preferences. Another company, AgriLedger, aims to

build the world’s largest network of small farmers and cooperatives based on

Blockchain’s features that allow strangers across boundaries to establish trust

and accountability without the need for intermediaries.

As an example to show that farmers are reactive to market information, a

study investigated farmers’ shift from white rice farming towards fragrant

rice farming (of the MRQ74 variety). One of the factors motivating farmers

to cultivate the new variety is the expected rise in demand for fragrant rice

consumption as well as the high price of fragrant rice in the market64. With

the application of Blockchain technology that provides faster and more

accurate transmission of market information, farmers may likely respond

more effectively. In this respect, Blockchain technology can be applied, for

instance, to creating a system that provides information to industry players

on the retail prices of different types of rice (including demand for organic

rice). This would help farmers make better market decisions and give them

greater access to the global market.

63 EU Directorate-General for Health and Food Safety (2016)

64 Jamal et al. (2013)

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Adoption of Blockchain Technology in the Paddy Industry

Blockchain technology offers the potential to increase the efficiency of the agri-

food supply chain. In developed economies such as the US and Australia,

Blockchain technology has been gaining traction with industry players. Malaysia

may want to capitalise on the advantages of the Blockchain technology to

generate reliable and transparent data of the food supply chain, especially for

the country’s staple food, rice.

Figure 2.15 is a suggested illustration of how Blockchain technology can be

used in the paddy and rice industry to help address matters related to data

transparency, access and frequency.

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Figure 2.15. Example of Blockchain application in paddy and rice industry

Consumers

Researchers, Policymakers

& Stakeholders

Have live access to

paddy and rice data

Farm A

Farm B

Farm C

Farm E

Farm F

Kerpan, Kedah

Kangar, Perlis

Miller YZ Wholesaler 88 Retailer BC1

Records:

• Volume and price

purchased from

each farm

• Quality of the grain

(permutuan)

• Farm certiﬁcations

• Variety of paddy used

• Miller’s licenses

and certiﬁcations

• Parboiled/ fortiﬁcation

These list of records, shared data and accessibility can be

pre-agreed by the various stakeholders and regulatory bodies

Records:

• Volume and price

purchased

• Time the product

stayed in the store

• Any re-packaging

• Wholesaler license

and certiﬁcations

Records:

• Volume and price

purchased

Through Blockchain, consumers

are aware that their bag of rice

was produced in Kerpan or

Kangar, milled by miller YZ,

collected by wholesaler 88

and sold to supermarket BC1.

All the certiﬁcations and licenses

are made visible to the consumer.

Illustration by KRI

Despite its strengths, there are, however, constraints that need to be considered

in the adoption of Blockchain technology in Malaysia’s agri-food industry.

These include managing various stakeholders’ interests to allow a fair balance

between data privacy and public access to information. Besides, capital is also

required for the entire supply chain's adoption of Blockchain technology. There

may be disagreements on who should fund this initiative if it is meant to be a

decentralised system. In addition, the adoption of Blockchain technology may

result in high electricity consumption which may involve matters related to

climate change and environmental sustainability. Having said all this, Blockchain

technology still deserves some consideration.

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CHAPTER KEY TAKEAWAYS

Policy Objectives – Rice Self-Sufficiency and Food Security

• The objectives of the National Agro-Food Policy 2011-2020 and previous

agricultural policies have always been driven by the goal of increasing

production measured in MT.

• Data indicated that over the years, Malaysia indeed experienced an

increase in production. Due to the concurrent increase in national

consumption, this resulted in a relatively stable SSL between 60 – 80%

since 2000.

• Recommendation: Future agricultural policies should no longer be

driven only by production targets.

• Now that we have established a certain level of production capacity for

rice, it is timely to consider incorporating other food security factors such

as food safety, nutrition, traceability and environmental sustainability in

the policy targets.

• Food security is multidimensional but rice SSL only captures the

availability dimension.

• Recommendation: To include the other dimensions, Malaysia may want

to consider additional ways of measuring its robustness in food security

such as the Global Food Security Index (GFSI), the Rice Bowl Index

(RBI), the Food Insecurity Experience Scale (FIES) or the US Agency for

International Development Household Food Insecurity Access model.

• Recommendation: The government may also consider incorporating other

indicators when measuring the performance of the agriculture sector,

ministry, departments, agencies, farmers and even the private sector.

• This can include giving recognition for the adoption of Good Agricultural

Practices (MyGAP), adherence to Good Manufacturing Practices and

giving credit for the adoption of manufacturing and marketing transparency

measures (e.g. Blockchain technology) by stakeholders.

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National Budgetary Burden

• To safeguard the income of the farmers and ensure continued supply in

domestic rice production, subsidies and incentives have been used as

short-term solutions since the 1970s.

• While production has increased over the years, these subsidies and

incentives continue to persist and increase.

• In

2016, RM1.4b was spent on subsidies and incentives, which comprised

41.0% of the total expenditure by MOA and about 0.7% of the total

public expenditure.

• In summary, decades of subsidies have become a resource burden for the

country. Moreover, this report suggests that focusing on SSL and

production alone should not be the direction of the nation’s future

agricultural policies.

• Having said this, the sudden removal of the subsidies and incentives

may negatively affect the farmers and national rice production in the

short-term.

• It is therefore imperative to carefully strategise the re-allocation of

financial resources to other areas for long-term growth, with minimal

short-term impact.

• Recommendation: As part of a mid-term interim strategy towards the

long-term growth of the industry and less reliance on subsidies and

incentives, this report suggests the strengthening of the paddy and rice

supply chain by taking the following into consideration:

1) Paddy and rice policies – Do away with a production-centric or

SSL-centric policy targets. Incorporate other food security factors in

the production of domestic rice (Chapter 2)

2) Paddy and rice data – Improve transparency and accessibility

through digitalisation of data and information across the supply

chain through the adoption of Blockchain technology (Chapter 2)

3) New paddy varieties – Facilitate the growth of the private sector

breeders for the development of new paddy varieties (Chapter 3)

4) Farmers and midstream players – Develop a shared-risk approach

through contract farming (Chapter 4 and Chapter 5)

5) Consumption – Improve the capture of consumption data among

migrant workers (Chapter 6)

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Legislation

• The rapid progress in technology, farm mechanisation, biotechnology and

aerial monitoring means that certain Acts might benefit from periodic

reviews to ensure that they stay relevant.

• Recommendation: There is a need to study the impact of shrinking

agricultural land-size per farmer, land inheritance in the agriculture sector

in Malaysia and the regulations governing these matters.

Reporting and Transparency of Industrial Data

• Data related to rice production and consumption are diligently collected

compared to other domestically grown food crops.

• However, challenges in data acquisition and data consistencies mean

that there is scepticism of the national data from the private sector, and

its response to the market may be delayed as a consequence. For

researchers, findings and subsequent data-driven policy recommendations

may be outdated.

• Recommendation: For the paddy and rice industry to adopt data

liberalisation and transparency.

• Blockchain is a possible solution to improve transparency, traceability

and in building trust between stakeholders across the supply chain.

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CHAPTER

SUPPLY CHAIN: FARM INPUT

Seed Production and Supply

The Journey of the Paddy Seeds

– from Breeding to Farm

Paddy Seed Certification Scheme

(Skim Pengesahan Benih Padi Sah)

Challenges – Supply Issues with

Made-to-Order Seeds

Challenges – Few Released

Varieties

BOX ARTICLE 4: The

International Rice Gene Bank, an

Untapped Potential

Chemical Input

BOX ARTICLE 5: The use of

Unregistered Pesticides

Mechanisation & Automation

Chapter Key Takeaways

MALAYSIA’S PADDY AND RICE SUPPLY CHAIN

INPUT PRODUCTION MILLING & WHOLESALE

TRADE & STOCKPILE

CONSUMPTION

The input segment of the paddy and rice supply chain is an upstream segment

that provides all the raw inputs needed to cultivate paddy. It includes but is

not limited to the supply of seeds, fertilisers, pesticides, machinery and water.

The supply of seeds will be discussed in greater detail due to the various

achievements and challenges in seed production which has had relatively little

research focus. This is so, despite the importance of plant breeding and R&D

in helping to develop new rice varieties and improve farm yield. Water and

irrigation, while important, are omitted due to limitations in the scope of this

report. Additionally, matters related to the supply and subsidy of chemicals

(both fertilisers and pesticides) have had significant interest and are being

researched elsewhere.

CHAPTER 3

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SUPPLY CHAIN: FARM INPUT

Seed Production and Supply

The Journey of the Paddy Seeds – from Breeding to Farm

A key farm input for the cultivation of paddy is its seeds. In brief, paddy plant

breeding R&D takes place to produce new paddy varieties that are commercially

viable and with features desired by the industry. Upon laboratory, field tests and

having the varieties approved and recognised, these new varieties are then mass

cultivated to produce seeds. These seeds are then sold to the farmers for paddy

cultivation.

SEED

BREEDING NEW VARIETY COMMERCIALISED

SEEDS

CULTIVATED PADDY

As early as the 1970s, the Green Book Policy, which focuses on improving local

agriculture production has emphasised the importance of high-quality seeds65.

The local paddy seed segment has received a special focus from the authorities

and as a result, the production of new paddy varieties and subsequently the

seeds for cultivation have been domestically-driven (Figure 3.1).

Through the National Key Economic Area (NKEA) Entry Point Project 14 Seed

Industry Development, the National Seed Council (NSC) was established in

2011 under the MOA and convenes twice a year66. The NSC comprises the

Chief Secretaries and Director Generals of the MOA, MOSTI (now known as

MESTECC), DOA, Department of Fisheries (DOF), Department of Veterinary

Services (DVS), MARDI, FAMA and representatives from the National Seed

Association Malaysia67. The functions of NSC are to determine the direction

and policies for the seed industry, monitor the implementation of key action

plans and oversee the quality of seeds in the market, among others.

65 Ginibun and Ugap (2012)

66 Fact Sheet: Penubuhan Majlis Benih Negara (National Seed Council (NSC)), MOA (2011)

67 See Appendix for the list of abbreviations.

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There are three separate processes relevant to the paddy seed industry:

1) The protection of new varieties68 (Figure 3.2)

• To give proprietary rights to the breeder of a new variety

• This procedure is in accordance with the Protection of New Plant Varieties

Act 2004 (Act 634) and is monitored by the Crop Quality Control (CQC)

Division of DOA

• Based on the terms set by the breeder, any other party who wants to commercially

breed and supply the new variety may need to pay royalties to the breeder

• The decision on the registration of new plant varieties and grant of breeder’s

right are made by a Board comprised of 12 government agencies and

chaired by the Director General of DOA based on recommendations by the

Technical Committee which consists of 15 governmental members who are

technical experts

2) The recognition (pengisytiharan) of new varieties69 (Figure 3.2)

• Recognised variety can be a protected variety or a non-protected variety

• Certified seeds must be of recognised varieties. It is therefore within the

commercial interest of the breeders to have their seeds recognised

• The recognition of the new variety is made by the Jawatankuasa Dasar

Bantuan Kerajaan Kepada Industri Padi dan Beras (chaired by the Secretary

General of MOA) based on the recommendation made by the Jawatankuasa

Teknikal Bantuan Kerajaan Kepada Industri Padi dan Beras (JTBKKIPB)

which is chaired by the Director General of MARDI (subsequent segments

will elaborate on this point)

3) The production of certified seeds70 (Figure 3.3)

• Only farmers who use certified seeds are eligible for input subsidies

• The procedure of producing certified seeds falls under the Paddy Seed

Certification Scheme following the standards set by the Malaysian Standard

(MS469:2012)

• Certified seeds are only produced by approved seed producers71

68 Prosedur Pendaftaran Varieti Tanaman Bagi Daftar Varieti Tanaman Kebangsaan (Pindaan 2016), DOA

69 Manual Pelaksanaan Skim Baja Padi Kerajaan Persekutuan (SBPKP), LPP (2008); and Prosedur Pembangunan dan

Perakuan Varieti Baru dari Sektor Swasta atau Institusi R&D Awam (Rujuk Minit JKT Bil 1/2009), DOA (n.d.-b)

70 Prosedur Skim Pengesahan Benih Padi Jabatan Pertanian Malaysia, DOA; Pengesahan Benih Padi oleh Jabatan

Pertanian, DOA; and Rice (Oryza sativa L.) inbred seed plating materials – Specification (Second revision), Department

of Standards Malaysia; and KRI’s engagement with MARDI and DOA

71 The list of government tenders and successful bidders can be checked through http://myprocurement.treasury.gov.my

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Figure 3.1. A timeline of policies related to the seed industry in Malaysia

First National Agricultural Policy (NAP1)

National Food Security Policy

The Green

Book Policy

(Buku Hijau)

Seed Certiﬁcation Scheme

• Implemented by Department

of Agriculture

National Seed Council

• Established by MOA

• Jawatankuasa Teknikal Benih

Tanaman was established under

the council

National Seed Association Malaysia (NSAM)

• Acts as a special forum where producers,

exporters, importers, scientists and extension

agents discuss matters related to seed

Second National Agricultural Policy (NAP2)

Third National Agricultural Policy (NAP3) National Agro-Food Policy

Restructured

Seed Incentive

(Program Benih Padi Sah)

Protection of New

Plant Varieties 2004

(Act 634)

MARDI Production and

Seed Technology Unit

MARDI Planting Material,

Seed and Livestock

Production Unit

MARDI

• Restructured into Planting Material,

Seed and Livestock Production Unit in 2002

• Main objective is to produce quality

planting materials

Third National Agricultural Policy

• Outlined the importance of an active private

sector involvement for adequate supply

of quality seeds in the country

National Seed Project

(Projek Benih Nasional)

1970 1979 1981 199819911984 1992

2002 2004 2007 2008 2010 2011 2019 2020

Illustration by KRI

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Figure 3.1. A timeline of policies related to the seed industry in Malaysia

First National Agricultural Policy (NAP1)

National Food Security Policy

The Green

Book Policy

(Buku Hijau)

Seed Certiﬁcation Scheme

• Implemented by Department

of Agriculture

National Seed Council

• Established by MOA

• Jawatankuasa Teknikal Benih

Tanaman was established under

the council

National Seed Association Malaysia (NSAM)

• Acts as a special forum where producers,

exporters, importers, scientists and extension

agents discuss matters related to seed

Second National Agricultural Policy (NAP2)

Third National Agricultural Policy (NAP3) National Agro-Food Policy

Restructured

Seed Incentive

(Program Benih Padi Sah)

Protection of New

Plant Varieties 2004

(Act 634)

MARDI Production and

Seed Technology Unit

MARDI Planting Material,

Seed and Livestock

Production Unit

MARDI

• Restructured into Planting Material,

Seed and Livestock Production Unit in 2002

• Main objective is to produce quality

planting materials

Third National Agricultural Policy

• Outlined the importance of an active private

sector involvement for adequate supply

of quality seeds in the country

National Seed Project

(Projek Benih Nasional)

1970 1979 1981 199819911984 1992

2002 2004 2007 2008 2010 2011 2019 2020

Illustration by KRI

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Figure 3.2. The process flow for the (A) recognition and (B) protection of a new paddy variety

Varietal development

Station-level, multi-locational and

local veriﬁcational trials & upscaling

• Jawatankuasa Penyelidikan dan Inovasi MARDI (JPPI)

• Jawatankuasa Pengurusan Korporat MARDI (JPKM)

Jawatankuasa Teknikal Bantuan Kerajaan

Kepada Industri Padi dan Beras (JKTBKKIPB)

Chaired by Director General of MARDI

Members: Representatives from MOA, DOA, MADA,

KADA, IADA, DOA Sarawak, DOA Sabah and LPP

Jawatankuasa Dasar Bantuan Kerajaan

Kepada Industri Padi dan Beras (JDKKIPB)

Chaired by Secretary General of MOA

Members: Representatives from MOA, MARDI, DOA, LPP,

MADA, KADA, DOA Sarawak and DOA Sabah

for MARDI

(internal)

for private

breeders

Recognised paddy variety

Procedures for Seed Certiﬁcation

Scheme (see Figure 3.3)

(A) The recognition of new varieties a,b

Objective: To qualify the variety

for the Seed Certiﬁcation Scheme

Paddy variety

recognition process

takes roughly 12 years

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Jawatankuasa Teknikal Varieti Kebangsaan

Chaired by Director of Crop Quality Control Division, DOA

Members: Representatives from:-

• Paddy, Industrial Commodities, and Floriculture Division

• Horticulture Division

• Soil Resources Management and Conservation Division

• Agricultural Extension and Agro-Based Industry Division

• Crop Quality Control Division

• Biosecurity Division

Initial & further inspections

Variety is listed under Varieti Tanaman Kebangsaan

(B) The protection of new varieties c,d

Objective: To protect breeder’s right to new variety

The process to obtain a plant breeder’s right

typically takes:

i. Short-term crops: 3 years and 6 months

ii. Intermediate crops: 5 years

iii. Perennial crops: 10 years

Sources:

a Prosedur Pembangunan dan Perakuan Varieti Baru dari Sektor Swasta atau Institusi R&D Awam (Rujuk Minit JKT

Bil 1/2009), MOA (n.d.)

b Manual Pelaksanaan Skim Baja Padi Kerajaan Persekutuan (SBPKP), LPP (2008)

c Prosedur Pendaftaran Varieti Tanaman Bagi Daftar Varieti Tanaman Kebangsaan (Pindaan 2016), DOA (2016c)

d Protection of New Plant Varieties System (Booklet), DOA (n.d.-c)

Illustration by KRI

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Figure 3.3. Procedure for Paddy Seed Certification Scheme

Paddy Seed Certiﬁcation Scheme

Labelling of certiﬁed seeds

Certiﬁed seeds sold to farmers

Seed farms registration

Seed harvesting

Seed processing

Registered seeds Certiﬁed seeds

Seed cultivation

Recognised paddy variety DOA conducts farm and mill

inspections while MOA monitors

the license and quota of seed production

DOA appoints seed producers

through open tender to produce

registered seeds and certiﬁed seeds

Approval of certiﬁed seeds

Sources:

1. Prosedur Skim Pengesahan Benih Padi Jabatan Pertanian Malaysia, DOA (2011)

2. Pengesahan Benih Padi oleh Jabatan Pertanian, DOA (n.d.-a)

3. Rice (Oryza sativa L.) inbred seed plating materials – Specification (Second revision), Department of Standards

Malaysia (2012)

Illustration by KRI

Typically, farmers would order the volume of their preferred varieties between

3 – 6 months prior to the next planting season72. Popular local varieties include

MR 220 CL2, MR 219 and MR 263. In Peninsular Malaysia, a farmer uses

around 140kg/Ha of seeds that cost around RM270/Ha and can yield between

2,000 – 8,000 MT/Ha73 depending on several interrelated factors such as soil

condition, weather, pests and disease outbreaks, fertiliser, water and seed variety,

and seed quality. The last two factors will be elaborated further in this chapter.

72 KRI’s study visit to a seed production centre in the Northern Peninsular

73 Cross Cutting Survey (CSS) data from Musim 1 2015 (pers. comm. with MADA)

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Paddy Seed Certification Scheme

(Skim Pengesahan Benih Padi Sah)

“Only registered varieties approved by the Jawatankuasa Dasar Bantuan Kerajaan

ke Industri Padi dan Beras can be used in the Seed Certification Scheme”

The Seed Certification Scheme was first introduced in 2007 to help boost

domestic rice production. Certified seeds are paddy seeds produced according

to the standards outlined in the Paddy Seed Certification Scheme (Prosedur

Skim Pengesahan Benih Padi Jabatan Pertanian Malaysia) under the authority

of the DOA and according to the seed testing guidelines prepared by the

International Seed Testing Association74. Only registered varieties approved by

the Jawatankuasa Dasar Bantuan Kerajaan ke Industri Padi dan Beras can be

used in the Seed Certification Scheme.

The use of high-quality seeds is important for farm yield. Efforts to cultivate

high-performing varieties cannot be fully maximised if the seeds are of poor

quality. For instance, seeds could be contaminated with diseases, be mixed with

genetically impure seeds or have a low germination rate75. All these contribute

towards lowering farm yield. Therefore, the objective of the Seed Certification

Scheme is to ensure the consistency of seed quality so that farmers have access

to high-quality seeds produced from pre-approved registered varieties.

To be certified, among other requirements, seeds must meet the permitted level

of germination rate, moisture content and contamination level (Table 3.1).

Given the challenges of compliance with these high standards, only a handful

of approved seed producers are allowed to sell seeds under the Paddy Seed

Certification Scheme. There were only nine successful tender applications in

2015 and 2016 with a total seed quota of 80,000 MT per year (Table 3.2).

A possible solution is to introduce multi-grade certified seeds that enable new/

small seed producers as well as larger producers to produce and sell seeds at

various qualities and prices. This helps to reduce the use of non-certified seeds

(beg putih) and enable lower quality seeds to be monitored by the DOA. At

the same time, it may partially address the issue of insufficient/delayed supply

74 Prosedur Skim Pengesahan Benih Padi Jabatan Pertanian Malaysia, DOA (2011)

75 Wimalasekera (2015)

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of certified seeds. However, this suggestion requires further evaluation and its

implementation may require an increase in on-farm monitoring which may be

an issue if human resource is limited.

Table 3.1. Standard requirements for certified seed under Paddy Seed Certification Scheme

Factor Maximum permitted

1. Physical purity

a) Pure seed (min.)

b) Inert matter (max.)

c) Other crop seed (max.)

98.0 %

2.0 %

None

2. Other seeds

a) Noxious weed seed (max.)

b) Weedy rice seed (max.)

5 grains/kg

10 grains/kg

3. Germination rate (min.) 80.0 %

4. Moisture content (max.) 14.0 %

Source:

Department of Standards Malaysia (2012), Rice (Oryza sativa L.) inbred seed planting materials – Specification (Second

revision), pg. 3

Table 3.2. List of certified paddy seed suppliers and total annual quota in 2015 and 2016

Company Percentage

(%)

Annual Quota

(MT)

1. Kilang Beras Seri Merbok Sdn. Bhd. 24.3 19,422

2. Haji Md Nor B Hj Abd Rahman (M) Sdn. Bhd. 16.8 13,461

3. Syarikat Perniagaan Peladang (MADA) Sdn. Bhd. 16.7 13,352

4. FELCRA Plantation Services Sdn. Bhd. 11.0 8,810

5. PPK Lahar Bubu 8.9 7,125

6. OBL Maju Sdn. Bhd. 8.5 6,765

7. Kelang Beras Jelapang Selatan (Muar) Sdn. Bhd. 6.4 5,150

8. Pertama Padi Sdn. Bhd. 4.0 3,175

9. PPK Puteri Saadong 3.4 2,740

TOTAL 100 80,000

Source:

Maklumat Perangkaan Industri Padi dan Beras 2016, MOA (2016b)

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To help increase the use of certified seeds among farmers, several measures

were employed. Firstly, the government introduced a seed incentive scheme for

producers (RM1.03/kg) to ensure that the they can earn a profit despite a seed

price cap at RM1.40/kg76. Additionally, farmers who use certified seeds qualify

for other subsidies and incentives.

While the programme has succeeded in providing high-quality seeds, KRI’s

engagements with stakeholders revealed that there are several contemporary

issues in the seed segment:

1. Supply and demand issues with made-to-order seeds; and

2. Few released varieties – limited choice for farmers.

Challenges – Supply Issues with Made-to-Order Seeds

According to KRI’s study visits, registered seed producers in the Northern States

of Peninsular Malaysia receive seed orders (by seed variety and volume) from

the farmers and proceed to cultivate the seeds before the start of each planting

season. Due to this, seed orders must arrive between 3 – 6 months in advance.

Unfortunately, the length of time needed to prepare the seeds might limit the

producers’ ability to meet unexpected changes in the farmers’ seed demand.

This is a frequent problem especially during unexpected monsoon floods or

disease outbreaks which require fast access to replacement seeds for replanting.

Having large and technically adequate seed storage facilities where seeds can be

stored over multiple seasons can help improve responses to seed supply. An

ideal medium-term storage facility can store seeds for up to 20 years provided

that the temperature and humidity are kept at 5ºC and 6% respectively77 with

pest-proof doors. These conditions will keep the seeds viable and with little

outside contamination.

Currently, domestic seeds are temporarily stored in warehouses/rooms under

ambient temperatures which can range between 26 – 28ºC at near 100%

humidity78. This shortens the seed shelf-life and is partly the reason that the

producers resort to made-to-order seeds to minimise storage needs.

76 Based on KRI’s engagements with seed producers and Laporan Jawatankuasa Kira-kira Wang Negara Parlimen Ketiga

Belas – Program Subsidi Benih Padi Sah

77 KRI study visit to the International Rice Gene Bank in IRRI, Philippines

78 KRI study visit to seed producers’ storage facility in Peninsular Malaysia

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Improvement in storage facilities requires larger capital and maintenance costs.

However, this is difficult to meet as most seed producers including those linked to

the government have poor storage facilities due to financial constraints. Prior to

providing any recommendations regarding storage facilities, it is worth exploring the

profitability of storing seeds across multiple seasons and the impact of the

recommendations on the industry as a whole.

It is worth noting that agricultural developments especially for the paddy and

rice industry focus on farm-level technological advancement such as the

adoption of farm machinery. Unfortunately, infrastructural and technological

developments in other parts of the supply chain are given less attention. It is

recommended that conversations are held with companies in the input segment

to understand their infrastructural and technological needs.

Challenges – Few Released Varieties

Plant Breeding R&D

“Given the central and historical role of MARDI … the institute is the

Chair for the Jawatankuasa Teknikal Bantuan Kerajaan kepada Industri

Padi dan Beras, and therefore, is a key player in the process of developing

and recognising new paddy varieties”

Unlike other inputs such as fertilisers and pesticides, R&D in breeding,

production and supply of paddy seeds are domestically-driven. This is a

unique situation as the supply of seeds for crops in many other countries is

often dominated by large multinational corporations such as DuPont Pioneer

and Syngenta79.

MARDI is a leader in paddy plant breeding work, and has released 49 paddy

varieties between the 1960s and 2000s80 (Table 3.3). Given the central and

historical role of MARDI as an R&D centre for rice, the institute is the Chair

for the Jawatankuasa Teknikal Bantuan Kerajaan kepada Industri Padi dan

Beras, and therefore, is a key player in the process of developing and recognising

new paddy varieties.

79 The Access to Seeds Index (2016)

80 Paddy Production Survey Report Malaysia – Main Season 2013/2014, DOA (2015a) and KRI engagement

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One of the varieties developed by MARDI is the MR 220 CL2 variety,

developed in collaboration with BASF Ltd. in 2010. Weedy rice or padi angin

is a type of paddy that is non-productive (does not produce grains) and grows

like a weed. It is difficult to control weedy rice as any herbicide applied to it

will inevitably kill productive paddy in its vicinity as well. Following intensive

R&D, researchers in the US managed to breed a paddy variety that is productive

and resistant to the herbicide Clearfield, which can kill weedy rice81,82. The MR

220 CL2 line was developed by MARDI and BASF Ltd. from this variety and

is now the most popular variety in Malaysia. In 2014, more than half of

MADA farmers used this variety83. The continued popularity, however, is of

concern as the near mono-variety cultivation of MR 220 CL2 on thousands of

hectares of continuous paddy plots exposes farmers to a higher risk: if a single

disease epidemic occurs, it can cause significant losses to the industry.

The persistent use of this variety in subsequent seasons is also problematic. MR

220 CL2 was developed for short-term (two seasons) use but has been used by

some farmers for ten consecutive seasons84. This behaviour encourages the

incidence of Clearfield resistance in weedy rice (padi angin) through gene-flow85

from MR 220 CL286. Indeed, varieties such as the MR 220 CL2 were meant

to be short-term varieties to limit the growth of weedy rice. However, for

various reasons, farmers refuse to use other available varieties. A primary

reason based on engagements with the farmers is the lack of alternative varieties

that can compete in the maturity period and potential yield.

81 Sudianto et al. (2013)

82 Any other paddy varieties including paddy angin that do not have this resistance will die when exposed to Clearfield

83 Paddy Production Survey Report Malaysia – Main Season 2013/2014, DOA (2015a) & Paddy Production Survey Report

Malaysia – Off Season 2014, DOA (2015b)

84 Yim Kong Ming (BASF Malaysia Sdn. Bhd.) (2017)

85 Gene-flow is the transfer of certain genetic material from one plant to another plant, usually of the same species

86 Sudianto et al. (2013) & Engku et al. (2016)

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How do we fare compared to our neighbours?

Compared to other rice-producing countries, Malaysia has been relatively slow

in its release87 of new varieties. Since MR 220 CL2 was released in 2010, there

have been a few other varieties such as MR 253, MR 263, MR 269 and MRQ

76 but these varieties have not been widely used88.

On the contrary, India has been the most prolific variety producer with more

than 1,900 varieties released since 1961, followed by South Korea at 277

varieties (Figure 3.4). Neighbouring countries in SEA such as the Philippines,

Indonesia, Vietnam, Thailand and Myanmar performed better, having released

more than double the number of Malaysia’s new paddy varieties at 238, 183,

96 and 78 varieties respectively89. In comparison, Malaysia released only 3590

varieties up to 2014. In an updated 2018 list, according to MARDI, 49 varieties

were released (Table 3.3).

There are many factors influencing breeding work. One argument is that some

countries have geographical variations requiring different varieties (such as

India) while Peninsular Malaysia has mostly a homogenous environment. This

may explain why some countries have higher number of varieties developed

than others. Another factor is the nation’s GDP per capita, assuming that a

nation with a higher GDP per capita would have better research resources.

However, despite having a lower GDP per capita and relatively homogenous

geography, countries such as Cambodia, Bangladesh and Vietnam were still able

to produce a larger number of varieties than Malaysia.

“… despite having a lower GDP per capita and relatively homogenous

geography, countries such as Cambodia, Bangladesh and Vietnam were still

able to produce a larger number of varieties than Malaysia”

87 Release of a new variety in this context refers to the development of a new paddy variety that is recognised by the

Jawatankuasa Teknikal Bantuan Kerajaan ke Industri Padi dan Beras and can therefore qualify for the paddy seed

certification programme

88 Paddy Production Survey Report Malaysia – Main Season 2013/2014, DOA (2015a)

89 Released varieties from 1961 – 2014. Data compiled from INGER (n.d.).

90 There is a slight discrepancy between the number of released varieties between INGER and MARDI (Table 3.3) –

MARDI recorded 43 varieties released up to 2014 whereas INGER recorded 35 varieties.

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Malaysia is behind other rice producing countries in the number of paddy varieties released,

especially compared to India and other Southeast Asia countries

Figure 3.4. The number of paddy varieties released by country and GDP per capita (current

USD), 1961 – 2014

India

South

Korea

Philippines

Indonesia

Vietnam

Thailand

Myanmar

Bangladesh

Nepal

Sri Lanka

Cambodia

China

MALAYSIA

2,000

1,800

1,600

1,400

1,200

1,000

800

600

400

200

USD 30,000

25,000

20,000

15,000

10,000

5,000

1,961

(1,576) 277

(27,811)

238

(2,843)

183

(3,492) 96

(2,012)

(5,954)

(1,260) 76

(1,085)

(706)

(3,821) 38

(1,094)

(7,684)

(11,184)

No. of releases GDP per capita (Current USD)

GDP per capitaNo. of releases

Notes:

1. Figures in the brackets are the GDP per capita in current USD

2. Data from IRRI may not be the latest update

Sources:

1. Number of paddy varieties released from Global Releases 2013 and 2014, Released Rice Varieties, IRRI (Accessed

on 1 Nov 2018)

2. GDP per capita (current USD) from World Development Indicators, World Bank (Accessed on 13 Nov 2018)

Chart by KRI

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Table 3.3. List of released paddy varieties for Malaysia

Variety Year of Release

1. Malinja 1964

2. Mahsuri 1965

3. Ria 1966

4. Bahagia 1968

5. Murni 1972

6. Masria 1972

7. Jaya 1973

8. Sri Malaysia 1 1974

9. Sri Malaysia 2 1974

10. Pulut Malaysia 1 1974

11. Setanjung/MR 1 1979

12. Sekencang/ MR7 1979

13. Sekembang 1979

14. Kadaria/MR 27 1981

15. Pulut Siding 1981

16. Manik/MR 52 1984

17. Muda/ MR 71 1984

18. Seberang/ MR 77 1984

19. Makmur/MR 73 1985

20. MR 84 1986

21. MR 81 1988

22. MR 103 1990

23. MR 106 1990

24. Pulut Hitam 9 1990

25. MR 123 1991

Variety Year of Release

26. MR 127 1991

27. MR 159 1995

28. MR 167 1995

29. MR 185 1997

30. MR 211 1999

31. MRQ 50 1999

32. MR 219* 2001

33. MR 220* 2003

34. MRQ 74* 2005

35. MR 232 2006

36. MR 220 CL1* 2010

37. MR 220 CL2* 2010

38. MRM 16 2010

39. MR 253 2010

40. MR 263* 2010

41. MRQ 76* 2010

42. MR 269 2012

43. MRIA 2013

44. MARDI 284 2015

45. MARDI SIRAJ 297 2016

46. MARDI WANGI 88 2016

47. MARDI WARNA 98 2018

48. MARDI SEMPADAN 303 2018

49. MARDI SEBERNAS 307 2018

Note:

* Denotes the varieties that were reported to be planted for cultivation in Peninsular Malaysia during Main Season

2014/2015 according to the Paddy Production Survey Report Malaysia Main Season 2014/2015. There were eight varieties

in total

Source:

Paddy Production Survey Report Malaysia – Main Season 2014/2015, DOA (2016a) & unpublished data from MARDI

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Encouraging the Growth of Private Breeders

To spur the seed segment forward, particularly in plant breeding, the nation

can no longer rely on one government agency to lead the breeding and R&D

work. Private researchers and breeders are much needed in this segment.

However, to encourage the involvement of the private sector, the processes for

the development and recognition of new varieties for these stakeholders must

be made clear and easily available.

As of 2017, all varieties qualifying for the certified seed programme are varieties

produced only by MARDI91 or in collaboration with MARDI. Prior to 2017,

no varieties developed independently by the private sector or universities have

been included in this list. This is because not all paddy varieties developed in

Malaysia can meet the stringent and lengthy requirements needed to have the

variety recognised and subsequently qualify for the Seed Certification Scheme.

To add, while seed producers can legally sell non-certified seeds, these seeds

cannot compete with the cheaper, subsidised certified seeds and farmers who

purchase non-certified seeds do not qualify for farm input subsidies. This,

coupled with the complexity of the process involved in getting a new variety

recognised, discourages private sector participation. The result is the release of

fewer than 50 varieties over nearly five decades, while neighbouring countries

have achieved more than double the number.

“As of 2017, all varieties qualifying for the certified seed programme are

varieties produced only by MARDI or in collaboration with MARDI”

Historically, MARDI, DOA and MOA were responsible for developing,

monitoring and approving the standard operating procedures (SOPs) related

to the release of new paddy varieties and the inclusion of new varieties into

the Certified Seed Programme. Current regulatory processes related to the

local paddy varieties rest on the assumption that MARDI is the primary

entity conducting paddy breeding research. Furthermore, any technical

queries are referred to MARDI for advice and guidance.

91 Soalan Lazim - Bahagian Padi, Tanaman Industri dan Florikultur, DOA (2016d).

http://www.doa.gov.my/index.php/pages/view/594?mid=263

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“… JKTBKKIPB, which is currently chaired by the Director General of

MARDI, has a role in recommending a new variety to MOA … with

MARDI itself also producing its own breed”

This was true pre-2000s, with the seed segment benefitting significantly from

the role played by MARDI. With the foundations put in place by MARDI,

DOA and MOA, post-2000s, the landscape for R&D in paddy breeding

research has changed with the emergence of private sector breeders and those

from academia.

For the seed segment to continue to grow and be driven by the private

sector, it is important for them to foresee the possibility of making a profit.

They need assurance from the government that the processes and standards

in plant breeding and seed production for independent private breeders are

clear and achievable.

To reflect changes in the breeding landscape, it may be timely to review the

Chair and membership of the JKTBKKIPB to avoid possible conflicts of

interest. This is because the JKTBKKIPB, which is currently chaired by the

Director General of MARDI, has a role in recommending a new variety to

MOA for approval (Figure 3.2), with MARDI itself also producing its own

varieties. Previously, there were no other breeders except for MARDI and

having such a structure served it purpose well. While still recognising

MARDI’s significant contribution to the nation’s plant breeding segment,

given the recent increase in private and academic sector breeders, perhaps a

review of the current committee structure may be appropriate.

In conclusion, an enabling regulatory and policy environment for breeding

and seed production is needed to encourage the entry and success of new

players to spur the seed segment as opposed to the reliance on a single R&D

entity to drive paddy breeding in Malaysia.

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BOX ARTICLE 4: The International Rice Gene Bank, an

Untapped Potential92

At the International Rice Research Institute (IRRI), the International Network

for Genetic Evaluation of Rice (INGER) is a 40-year-old initiative established

as a global model for the exchange, evaluation, release and use of rice genetic

resources. This programme was developed as part of the International Treaty

on Plant Genetic Resources for Food and Agriculture (ITPGRFA)93. Malaysia

is one of the member countries of this treaty and one of the 50 INGER

participating countries94.

The INGER programme helps rice producing countries by continuously

searching for potential rice varieties within the vast resources of the

International Rice Genebank (IRG). The IRG currently holds approximately

130,000 types of rice accessions and 4,657 wild relatives95. The programme

also conducts preliminary breeding and field tests before sharing these rice

varieties with other countries. As such, it is deemed to be a fast-track route

for countries to develop new varieties as they can follow up with further

breeding domestically to meet the needs of the local environment (Figure 3.5).

In total, INGER has been responsible for the release of 667 rice varieties

across 62 countries from 1975 to present96. However, Malaysia has been one

of the least active countries relative to its Southeast Asian neighbours. Seed

variety was requested only once over a five-year period (Table 3.4) compared

to other member countries.

INGER is an open source and its vast genetic resources are accessible to any

breeder. It is therefore recommended that private breeders and university

researchers in Malaysia take advantage of INGER to hasten the development

of new paddy varieties for the nation.

92 Data source: IRRI webpage and pers. comm. with Dr Shoba Venkatanagappa, Senior Scientist, INGER & MET

Co-ordinator, Plant Breeding Division, IRRI

93 ITPGRFA, http://www.fao.org/plant-treaty/en/

94 INGER, http://inger.irri.org/

95 The International Rice Genebank, http://irri.org/our-work/research/genetic-diversity/international-rice-genebank

96 INGER (n.d.)

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Figure 3.5. The function of the INGER Programme

International Rice Gene Bank

INGER Programme

= 667 varieties in 62 countries

130,000 types of seeds

• Assist in early-stage breeding

• Assist in early-stage ﬁeld tests

• Fast track production of locally speciﬁc seeds

Source:

IRRI (n.d.)

Illustration by KRI

Malaysia as a participating country to the INGER programme has been relatively inactive

compared to other Southeast Asia countries

Table 3.4. List of countries that participated (requested rice variety) in the INGER

Programme by year

Country 2011 2012 2013 2014 2015

Cambodia Yes Yes

East Timor

Indonesia Yes Yes Yes Yes Yes

Lao PDR Yes

MALAYSIA Yes

Myanmar Yes Yes Yes Yes Yes

Philippines Yes Yes Yes Yes Yes

Thailand Yes Yes Yes Yes

Vietnam Yes Yes Yes Yes Yes

Source:

Pers. comm. with Dr Shoba Venkatanagappa, Senior Scientist, INGER & MET Co-ordinator, Plant Breeding Division, IRRI

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Chemical Input

This segment includes the system of supplying chemicals for disease control and

fertilisers to farmers to help increase farm yield. A primary topic of interest has

always been the relevance and mode of providing subsidised fertilisers and

chemicals under the Subsidi Baja Padi Kerajaan Persekutuan (SBPKP) and Skim

Insentif Pengeluaran Padi. While recognising its importance, this will not be

discussed in detail as it is currently being reviewed elsewhere.

Notwithstanding, of concern, are matters related to the health and safety of the

chemical input users (Box Article 5). In a bid to focus on increasing yield and

reducing costs, there has been widespread negligence in adherence to the safe

use of the chemicals as recommended on the labels, and the widespread use of

unregistered/illegal chemicals. During farm visits, workers were not wearing the

appropriate Personal Protection Equipment (PPE). Instead, unprotected hands

were used to prepare the chemical mixes, old clothes were used to cover mouth

and nose from inhaling the water-chemical suspension, and eyes were left

exposed. This observation was also made by Mohammed et al. (2016) in a

survey conducted to study farmers sustainability practices in the granary areas.

The negligence can be seen as a combination of several factors including low

self-awareness among farmers, lack of follow-up training by the chemical

suppliers, distributors and farming authorities as well as lack of pressure from

the consumers due to poor consumer awareness. This is symptomatic of an

industry that only focuses on production (in MT) as the main performance

indicator while failing to recognise that farms should also prioritise health and

safety as well as environmental sustainability97.

Further investigations and studies are needed to evaluate the extent of chemical

usage negligence and the monitoring of food safety (biological and chemical)

from farm to bin.

97 The impact of farming on the environment is not discussed in detail here as it requires a separate detailed report. In

summary, a correctly used chemical applied in combination, in succession to or alternating with soil-fertility improvers

such as microbial starters or organic fertilisers are good farming practice, but are often neglected.

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BOX ARTICLE 5: The Use of Unregistered Pesticides

Since 2010, the ‘Rice Bowl’ region of the Northern States in Peninsular

Malaysia has been hit by a pest from the genus Pomacea known as the

Golden Apple Snail (GAS) or siput gondang98. Each snail reproduces rapidly

by laying hundreds of pink eggs above water. It exerts most damage during

the tillering stage, as the aquatic snail consumes the soft seedlings.

Unfortunately, both farmers and the local authorities are unable to control

the pest quickly and effectively. According to the farmers, none of the

subsidised pesticides is able to prevent the damage done by the GAS.

Desperate, farmers in the Northern States resort to purchasing from

smugglers an unregistered product from China claimed to contain Fentin

acetate. Fentin acetate is a compound commonly used in Asia to control

GAS as it has molluscicidal properties99. The product is banned for use in

agriculture in Europe and India100.

It is important to emphasise here that efficacy does not equate to safety.

While the product may be effective in controlling GAS, there is no assurance

that it is free from contamination from other toxins as its environmental

and health safety has yet to be ascertained. Further investigation is needed

by disease control specialists to help develop a safe, effective and sustainable

solution to this problem.

Right: GAS eggs in Kangar, Perlis by the side of a paddy plot

Left: mature GAS at the base of a rice plant

Photos by KRI

98 Salleh et al. (2012)

99 Heong et al. (1995), Cheng and Kao (2006) & Arfan et al. (2016)

100 United Nations (2005)

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“Kami tak boleh baca bahasa asing di paket racun dan kami

tiada pilihan. Walaupun tak mahu, kami terpaksa gadai

nyawa guna racun haram sebab padi itulah periuk nasi kami”

by a paddy farmer interviewed in 2016

PESTICIDES ACT 1974 (Act 149)

Section 53A. Possession or use of unregistered pesticides and

unapproved use of pesticides

(1) Except as provided in sections 14 and 14A, no person shall—

(a) possess or use a pesticide that is not for the time being

registered under this Act; or

(b) use a pesticide otherwise than in accordance with the uses

stipulated on the label, as approved by the Board.

(2) Any person who contravenes subsection (1) commits an

offence and is liable on a first conviction, to imprisonment for

one year or to a fine of ten thousand ringgit and, on a second

or subsequent conviction, to imprisonment for three years or

to a fine of twenty thousand ringgit or to both.

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Mechanisation & Automation

“The adoption of farm mechanisation is good and can be attributed to the

accommodating role of both public and private agencies as well as farmers”

On-farm mechanisation for paddy cultivation in Malaysia in the last decade has

been well adopted, especially in land preparation and harvesting (Figure 3.6).

Furthermore, based on the estimated cultivated land area and the size of hectare

coverage per vehicle, Malaysia has enough heavy machinery to cover paddy

cultivation in Peninsular Malaysia101. The adoption rate of farm mechanisation

is good and can be attributed to the accommodating role of both public and

private agencies as well as farmers (Figure 3.6 and Figure 3.7).

Apart from transplanting, farm machinery is widely used throughout the paddy planting process

Figure 3.6. Percentage of machinery usage according to farm activity in the granary areas, 2014

Land

preparation

100.0%

2.6% 82.2% 83.0% 91.0% 100.0%

Transplanter Sowing by

broadcasting

Fertiliser

application

Chemical

application Harvesting

Source:

Data from Mr Abdul Aziz A Rahim from LPP at the Halatuju Industri Padi, 2016 Kedah

Illustration by KRI

101 Abdul Rahim (2016)

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As service providers, the private sector dominates the heavy machinery market

Figure 3.7. Percentage of machine ownership in Malaysia for the paddy industry, 2014

Two-wheeled tractors

Four-wheeled tractor

Harvesters

Machine Units Market Structure (ownership)

LPP/ Agencies: 0%

Private Sector: 100%

LPP/ Agencies: 17%

Private Sector: 83%

LPP/ Agencies: 18%

Private Sector: 82%

7,000

3,551

1,416

Source:

Data from Mr Abdul Aziz A Rahim from LPP at the Halatuju Industri Padi, 2016 Kedah

Illustration by KRI

Despite the high adoption rate, KRI’s stakeholder engagements revealed issues

related to access to suitable machinery. The use of modified or unsuitable

machines has led to yield loss as well as physical damage to farm roads and in

the paddy fields. For example, farmers use large and heavy combine harvesters

originally designed for wheat in a paddy field which causes land compaction,

road damage and higher post-harvest lost (Picture 3.1 and 3.2). The machine

suitability issue warrants further investigation by the relevant authorities to

ensure that farmers have access to rent or purchase the appropriate machines

for maximum yield and to minimise long-term damage to the land.

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Picture 3.1. Three workers trying to dislodge a harvester stuck in the soft mud in Sarawak

Photo by KRI

Picture 3.2. A combine harvester originally designed for wheat is used to harvest paddy in Kedah

Photo by KRI

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For the machinery segment to continue developing, it is worth reviewing the

role and relevance of the various Acts, regulations and monitoring bodies

involved in this segment (Figure 3.8).

Given the recent advent of farm mechanisation, gaps remain in the regulatory framework,

particularly on vehicle modification and on-farm suitability

Figure 3.8. Gaps in the farm mechanisation regulatory structure

INPUT FARM MANUFACTURING

Road Transport Act 1987 (Act 333)

Vehicle inspection PUSPAKOM

Licensing and on-road regulator JPJ

Machinery on-farm monitoring None

Factories and Machinery Act 1967

(Act 139)

Segment

Acts related to

mechanisation

Activity Agency

Illustration by KRI

It is worth adding that often, mechanisation in the farming industry is associated

with on-farm mechanisation and not elsewhere across the food supply chain.

Interest and focus should also be given to upstream and downstream segments

such as mechanisation and automation in seed production (including upgrading

storage and logistics) and downstream milling, packaging and logistics.

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CHAPTER KEY TAKEAWAYS

Seed Production and R&D

• Malaysia is slow in the release of new rice varieties.

• To spur the seed segment, Malaysia must encourage the proliferation of

breeders from the private sector and public universities.

• Recommendation: It is important to make the process of recognising new

paddy varieties clear and transparent for independent private breeders,

especially those not associated with MARDI. An enabling regulatory

environment for breeding and seed production is needed to encourage the

entry and success of new players as opposed to a reliance on a single

R&D entity to drive paddy breeding in Malaysia.

• Recommendation: It is suggested that the Jawatankuasa Teknikal Bantuan

Kerajaan ke Industri Padi dan Beras (JKTBKKIPB) membership is

reviewed to avoid any possible conflicts of interest and to assess the level

of representation and influence of breeders within the JKTBKKIPB.

• Recommendation: Furthermore, breeders should take advantage of the

services provided outside Malaysia such the INGER programme by IRRI.

Chemical Use

• In a bid to focus on increasing yield and reducing farm costs, there has

been widespread negligence in adherence to the safe use of chemicals on

the farms.

• Recommendation: Further investigations and studies are needed to

evaluate the extent of negligence in chemical usage and to monitor food

safety (both biological and chemical) from farm to bin.

Mechanisation

• The adoption of farm mechanisation in Malaysia is high, and there has

been a growth of service providers for the rental of heavy machinery.

• The focus on the adoption of automation and machanisation should be

further expanded to other segments of the paddy and rice supply chain.

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CHAPTER

SUPPLY CHAIN: PADDY

PRODUCTION (FARMING)

Farmers’ Demographics

Farmers’ Income

Farm Yield

Yield – Between Countries

Yield – Within the Country

Yield – 27 PPKs in MADA

Cost of Production

Cost of Production –

Between Countries

Cost of Production –

Between Granary Areas

Cost of Production – MADA

Cost of Production and Return on

Investment – 27 PPKs in MADA

Reducing Cost of Production –

Economies of Scale & Farm

Management

Contract Farming – Improving

Farmers Income and Strengthening

the Supply Chain

BOX ARTICLE 6:

Contract Farming in Paddy

Cultivation

Policy Recommendation for

Contract Farming

Chapter Key Takeaways

MALAYSIA’S PADDY AND RICE SUPPLY CHAIN

INPUT PRODUCTION MILLING & WHOLESALE CONSUMPTION

TRADE & STOCKPILE

The following segment in the paddy and rice supply chain is the farm/

production segment. Here, farmers purchase and utilise farm inputs to cultivate

paddy plants over a period of 90 – 120 days. Once matured, the grain is

harvested and sold to millers for profit. Given a large number of farmers and

their association with the lower income group, this segment receives the most

attention from the government and the public. Consequently, it is heavily

protected by multiple intervention measures compared to other segments in the

supply chain. This chapter will begin by describing the historical and current

demographics of the farmers and their income level. It will then look into

contributing factors that determine farm productivity102 and farmer’s income.

This is followed by policy recommendations on improving the performance of

this segment and strengthening its linkage to the next segment (midstream

segment) which may have an impact on further improving farmer’s income.

102 Farm/agricultural productivity is the ratio of agricultural output acquired to the agricultural input used or “… ratio of

index of local agricultural output to the index of total input used in farm production”. Shafi (1984) as cited in

Dharmasiri (2012)

CHAPTER 4

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SUPPLY CHAIN: PADDY PRODUCTION (FARMING)

Farmers’ Demographics

In 2016, there were 14 million employed persons in Malaysia. Out of this

number, 1.6 million workers belonged to Category A (agriculture, forestry and

fishing), which was 11.4% of the total labour force (Figure 4.1)103. This

category had the third largest number of employed persons after Category G

(wholesale and retail trade, repair of motor vehicles and motorcycles) and

Category C (manufacturing)104. Given this large number of employees, policies

related to agriculture, forestry and fishing are likely to have a large impact on

the livelihood of many workers.

Figure 4.1. Number of employed persons by industry, 2016 (million persons)

Transportation and storage

Adminstrative and support service activities

Public adminstration and defence;

compulsory social security

Education

Construction

Accommodation and food service activities

AGRICULTURE, FORESTRY AND FISHING

Others (Categories Q,M,K,S,J,T,B,R,E,L and D)

Manufacturing

Wholesale & retail trade, repair of motor

vehicles & motorcycles

0.6m (4.5%)

0.7m (4.6%)

0.7m (5.3%)

0.9m (6.6%)

1.3m (8.8%)

1.3m (8.9%)

1.6m (11.4%)

2.3m (15.9%)

2.4m (16.9%)

2.4m (17.1%)

0123 million

Persons

Note:

Percentages are from the total number of employed persons in 2016

Source:

Table 12: Employed persons by industry, Malaysia/States, 1982 – 2017 (pg. 3), Labour Force Survey Time Series Statistics,

DOS (2018) (Accessed 23 Oct 2018)

Chart by KRI

There has been a gradual decline in the share of employed persons in the

agriculture sector out of the total employment over the years. The turning point

was in 1992 when the total number of employed persons in the manufacturing

sector became higher than in agriculture. In 1982, 1.6 million were employed in

Category A from a total of 5.2 million employed workers (30.8%). In comparison,

in 2016, the total number of workers employed in Category A was still 1.6

million people but out of 14 million employed workers (11.4%) (Figure 4.2).

103 DOS (2018)

104 ‘Others’ is omitted here as it is a sum of multiple categories

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This decline is not necessarily a negative phenomenon. The rise in farm

mechanisation and improvements in farm management and R&D mean that

presently, fewer farmers are needed to produce the same, if not a larger

harvest. This is seen in the improvements in paddy farm yield and total

national paddy production as highlighted in Chapter 2. This is especially so

with the nation experiencing a shift from an agrarian-based economy to an

industrial one.

There is a declining trend in the percentage of people employed in categories related to agriculture

Figure 4.2. Employed persons in agriculture-related industry, 1982 – 2017 (percentage over

total employment)

Agriculture, Forestry,

Livestock and Fisheries

Agriculture, Hunting

and Forestry Agriculture, Forestry

and Fisheries

Manufacturing

Manufacturing Manufacturing

1992

1990

1989

1988

1987

1986

1985

1984

1983

1982

1993

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Note:

There were changes in the categorisation used, including the category related to agriculture in 2001 and 2010

Source:

Table 12: Employed persons by industry, Malaysia/states, 1982 – 2017 (pg. 3), Labour Force Survey Time Series Statistics,

DOS (2018) (Accessed 18 Oct 2018)

Chart by KRI

Closer inspection of the agriculture sector revealed that approximately 500,000

farmers are from the food production sub-sector. Within this sub-sector, around

200,000 are paddy farmers (Figure 4.3), located mostly in the granary areas

(164,068 in 2015)105. These figures indicate the considerable size of paddy

farmers and potentially explain the level of attention given by the authorities to

the well-being and socio-economic status of farmers in this country.

105 Agrofood Statistics 2015, MOA (2015). The number of farmers in granary areas is not available in the Agrofood

Statistics 2016.

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Paddy farmers make up the largest portion of farmers in the food sub-sector

Figure 4.3. Number of farmers according to crop type (food sub-sector), 2016 (persons)

PADDY

194,931 (38.6%)

Vegetables

44,454 (8.8%)

Fruits

142,314 (28.2%)

Others

20,968 (4.2%)

Coconut

102,253 (20.3%)

Notes:

1. Others include cash crops (maize, groundnut, tapioca, sweet potatoes, yam bean, sugarcane), spices, floriculture and

herbs

2. The number of farmers are estimated based on the number of individuals cultivating each crop

3. A farmer may cultivate more than one crop

Source:

Jadual 2: Anggaran bilangan petani mengikut negeri (pg. 3), Statistik Tanaman (Sub-sektor tanaman makanan) 2017, DOA (2017)

Chart by KRI

A common observation in the farmers' demography is the prevalence of an

ageing population. This was identified as far back as 1985 by the then Deputy

Minister of Agriculture106. Three decades later, the demography remains in

paddy farming. A socio-economic survey in Pendang, Kedah conducted in 2013

involving 150 respondents showed that the largest percentile of the respondents

was 50 years old and above, at 23%107. Consistently in 2016, MADA Annual

Report revealed that the average age of farmers in the MADA area is 60 years

old108. It is likely that the current economic insecurity associated with farming

and better employment opportunities in urban areas had led to this ageing

scenario in rural areas109.

106 Goh C.T (1985)

107 Hussin and Mat (2013)

108 Laporan Tahunan 2016, MADA (2016)

109 Abdullah (2007)

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According to Tauer (1995), it is commonly accepted that the productivity of a

farmer improves through years of experience, and then, at a certain age,

declines as physical limitations increase. The same author conducted a study of

farmers across 10 US Department of Agriculture production regions and

showed that farmer efficiency increases 5 to 10% every 10 years between the

ages of 35 and 44, then drops at the same rate beyond 44 years old. The same

scenario can be assumed in Malaysia whereby an ageing population of farmers

with an average age above 50 may indicate a sub-optimal achievement in farm

efficiency. The ideal scenario is that the ageing farmers’ population will

gradually shift towards fewer but more productive younger farmers.

With the adoption of farm machinery, technology and improvements in farm

management, a smaller number of dynamic agropreneurs may produce the same

output or better than the collective output of a group of ageing farmers.

According to an agropreneur from Penang, older farmers tend to work on

smaller land areas of less than 3 Ha for various reasons. On the contrary, the

ideal farm size to achieve economies of scale is around 10 Ha. Over time, if

there is a continued reduction in input subsidies, paddy farming in these smaller

plots may no longer be economical for these ageing farmers. According to the

interviewed agropreneur, it is predicted that the more productive farmers will

take over and consolidate these lands and adopt new methods to ensure the

best returns on investment for their paddy cultivation110.

The challenge, therefore, is for the paddy and rice industry to attract younger

farmers. Contract farming may be the first step towards this and is described

in detail under the contract farming subchapter.

110 KRI engagement with an exemplary paddy farmer who is in his 30s from IADA Pulau Pinang

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Farmers’ Income

Previous agricultural policies were successful in the gradual eradication of

hardcore poverty over the years, but farmers remain relatively poor compared

to their contemporaries in other occupational groups. This is the case for paddy

farmers in the MADA area. Based on the 2016 MADA Annual Report, the

monthly household income for paddy farmers in the region was RM2,527. This

includes income from both agricultural and non-agricultural related activities.

This is below both the national median household income (RM5,228) and

mean household income (RM6,958) in 2016111, with paddy farmers falling

within the B40 income group (Figure 4.4).

Paddy farmers remain in the bottom 40%

Figure 4.4. Mean monthly household income for Malaysians and MADA paddy farmers,

2012 – 2016 (RM)

RM18,000

16,000

14,000

12,000

10,000

8,000

6,000

4,000

2,000

2012 2014 2016

Bottom 40%MADA Farmers Middle 40% Top 20%

2,527

1,847 2,537

5,662

2,848

6,502

16,088

14,305

4,573

12,159

Note:

Monthly household income for farmers is estimated from the reported annual net household income of MADA farmers in 2016

Sources:

1. Household income data from various tables in Household Income and Basic Amenities Survey Reports (Table 1.3,

Table 1.8, and Table 2.1 in 2012, 2014 and 2016 reports respectively), DOS (Various years) (Accessed 23 Oct 2018)

2. MADA farmers income data from Jadual 11: Pendapatan Peladang Tahun 2016 Berbanding Tahun 2015 Mengikut

Purata Sampel (pg. 29), Laporan Tahunan 2016, MADA (2016) (Accessed on 23 Oct 2018)

Chart by KRI

111 Household Income and Basic Amenities Survey Report 2016, DOS, pg. 26 & 28

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Despite subsidies and incentives, in most cases, paddy cultivation alone is

insufficient to support a household. As such, most paddy farmers have

additional income from other sources. For example, a multinomial logistic

regression study conducted in 2010 showed that part-time paddy farmers in the

IADA in north-west Selangor had higher per capita monthly incomes if they

had non-farm income (RM1,310) compared to full-time paddy farmers

(RM656)112.

In an ideal scenario, the issue related to the income of a paddy farmer should be

viewed as part of a bigger picture and efforts should holistically consider the

contribution of both paddy and non-paddy as well as farm and non-farm activities.

However, due to the constraints of this report, the focus will be towards increasing

a farmer’s income through paddy cultivation with the assumption that it still

comprises an important part of the household’s source of income.

112 Nathan et al. (2014)

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A farmer’s income via the cultivation of paddy is essentially the net profit acquired

at the end of the planting season upon selling the harvested paddy to the millers

or brokers (Figure 4.5). The net profit is determined by the gross profit and the

cost of production, with the following determining factors113:

a) Total production – Determined by yield and grain quality. It is the final

volume of harvested paddy sold to the millers post-grading;

b) Price of paddy – Fixed at RM1,200/MT of harvested paddy; and

c) Cost of production – Influenced by farm management practices, prices of

land, input and labour.

Since the government has standardised the GMP of paddy to RM1,200/MT, the

following section will discuss issues related to the production volume and costs in

paddy farming. There is ongoing research on the grading of paddy grains and the

development of SOPs to ensure minimal post-harvest losses. However, this will not

be discussed in this report.

Figure 4.5. Illustration on the sources of income for paddy farmers

INCOME

a. Non-farm

b. Farm

Non-paddy

Paddy Net Proﬁt = Gross Proﬁt – Cost of Production

Gross Proﬁt

Volume

Grain quality &

Yield (MT/Ha)

Price

GMP RM1,200/MT

Cost of Production Affected by, among others:

Land Rent, Input Cost,

Labour & Machinery

Illustration by KRI

113 Amin (1989)

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Farm Yield

A farmer’s profit margin can be improved by increasing the total amount (in

MT) of paddy harvested for each hectare of land. Furthermore, given that land,

labour and resources are scarce and paddy farmers in Malaysia work on small

land sizes, the national focus on increasing total national production has been

on improving farm yield. In most cases, yield (MT/Ha) is used as a measure of

farm productivity114.

In agriculture, there are several types of yield gap, and the aim of a farmer is

to reduce the gap between the potential farm yield and actual farm yield.

According to FAO, this type of gap is termed Gap III (Figure 4.6) and can be

reduced through effective farm management, optimal environmental conditions

(soil fertility and climate), the variety of the paddy plant and the quality of

the seed.

A farmer's aim is to reduce Gap III

Figure 4.6. Yield gap components for a given paddy variety

Theoretical

potential yield

Experiment

station yield

Potential

farm yield

Actual

farm yield

Biological

• Variety

• Weeds

• Pests

• Problem soils

• Water

• Soil fertility

Socio-economic

• Costs

• Credit

• Tradition

• Knowledge

• Input

• Institutions

For scientists to conceive and breed potential varieties

Non-transferable technology and environmental difference

Determinants of Yield

Yield Gap I

Yield Gap II

Yield Gap III

Source:

Figure adapted from the ‘Rice and Narrowing the Gap’ article, FAO (2004)

114 Fermont and Benson (2011)

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A. Yield – Between Countries

Countries such as Australia and the US significantly out-rank Malaysia in

average farm yield (Figure 4.7). It is recognised that farming practices in both

countries are more advanced and better managed, which contribute to the

higher yield. However, it is also worth highlighting that these countries grow

paddy over the summer period (single-cropping) where there is an extended

number of sunshine hours and higher solar radiation. Generally, the longer the

photoperiod, the higher the yield. For example, the Riverina region in Australia

has the world’s highest yield in paddy cultivation due to a combination of

higher solar radiation and longer daylight time (12 – 14 hours) during the

growing season115.

In terms of the average yield, countries in SEA performed less well compared

to Australia or the US. In fact, despite being some of the world’s largest rice

producer and exporter, mainland SEA has lower farm yield compared to island

SEA. Their high level of paddy production is attributed to having vast areas for

paddy cultivation with a large supply of water from the Mekong River, coupled

with relatively cheap labour116. In 2016, Thailand’s paddy yield was 2.9 MT/

Ha. On the contrary, countries in island SEA such as Malaysia, the Philippines

and Indonesia performed better with a yield of 3.2 MT/Ha, 3.9 MT/Ha and

5.4 MT/Ha respectively, in the same year. The exception here is Vietnam

whereby since the 1990s, the country’s yield overtook Indonesia in 2001 and

in 2016, its paddy yield was 5.6 MT/Ha117.

The average annual growth rate in yield for other SEA countries in Figure 4.8

is higher than for Malaysia, ranging between 1.1%/year (Indonesia) to 2.4%/

year (Vietnam) over a 30-year period. Malaysia, on the other hand, recorded

an average annual growth rate of just 0.8%/year from 1986 to 2016.

115 Farrell et al. (2003)

116 Elaborated further in the import subheading in Chapter 5

117 Paddy yield figures from FAOSTAT

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To a certain extent, daylight hours and solar radiation could partly explain the

higher average yield in both Australia and the US. However, the higher average

annual growth rate in yield over three decades for Australia (2.9%/year), the

US (0.9%/year) and other SEA countries (with lower GDP per capita) especially

for Vietnam at 2.4%/year compared to Malaysia at just 0.8%/year, may be

attributed to higher investments in R&D. This had led to regionally-unique

varieties and improved farm management practices.

Considering the above observations, Malaysia may want to continue focusing

on improving its average farm yield. Assuming a theoretical average yield of 6.0

MT/Ha, around 417,007 Ha118 of planted area in the granary areas alone could

produce an estimated 2.5m MT of paddy. Assuming a paddy to rice conversion

rate of 65.0%, that equates to 1.6m MT of rice. This is about the amount

produced in both granary and non-granary areas in 2016119. Increasing the

national allocation towards R&D120 to develop more varieties, better technologies,

improved farm management and better extension programmes could help

increase Malaysia’s growth in farm yield.

Malaysia’s growth in paddy yield over three decades is smaller compared to other rice

producing countries

Figure 4.7. Paddy yield by country over three decades, 1986 – 2016 (MT/Ha)

Australia

United States

Indonesia

Vietnam

Philippines

MALAYSIA

Thailand

1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

12.0

10.0

8.0

6.0

4.0

2.0

0.0

MT/Ha

Source:

Crops: Yield: Rice, paddy, FAOSTAT (Accessed 23 Oct 2018)

Chart by KRI

118 Table 3.1.3 Paddy Planted Area, Agrofood Statistics 2016, MOA (2016a)

119 Table 3.1.4, ibid.

120 This allocation of national resources to R&D should not be focused on a few agencies, but shared across other research

entities. Refer to the Chapter 2 for further information.

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B. Yield – Within the Country

Described in greater detail in Chapter 1, paddy cultivation in Malaysia

comprises the designated granary areas and non-granary areas. Typically, the

average yields in the granary areas are higher than in the non-granary areas

(4.9 MT/Ha as compared to 4.0 MT/Ha in 2016121). The yield also varies

between granary areas, with MADA, IADA Penang, IADA Ketara and IADA

Barat Laut Selangor being the top performers with yields above 5.0 MT/Ha.

These differences can be attributed to many combinatorial factors, including

soil condition, weather, farm management, irrigation, pests and diseases and

use of technology. In fact, in agriculture, acquiring optimal yield requires good

farm management practices that have been modified to best suit the unique

local conditions.

C. Yield – 27 PPKs in MADA

To show that even within the same region there can be differences, KRI

conducted a statistical yield analysis within the MADA region comprising a

total of 27 smaller areas called Persatuan Peladang Kawasan (PPK)122. Using

Kruskal Wallis non-parametric testing and, subsequently, Dunn Bonferroni

analysis (Table 4.1), the average yield for each PPK was compared against

another. The results showed that there were significant (P<0.05) differences in

yield between the different PPKs. For example, the yield in Kodiang is

significantly lower than the yield in Jitra, Sungai Limau Dalam, Kerpan, Jerlun

and Guar Chempedak.

This shows that even within the same MADA region, local factors are important

determinants of farm yield. As the performance of the granary areas has a

direct influence on the performance of the nation’s paddy industry, it is

important to further investigate at the PPK level the unique reasons for the

different productivity levels and to identify potential factors of inefficiencies as

opposed to comparing between granaries. This matter is discussed in the cost

of production section.

121 Agrofood Statistics 2016, MOA (2016a)

122 Refer to Appendix for the methodology and full results

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There is a significant difference in yield between PPKs in the MADA area

Table 4.1. Statistical comparison of the average yield between PPK Sungai Limau Dalam and

other PPKs in MADA, 2016

PPK 1 26 other PPKs PPK 1 (Yield

MT/Ha)

PPKs (Yield

MT/Ha) Difference (MT) P-value*

Sungai Limau

Dalam

Alor Senibong 6.75 6.01 0.75 0.00

Pengkalan Kundor 6.75 5.82 0.94 0.00

Simpang Empat

Kangkong 6.75 5.42 1.33 0.00

Titi Hj. Idris 6.75 4.95 1.80 0.00

Tajar 6.75 6.08 0.67 0.01

Jitra 6.75 5.96 0.79 0.01

Pendang 6.75 6.20 0.55 0.06

Hutan Kampung 6.75 6.05 0.70 0.40

Kangar 6.75 5.80 0.96 0.52

Kubang Sepat 6.75 6.27 0.49 0.53

Kobah 6.75 6.22 0.53 0.71

Batas Paip 6.75 6.68 0.07 1.00

Kayang 6.75 6.64 0.11 1.00

Permatang Buluh 6.75 6.63 0.13 1.00

Tambun Tulang 6.75 6.61 0.15 1.00

Guar Chempedak 6.75 6.90 0.15 1.00

Tunjang 6.75 6.52 0.23 1.00

Simpang Empat 6.75 6.48 0.28 1.00

Kodiang 6.75 6.47 0.29 1.00

Jerlun 6.75 6.47 0.29 1.00

Bukit Besar 6.75 6.46 0.30 1.00

Arau 6.75 6.46 0.30 1.00

Sanglang 6.75 6.43 0.33 1.00

Kerpan 6.75 6.42 0.34 1.00

Kepala Batas 6.75 6.37 0.39 1.00

Kuala Sungai 6.75 6.12 0.63 1.00

Notes:

1. *Kruskal Wallis and Dunn Bonferroni non-parametric testing. A p-value of less than 0.05 is considered significant

2. The above is representative of the PPK Sungai Limau Dalam against all other PPKs. Refer to Appendix for the full

results and sampling details

3. Green cells are PPKs that have significantly different yield compared to PPK Sungai Limau Dalam

Source:

Cross Cutting Survey (CSS) data from Musim 1 2016 (pers. comm. with MADA)

Tables and analysis by KRI

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Cost of Production

Efforts to increase grain production and yield may contribute to the total

national supply but have little impact on farmers’ income if the cost of

production is still high. The best combination would be a farm that produces

maximum yield by using high-performing plant varieties and effective

management practices that can minimise farm costs. Unfortunately, barriers to

achieving this combination are the demographics of paddy farming which

comprise many ageing farmers working on fragmented land and/or small land

sizes leading to higher costs of production.

A. Cost of Production – Between Countries

How does Malaysia fare in terms of the cost of cultivating paddy, compared

to other rice producing countries? When comparing the cost of production

between countries, a national average may not be an ideal representation given

the large differences between regions within a country123. Noting this, instead

of taking national averages, Bordey and colleagues (2016) selected six key

paddy growing areas from six different countries (China, Indonesia, the

Philippines, Thailand, Vietnam and India) in a comparative study on paddy

cultivation in Asia. Among the criteria, these key growing areas must be

irrigated and planted with paddy at least twice a year. The researchers obtained

about 100 respondents within each area and tabulated the cost of production

for the year 2014.

KRI then compared the data published by Bordey and colleagues (2016) against

the cost of production data from MADA. This is because MADA is the nation’s

largest paddy producing area, it is irrigated and planted with paddy twice a

year. Figure 4.8 showed that the cost of production for the MADA area in

2014 at USD1,151/Ha (with subsidy) is actually below the cost of production

in key rice growing areas in other importing countries such as the Philippines,

China and Indonesia, but is still higher than in exporting countries such as

Vietnam, Thailand and India.

123 Bordey et al. (2016)

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Contrary to popular belief that Malaysia’s cost of producing paddy is high,

with subsidies included124, its cost of production is not that much higher than

that of rice exporting countries and the net profit is in fact the second highest

(USD884/Ha) after Can Tho (Vietnam). The net profit acquired by farmers in

MADA surpasses those in the key rice growing regions of Thailand, Indonesia,

the Philippines, China and India. However, the cost of production increases

when the input subsidy is removed, rising to USD1,599/Ha and resulting in

being the second lowest net profit at USD436/Ha.

“Contrary to popular belief that Malaysia’s cost of producing paddy is high,

with subsidies included, its cost of production is not that

much higher than that of rice exporting countries”

124 Cost of production with subsidies: lower cost of production for farmers as some of the inputs are subsidised

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Malaysia’s cost of production is lower than other rice importing countries but higher than rice

exporting countries

Figure 4.8. Cost of production in key rice growing areas in seven countries, 2014 (USD/Ha)

Total Cost

USD 3,000

2,500

2,000

1,500

1,000

500

Net Proﬁt

USD 1,200/Ha

1,000

800

600

400

200

Zhejiang,

China

West Java,

Indonesia

MADA, MALAYSIA

(without subsidies)*

Nueve Ecijia,

Philippines

MADA, MALAYSIA

(with subsidies)*

SuphanBuri,

Thailand

Can Tho,

Vietnam

Tamil Nadu,

India

2,530

(728) 2,171

(850)

1,599

(436)

1,489

(724)

1,151

(884)

1,102

(604)

1,036

(1,076) 944

(206)

Importing Countries Exporting Countries

/Ha

Total cost Net proﬁt

Notes:

1. The total cost in RM/Ha is converted to USD/Ha using the mean value of the daily exchange rates data from IMF

2. * Cost of production (without subsidies): the cost of production under the scenario where farmers would need to

bear the input cost should there be no government input subsidies

Sources:

1. Cost of production for Malaysia taken from Jadual 7.15 Kos pengeluaran padi sehektar mengikut musim di kawasan

Muda, pg. 94, Buku Perangkaan MADA 2014, MADA (2014)

2. Total amount of subsidies: RM1,466.60 (449.39 USD) from pg. 85, Buku Perangkaan MADA 2014

3. The exchange rate from IMF Exchange Rates (Accessed 14 Nov 2018)

4. Cost of production for other countries from Appendix Table 10.1a (pg. 127) in Bordey et al. (2016)

Chart by KRI

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B. Cost of Production – Between Granary Areas

What is then the pattern in the cost of production across the different regions

in Malaysia? Often, the performance of one granary area is compared to

another, especially against IADA Barat Laut Selangor (Sekinchan). Historically,

IADA Barat Laut Selangor has always had higher average yield and is seen as

the exemplary granary area, while MADA is considered important due to its

total size in hectarage, allowing it to be the highest contributor in terms of

paddy volume (Figure 1.13). Recently, many of the granary areas have seen

improvements in the average yield and the yield differences between the granary

areas are narrowing and almost negligble. This is especially true for IADA Barat

Laut Selangor, IADA Pulau Pinang, IADA Ketara and MADA all with an

average yield ranging 5.3 to 5.8 MT/Ha (Figure 1.14).

In 2016, the difference in the net profit for farmers (owners) in the MADA area

compared to IADA Barat Laut was less than RM500 (Table 4.2). The improved

yield in MADA, the standardisation of the GMP across the nation, a higher

cost of production in IADA Barat Laut Selangor and a negligible difference in

the cut-off rate between the two granaries may have explained this outcome. In

fact, when the cost of rent was included, the difference was large at almost

RM3,000, given that land rental price in IADA Barat Laut Selangor is higher125.

Having said this, it is important to emphasise that agriculture and farm-level

performance is site-specific and different solutions are required for different

locations. In this case, it is better to compare a top performing location to

another location within the same region, as opposed to comparing different

regions or granaries in Malaysia. Section C will provide an overview of the cost

of production within MADA and a breakdown of the cost. In section D, KRI

researchers conducted a statistical analysis to evaluate the performance of the

27 different PPK areas in MADA and will elaborate further on the results.

“Agriculture and farm-level performance is site-specific and

different solutions are required for different locations”

125 Pers. comm. with Bahagian Perancangan dan Pemantauan, IADA BLS (2018).

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Table 4.2. Farmer’s cost of production and profit in MADA and IADA Barat Laut Selangor (BLS), 2014 and 2016

Granary Yield (MT/

Ha)

GMP (RM/

MT)

Price

subsidy

(RM/MT)

Cut-off

rate (%)a

Cost of

production

(Owner)

(RM/Ha)

Net profit

(Owner)

(RM/Ha)c

Cost of

production

(Renter)

(RM/Ha)b

Net profit

(Renter)

(RM/Ha)c

No. of

farmers

Planted

area (Ha)

2014

MADA 5.54 1,200 248.10 17 2,174.28 4,484.37 3,766.26 2,892.39 57,635 190,127

2016

MADA 5.28 1,200 300.00 20 2,208.50 4,127.50 3,825.59 2,510.41 55,130 201,239

IADA BLS 5.83 1,200 300.00 20 3,311.76 3,684.24 7,311.76* -315.76 9,693 38,042

Notes:

a Cut-off rates in this table is the prevalent cut-off rate in the respective year based on KRI’s engagement with MADA and IADA

b Renter’s cost of production includes land rental

c Net profit = [(100% - Cut-off Rate) × Yield × (GMP+ Price Subsidy)] – Cost of Production. The first term in the right-hand side of the equation,

[(100% - Cut-off Rate) × Yield × (GMP+ Price Subsidy)], refers to farmer’s revenue from selling paddy according to the cut-off rate

* Based on an estimated land rent per hectare provided by IADA (pers. comm. November 2018)

Sources:

1. Yield and planted area data from Table 3.1.9 Average yield of paddy and Table 7.1 Basic information of Integrated Agriculture Development Area in

Agrofood Statistics 2016, MOA (2016a)

2. MADA farmer’s cost of production data is based on Jadual 7.15 Kos pengeluaran padi sehektar mengikut musim di kawasan Muda in Perangkaan

MADA 2014, MADA (2014); and Cross-Cutting Survey data from Bahagian Strategi dan Teknologi Maklumat MADA via pers. com.

3. Number of farmers in 2014 data are from 3.1 Kawasan Kendalian in Maklumat Perangkaan Industri Padi dan Beras 2016, MOA (2016b)

4. Number of farmers in MADA in 2016 is from page 13 of Laporan Tahunan 2016, MADA (2016)

5. Number of farmers and cost of production in IADA BLS in 2016 is based on pers. comm. with Bahagian Perancangan dan Pemantauan, IADA BLS

(2018)

Table by KRI

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C. Cost of Production – MADA

A closer inspection of the cost of production in MADA showed that land rental

is the largest contributory factor and has been increasing over the years. The

cost of land rental is more than 40% of the total cost of cultivating paddy in

MADA (Figure 4.9). It has increased from below RM900/Ha in 1997 to almost

RM1,600/Ha in 2014 (Figure 4.10). The same may be happening in other

granary areas. However, there is limited data on land rental cost to confirm

this. Similarly, machinery cost has been increasing and, in 2014, it comprised

about 30% of the total cost of production. Labour cost and input cost, in this

case are smaller.

A stronger bargaining power of farmers when negotiating with suppliers, service

providers and landlords may help to control drastic increases in the cost of

production. It is also worthwhile to better monitor the rental market within the

region and formalise the rental process as rental agreements are mostly done

verbally. It is also important to better understand the rental market and changes

over time, landlord’s motivations for renting and/or increasing rent and the

number of farmers who are renters, owners, and those that are both renter and

owner (25%, 38% and 34% respectively in 2014)126. Currently, there is little

temporal information on this.

“A stronger bargaining power of farmers when negotiating with suppliers,

service providers and landlords may help to control drastic

increases in the cost of production”

126 Others is 3%. Based on data from Jadual 3.1 Peladang dan Taraf Pemegangan Tanah Sawah (pg. 31), MADA (2014)

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Table 4.3. Cost of production breakdown and net profit for a renter in MADA, 2014 (RM/Ha)

Description Unit (RM/Ha) Formula

Gross Profit (per Ha)

Yield (MT/Ha) 5.54 (A)

Cut-off rate (%)117% (B)

Paddy price per MT21,448.10 (C)

Gross profit (per Ha) 6,658.65 (A) × [100% - (B)] × (C) = (D)

Production Cost (per Ha)

Land rent 1,591.98

Input cost3663.40

Labour cost4343.42

Machinery cost51,146.30

Others621.16

TOTAL cost (with input subsidies) 3,766.26 (E)

Input subsidies71,466.60 (F)

TOTAL cost (without input subsidies) 5,232.86 (E) + (F) = (G)

Net Profit (per Ha)

Net profit with input subsidies 2,892.39 (D) – (E)

Net profit without input subsidies 1,425.79 (D) – (G)

Notes:

1 The cut-off rate in 2014 was 17%

2 Paddy price is the sum of Guaranteed Minimum Price (GMP) (currently at RM1,200/Ha) and paddy price subsidy

under Skim Subsidi Harga Padi (at RM248.10/Ha before it was increased to RM300/Ha in 2016)

3 Input cost: cost of paddy seeds, fertilisers, pesticides, and seed treatments

4 Labour cost: wages for sowing seeds, fertilising, applying pesticides, and liming

5 Machinery cost: cost of ploughing, transplanting, harvesting, and transportation

6 Others: quit rent and irrigation duty

7 Fertiliser subsidy (Subsidi Baja Padi Kerajaan Persekutuan): RM621.60/Ha. Another input subsidy (Skim Insentif

Pengeluaran Padi): RM845.00/Ha

The slight discrepancy in calculations may occur due to rounding off

Sources:

Jadual 7.2 Pengeluaran Padi Bersih Kedah, MADA, MADA Kedah dan MADA Perlis (pg. 69) and Jadual 7.15 Kos

pengeluaran padi sehektar mengikut musim di kawasan Muda (pg. 94) in MADA (2014) and calculations by KRI

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Land rental is more than 40% of the total cost of paddy cultivation in MADA

Figure 4.9. Cost of paddy production breakdown for a renter in MADA, 2014 (RM/Ha)

Machinery

30%

Labour

Others

Input

18%

Land Rent

42%

Notes:

1. Input cost consists of costs of paddy seeds, fertilisers, pesticides and seed treatments

2. Labour cost consists of wages for sowing seeds, fertilising, applying pesticides and liming

3. Machinery cost consists of costs of ploughing, transplanting, harvesting and transportation

4. Others include quit rent and irrigation duty

Source:

Jadual 7.15 Kos pengeluaran padi sehektar mengikut musim di kawasan Muda in Perangkaan MADA 2014, MADA (2014)

Chart by KRI

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Figure 4.10. Cost of paddy production in MADA 1997 – 2014, by season (RM/Ha)

1997 (Musim 1)

1998 (Musim 1)

1999 (Musim 1)

2000 (Musim 1)

2001 (Musim 1)

2002 (Musim 1)

2003 (Musim 1)

2004 (Musim 1)

2005 (Musim 1)

2006 (Musim 1)

2007 (Musim 1)

2008 (Musim 1)

2009 (Musim 1)

2010 (Musim 1)

2011 (Musim 1)

2012 (Musim 1)

2013 (Musim 1)

2014 (Musim 1)

RM4,000

3,500

3,000

2,500

2,000

1,500

1,000

500

Total cost

of production

(Renter)

Land rent

Total cost

of production

(Owner)

Machinery

Labour

Input

/Ha

Notes:

1. Input cost consists of costs of paddy seeds, fertilisers, pesticides and seed treatments

2. Labour cost consists of wages for sowing seeds, fertilising, applying pesticides and liming

3. Machinery cost consists of costs of ploughing, transplanting, harvesting and transportation

4. Others include quit rent and irrigation duty

Source:

Jadual 7.15 Kos pengeluaran padi sehektar mengikut musim di kawasan Muda in Perangkaan MADA 2014, MADA (2014)

Chart by KRI

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D. Cost of Production and Return on Investment – 27 PPKs in MADA

MADA is the nation’s largest producer of rice. Each year, around 100,000 Ha

of land is cultivated with paddy by more than 50,000 farmers. This area can

be divided into 27 smaller areas, called PPKs. Each PPK has its own management

structure and central office and acts as the point of contact for the authorities,

the private sector and researchers, as well as a channel for extension programmes.

Every season, MADA conducts a survey (Cross Cutting Survey, CSS) comprising

25 respondents from each PPK, totalling a sample size of 675.

KRI conducted non-parametric statistical testing on the CSS data to compare

the cost of production between PPKs. Results showed that there is a significant

difference in the cost of production between PPKs (Table 4.4). When Sungai

Limau Dalam was compared to 26 other PPKs, the cost of production was

significantly different (P<0.05) to some PPKs such as Tunjang, Kubang Sepat

and Tambun Tulang. It is not significantly different to PPKs known to be top

performers such as Guar Chempedak, Sanglang and Kerpan, in agreement that

Sungai Limau Dalam is also a top PPK (See Appendix for a full list of analysis).

When compared to the average yield, some PPKs showed a higher return on

investment (ROI) than others (Table 4.5 and 4.6). Top performing PPKs include

Sungai Limau Dalam, Kerpan, Tajar, Guar Chempedak, Arau and Sanglang as

they have a lower cost of production but a higher yield, leading to a larger net

profit margin for both 2015 and 2016 data. There are many possible reasons

for this: closer engagements/cooperation with MADA due to its geographical

vicinity; active involvement with researchers on new technologies; adoption of

contract farming; better environmental conditions; and an effective PPK

management team, to name a few. In conclusion, it would be worthwhile for

the local authorities to identify location-specific differences between PPKs with

low and high ROIs to allow for more effective and targeted improvements.

Coincidentally, Sanglang and Kerpan are contract farming areas and both

PPKs were ranked top 10 in ROI in 2015 and 2016. The next section

intends to explore the issue related to economies of scale and the potential

of contract farming to help improve farm management and achieve better

ROI for other PPKs.

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Table 4.4. Statistical comparison of the average cost of production between PPK Sungai Limau

Dalam and other PPKs in MADA, 2016

PPK 1 26 other PPKs PPK 1

(RM/Ha)

PPKs

(RM/Ha)

Difference

(RM/Ha) P-value*

Sungai Limau

Dalam

Tunjang 1,712.00 2,593.13 881.13 0.00

Kubang Sepat 1,712.00 2,506.23 794.23 0.00

Tambun Tulang 1,712.00 2,427.56 715.56 0.00

Simpang Empat Kangkong 1,712.00 2,400.46 688.46 0.00

Kayang 1,712.00 2,399.39 687.39 0.00

Pendang 1,712.00 2,376.03 664.02 0.00

Bukit Besar 1,712.00 2,350.87 638.86 0.00

Alor Senibong 1,712.00 2,304.01 592.00 0.00

Jerlun 1,712.00 2,233.11 521.11 0.00

Hutan Kampung 1,712.00 2,297.04 585.04 0.00

Kobah 1,712.00 2,236.52 524.52 0.00

Pengkalan Kundor 1,712.00 2,203.88 491.88 0.00

Kepala Batas 1,712.00 2,208.05 496.05 0.01

Jitra 1,712.00 2,189.31 477.31 0.01

Permatang Buluh 1,712.00 2,174.96 462.96 0.01

Kuala Sungai 1,712.00 2,190.03 478.02 0.02

Kodiang 1,712.00 2,105.38 393.37 0.06

Kerpan 1,712.00 2,086.76 374.76 0.15

Batas Paip 1,712.00 2,102.76 390.76 0.27

Titi Hj. Idris 1,712.00 2,052.52 340.52 0.73

Guar Chempedak 1,712.00 2,094.19 382.18 0.78

Sanglang 1,712.00 2,001.42 289.42 1.00

Kangar 1,712.00 1,999.42 287.42 1.00

Arau 1,712.00 1,999.15 287.14 1.00

Simpang Empat 1,712.00 1,946.48 234.48 1.00

Tajar 1,712.00 1,717.97 5.97 1.00

Notes:

1. *Kruskal Wallis and Dunn Bonferroni non-parametric testing. P-value of less than 0.05 is considered significant

2. The above is representative of the PPK-level statistical analysis for one PPK: Sungai Limau Dalam against other PPKs

3. Refer to Appendix for the full results for all other PPKs and sampling details

4. Rent was omitted as some PPKs had no renters. The cost of tax was also omitted as it is a fixed cost across all data

Source:

Cross Cutting Survey (CSS) data from Musim 1 2016 (pers. comm. with MADA)

Table and analysis by KRI

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Table 4.5. The average cost of production and yield for 27 PPKs in MADA and the return on

investment (ROI), Musim 1, 2015

PPK Area

Cost of

Production2

(RM/Ha)

Yield

(kg/ha)

Ratio

(COP/Yield)

Net profit

(RM/Ha)

ROI

per hectare

(Net Profit/COP)

1Kerpan 1,881.90 6,830.12 0.276 6,030.66 3.20

2Sungai Limau Dalam 1,884.70 6,657.27 0.283 5,827.61 3.09

3Jerlun 2,015.30 6,936.16 0.291 6,020.10 2.99

4Tajar 1,856.55 6,356.57 0.292 5,507.41 2.97

5Kepala Batas 1,852.13 6,213.65 0.298 5,346.26 2.89

6Arau 1,981.98 6,338.62 0.313 5,361.18 2.70

7Sanglang 2,047.48 6,526.41 0.314 5,513.24 2.69

8Guar Chempedak 2,285.65 7,104.36 0.322 5,944.61 2.60

9Kangar 1,844.90 5,572.01 0.331 4,610.16 2.50

10 Kayang 2,214.39 6,638.35 0.334 5,476.01 2.47

11 Bukit Besar 2,237.31 6,535.21 0.342 5,333.60 2.38

12 Batas Paip 2,249.91 6,446.68 0.349 5,218.44 2.32

13 Tambun Tulang 2,261.41 6,463.65 0.350 5,226.60 2.31

14 Jitra 2,339.76 6,673.68 0.351 5,391.56 2.30

15 Kodiang 2,085.59 5,783.48 0.361 4,614.46 2.21

16 Simpang Empat 2,317.64 6,425.00 0.361 5,125.59 2.21

17 Permatang Buluh 2,170.20 5,935.43 0.366 4,705.88 2.17

18 Kobah 2,337.40 6,271.68 0.373 4,928.22 2.11

19 Alor Senibong 2,422.40 6,063.90 0.399 4,602.51 1.90

20 Kubang Sepat 2,582.91 6,360.26 0.406 4,785.32 1.85

21 Titi Hj. Idris 2,419.72 5,932.92 0.408 4,453.45 1.84

22 Pendang 2,475.22 6,043.00 0.410 4,525.47 1.83

23 Hutan Kampung 2,430.42 5,881.78 0.413 4,383.50 1.80

24 Kuala Sungai 2,780.21 6,668.41 0.417 4,945.01 1.78

25 Pengkalan Kundor 2,446.11 5,378.02 0.455 3,784.22 1.55

26 Simpang Empat Kangkong 2,478.21 5,350.20 0.463 3,719.89 1.50

27 Tunjang 2,602.43 5,380.57 0.484 3,630.85 1.40

Notes:

1. Refer to Appendix for the full results and sampling details

2. Rent was omitted as some PPKs had no renters, the cost of tax was also omitted as it is a fixed cost across all data

3. Net profit = [(100% - Cut-off Rate) × Yield × (GMP+ Price Subsidy)] – Cost of Production. The cut-off rate is 20%,

the GMP is RM1,200/MT, and the price subsidy in 2015 was RM248.10/MT

Source:

Cross Cutting Survey (CSS) data from Musim 1 2016 (pers. comm. with MADA)

Table and analysis by KRI

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Table 4.6. The average cost of production and yield for 27 PPKs in MADA and the return on

investment (ROI), Musim 1, 2016

PPK Area

Cost of

Production2

(RM/Ha)

Yield (kg/ha) Ratio

(COP/Yield)

Net profit

(RM/Ha)

ROI

per hectare

(Net Profit/COP)

1Sungai Limau Dalam 1,712.00 6,754.70 0.253 6,393.64 3.73

2Tajar 1,717.97 6,084.74 0.282 5,583.72 3.25

3Simpang Empat 1,946.48 6,478.50 0.300 5,827.72 2.99

4Guar Chempedak 2,094.19 6,901.72 0.303 6,187.87 2.95

5Arau 1,999.15 6,455.03 0.310 5,746.89 2.87

6Sanglang 2,001.42 6,428.81 0.311 5,713.15 2.85

7Batas Paip 2,102.76 6,683.03 0.315 5,916.88 2.81

8Kerpan 2,086.76 6,416.71 0.325 5,613.29 2.69

9Kodiang 2,105.38 6,466.55 0.326 5,654.48 2.69

10 Permatang Buluh 2,174.96 6,626.49 0.328 5,776.83 2.66

11 Kangar 1,999.42 5,798.12 0.345 4,958.32 2.48

12 Jerlun 2,233.11 6,466.30 0.345 5,526.45 2.47

13 Kepala Batas 2,208.05 6,366.38 0.347 5,431.61 2.46

14 Kuala Sungai 2,190.03 6,124.68 0.358 5,159.59 2.36

15 Kobah 2,236.52 6,223.70 0.359 5,231.92 2.34

16 Kayang 2,399.39 6,642.51 0.361 5,571.62 2.32

17 Bukit Besar 2,350.87 6,457.69 0.364 5,398.36 2.30

18 Tambun Tulang 2,427.56 6,609.31 0.367 5,503.61 2.27

19 Jitra 2,189.31 5,960.57 0.367 4,963.37 2.27

20 Pengkalan Kundor 2,203.88 5,815.65 0.379 4,774.90 2.17

21 Hutan Kampung 2,297.04 6,052.85 0.379 4,966.38 2.16

22 Pendang 2,376.03 6,204.00 0.383 5,068.77 2.13

23 Alor Senibong 2,304.01 6,005.13 0.384 4,902.15 2.13

24 Tunjang 2,593.13 6,520.68 0.398 5,231.69 2.02

25 Kubang Sepat 2,506.23 6,268.47 0.400 5,015.93 2.00

26 Titi Hj. Idris 2,052.52 4,950.58 0.415 3,888.18 1.89

27 Simpang Empat Kangkong 2,400.46 5,421.55 0.443 4,105.40 1.71

Notes:

1. Refer to Appendix for the full results and sampling details

2. Rent was omitted as some PPKs had no renters, the cost of tax was also omitted as it is a fixed cost across all data

3. Net profit = [(100% - Cut-off Rate) × Yield × (GMP+ Price Subsidy)] – Cost of Production. The cut-off rate is 20%,

the GMP is RM1,200/MT, and the price subsidy is RM300/MT

Source:

Cross Cutting Survey (CSS) data from Musim 1 2016 (pers. comm. with MADA)

Table and analysis by KRI

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Reducing Cost of Production – Economies of Scale & Farm Management

In theory, attaining economies of scale in farming is seen as a way to improve

farm management and reduce the cost of production. Economies of scale can

be achieved when there is a reduction of the average cost per unit (in this case

per hectare) as the size of the farm increases, since costs can be spread over a

larger area and farming can be made more efficient. However, in practice,

economies of scale are more difficult to achieve and can be region-specific.

In fact, there are cases where productivity is higher in smaller land sizes. This

is the case when an area relies fully on family labour with low technological

adoption127. FAO (2018)’s Dynamic Development, Shifting Demographics,

Changing Diets book elaborated that family labour has incentives to work

harder than hired labour. However, in areas where there is an adoption of

technologies and labour is expensive, economies of scale could work. For

example, it is cheaper to hire one harvester to visit one site and harvest a large

area, rather than to have the same harvester come in multiple times to harvest

small areas managed by multiple individuals. In Japan, the highest profits are

attained when the paddy farm size is between 5 and 10 Ha128. In Korea, the

largest farms (10 Ha and above) have the lowest average costs of production129.

In conclusion, the ideal land area and the need for economies of scale are site-

specific. Malaysia likely falls in between the two scenarios described above.

KRI stakeholder engagements with producers and local authorities in the

Northern Peninsular revealed that paddy farmers indeed experience issues with

economies of scale due to the small farm size.

127 Dynamic Development, Shifting Demographics, Changing Diets, FAO (2018)

128 Otsuka (2015) as cited in FAO (2018)

129 Statistics Korea (2017) as cited in FAO (2018)

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In 2016, a total of 194,931 paddy farmers worked on 681,342 Ha of land in

Malaysia130. This equates to an estimation of just 3.5 Ha of cultivated paddy

land per farmer. To help minimise the cost of production, it is therefore

imperative that the issue of economies of scale is addressed. Unfortunately, land

consolidation or getting individual farmers to coordinate their farming activities

is a challenging process. Furthermore, to maximise the reduction of costs

through economies of scale, this process needs to be achieved together with

good farm management and extension programmes.

Both the public and the private sector have taken numerous initiatives to

address this problem with mixed results (Table 4.7). These initiatives include:

a) Land consolidation – Federal Land Consolidation and Rehabilitation

Authority (FELCRA);

b) Centralised farming – Entry Point Project (EPP) 10 MADA Estate

Programme and PPK initiatives; and

c) Contract farming – A shared-risk approach between the downstream

private sector and the producers (See Box Article 6).

While the lack of economies of scale is frequently cited by almost all stakeholders

engaged, there have not been any quantitative studies conducted to identify the

incidence of diseconomy, its impact (if any) or the ideal size for economies of

scale in paddy farming. When asked, stakeholders responded that the optimal

farm size per manager varies from 10 Ha to as high as 30 Ha.

Identifying the optimal farm size to achieve economies of scale is important.

Too large would require a higher level of professional management, which may

not be available in rural areas, while targeting a size that is still too small may

risk not obtaining the benefits from the efforts taken to increase the farm size.

Thus, further research into this issue is crucial.

“There have not been any quantitative studies conducted to identify the

incidence of diseconomy, its impact (if any) or the ideal size for

economies of scale in paddy farming”

130 Statistik Tanaman (Sub-Sektor Tanaman Makanan) 2017, DOA (2017)

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Table 4.7. Comparing two initiatives introduced to help improve farm productivity and increase

economies of scale

Northern Corridor Implementation Authority

(NCIA) MADA NKEA Estate

Farm Model Contract farming model Estate model

Strengths • Brings multinational and local companies

closer to the farmers and vice versa.

Improves extension programme and the

quality of paddy produced

• While it still involves multiple farmers, the

private company acts as a central

coordinator and often works closely with

farmers throughout the production

process

• Improves economies of scale

• Improves coordination between irrigation

activities and farm activities

• Reduces illegal activities (farm is better

monitored)

Management style Semi-Private Government Agency

Role Funds, extension programme, link between

organisations, farm coordination

Farm management, extension programme

Primary source of

financing

Government and private Government

Target areas Low-yielding areas (less than 4.0 MT/Ha) in

Penang, Kedah and Perlis

MADA region

Project Objective 8.0 MT/Ha 8.0 MT/Ha

Projects/Locations NCIA-Runduk Padi in Batu Kurau, Perak

NCIA-Nestlé in Kerpan, Kedah

Throughout the MADA area

Success • 58 Ha of idle land at Batu Kurau, Perak

had the yield increase from 2.0 MT/Ha to

4.0 MT/Ha within two years

• 800 Ha of land in Kerpan has seen an

increase from 4.5 MT/Ha to 7.0 MT/Ha

after two planting seasons

• From 5,000 Ha of land in 2011 to 25,000 Ha

of land under the estate programme in

2015

• Average yield difference is 1.0 MT/Ha

compared to non-NKEA EPP area (pers.

comm. MADA 2016)

Challenges Projects are on a case-by-case basis,

unique to a specific location. Because of

this, it is difficult to implement each

successful model to other areas

Farmers are reluctant to fully participate in

the programme

Source:

KRI’s stakeholder engagements with MADA and NCIA

Table by KRI

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Contract Farming – Improving Farmers’ Income and Strengthening

the Supply Chain

One of the key takeaways of the 2016 Asian Development Bank (ADB) Food

Security Forum held in Manila is the development of Public-Private-Partnership

(PPP) as part of a solution towards improving smallholder productivity. One

such approach is to embrace contract farming as it could improve the efficiency

of the supply chain and increase farmers’ net profit in a sustainable manner as

opposed to government cash handouts or subsidies.

In this shared-risk system, the public sector provides a supportive environment

to allow the private sector (producers and downstream players such as millers

and food manufacturers) to drive the economy by cooperating and supporting

the farmers. It is a win-win situation: in return for providing farm advice,

management and extension services to the farmers, the midstream players are

able to obtain a consistent supply of quality grains according to their required

standards. The farmers, upon receiving adequate training and information,

would be able to increase their farm yield and quality, thereby selling their

harvests at competitive prices and earning higher profit margins.

Contract farming is “an agricultural production system carried out

according to an agreement between a buyer and farmers,

which establishes conditions for the production and

marketing of a farm product or products”131

131 FAO (2012)

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This form of agreement allows farmers to be connected to the global value chain

in a market-oriented commercial production. It links farmers and buyers through:

• Contracting firms/buyers provide farmers with market information,

technology and skills; and

• Farmers provide goods at an agreed price, volume and quality.

Contract farming may be favourable to the government because:

• It does not require high and continuous public expenditure as it is private

sector-driven;

• It is initiated by the private sector with a vested interest in the farmer’s

welfare and farm productivity;

• It is a new and low-risk strategy, as opposed to continue pushing for

cooperatives, which may require large initial capital injections from the

government; and

• It does not marginalise the midstream players. Previous programmes such

as ‘Jihad Memerangi Orang Tengah’ (Jihad Against the Middlemen) have

the tendency to undermine the important role of the midstream players.

Policies governing contract farming should allow manufacturers to make profits,

but at the same time ensure income stability and farm management improvements

for farmers. On the contrary, policies that stifle manufacturers (Chapter 5)

should be avoided as they only create more friction and distrust between the

farmers and millers. This further weakens the linkage between the production

and midstream segment of the supply chain.

In Malaysia, contract farming has been implemented in one way or another

that fits the definition above, either via written contracts or through mutual

understandings. Several downstream companies are already exploring this in the

paddy and rice industry with promising outcomes (Box Article 6).

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BOX ARTICLE 6: Contract Farming in Paddy Cultivation

There are a few examples of contract farming within the paddy and rice

industry. These can be simplified into two forms:

a) Farmers contracting with a miller that has a downstream food

packaging and marketing capacity where the rice is sold primarily in

the domestic market; and

b) Farmers contracting with a multinational food manufacturing company

whereby the final product is value-added and sold internationally

(Figure 4.11).

Figure 4.11. The two types of contract farming present in Malaysia

Local mills with a downstream

brand and marketing capacity

(e.g. Bario Ceria Sdn. Bhd. & BERNAS)

Branded packed rice

for domestic market

Local mills

Value-add

Food manufacturing plants

• Rice-based products

• Branded packed rice for the

domestic market and export

Overseen by a multinational company (e.g. Nestlé)

Examples of private midstream companies participating in paddy contract

farming (informal/formal agreements) are further elaborated and include:

a) Nestlé Paddy Club, over 800 Ha in Kerpan and Sanglang, Kedah;

b) NCIA-Runduk Padi Sdn. Bhd. project over 50 Ha in Batu Kurau, Perak;

c) Program Rakan Ladang Dibuk covering about 29 Ha by Dibuk in

Kedah;

d) BERNAS initiative over 10 Ha of land in Pasir Putih and Besut; and

e) Bario Ceria Sdn. Bhd. rice farming project with the Kelabit people in

Bario, Sarawak.

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Khazanah Research Institute

Nestlé (Malaysia) Berhad with Kedah farmers132

One such initiative is the Shared Value Concept (SVC) initiated by Nestlé,

known as the Nestlé Paddy Club in Kerpan and Sanglang, Kedah. According

to a representative from Nestlé, the company requires high-quality rice with

low levels of arsenic (<100 ppb), aflatoxin (<0.1 ppb) and other chemical

contaminants for its production of baby food, Cerelac®. To ensure the rice

supplied meets the required international standard and driven by the

company’s SVC principles, Nestlé established the Nestlé Paddy Club in

2011. Farmer’s membership is voluntary with a fee of RM10.00 per planting

season. In 2011, there were 20 farmers over 40 Ha of land participating in

this programme. In 2017, this figure increased to 284 farmers over ~800 Ha

of land, producing around 8,000 MT of paddy over two planting seasons.

The project assists farmers by providing farm management advice and

microbial soil enhancers in the form of soil conditioner/supplement (Organica

Biotech Sdn. Bhd.). In return, the farmers must sell the paddy to two

designated millers at the GMP of RM1,200/MT. Upon milling, the product

will be integrated into the downstream food manufacturing processes in

Nestlé factories. There are about 300 types of rice-based food produced

from paddy cultivated by these farmers, including Cerelac®, which are

exported to countries throughout SEA and baby snacks exported to the

European Union (EU).

132 KRI engagement with Nestlé Paddy Club and member farmers

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Khazanah Research Institute Khazanah Research Institute

Northern Corridor Implementation Authority (NCIA) with Perak farmers133

Another initiative is the NCIA-Runduk Padi project. In this initiative,

Runduk Padi Sdn. Bhd. works closely with NCIA to improve the yield of

50 Ha of previously abandoned paddy land in Perak. The company rented

the land from multiple owners and coordinates with local PPKs to improve

farmers’ paddy management practices. In this project, NCIA supplies free

soil conditioners (Organica Biotech Sdn. Bhd.) and assistance in improving

local infrastructure. Since the start of the project two years ago, the average

paddy yield has doubled from 2 to 4 MT/Ha.

133 KRI engagement with NCIA and Runduk Padi Sdn. Bhd.

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Padiberas National Berhad (BERNAS) with Kelantan and Terengganu Farmers134

Despite being a post-harvest company, BERNAS recognises the importance

of involvement in the upstream segment, so as to achieve not only

sustainability in its business operations but, more importantly, to be

actively involved in the farming community beyond concession requirements.

As proof of concept, in January 2017, BERNAS entered into a contract

farming program with 8 local farmers involving 10 Ha of paddy land; Pasir

Putih, Kelantan (2 farmers, 5 Ha) and Besut, Terengganu (6 farmers, 5

Ha). In this initiative, the company provides funds/input for the production

as well as farm management guidance to the farmers. In return, farmers are

expected to produce better quality paddy to be sold to BERNAS and/or its

joint venture (JV) mills. The result of the first planting season was

encouraging, with some farmers experiencing a 10% yield increment, but

the performance of the second season was less impressive as the project was

hit with rodents. With further improvements, the company believes this

programme is the way forward, as it provides the missing link between

paddy production (supply) and the market (demand). Given the potential

of contract farming, the program is to be expanded to 30 Ha by the end

of 2018.

134 KRI engagement with BERNAS

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Dibuk Sdn. Bhd. with Kuala Perlis Farmers135

‘Program Rakan Ladang Dibuk’ is an initiative introduced by Dibuk Sdn.

Bhd. to help farmers manage their paddy fields in Kuala Perlis. It was

adapted from a system learned during a company visit to Taiwan. The

target of the programme is to have every 100 relong (~29 Ha) combined

into one management. In total, there is about 40 Ha of land under this

programme involving up to 24 farmers. Through this initiative, Dibuk

supplies all the farm requirements including seeds, chemicals, heavy machinery

and labour as well as assists in training and farm management. According

to the Managing Director of Dibuk, Tuan Haji Marzukhi Othman, through

this programme, farmers reduced their cost of production by 50% and yield

increased by 35%. In this case, a win-win initiative is achieved whereby the

company helps to increase the farmer’s income and, at the same time,

ensures that Dibuk mills consistently acquire high-quality paddy grains.

Most importantly, such a system helps create trust and cooperation between

farmers and millers.

135 KRI engagement with Dibuk Sdn. Bhd.

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Bario Ceria Sdn. Bhd. with Bario Farmers136

In 2012, a contract farming model was adopted in Bario, Sarawak to help

improve the income of the local Kelabit community and develop their

economy through the cultivation of the specialty Adan rice.

Through the Entry Point Project 11 of the Economic Transformation

Programme, a total land area of around 200 Ha in Bario was designated

for paddy cultivation with around 178 farmers. Within the 200 Ha, farmers

have two choices for cultivating their paddy. For the first option, a farmer

has a contractual agreement with a private company, Bario Ceria Sdn. Bhd.

(BC), over a season. In that season, BC will fully manage the farmer’s land

with a division of 70:30 (BC: farmer) of the final profit made. For the

second option, a farmer cultivates the land himself and utilises BC’s services

as and when needed. BC also plays the role of an extension service provider,

having its trained managers to provide advice and oversee paddy cultivation

in Bario. As the contract is renewed for each planting season, a farmer may

change options, depending on his resources and ability. The first option

addresses the issue of ageing farmers in Bario, as many younger Kelabit

landowners are working elsewhere but still intend to generate income from

cultivating paddy.

136 KRI engagement with Bario Ceria Sdn. Bhd., a subsidiary company of Ceria Group

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Policy Recommendation for Contract Farming

Considering the combination of factors of low farm productivity (Chapter 4)

and a ‘squeezed’ midstream segment (Chapter 5), contract farming may be the

preferred short to mid-term solution. Establishing cooperatives by farmers

involves large capital, high levels of expertise and vast experience in the business

operations of the midstream segment, which may not be at the farmers’

immediate disposal. Therefore, under current circumstances, it may not be

practical to push for the farmers’ entry into milling. Instead, a three-stage

approach is recommended, with contract farming being adopted in the first

stage (Figure 4.12).

Figure 4.12. A three-stage strategy of contract farming

STAGE 1

Present Medium-term Long-term

Ageing small-

scale farmers

Resourceful, innovative

and well-connected

millers and processors

Fewer farmers, with higher proportion

of younger, more productive farmers

encouraged by the beneﬁts of shared-risk

Farmers have equities in the

upstream and downstream segments

Observation*:

Few farmers want to step up to lead

in forming a farmer's group.

This segment lacks human capital

and business knowledge

Contract Farming Contract Farming & Location-

speciﬁc Organisations

Gradual removal of interventive measures

Contract Farming

& Cooperatives

STAGE 2 STAGE 3

Strategy:

Tap into the competitive, skilled,

connected midstream players to train

and improve the farmer’s skills

With better knowledge, education,

and capital, farmers are more

proactive

Strategy:

Encourage farmers to form

local groups for a stronger

bargaining power

With the right human capital resources

within the sector, farmers are able to

attain effective cooperatives

Bargaining

Power

Bargaining

Power

Steady supply of

quality goods

Skills &

knowledge

$$ $$

Source:

*Based on engagement with paddy farmers, rubber tappers and the related agencies and associations

Illustration by KRI

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In Stage 1, the farmers may leverage on the midstream players’ vast knowledge

in paddy quality standards, market conditions and access to skilled farm

managers. The midstream players can count on the farmers for high quality,

adequate and consistent supply of paddy. In theory, a positive outcome is the

increased profit margin and improved paddy quality which, over time, encourage

the entry of younger farmers already in the rural areas or those moving out of

the urban areas into paddy production.

By Stage 2, the total number of paddy farmers would have fallen due to natural

mortality. However, presuming land consolidation by younger agropreneurs, the

hectarage and paddy yield per farmer may be higher. It is expected that at this

stage, these younger, more tech-savvy, better networked farmers are more

informed, connected and able to form groups to allow stronger bargaining

power with companies in the input as well as the midstream segment.

Come Stage 3, farmers are closely linked throughout the supply chain, have

knowledge access to both domestic and international markets, are able to

produce high-quality paddy that meets international standards and are relatively

more financially stable. At Stage 3, it is expected that the midstream segment

may be more encouraging for new entrants. At this point, a cooperative system

may work towards further empowering the farmers and strengthening the

linkage between segments of the supply chain.

Further reading materials on contract farming:

RuRal InfRastRuctuRe and

agRo-IndustRIes dIvIsIon

Guiding principles

for responsible

contract farming

operations

CONTRACT FARMING

Making Globalization

Work Better for the Poor through

CONTRACT FARMING

Making Globalization

Work Better for the Poor through

Edited by:

Sununtar Setboonsarng

PingSun Leung

Making Globalization Work Better for the Poor through

CONTRACT FARMING

Edited by:

Sununtar Setboonsarng

PingSun Leung

Making Globalization Work Better for the Poor through

Contract Farming

The changing structure of agricultural trade in a globalizing world has

become an integral part of effective rural development. In this context,

contract farming has emerged as a promising rural development strategy

that has gained momentum in the region, providing technical training,

production inputs, and market linkages to smallholders. Contractors,

often multinational agribusiness companies, in turn benefit from a steady

supply of consistent quality produce. This volume shows that the practice

of contract farming has been improving lives in rural areas in various parts

of Asia, especially of small-scale farmers who now have assured markets

for their produce. Contract farming is also evolving and now comes in

modified forms to better address the needs and capacities of all parties

involved. Its service of linking producers and markets, however, remains

unchanged, along with the gains it brings to smallholder producers,

agribusiness firms, and eventually consumers.

About the Asian Development Bank

ADB’s vision is an Asia and Pacific region free of poverty. Its mission is

to help its developing member countries reduce poverty and improve

the quality of life of their people. Despite the region’s many successes, it

remains home to approximately two-thirds of the world’s poor: 1.6 billion

people who live on less than $2 a day, with 733 million struggling on less

than $1.25 a day. ADB is committed to reducing poverty through inclusive

economic growth, environmentally sustainable growth, and regional

integration.

Based in Manila, ADB is owned by 67 members, including 48 from the

region. Its main instruments for helping its developing member countries

are policy dialogue, loans, equity investments, guarantees, grants, and

technical assistance.

Printed in the Philippines

Asian Development Bank

6 ADB Avenue, Mandaluyong City

1550 Metro Manila, Philippines

www.adb.org

Printed on recycled paper

KHAZANAH RESEARCH INSTITUTE

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CHAPTER KEY TAKEAWAYS

Farmers’ Demographics

• Over the last three decades, there has been a decline in the share of

people employed in the agriculture sector.

• According to the Labour Force Survey, in 2016, 1.6 million people were

employed within Category A (agriculture, forestry, and fishing), which is

11.4% of the total number of employed persons in Malaysia, the third

largest after Category G (wholesale and retail) and Category C

(manufacturing).

• In 2016, there were 194,931 paddy farmers, mostly aged 50 years and

above.

Farmers’ Income

• Previous agricultural policies were successful in the gradual eradication of

hardcore poverty, but farmers remain relatively poor compared to their

comtemporaries.

• To help improve farmers’ income through paddy farming, challenges

related to farm production (yield), grain quality and cost of production

need to be addressed at the PPK level.

• It is worth noting that when addressing issues related to a farmer’s

household income, the matter should be viewed holistically, incorporating

alternative sources of income in an interlinked manner. These issues are

beyond the scope of this report.

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Cost of Production (COP) and Farm Yield

• Land rental is more than 40% of the total cost of paddy cultivation in

MADA, followed by farm machinery at 30%.

• There is a lack of quantitative studies on the issue of economies of scale

and on the determination of the ideal size to achieve the benefits of

economies of scale especially in reducing the COP.

• A stronger bargaining power of the farmers when negotiating with the

suppliers, service providers and landlords may help to control drastic

increases in the costs of production.

• It is also worthwhile to better understand the rental market and changes

over time, landlord’s motivations for renting and/or increasing rent and

the number of farmers who are renters, owners and those that are both

renter and owner.

• Relative to other countries, data showed that Malaysia’s COP is not as

high as commonly perceived. When compared to key rice-growing regions

in other countries in Asia, MADA has a COP at USD1,151/Ha (RM

3,766/Ha) with the second highest net profit at USD884/Ha (RM 2,892/

Ha). This puts MADA as having the lowest COP compared to other rice

importing countries and only slightly higher than rice exporting countries.

However, when input subsidies are removed, the COP significantly rises

to USD1,599/Ha and the net profit fell to be the second lowest at

USD436/Ha.

• Regionally, the average annual growth rate (AAGR) in yield for Vietnam

has been the most significant at 2.4%/year from year 1986 to 2016

despite having lower GDP per capita than Malaysia. Malaysia’s average

annual growth in yield growth has been a low 0.8%/year.

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• To study the possible differences in farming performance for different

locations within the same region, KRI conducted a statistical yield and

cost of production analysis across 27 PPKs in MADA. Results showed

that there were significant (P<0.05) differences in both yield and the cost

of production between different PPKs. This shows that, despite being in

the same region, factors such as local farm management, pests and

diseases and soil fertility, among others, may be important determinants

of higher net profits, yield and return on investment (ROI).

• Therefore, given that the performance of the granary areas has a direct

influence on the performance of the nation’s paddy industry, it is

important to further investigate the unique reasons for these inefficiencies

at the PPK level.

Contract Farming

• Recommendation: To help improve farm ROI (and therefore, a farmer's

net profit) and strengthen the supply chain as a whole, a three-stage

approach is suggested:

1) Stage 1 involves a shared-risk approach using contract farming;

2) Stage 2 involves fewer but better informed, younger farmers

grouping together for stronger bargaining power. Subsidies and

incentives can be gradually removed; and

3) Stage 3 involves the establishment of effective cooperatives at the

back of well-developed human capital in the agriculture sector. At

this stage, subsidies and incentives are no longer required.

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CHAPTER 4

CHAPTER

SUPPLY CHAIN:

MIDSTREAM & IMPORT

Processing Paddy into Rice

Tight Profit Margin

Policy Recommendations

Import of Rice

Import Statistics

Malaysia May Continue to

be a Net Importer

Policy Implications

Stockpile

BERNAS in the Supply Chain

History of BERNAS

BOX ARTICLE 7:

History of Lembaga Padi dan

Beras Negara (LPN)

BOX ARTICLE 8:

Market Structures and State

Trading Enterprise (STE)

The Activities of BERNAS

Chapter Key Takeaways

Malaysia’s Paddy and Rice Supply Chain

INPUT PRODUCTION MILLING & WHOLESALE CONSUMPTION

TRADE & STOCKPILE

In this chapter, the focus on the midstream segment will be primarily on milling

and the processing of paddy into rice. The chapter will also describe the import

and stockpile segment of the paddy and rice supply chain, activities primarily

overseen by BERNAS.

Processing Paddy into Rice

Upon harvesting, paddy grains are sold to the millers either directly by the

farmers or through brokers. In this segment, the millers will grade the paddy,

purchase it at a price that is equal or higher than the Guaranteed Minimum

Price (GMP) and process the paddy into rice. Not all the milled paddy will be

converted into rice. In 2015, BERNAS milled 400,906 MT of paddy but only

about 60.7% was sold as graded rice, while the rest became crushed rice,

temukut rice, rice bran or lost during the milling process137.

The processed rice is then sold to wholesalers for subsequent logistical,

packaging or branding processes before delivery to retail stores. If private

millers refuse to purchase the grains, usually for not meeting the quality

standards needed, farmers can sell to BERNAS, a private entity that has been

given the mandate to be the buyer of last resort and to purchase the paddy at

the pre-determined GMP. The GMP was introduced as early as the 1940s to

ensure that the farmers’ incomes are protected by preventing millers from

offering an unacceptably low price for the farmers’ harvests (Figure 5.1).

137 From Table 6.1 Pengeluaran beras tempatan Kilang Beras BERNAS 2015 (pg. 25) in Maklumat Perangkaan Industri

Padi dan Beras 2016, MOA (2016b)

CHAPTER 5

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Malaysia’s producer price for harvested paddy remains tightly controlled for more than seven

decades, with the largest GMP hike in 2014

Figure 5.1. Producer price for paddy in Thailand and the Guaranteed Minimum Price (GMP) for

Malaysia, 1990 – 2016 (RM/MT)

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

RM550

RM496

RM650

RM750 RM1,200

Malaysia’s Guaranteed Minimum Price (GMP)

Thailand’s Producer Price

RM1,400

1,200

1,000

800

600

400

200

/MT

Sources:

1. Thailand’s producer price from Prices: Producer Prices – Annual: Producer Price (LCU/tonne): Rice, paddy,

FAOSTAT (Accessed 23 Oct 2018), converted to RM by KRI

2. Malaysia’s GMP from Jadual 7.18: Siri Purata Harga Padi (pg. 98 – 102), Perangkaan MADA 2014

3. The exchange rate from Official exchange rate (LCU per US$, period average), World Bank (Accessed 23 Oct 2018)

Chart and calculations by KRI

In the 1990s, the GMP was RM496, which rose to RM550 in 1998, increased

again to RM650 in 2006, then up to RM750 in 2008 and lastly to RM1,200 in

2014. On the contrary, for other countries such as Thailand, the producer price

fluctuates according to market conditions. The implementation of the GMP and

the grading of paddy has been one of the most challenging and debated issues

among industry players, including the farmers and millers as well as the authorities.

In 2008, a gazette was released stating that a miller must purchase paddy at a

minimum price of RM750/MT138. The actual purchasing price varies across

states. This is because some states such as Kelantan produced lower quality

grains and, as such, it was priced below RM1,000/MT, while other states were

able to sell their higher quality grains above RM1,000/MT (Figure 5.2).

138 Dewan Rakyat (2008), pg. 4

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SUPPLY CHAIN: MIDSTREAM & IMPORT

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In 2014, the government announced the increase of the minimum paddy

purchase price to RM1,200/MT139 and the price is to be standardised across the

states in Peninsular Malaysia. This was done through the Program Jihad

Memerangi Orang Tengah140. Prior to that, only Selangor had the paddy price

above RM1,200/MT while in other states farmers sold their paddy below

RM1,200/MT (Figure 5.2).

When the GMP price was standardised to RM1,200, millers in some states

noted that they were unable to bear the costs of purchasing low-quality grains

at RM1,200/MT and had to be more stringent on the cut-off value during

grading than before (elaborated in the next section)141. On the other hand, the

farmers were frustrated as they felt that their grains were worth more than the

cut-off value given. Consequently, distrust and frustration are high between

players within the supply chain especially with regard to the selling of harvested

paddy for milling.

“... distrust and frustration are high between players within the supply chain

especially with regard to the selling of harvested paddy for milling”

Regardless of whether it is the seller or the buyer that is at fault, this distrust

was perpetuated by a policy that targets one segment (farmers) at the cost of

the next segment (milling). Instead of strengthening the industry, the resulting

high level of distrust between farmers and millers weakens the supply chain

linkage between the farmers and the millers.

139 Zaain Zin (2014)

140 Maklumat Perangkaan Industri Padi dan Beras 2016, MOA (2016b)

141 Upon delivery of harvests, millers will weigh the paddy and gauge the cut-off percentage (pemutuan). This value is higher

in lower-quality harvests than good quality ones, as low-quality batches often contain more contaminants and a mixture

of immature grains with mature grains. Given the informal method of gauging paddy quality, both parties often cannot

agree on the acceptable level of cut-off value and result in a high level of distrust between the sellers and the buyers.

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Before the standardisation of GMP in 2014, farmers in Selangor sold their paddy up to

RM1,300/MT, while farmers in Kelantan sold their paddy for RM980/MT

Figure 5.2. Selling prices for paddy according to states, 2013 and 2014 (RM/MT)

RM1,350

1,300

1,250

1,200

1,150

1,100

1,050

1,000

950

900

SELANGOR

Pahang

Pulau Pinang

Johor

Negeri Sembilan

Melaka

KEDAH

Perak

Perlis

Terengganu

KELANTAN

Price range (2013) Price (2013) Price (2014)

/MT

Notes:

1. Prices are reported as either a range or a value

2. Price ranges/values in 2011 and 2012 are the same as in 2013, except for Terengganu (2011: RM1,000 - RM1,050,

2012 and 2013: RM1,050)

Source:

Jadual 2.9: Harga jualan padi mengikut negeri (pg. 29) in Maklumat Perangkaan Industri Padi dan Beras 2016, MOA (2016b)

Chart by KRI

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SUPPLY CHAIN: MIDSTREAM & IMPORT

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Tight Profit Margin

The rice supply chain in Malaysia has an almost ‘hourglass’ shape, with a few

input suppliers, a high number of farmers, a small number of midstream players

and, at the end, almost 31 million consumers142. The nature of this market

structure and the perceived importance of rice to the public meant that policies

have always focused on the largest number of individual players at both ends

of the supply chain. Specifically, policies focus on protecting 31 million

consumers through price controls (Figure 5.3) and almost 200,000 poor paddy

farmers through input subsidies and a price floor (GMP).

While the price floor (GMP) of paddy kept increasing, the price ceiling of rice remained the

same over the same period

Figure 5.3. Squeezed midstream in the rice supply chain

Illustration by KRI

UPSTREAM

PROTECTION

FARMERS

1998 – 2005

GMP RM550

2006 – 2007

GMP RM650 2008 – 2013

GMP RM750

2014 – present

GMP RM1,200

RM1.80 price ceiling

since 1998 for ST15%

SQUEEZED

MIDSTREAM

DOWNSTREAM

PROTECTION

UPSTREAM DOWNSTREAM

CONSUMERS

MILLERS &

WHOLESALERS

Table 5.1. Price ceiling for Super Tempatan 15% (ST15%) Rice Grade

Zone Maximum

Price (RM/kg) Location

Zone 1 1.65 Kedah, Perlis, Kelantan, Seberang Perai

North and South

Zone 2 1.70 Terengganu, Penang Island, Perak

Zone 3 1.75 Federal Territory, Selangor

Zone 4 1.75 Negeri Sembilan, Melaka

Zone 5 1.80 Johor, Pahang

Source:

Senarai Gred dan Harga Beras, http://www.elesen.moa.gov.my (Accessed 29 Aug 2018)

Table by KRI

142 Malaysia’s population from Special Aggregates: Geographical groups: Total population – Both sexes, World Population

Prospects 2017, UN Desa/Population Division (Accessed 19 Oct 2018)

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As highlighted by Wong et al. (2010), the strength of the overall supply chain

is determined by its weakest point. Squeezing the midstream segment may

disable the whole paddy and rice industry. Current pressures on the midstream

arise from both upstream and downstream policies. The continued increase in the

paddy price floor (GMP) and a fixed price ceiling at the retail end means that

millers and wholesalers wholesalers experience tightening of their profit margin

overtime (Figure 5.3). The most recent GMP increase to RM1,200/MT and its

standardisation across states had a significant impact on the midstream segment.

This is because previously, prices of paddy varied according to states (Figure 5.2)

with Kelantan having the lowest market price at around RM900/MT.

As an example, purchasing paddy at RM1,200/MT and selling it at RM2,000/

MT of ST15% to wholesalers, a small miller in Kedah operates at a loss of

RM18.72/MT (Figure 5.4). Given that prior to this, the paddy in the Kedah area

was sold around RM1,050 to RM1,100/MT, the loss is likely to be greater in

Kelantan as the quality of the paddy sold is lower, but millers must now purchase

at RM1,200/MT.

As a result, to continue operating, private millers had to diversify into other

businesses and expand their activities downstream and/or upstream as well as

invest in machinery and automation. Some millers had to resort to malpractices

or increase the stringency in the grading of the delivered paddy, which perpetuated

the mistrust between farmers and millers. The inability to do the above meant that

private millers, especially small millers, had to cease operations. According to a

report prepared by the Bumiputera Small Millers Association (Persatuan Pengilang-

Pengilang Beras Melayu Malaysia, PPBMM), the number of millers fell from

31 in 2006 to 23 in 2015143. Prior to 2014, there were 16 millers in Kelantan.

By 2016, all millers had to cease their business operations with BERNAS having

to then play the role of buyer of last resort (BOLR)144.

An additional observation is that millers sell the lowest quality milled rice,

ST15%, at RM2,000/MT to the wholesalers. However, in retail, the prices of

ST15% rice has a ceiling price of RM1,650 to RM1,800/MT (Table 5.1). This

price inconsistency is worth investigating further. In addition, from observation,

ST15% is not a common grade seen in most retail stores or sundry shops.

143 Data from PPBMM and Majlis Tindakan Ekonomi Melayu (MTEM) (2015)

144 Dewan Rakyat (2016)

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SUPPLY CHAIN: MIDSTREAM & IMPORT

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Figure 5.4. The estimated costings of a medium-sized mill (<5,000 MT/season)

By-products

• Rice noodles

• Livestock feeds

Local rice:

SST5%

SST10%

ST15%

Stockpile

Paddy delivered to the mill

RM1,200.00/MT of paddy + RM20.00

commission to lorry drivers

= RM1,220.00

Operational cost for a miller with a

factory output capacity of <5000 MT

per season

= RM102.85/MT of paddy

Total cost per MT of paddy

= RM1,220.00 + RM102.85 = RM1,322.85

Gross proﬁt

= Paddy sold as rice (58.5% x RM2,000/MT)

+ Paddy sold as other products (5% crushed rice

x RM1,150/MT, 9% bran x RM757/MT, 1% temukut x RM850/MT)

= RM1,170.00/MT + RM134.13/MT

= RM1,304.13/MT

Net proﬁt

= RM1,304.13/MT - RM1,322.85

= - RM18.72/MT

Pre-cleaning

Husking & Paddy separating

Whitener & Shining

Grading & Weighing

Packing

Notes:

1. Calculations are done on the weight of paddy after grading has been done (pemutuan)

2. 58.5% is the conversion rate from paddy to rice

3. Assuming that the miller does not participate in any malpractices

Source:

Pers. comm. with PPBMM

Chart by KRI

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Policy Recommendations

“…as long as the milling segment remains restricted and has

high barriers to entry, there is little opportunity

for farmers to establish cooperatives and enter the segment”

It is imperative that we do not view the midstream players (brokers, millers and

wholesalers) negatively and restrict their business operations. By doing so, the

target groups that the policies were meant to protect (farmers and consumers)

would be disadvantaged as a result of a weaker supply chain. Instead, a

regulatory environment that encourages the growth and success of each segment

of the supply chain is important for the industry to grow.

A possible solution to enhance trust between farmers and millers is through

transparency-improving technologies such as Blockchain. A Blockchain system

may weigh and record paddy quality without tampering from any parties. For

a given delivery of harvested paddy, it may be able to identify the farmer and

the source of the plot, the miller the grain was sold to and its subsequent

downstream journey to the wholesaler and retailer. Customers may also benefit

as they can access the recorded data and determine the quality of the product,

and its compliance to MyGap on the farm and Good Manufacturing Practices

in manufacturing.

It is worth studying further, the impact of having the GMP at RM1,200/MT,

its standardisation across states and reviewing the need for ceiling prices of rice

at the retail end.

It is important to highlight that as long as the milling segment remains restricted

and has high barriers to entry, there is little opportunity for farmers to establish

cooperatives and enter the segment. Pushing for cooperatives now may be

ineffective at empowering the farmers. A possible mid-term or bridging solution

to this is a form of contract farming between the midstream players and the

farmers. Such an engagement has been done with promising outcomes in

Malaysia and it is a model that is worth considering (Chapter 4).

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Import of rice

Import Statistics

The OECD-FAO Agricultural Outlook predicted that Malaysia’s rice import will

continue to rise (Figure 5.5). This is due to increasing rice consumption and

limited resources for cultivation, especially in expanding areas planted with rice.

Malaysia’s total rice import is projected to increase

Figure 5.5. Annual total rice import for Malaysia and neighbouring countries, 1990 – 2027 (m MT)

Philippines

MALAYSIA

Vietnam

Thailand

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

1990

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

3.0

2.5

2.0

1.5

1.0

0.5

0.0

m MT Projection

(2018 – 2027)

Source:

OECD-FAO Agricultural Outlook 2018-2027 (Accessed 29 Aug 2018)

Chart by KRI

Indeed, Malaysia has always been a net importer of rice, sharing a similar

status with Indonesia and the Philippines. In 2016, Malaysia imported a total

of 821,869 MT of rice and exported a total of 45,421 MT of rice, resulting in

a net import of 776,448 MT145. About half of the total imported rice originated

from Thailand, followed by Vietnam and Pakistan (Figure 5.6). In the export

segment, Malaysia exported 89.6% of its total exported rice to Indonesia.

145 FAOSTAT

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Most of Malaysia’s rice imports are from Thailand and Vietnam

Figure 5.6. Import origins and export destinations of rice for Malaysia, 2016 (MT)

Others

Benin

Singapore

Vietnam

Indonesia

Others

India

Pakistan

Vietnam

Thailand

425

981

1,143

2,155

40,717

43,535

38,606

123,551

191,387

424,790

0 100,000 200,000 300,000 400,000 500,000 MT

Exports

Imports

Source:

Trade: Detailed Trade Matrix: Import quantity & Export Quantity: Rice – total (Rice milled equivalent), FAOSTAT

(Accessed 29 Aug 2018)

Chart by KRI

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Malaysia May Continue to be a Net Importer

Geography is one of the possible reasons that a SEA country is a net rice

importer or exporter. A linear regression analysis showed that there was an

almost perfect correlation (R2 of 0.92) between paddy production per capita

and percentage of land area devoted to rice in eight countries in SEA146. These

countries were categorised into two distinct groups: importers (Malaysia, the

Philippines and Indonesia) and exporters (Myanmar, Vietnam, Thailand, Laos

and Cambodia).

According to Dawe et al. (2014), the larger crop area devoted to paddy by the

exporters reflected the country’s geographic suitability for rice cultivation147.

Exporting countries such as Thailand and Vietnam are on the mainland, with

large supplies of fresh water from dominant river deltas, vast areas of flat lands

and cheap labour. This equates to a lower cost of production per hectare and

the ability to produce in large quantities. On the other hand, importing

countries tend to be islands or peninsular such as Malaysia, Indonesia and the

Philippines, where fresh water and large areas of flat land are limited.

This could help explain why historical data showed that island SEA countries

are net importers. Data since the 1990s showed that countries such as Indonesia,

Malaysia and the Philippines almost constantly have a rice trade balance deficit

(Figure 5.7).

This is such despite having a government that is actively involved in the

industry and policies aiming to increase rice production. On the contrary,

Thailand and Vietnam’s trade balances have shown increasing trends and are

expected to further increase by 2027.

146 Dawe (2013)

147 Dawe et al. (2014)

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Malaysia has always been a net importer of rice and is projected to remain an importer

Figure 5.7. Rice trade balance for selected Southeast Asia countries, 1990 – 2027 (m MT)

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

1990

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

15.0

10.0

5.0

0.0

-5.0

-10.0

m MT

Thailand

Vietnam

Indonesia

MALAYSIA

Philippines

Projection

(2018 – 2027)

Note:

Trade balance (MT) = Export (MT) – Import (MT)

Source:

OECD-FAO Agricultural Outlook 2018-2027 (Accessed on 29 Aug 2018)

Chart by KRI

Policy Implications

Given that island/peninsular countries have a natural disadvantage relative to

mainland countries, should these countries aim to be net rice exporters? The

total cropped area for rice cultivation in island countries is low because there

are alternative crops that are more profitable. Given that paddy cultivation

often have low economic viabilities, restricting farmers to the cultivation of

paddy-only areas will end up reducing their income148. Hence, policymakers in

island countries face a trade-off between achieving national rice self-sufficiency

and ensuring the security of rural household income. According to Dawe

(2013), if SSL is achieved through measures leading to higher domestic prices,

such as trade restrictions and price controls, governments in the island/

peninsular countries should expect substantial costs. Also, instead of protecting

the poor, such strategy would possibly lead to achieving only the first part of

the food security definition: availability. It would still not be possible for the

poor to access rice due to its higher domestic prices149.

148 Jaffee and Anh Tuan (2015)

149 Ibid. & Dawe (2013)

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In agreement with the conclusions reached by Dawe (2013), local studies

showed that the scenario of reaching 100% rice SSL in Malaysia is unlikely. A

system dynamic modelling study showed that 50 years from 2011, under the

best-case scenario, Malaysia’s domestic paddy production could reach only up

to 63% SSL150. This is further supported by a polynomial curve analysis based

on historical patterns of domestic production and consumption151. The study

concluded that Malaysia is likely to experience a declining supply of local rice

which can only be offset by an increase in imports. Furthermore, it is also

unlikely that exporting countries would completely cease being rice exporters.

Nguyen (2012) showed that under various production, demand and productivity

scenarios, even in the worst-case situation, Vietnam would be able to continue

to produce a surplus of rice for export152. This does not suggest that Malaysia

should rely solely on Vietnam for its rice import. Instead, diversifying the

source countries may help minimise risks should any exporting countries cease

their trade activity.

Taking note of the above, expecting Malaysia to be a net exporter is unrealistic.

Having said this, while Malaysia is at a relative disadvantage compared to

mainland SEA countries, it should not abandon all paddy production. This is

because geographically, Malaysia is a country made of two large lands:

Peninsular and Borneo. While it does not have vast flat lands with river deltas

such as mainland SEA, it is also not a country made up of hundreds of small

islands such as Indonesia and the Philippines.

As such, a realistic target would be to achieve a balance of being a net importer

but with local farmers producing high quality grains and adhering to good

agricultural practices. Hard and soft infrastructures for paddy have already been

built, costing the nation billions of Ringgit. It would be a waste to discard these

investments. Furthermore, due to its location in the equator, the country

receives a lot of rain with the main paddy growing areas having access to large

dams. In conclusion, there is potential for Malaysia to cultivate paddy

responsibly, productively and still achieve better income for the farmers.

150 Bala et al. (2014)

151 Rajamoorthy and Munusamy (2015)

152 Nguyen et. al. (2012)

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Targeting higher productivity by focusing on reducing production costs through

investments in R&D may be a good approach for the island/peninsular countries

in SEA. Such strategies would enable long-term improvements in productivity,

despite the geographical limitations153. For example, even though paddy is not

traditionally grown in the US and Australia, both countries invested heavily in

R&D. As a result, farm management improved significantly and made both

countries efficient paddy producers.

Considering the points mentioned, remaining as a net rice importer may not

warrant concern. The country may instead focus its resources on R&D and

improvements in sustainable farming practices. More in-depth studies are

needed to determine the optimal SSL range that is not too low such that it risks

national food security (availability) and not so high as to be unrealistic.

Stockpile

First introduced in 1949 by the British government, stockpile or buffer stocks

are used in Malaysia to stabilise domestic price fluctuations and as an emergency

reserve154. In 2016, there were 11 warehouses in Peninsular Malaysia, 8 in

Sabah and 6 in Sarawak to store the nation’s buffer stock of rice155. Domestic

prices can be stabilised through buffer stocks by managing the bulk purchase

of rice and its controlled release into the domestic market156.

The government determines the amount of the national stockpile, and BERNAS

is tasked with managing this stock. Before the 2008 Global Food Crisis, the

national stockpile stood at 92,000 MT. Post-crisis, the stockpile was increased

to 292,000 MT as a knee-jerk reaction. According to BERNAS, the current

stockpile stands at 150,000 MT. At this amount, it costs BERNAS around

RM30m/year for storage purposes157. There are ongoing discussions regarding

the appropriateness of this amount and the determination of a lowered level

that better reflects recent market trends. According to BERNAS, at any given

time, there is enough rice to meet the nation’s demand for 6 months with

153 Flores-Moya et al. (1978) & Evenson (2001)

154 Vengedasalam (2013)

155 Data from Kedudukan Terkini dan Lokasi Stokpail 2015, Seksyen Kawalselia Padi dan Beras MOA (n.d.). Note that

this report is not publicly available.

156 Stakeholder engagement with BERNAS indicate that the use of the national stockpile to manage domestic price stability

has not been utilised.

157 Pers. comm. with BERNAS

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150,000 MT stockpile plus 180,000 MT trading stock together with ~500,000

MT rice stored in wholesale and retail (not including stocks in millers).

Considering this and the fact that since its inception in 1949, the stocks were

never used for emergency purposes, stockpile in Malaysia can be said to merely

provide a psychological sense of security.

Given that there is little information publicly available on this matter, this KRI

report will not expand further on issues related to the national stockpile.

BERNAS in the Supply Chain

Based on previous sections, the stakeholders at the midstream segment of the

paddy and rice supply chain consist of a few private millers and wholesalers,

who are constrained by various government policies at the production-end and

consumption-end of the supply chain. This section looks into one of the main

stakeholders of the segment, BERNAS. The company is a privately-owned state

trading enterprise with commercial and social obligations. The next sub-sections

will give a brief overview of BERNAS in the context of the country’s midstream

segment of the paddy and rice supply chain.

History of BERNAS

BERNAS was corporatised as Syarikat Padi Beras Nasional from Lembaga Padi

dan Beras Negara (LPN) in July 1994 through the Lembaga Padi dan Beras

Negara (Successor Company) Act 1994. Brief history and functions of LPN are

explained in Box Article 7.

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BOX ARTICLE 7: History of Lembaga Padi dan Beras Negara

In 1965, the government established the Federal Agricultural Marketing

Agency (FAMA) to regulate the food marketing system in the country.

According to the First Malaysia Plan (RMK1), the objective of FAMA is to

coordinate the activities of public and private agencies involved in agricultural

marketing. RMK1 noted that small farmers were challenged by an array of

market imperfections including “limited bargaining power, lack of market

information, lack of grades and standards, middlemen monopsony, cartels

and price-fixing”. FAMA was to devise appropriate schemes to ensure

effective and efficient marketing of agricultural produce, including forming

marketing boards for selected commodities.

Consequently, the Paddy and Rice Marketing Board (PRMB) was established

in February 1967158. Its main role was to ensure that paddy was bought

from farmers by licensed agents at the GMP. On the other hand, policies

related to the import and distribution of rice as well as stockpiling were

administered by the Ministry of Commerce Industry. The National Paddy

and Rice Board (Lembaga Padi dan Beras Negara, LPN) was formed in

1971 and it then assumed all the three duties.

Based on the Lembaga Padi dan Beras Negara Act 1971, there were five

stipulated functions of LPN. To achieve its functions, LPN had a wide range

of instruments at its disposal and was entrusted with certain powers

(Table 5.2).

158 Arkib Negara (n.d.)

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Table 5.2. Functions, instruments and powers of LPN

Functions of LPN Instruments of LPN Powers of LPN

• To conserve and maintain an

adequate supply of paddy and

rice

• To ensure a fair and stable

price of paddy for farmers

• To ensure a fair and stable

price of rice for consumers

• To ensure sufficient supply of

rice to meet all emergencies

• To make recommendations to

the government on policies

designated to promote the

development of the paddy and

rice industry

• Implementing GMP for paddy

• Enforcing fair and stable price

for consumers

• Maintaining stockpiling,

licensing of wholesalers,

retailers, rice millers, importers

and exporters

• Regulating and controlling the

milling of paddy into rice

including the rate and regularity

of milling operations

• Regulating the production of

paddy

• Prohibiting, regulating, or

controlling the movement of

paddy and rice

• ... others

• Power to obtain information

• Power to enter premises

• Power of arrest, seizure,

investigation and persecution

• Power to stop and search

conveyance

Source:

Lembaga Padi dan Beras Negara Act 1971

Table by KRI

In 1974, due to the world food crisis, LPN became the sole rice importer,

playing the role of gatekeeper159. LPN was initially placed under the Ministry

of Public Enterprises before being moved to the Ministry of Agriculture in

the 1980s. The capacity of LPN continued to expand with the number of

staff increased from 29 personnel in 1970 to nearly 5,000 by 1983160. By

1985, LPN was purchasing almost half of the paddy produced in the

country161. Nevertheless, LPN had incurred losses almost every year since its

inception before recording profits in 1992 and 1993, the last two years

before it was corporatised. From 1983 to 1987, the loss amounted to

M$200m162,163. From 1988 to 1991, LPN’s total loss was RM94.9m164.

159 Being the sole importer of rice, LPN controlled the access of international rice into the domestic market, an act

that is referred to as gatekeeping.

160 Davidson (2018)

161 Ibid

162 Dewan Negara (1989)

163 Note that Malaysia’s local currency was Malaysian Dollar (M$) before being replaced with Ringgit Malaysia (RM)

in 1993.

164 Dewan Rakyat (1994)

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The corporatisation of LPN into BERNAS also entailed the establishment of

the Control of Paddy and Rice Section (commonly referred as Kawalselia)

through the Control of Padi and Rice Act 1994. While the social and

commercial functions of LPN were transferred to BERNAS, Kawalselia took

over the regulatory role of LPN.

There were three stated reasons for the corporatisation of LPN into

BERNAS, namely165:

a) To increase the efficiency of paddy and rice management for the

benefit of producers and consumers;

b) To ensure that the surveillance and control of matters related to

purchasing, marketing, milling, storing, pricing, stockpiling and

ensuring the quality of paddy and rice are managed in the best and

most profitable manner; and

c) To reduce the government’s burden of managing LPN with an annual

operating cost of RM20m166.

In January 1996, the company was privatised as Padiberas Nasional Berhad

(BERNAS). The privatisation of BERNAS was consonant with the then

Prime Minister, (Tun) Dr Mahathir Mohamed’s privatisation agenda. For

example, Telekom Malaysia was formed in 1987 to succeed

Telecommunications Department, Tenaga Nasional Berhad was established

in 1990 to replace National Electricity Board, and Postal Services Department

was corporatized as Pos Malaysia Berhad in 1992. This privatisation agenda

was in line with global economic thinking at that time. World leaders then,

including Margaret Thatcher (the Prime Minister of the United Kingdom

from 1979 – 1990), Ronald Reagan (the President of the US from 1981 –

1989), and Bob Hawke (the Prime Minister of Australia from 1983 – 1991),

were strong proponents of privatisation.

165 Ibid.

166 Based on our pers. com. with BERNAS, however, the average annual expenditure of BERNAS from 1972 to 1994

was RM56m, for both the development and operating expenditure.

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When BERNAS was first established in 1996, seven parties formed a joint

venture company called Budaya Generasi Sdn. Bhd. (BGSB) to purchase

75% of the shares in BERNAS from the federal government167. The seven

parties included four public entities, namely, Pertubuhan Peladang

Kebangsaan (NAFAS), Persatuan Nelayan Kebangsaan (NEKMAT), Syarikat

Perniagaan Peladang (MADA) Sdn. Bhd. (SPPM)168 and Syarikat Perniagaan

Peladang (KADA) Sdn. Bhd. (SPPK)169 and three private entities, namely,

Permatang Jaya Sdn. Bhd. (PJSB), ZAW Ventures Sdn. Bhd. (ZAW) and

Simpletech Sdn. Bhd. The Ministry of Finance held a golden share of 10%

with veto power over the board’s decisions and the remaining 15% were

held by other entities170.

Under the agreement between BERNAS and the government signed on 12

January 1996171, BERNAS was granted exclusive rights to import rice for 15

years from 1996 to 2010. This is in return for them performing social

obligations172. The agreement was later extended in 2010, which lengthened

the privilege mandated to BERNAS for another 10 years, ending in 2021173.

The government has always maintained that single importation is to ensure

the stability of the domestic rice market and food security174. The exclusive

importing rights of BERNAS also makes the company Malaysia’s sole state

trading enterprise (STE) in the international rice market and the only

company selling imported rice to wholesalers. This market structure is an

important feature of the paddy and rice supply chain for Malaysia. The

concept of market structure, consequences of different market structures and

STE are explained in Box Article 8.

167 Davidson (2018) & Court of Appeal of Malaysia (2015)

168 SPPM is a company under Muda Agricultural Development Authority (MADA).

169 SPPK is a company under Kemubu Agricultural Development Authority (KADA).

170 Davidson (2018)

171 Dewan Negara (2010)

172 Ibid.

173 BERNAS (2011)

174 Parlimen Malaysia (2016)

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BOX ARTICLE 8: Market Structures and State Trading Enterprise (STE)

Market structure refers to the characteristics of agents (firms or sellers and

buyers), goods produced and traded and barriers to entry and exit, as well

as the flow of information in a market. The structure of a market determines

how agents make decisions and behave, and consequently the quantity of

trade, price and profit in the market.

A perfectly competitive market is one that is defined by the presence of

numerous firms, selling similar goods and the ability of any firm to freely

enter or exit the market. In this setting, firms are price-takers. However, few

markets are perfectly competitive and most markets have various

imperfections.

A one-firm market structure is called a monopoly (one-firm seller) or a

monopsony (one-firm buyer). A key feature of this market is its high barrier

to entry and only one firm remains in the market. This firm has high

market power and can determine the price and/or quantity of goods in the

market. Market features that lead to this structure include:

i) Sole ownership of resources;

ii) Government policies or regulations; and

iii) Specific production process leading to natural monopolies.

Patent, copyright laws and exclusive selling or buying rights are examples

of government policies that can give a specific firm high market power. In

some instances, the efficiency of production is achieved when the market

only has one firm, for instance in the distribution of water and power for

an area, leading to the creation of natural monopolies.

Between perfect competition and monopoly, there exist other market

structures such as monopolistic competition, duopoly and oligopoly—each

with different market characteristics and outcomes not elaborated here but

discussed further in Mankiw (2008), Economics: Principles and Applications175.

175 Mankiw (2008), Economics: Principles and Applications

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Economic effects of monopoly176

By understanding the structure of a market, we can understand the

behaviour of firms and the likely outcomes in the market. For instance,

perfectly competitive markets are said to produce economically efficient

price and quantity outcomes. On the other hand, monopolies produce

inefficiencies in the market because the final price of a good is too high

and the quantity of goods produced is too low. There is welfare loss177 in

the economy as the good becomes unaffordable for some consumers and

less of the good is consumed.

For this reason, monopolies are closely monitored by policymakers and

often regulated.

State Trading Enterprise (STE)178

A State Trading Enterprise (STE) is a specific example of a one-firm entity

created by governments. These enterprises are given exclusive rights by

governments to import or export certain goods179. STEs are prevalent in

developed and developing, as well as exporting and importing countries.

Notable examples of STEs include the US Commodity Credit Corporation,

the Canadian Wheat Board, the Japanese Food Agency, the Indonesian

Badan Urusan Logistik (BULOG) and Malaysia’s BERNAS.

In the agriculture market, an STE carries out various functions. For

example, statutory marketing boards are usually involved in stabilising

prices, while export marketing boards aim to maximise profits in

international trade. STEs differ by countries’ trade policies and domestic

priorities. The exclusive rights granted to STEs might raise concerns about

the creation of monopoly (right to sell/export) and/or monopsony (right to

buy/import) power. STEs are also often viewed as unfair traders in the

international agriculture market.

176 Based on ibid. and Varian (1992)

177 In economics, welfare loss is the efficiency loss due to not achieving competitive equilibrium outcomes.

178 OECD (2001)

179 Ibid.

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However, the effects of STEs must be understood in tandem with a country’s

other international trade policies as STEs are not necessarily non-

competitive180. Moreover, STEs must also be assessed in terms of their

domestic non-economic or non-commercial obligations as these might

impose different costs to the STEs and the presumed profits might be over

or underestimated.

BERNAS180was listed on the Kuala Lumpur Stock Exchange (KLSE, now known

as Bursa Malaysia) in August 1997. Growing foreign ownership of BERNAS

led to growing public concerns over foreign ownership in a company with

national interests. A Hong Kong-based company, Wang Tak Company Limited

(WTCL) started buying shares in BERNAS in 2000181 and by 2009 owned a

31.5% stake in BERNAS182. Politicians and the Federation of Malaysian

Consumers Associations (FOMCA) expressed worries over the matter183. In

February 2010, Tradewinds (M) Berhad (TWM) obtained a 72.3% stake in

BERNAS with the acquisition of shares from WTCL, BGSB and a mandatory

offer to other shareholders184. The acquisition of shares from WTCL was

deemed as having its foreign shares transferred back to a local company.

In November 2013, BERNAS undertook voluntary delisting from Bursa

Malaysia (formerly KLSE). The rationale behind the delisting, as quoted185, was

to resolve the issue of non-compliance with the 25% public shareholding

spread requirement set by the bourse186. As of 4 November 2013, BERNAS

only had a public shareholding spread of 16.3% while TWM controlled

83.7% of its shares187.

180 Ibid.

181 BERNAS (2000) & BERNAS (2001)

182 Dewan Rakyat (2009)

183 The Edge (2009)

184 BERNAS (2009)

185 The Edge (2013)

186 According to Bursa Malaysia, at least 25% of a listed company shares must be held by not less than 1,000 public

shareholders. This is called public shareholding spread requirement.

187 The Edge (2013)

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Figure 5.8. Key events in the evolution of BERNAS

BERNAS was granted exclusive right

to import rice for 15 years (1996 – 2010)

Exclusive right to import rice was

extended for another 10 years (2010 – 2021)

Paddy and Rice Marketing

Board (PRMB)

Federal Agricultural

Marketing Agency (FAMA)

Lembaga Padi dan

Beras Negara (LPN)

LPN became the

sole rice importer

LPN was

corporatised

as BERNAS

BERNAS was

privatised

BERNAS was listed on

Kuala Lumpur Stock

Exchange (KLSE)

Tradewinds (M)

Berhad obtained

72.3% stake in BERNAS

BERNAS was delisted

from Bursa Malaysia

(formerly KLSE)

19661965 1971 1974

1994

2013 2010 19961997

Chart by KRI

The Activities of BERNAS

Presently, BERNAS plays several roles in the paddy and rice industry. In

addition to its commercial interests, the company has social and financial

obligations (Figure 5.9). However, it does not have any statutory power or

authority and the government remains the regulator for the whole industry188.

188 World Trade Organization (WTO) (2016)

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Figure 5.9. Functions of BERNAS

DUTIES SOCIAL OBLICATIONS COMMERCIAL* REGULATORY

• Ensure fair & stable price

• Ensure sufﬁcient supply

• Ensure quality & standard

• National stockpile (CONSUMERS)

• Buyer of last resort at GMP (FARMERS)

• Administer price subsidy payment (FARMERS)

• Bumiputera Millers Scheme (”SPB”) (MILLERS)

• Paddy & rice trading

• Milling activities

• Distributive trade

• Licensing & enforcement

• Control & smuggling

• Control of prices & grades

•

Control interstate movement

• Safeguard farmers &

consumers’ interest

* Including investments other than rice/paddy related

Source:

Strategic and Planning Department, BERNAS website

Chart by KRI

In its commercial capacity, BERNAS is involved extensively in the whole paddy

and rice supply chain—from the production of paddy seeds to rice milling, local

trading and distribution to overseas trading189. In addition, BERNAS is also

involved in non-rice businesses such as feedstuff, logistics, flour and bakeries.

Figure 5.10 shows BERNAS’s range of businesses.

189 BERNAS (2012)

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Figure 5.10. Subsidiary companies of BERNAS

100%

BERAS CORPORATION SDN BHD

61%

JASMINE FOOD CORPORATION SDN BHD

100%

Dayabest Sdn Bhd

51%

Hock Chiong Foodstuff Sdn Bhd

51%

Ban Say Tong Sdn Bhd

100%

Sabarice Sdn Bhd

95%

Sazarice Sdn Bhd

60%

Liansin Trading Sdn Bhd

100%

Liangtye Trading Sdn Bhd

51%

Tong Seng Huat Rice Trading Sdn Bhd

100%

Jasmine Food (Ipoh) Sdn Bhd

100%

Jasmine Food (Alor Setar) Sdn Bhd

100%

Jasmine Khidmat & Harta Sdn Bhd

100%

Jasmine Food (Johor Bahru) Sdn Bhd

100%

Jasmine Food (Seremban) Sdn Bhd

100%

Jasmine Food (Prai) Sdn Bhd

100%

Jasmine Food (Kuantan) Sdn Bhd

100%

Jasmine Food (Tunjang) Sdn Bhd

100%

Jasmine Rice Products Sdn Bhd

51%

JS Jasmine Sdn Bhd

100%

BERNAS DOMINALS SDN BHD

49%

Bernas Foodstuff Sdn Bhd #

51%

YHL HOLDING SDN BHD

100%

YHL Trading (Kedah) Sdn Bhd

100%

YHL Trading (KL) Sdn Bhd

100%

YHL Trading (Melaka) Sdn Bhd

100%

YHL Trading (Segamat) Sdn Bhd

100%

YHL Trading (Johor) Sdn Bhd

100%

YHL Trading (Terengganu) Sdn Bhd

100%

BERNAS OVERSEAS (L) LIMITED

20%

Irfan Noman Bernas (Private) Limited #

(Incorporated in Pakistan)

100%

SUBUR MAJIBUMI SDN BHD

100%

Berkat Beringin Sdn Bhd

100%

Warisan Bayumas Sdn Bhd

100%

BERNAS SEED PRO SDN BHD

80%

EDARAN BERNAS NASIONAL SDN BHD

100%

BERNAS PRODUCTION SDN BHD

51%

SYARIKAT FAIZA SDN BHD

100%

BERNAS AGROTECH SDN BHD

60%

ERA BAYAM KOTA SDN BHD

100%

BERNAS LOGISTICS SDN BHD

49%

BAN HENG BEE HOLDINGS SDN BHD #

30%

GARDENIA BAKERIES (KL) SDN BHD #

30%

OEL REALTY HOLDINGS SDN BHD #

45%

UNITED MALAYAN FLOUR (1996) SDN BHD #

Legends:

Associates

Rice Business

Other Business

Investment Holding

BERNAS

Source:

Corporate Structure (pg. 10 – 11), Annual Report 2012, BERNAS

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Besides importing rice from other countries and distributing them to wholesalers,

BERNAS also procures paddy from local farmers and millers and markets

them. This procurement is not only part of its commercial interest but also one

of its social obligations to be the BOLR. The company owns and operates 28

out of 400 commercial rice mills in Malaysia, mainly located in the major

granary areas of Kedah, Perlis, Kelantan, Perak and Selangor. It is the largest

rice miller in Malaysia, milling around 15% of the paddy produced in 2015

which gave 13% of the total domestic rice output190. This, however, does not

include paddy processed by BERNAS’ joint ventures (JV) millers. The total

share of paddy processed by both BERNAS and JV millers in 2015 was 48%

(Figure 5.11). Over the years, the market share of BERNAS and its subsidiary

companies in the milling segment has increased while the market share of

private millers has been declining.

Market share of private millers has been declining

Figure 5.11. Market share in the milling segment, 2005 - 2017 (percentage)

100

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

10 10 11

64 60 61 57

12 13 13

14 14 14

15 15

BERNAS and JV Bumiputera Private Millers

29 29 29 30

41 40 40 47 48 4849

Notes:

1. Market share is based on the purchasing profile of milling companies in the sector

2. JV refers to subsidiary companies of BERNAS

3. Bumiputera refers to millers under the Skim Pusat Belian (SPB) scheme and the Skim Upah Mengering dan Kisar

(SUMK) scheme. Pre-2010, SPB and SUMK are the same entities

Source:

Pers. comm. with BERNAS

Chart by KRI

190 Based on the estimate from BERNAS’ website.

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However, high market share does not automatically equate to monopoly or

abuse of dominant power. Further market review by the Malaysia Competition

Commission (MyCC) may be required. The Competition Act 2010 states that

“(1) The Commission may, on its own initiative or upon the request of the

Minister, conduct a review into any market in order to determine whether any

feature or combination of features of the market prevents, restricts or distorts

competition in the market. (2) This market review includes a study into (a) the

structure of the market concerned; (b) the conduct of enterprises in the market;

(d) any other relevant matters.”191 Moreover, even if a company has a dominant

position, the Act only prohibits abuse of this dominant position and does not

prohibit any dominant enterprise from activities with reasonable commercial

justifications192. BERNAS does not have the power to set the price for rice,

which is determined by the government through ceiling prices. For rice grades

without ceiling prices, the company sets the price based on rice quality and

targeted market193.

BERNAS has 20 distribution centres and warehouses around Malaysia (9 in

Peninsular Malaysia and 11 in East Malaysia). These warehouses also store the

national stockpile managed by BERNAS as part of the privatisation agreement.

Besides managing the rice stockpile, BERNAS also has three other social

obligations namely being the BOLR at the GMP, administering price subsidy

scheme and managing the Bumiputera Rice Millers (BRM) Scheme.

There are two instances where BERNAS acts as the BOLR. The first instance

is when there are no or insufficient private millers in certain paddy planted

areas. For example, due to the GMP standardisation exercise in 2014, many

millers were forced to shut down in Kelantan. As a result, BERNAS, due to its

social obligation as a BOLR, had to buy paddy from farmers in Kelantan,

regardless of the quality194. The second instance is when the private millers have

met their daily drying capacity during peak harvesting seasons. In the past, all

these purchases were done based on the market price, above the GMP195.

191 Competition Act 2010. “Commission” refers to the Competition Commission established under this act. “Minister”

refers to the Minister charged with the responsibility for domestic trade and consumer affairs.

192 Malaysia Competition Comission (MyCC) (n.d.)

193 World Trade Organization (WTO) (2016)

194 Dewan Rakyat (2016), pg. 14

195 Malaysian Institute of Economic Research (MIER) (2009)

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BERNAS is also responsible for managing the delivery of the price subsidy

scheme (Skim Subisidi Harga Padi) to all registered paddy farmers on behalf of

the government. The price subsidy scheme is distributed in mills that are

licensed under Kawalselia. The subsidy funds are deposited by the government

into BERNAS’ special paddy price subsidy accounts and the unutilised portion

is to be placed into fixed deposit accounts. The funds are not recorded in the

assets and liabilities of BERNAS196.

There are three types of schemes under the BRM Scheme:

1. Skim Pusat Belian (SPB) where BERNAS provides funding to BRM for

paddy procurement;

2. Skim Upah Mengering dan Kisar (SUMK) where BERNAS supplies wet

paddy to BRM for drying and milling; and

3. Skim Upah Kisar (SUK) where BERNAS supplies dried paddy to BRM

for milling.

These schemes are a continuation from schemes previously conducted by LPN.

In conclusion, BERNAS is a key institution and a commercial company in the

midstream segment of the paddy and rice supply chain in Malaysia. Given its

history, the development of commercial interests and non-commercial obligations

and its functions as the country’s STE in the international rice market,

understanding the company’s operations, effectiveness, relevance and effects on

the industry is a complex exercise, involving not only the company but other

stakeholders in the paddy and rice supply chain.

Despite being the sole importer of rice, BERNAS may not fit our textbook

understanding of a monopoly. The quantity of rice imported and sold to

wholesalers is determined by non-commercial considerations such as annual rice

deficit and stockpile requirements for food security, both of which are determined

by the government197. The operations of the company must also be understood

in the context of its various social obligations, as mandated and supervised by

the government.

Finally, due to the long-standing social obligations of BERNAS, the domestic

paddy industry must first be strengthened before attempts are made to change

BERNAS’s role including its exclusive rights to import rice. For the same reason,

carefully evaluate the impact of the intended changes prior to implementation.

196 BERNAS (2012)

197 World Trade Organization (WTO) (2016)

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CHAPTER KEY TAKEAWAYS

Midstream – Milling & Processing

• There is distrust between millers and farmers.

• Recommendation: A decentralised, independent data keeping system (such

as Blockchain) may help address this problem.

• As the nation focuses on protecting the farmers and consumers at either

end of the supply chain, the profit-margin in the midstream segment gets

‘squeezed’. This is made worse when the GMP was standardized across

states to RM1,200/MT in 2014.

• To survive, some private millers had to resort to malpractices, diversify

their operations or cease functioning.

• We should not view the midstream players negatively and restrict their

business operations. A regulatory environment that encourages the

growth and success of each segment of the supply chain is important for

the industry to grow.

• Recommendation: Adopt a risk-sharing approach. A possible framework

for this is contract farming (Box Article 6, Chapter 4).

• An additional observation is that millers sell the lowest quality milled

rice, ST15%, at RM2,000/MT to wholesalers. However, in retail,

ST15% rice has a ceiling price of RM1,650 to RM1,800/MT. This price

inconsistency is worth investigating further.

Import

• Malaysia is still a net importer of rice despite decades of policies and

billions of Ringgit spent to help increase rice production.

• The OECD-FAO Agricultural Outlook 2018-2027 predicted that

Malaysia’s rice import would continue to increase.

• Malaysia’s

island-like geography is one of the possible reasons it is a net

rice importer.

• In addition, there is an increasing trend of consuming premium, imported

specialty rice.

• Therefore, Malaysia is expected to continue to be a net importer and this

should not be seen as a failure of the industry.

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• Recommendation: The country may focus its resources on R&D and

improvements in sustainable farming practices. The nation may consider

targeting lowered rice SSL but with the domestic rice produced sustainably,

responsibly, safely and where farmers earn a significant profit.

• Recommendation: An in-depth study is needed to determine the optimal

SSL range that is not too low such that it risks food security (availability),

and that is not unrealistically high.

Stockpile

• Before the 2008 Global Food Crisis, the national stockpile stood at

92,000 MT.

• Post-crisis, the nation’s stockpile was immediately increased to 292,000 MT.

• According to BERNAS, the current stockpile stands at 150,000MT.

At this amount, it costs BERNAS around RM30m/year for

operating expenditure.

• There is little literature available regarding the nation’s stockpile and

even less publicly available data for further analysis.

• Recommendation: Discussions regarding the relevance of maintaining

the current volume of rice stockpile and the ideal volume should be

explored further.

BERNAS in the Supply Chain

• BERNAS has both commercial interests and social obligations. However,

it does not have any statutory power or authority and the government

remains the regulator for the whole industry.

• Over the years, the market share of BERNAS and its subsidiary companies

in the milling segment has increased, while the market share of private

millers has been declining.

• Having said this, the Competition Act 2010 recognises that market share

is not the only conclusive determinant of dominant power in the market.

• Understanding BERNAS’s operations, effectiveness, relevance and effects

on the industry is a complex exercise and care is needed when determining

policies affecting this company.

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CHAPTER

SUPPLY CHAIN: RICE

CONSUMPTION

Rice Consumption – How Do We

Eat as a Nation?

Rice Consumption – How Do

Different Groups in Malaysia Eat?

BOX ARTICLE 9:

Invisible Consumption

Rice Subsidy – How Much of Our

Rice is Publicly Funded?

Rice Prices

Chapter Key Takeaways

Malaysia’s Paddy and Rice Supply Chain

INPUT PRODUCTION MILLING & WHOLESALE CONSUMPTION

TRADE & STOCKPILE

This chapter looks at how 31 million people consume rice in Malaysia.

Specifically, Chapter 6 will explore the nation’s consumption level compared to

its neighbours and its domestic consumption behaviour across income groups,

states and ethnicities.

This chapter will also look into invisible consumption, which is the estimated

consumption of rice by both documented and undocumented migrant workers.

This group is noted to be one of Malaysia's most vulnerable groups of people

with regards to food security.

Rice Consumption – How Much Do We Eat as a Nation?

For the year 2016, Malaysia’s consumption of rice was at 2.7m MT198 and

according to projections by the OECD, the consumption trend is expected to

continue to increase as the national population grows (Figure 6.1). This happens

despite a near constant harvested paddy area, indicating that the gap between

production and consumption of rice in Malaysia will likely widen especially if

the yield per hectare increases at a slower rate than the consumption growth.

It is likely that increasing demand will be met by increasing imports

(Figure 6.1).

198 Agrofood Statistics 2016, MOA (2016a). Total apparent consumption = total domestic rice production + import – export.

CHAPTER 6

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Figure 6.1. Annual rice production, consumption, import and harvested area in Malaysia,

1990 – 2027 (m MT and m Ha)

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

1990

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

Projection

(2018 – 2027)

2008 Global Food Crisis

Harvested Area

Consumption

Production

Import

3.5

3.0

2.5

2.0

1.5

1.0

0.5

0.0

0.8

0.7

0.6

0.5

0.4

0.3

0.2

0.1

0.0

m MT m Ha

Source:

OECD-FAO Agricultural Outlook, 2018-2027 (Accessed 24 October 2018)

Chart by KRI

Rice consumption per capita199 is the estimated amount of rice ‘consumed’ per

person. The rice consumption per capita does not only include the consumption

of rice as human food such as in the form of steamed rice, rice flour and rice

noodles, but also non-food consumption such as cosmetics, animal feed and

other by-products.

Despite an initial decline of the rice consumption per capita from the late 1990s

to the early 2000s, the consumption level recorded an increase in 2003 and the

trend has hovered above 80kg/person/year since 2008 (Figure 6.2). It recorded

the highest level of 83.9kg/person/year in 2009. There is not enough information

to explain the observable trend of rice consumption per capita and it can only

be speculated that this may be due to adjustments to the national stockpile or

changes in the use of rice and/or its by-products in the manufacturing sector.

199 Rice consumption per capita = (domestic production + import) / population size

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The percentage share of the total caloric supply from rice has been steadily

declining since the 1960s (Figure 6.3). The observation is consistent with

Bennett’s law that says as countries become more affluent, they diversify their

diet away from starchy staples to more complex sources of calories200. The

diversification means that food security should be considered from a more

holistic perspective, involving other sources of food.

Despite dietary diversification, rice remains the main source of carbohydrate in

Malaysia. Comparing the consumption per capita of rice and wheat, rice

consumption stood at almost three times more than that of wheat (Figure 6.2),

suggesting that it is still an important source of carbohydrate for most

Malaysians as it is the nation’s staple food. As such, the performance of the

paddy and rice industry remains an important matter for the country.

Over the years, the nation consumed almost three times more rice than wheat

Figure 6.2. Rice and wheat per capita consumption in Malaysia, 1990 – 2016 (kg/person)

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

1990

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

100.0

80.0

60.0

40.0

20.0

0.0

RICE

Wheat

kg/person

Source:

OECD-FAO Agricultural Outlook, 2018-2027 (Accessed 24 October 2018)

Chart by KRI

200 Bennett (1954) as cited in Reardon and Timmer (2014)

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The share of rice in the total caloric supply has been declining since the 1960s. However, it

still remains the highest source of calorie for Malaysians compared to other sources

Figure 6.3. The percentage share of caloric supply of total calories, 1961 – 2013

1981

1979

1977

1975

1973

1971

1969

1967

1965

1963

1961

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

RICE

Meat

Fish and

seafood

Fruits

Eggs

Milk

Wheat and

products

Vegetables

Note:

The share of caloric supply is calculated by taking the percentage of the caloric supply of each food item to the total caloric

supply. Data from FAOSTAT is in kcal/person/day.

Source:

Food balance sheets: Food supply (kcal/capita/day), FAOSTAT (Accessed 7 November 2018)

Chart and calculaton by KRI

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The total national consumption of rice showed an increasing trend, with food

comprising the biggest proportion. Data from OECD showed that rice consumed

as food is the main contributor to the increase in the total rice consumption,

with feed and other uses having little impact on the increasing trend. It is worth

noting that the total national rice consumption almost doubled from 1.6m MT

in 1990 to 2.7m MT in 2016 (Figure 6.4.).

In Malaysia, rice is mostly consumed as food. A smaller portion is used for feed and other use

Figure 6.4. Malaysia’s total rice consumption and its components, 1990 – 2017 (m MT)

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

1990

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

3.0

2.5

2.0

1.5

1.0

0.5

0.0

m MT

Total

Consumption

a. Food

b. Other use

c. Feed

Source:

OECD-FAO Agricultural Outlook, 2018-2027 (Accessed 24 October 2018)

Chart by KRI

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Compared to other countries where rice is also the staple food, in 2016 (Figure

6.5), Malaysia’s rice consumption per capita was estimated to be above the

world average (54.6kg/person), more than India (69.0kg/person) and Japan

(54.8kg/person) but less than Indonesia (135.0kg/person), the Philippines

(116.7kg/person) and Thailand (103.5kg/person).

Malaysia’s rice consumption per capita is at 87.9kg/person, which is well above the world

average of 54.6kg/person

Figure 6.5. Rice per capita consumption by country, 2016 (kg/person)

200.0

160.0

120.0

80.0

40.0

0.0

kg/person

Bangladesh Vietnam Indonesia Philippines Thailand MALAYSIA China India Japan Pakistan European

Union

181.4

159.8

135.0

116.7 103.5

87.9 77.9 69.0

54.8

11.5 5.5

World, 54.6

Notes:

1 Data above is from an older version of OECD-FAO Agricultural Outlook because the latest report did not have

consumption data for Bangladesh

2 Note the data discrepancy for Malaysia: based on OECD-FAO Agricultural Outlook 2018-2027, Malaysia’s rice

consumption per capita in 2016 is 80.0kg/person

Source:

OECD-FAO Agricultural Outlook, 2017-2026 (Accessed 24 October 2018)

Chart by KRI

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Rice Consumption – How do Different Groups in Malaysia Eat?

Rice has always been an important source of energy especially for the rural and

poorer communities in Malaysia. According to the national Household

Expenditure Survey (HES) 2016, the the average household in Malaysia spent

18% of its total monthly expenditure on food and non-alcoholic beverages

(F&B) or RM726 out of RM4,033 (Figure 6.6).

On average, households spent RM726 per month or 18% of the total monthly household

expenditure on food and non-alcoholic beverages (F&B)

Figure 6.6. Monthly household expenditure, 2016 (RM/month)

Housing, water, electricity, gas & other fuels

FOOD & NON-ALCOHOLIC BEVERAGES

Transport

Restaurants & hotels

Miscellaneous goods & services

Communication

Recreation services & culture

Furnishings, household equipment &

routine household maintenance

Clothing & footwear

Alcoholic beverages & tobacco

Health

Education

RM0 200 400 600 800 1,000 1,200

969 (24.0%)

553 (13.7%)

540 (13.4%)

312 (7.7%)

203 (5.0%)

200 (4.9%)

168 (4.2%)

136 (3.4%)

98 (2.4%)

75 (1.9%)

54 (1.3%)

726 (18.0%)

Notes:

1. Percentages are from the total of monthly household expenditure

2. The sum of expenditure of all categories in the figure above is RM4,034. The discrepancy is due to rounding off

Source:

Table 2.1: Composition of monthly household consumption expenditure by strata, 2016 (pg. 55), Household Expenditure

Survey (2016), DOS (2017) (Accessed 24 October 2018)

Chart by KRI

Within the F&B category, rural households spent more on rice than their urban

counterparts. Referring to Figure 6.7, the average household spent 6.1%

(RM44/month) of the total amount spent on F&B, on rice. Those in rural areas

spent up to 7.2%, while those in urban areas spent 5.7% on rice (at RM51/

month and RM42/month, respectively).

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Rural households spent more on rice compared to urban households

Figure 6.7. Monthly household expenditure on F&B, 2016 (RM/month)

RM0 50 100 150 200

Fish and seafood

Meat

Bread and

other cereals

Vegetables

Milk, cheese

and eggs

Fruits

RICE

Coffee, tea, cocoa and

non-alcoholic beverages

Food products n.e.c

Sugar, jam, honey,

chocolate and

confectionery

Oils and fats

158

156

108

104

103

101

Rural National Urban

163

Source:

Table 2.1: Composition of monthly household consumption expenditure by strata, 2016 (pg. 55). Household Expenditure

Survey (2016), DOS (2017) (Accessed 24 October 2018)

Chart by KRI

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Not only do rural households spent more on rice, we also observe a higher

percentage of expenditure on rice among the population in the bottom 40% of

the income distribution, at 6.5% of the total amount spent on food compared to

the population in the top 20% of the income distribution, at 5.2% of the total

amount spent on food (Figure 6.8). Moving upwards in the income distribution,

the percentage of monthly expenditure on rice decreases, but increases for bread

and other cereals (Figure 6.9).

Malaysians in the bottom 40% of the national income group spent more on rice compared to

other income groups in 2016

Figure 6.8. Percentage monthly household expenditure for different items in the F&B category

according to income groups, 2016 (%)

100

Oils and fats

Sugar, jam, honey, chocolate

and confectionery

RICE

Coffee, tea, cocoa and

non-alcoholic beverages

Food products n.e.c

Fruits

Milk, cheese and eggs

Vegetables

Bread and other cereals

Meat

Fish and seafood

2.8

3.1

6.5

5.5

5.8

6.0

7.6

12.8

12.6

14.7

22.5

3.0

3.3

5.6

6.0

6.7

8.2

11.5

13.2

14.4

22.1

3.0

4.0

5.2

6.2

6.1

7.4

8.8

9.8

14.9

13.7

20.9

Top 20%Middle 40%Bottom 40%

Note:

F&B household expenditure of Bottom 40%, Middle 40% and Top 20% in 2016 is RM582, RM780 and RM959 respectively

Source:

Table 2.16: Composition of monthly household consumption expenditure by household income group, Malaysia, 2016 (pg.

102), Household Expenditure Survey (2016), DOS (2017) (Accessed 24 October 2018)

Chart by KRI

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As income increases, the percentage spent on rice decreases and vice versa for bread and

other cereals

Figure 6.9. Percentage monthly household expenditure on grains from the respective amount

spent on F&B, by income level, 2016

20.0

16.0

12.0

8.0

4.0

0.0

Bread and other cereals

RICE

Under RM1,999

RM2,000 – RM2,999

RM3,000 – RM3,999

RM4,000 – RM4,999

RM5,000 – RM5,999

RM6,000 – RM6,999

RM7,000 – RM7,999

RM8,000 – RM8,999

RM9,000 – RM9,999

RM10,000 – RM14,999

Over RM15,000

Source:

Table 2.12: Mean monthly household consumption expenditure by household income class and strata, Malaysia, 2016 (pg.

90). Household Income Survey (2016), DOS (2017) (Accessed 24 October 2018)

Chart by KRI

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Interestingly, there is a large difference in the amount spent on rice between

states in Malaysia. Perlis spent the least at just 1.7% from its total monthly

expenditure on F&B (RM13/month), while Sabah spent the most at 11.9%

(RM73/month) whereas the national average is at 6.1% (RM44/month)

(Figure 6.10).

Households in Perlis spent the least on rice while households in Sabah spent the most on rice

Figure 6.10. Percentage of rice expenditure from the respective household expenditure on F&B,

by state, 2016

1.7

4.5

4.8

5.0

5.05.0

5.2

5.3

5.4

5.7

6.0

6.2

7.0

7.7

11.9

Average 6.1%

14.0

12.0

10.0

8.0

6.0

4.0

2.0

0.0

SABAH

Sarawak

W.P. Labuan

Kelantan

Kedah

Pahang

Selangor

Johor

Melaka

Negeri Sembilan

Perak

W.P. Putrajaya

Pulau Pinang

Terengganu

PERLIS

W.P. Kuala Lumpur

Source:

Table 2.2: Composition of monthly household consumption expenditure by state and strata, Malaysia, 2016 (pg. 56 - 58).

Household Expenditure Survey (2016), DOS (2017) (Accessed 24 October 2018)

Chart by KRI

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“... the poor, those from rural areas and migrant workers are most

vulnerable to changes in rice supply and prices”

Among the main ethnic communities, Bumiputera201, comprising 67.4% of the

population (19.1 million), spent RM44/month/household on rice, followed by

the Indians and Chinese both at RM40/month/household (Figure 6.11). The

other races comprising 0.7% of the nation’s population (0.2 million) spent the

highest at RM53/month/household.

Having said this, the amount spent by the different ethnic communities in

Malaysia on average is still less than non-citizens, which make up 8.2% of the

population (2.3 million), that spent as high as RM60/month/household or 9.6%

of their total monthly expenditure on F&B, on rice. Given that there are more

than 2.0 million non-citizens in Malaysia who are mostly associated with being

poor and from countries where rice is the staple food, these non-citizens are the

most vulnerable communities. Unfortunately, the demographics of this group is

the least understood as data on the number of migrant workers are limited. In

short, the poor, those from rural areas and migrant workers are most vulnerable

to changes in rice supply and prices.

Non-citizens living in Malaysia spent the highest on rice

Figure 6.11. Percentage of monthly expenditure on rice from the respective amount spent on

F&B, by ethnicity and citizenship, 2016 (%)

NON-CITIZEN CITIZEN Others Bumiputera Indian Chinese

12.0

8.0

4.0

0.0

9.6

(RM60)

5.8

(RM43)

8.3

(RM53)

5.9

(RM44) 5.7

(RM40) 5.3

(RM40)

CITIZEN

Average 6.1% (RM44)

Source:

Table 2.3: Mean monthly household consumption expenditure by ethnic group of head of household and strata, Malaysia,

2016 (pg 65). Household Expenditure Survey (2016), DOS (2017) (Accessed 24 October 2018)

Chart by KRI

201 According to the HES 2016, the ethnic group classification is according to the 2010 Population and Housing Census.

In 2010, the population was 28.3 million, 91.8% Malaysian citizens, and 8.2% non-citizens. Among the citizens,

Bumiputera comprise 67.4%, Chinese 24.6%, Indian 7.3% and Others 0.7%.

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BOX ARTICLE 9: Invisible Consumption

“Immigrant labor plays a crucial role in Malaysia’s

development. Immigrants–both high- and low-skilled–will be

needed for the country to achieve high income status by 2020”

Malaysia Economic Monitor, December 2015 - Immigrant Labor, World Bank

According to the ‘Malaysia Economic Monitor December 2015, Immigrant

Labor’ report by the World Bank202, migrant workers comprise both

professionals and low-skilled workers with the latter forming more than

50% of the total foreign workforce.

It is thus assumed in the following paragraphs that non-citizens are largely

represented by low-skilled workers. In the same report by the World Bank,

there may be an additional 1.0 million more undocumented foreign workers

in 2014 on top of the 2.1 million registered workers. This is about 15% of

the total workforce in Malaysia.

Based on Figure 6.11, in 2016, non-citizens had the highest total expenditure

on rice compared to Malaysian citizens. This may be a consequence of low

income and a cultural preference for large rice consumption (Figure 6.5 and

Figure 6.9).

Unfortunately, the large number of undocumented workers in Malaysia

means that it is not possible to calculate the actual rice consumption of

migrant workers and gauge future demand. Regardless of their citizenship

status, given that migrants are the most vulnerable group of people, not

being able to estimate the demand level of their staple food is not ideal. This

is especially concerning, given that Malaysia pledged to commit to the

United Nations 2030 Sustainable Development Goals (UN SDG) with its

leading theme of “leaving no one behind”.

202 World Bank (2015)

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To gauge the consumption level of migrant workers, KRI used available

data from the Ministry of Home Affairs (MOHA), Economic Planning Unit

(EPU), OECD and Ministry of Agriculture (MOA) (Table 6.1).

For 2.1 million documented foreign workers, a total of 228,899 MT of rice

is needed, assuming that the workers consume the cheapest rice available in

retail stores, which is domestically produced rice. This is also assuming that

the migrant workers consume the same amount of rice in Malaysia as they

would in their own country.

As the number of workers increases by a million, the amount consumed

increased by about 100,000 MT. If there were 4.0 million migrant workers

(both documented and undocumented) and if they purchase only local rice

in the market203 then this amounts to consuming around 24.1%204 of the

total domestic rice produced in 2014 (Figure 6.12) and around 16.2%205 of

the total domestic consumption.

203 Assuming that the local rice a cheaper option compared to imported rice.

204 (441 471/1.835m)*100=24.1%, where domestic rice produced in 2014 is 1.835m MT. Source: Agrofood Statistics

2015, MOA (2015)

205 (441 471/2.719m)*100 = 16.2%, where apparent consumption (domestic production + net import) in 2014 is

2.719m MT. Source: Paddy Statistics of Malaysia 2014, DOA (2015c)

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Table 6.1. Estimated rice consumption according to country of origin, 2014206

Country of Origin

Migrant WorkersaEstimated Rice Consumptionb

Number (person)

[A] Percentage (%)

Consumption Per

Capita (kg/person)b

[B]

Amount

(MT)

[A] x [B] = [C]/1000

Indonesia 817,300 39.4 134.71 110,095

Bangladesh 296,930 14.3 180.67 53,647

Nepal 490,297 23.6 66.83 32,767

Myanmar 143,334 6.9 66.83 9,579

Philippines 63,711 3.1 117.74 7,501

India 105,188 5.1 69.06 7,264

Others 92,624 4.5 66.83 6,190

Thailand 12,467 0.6 101.14 1,261

Pakistan 51,563 2.5 11.50 593

TOTAL 2,073,414 100.0 -228,899

Notes:

1. "Others" include Cambodia, China, Vietnam, Sri Lanka and Laos

2. Consumption per capita estimates are based on each country’s specific conditions (price, rice availabilities,

cultural preferences etc.). It is assumed that migrant workers consume the same amount of rice in Malaysia as

they would in their home country

3. For Nepal, Myanmar and Others, consumption per capita data used is from estimates for Least Developed

Countries because they are not estimated by the OECD-FAO Agricultural Outlook report

4. Estimates are based on 2014 data because the World Bank’s estimate for undocumented foreign workers in

Malaysia is for 2014

Source:

a Ministry of Home Affairs, cited by EPU in Table 1.4.1: Number of Foreign Workers by Country of Origin,

2000 – 2015 (Accessed 22 May 2017)

b OECD-FAO Agricultural Outlook, 2016-2026 (Accessed 24 October 2018)

Table and calculations by KRI

206 The year 2014 was used because it is a year where data from all the various sources are made available.

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The actual number of migrant workers is not known; there are approximately 2.1 million

documented migrant workers and the remaining are undocumented. Calculations show

that for every hypothetical addition of 1.0 million workers, the amount of rice consumed

increases by approximately 100,000 MT

Figure 6.12. The estimated amount of rice needed to feed Malaysia’s migrant workers in 2014

Documented

worker

+ Undocumented

worker

+ Undocumented

worker

2 milliona228,899 MT

441,471 MT

3 million*

4 million*

Number of migrants Estimated amount of

rice consumed b

+ ~100,000

331,103 MT

Notes:

1. Assuming migrants from each country increase by the same proportion

2. * Hypothetical

3. Estimates based on 2014 data because the World Bank’s estimate for undocumented foreign workers in

Malaysia is for 2014

Sources:

a Ministry of Home Affairs (MOHA), cited by EPU in Table 1.4.1: Number of Foreign Workers by Country of

Origin, 2000 – 2015 (Accessed 22 May 2017)

b OECD-FAO Agricultural Outlook, 2016-2026 (Accessed 24 October 2018)

Illustration and calculations by KRI

“Regardless of their citizenship status, given that migrants are the most

vulnerable group of people, not being able to estimate the demand

level of their staple food is not ideal”

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Rice Subsidy – How Much of Our Rice is Publicly Funded?

“…for every kilogram of local rice bought in 2016, the government

contributed a total of RM0.79 through subsidies and incentives at

various stages of the supply chain”

Public resources are used to ensure food security in rice and to protect the

welfare of poor farmers. This is done by ensuring that they attain a certain level

of profit from their harvests and through incentives to encourage farmers to

increase their yield. As a result, about 30 – 50% of the national budget

allocated for the MOA goes directly to paddy and rice-related incentives and

subsidies. In 2016, the government spent RM1.4b on Subsidi Harga Padi,

Subsidi Baja Padi Kerajaan Persekutuan, Insentif Pengeluaran Padi, Subsidi

Benih Padi Sah.

To estimate the total amount of public expenditure spent on the production of

local rice by the time it reaches the retail store, the incentives and subsidies

throughout the supply chain were included using data from the Federal

Government Financial Statements (Table 6.2), coupled with paddy and rice data

from Agrofood Statistics 2016.

Calculations showed that for every kilogram of local rice bought in 2016, the

government contributed a total of RM0.79 through subsidies and incentives at

various stages of the supply chain (Figure 6.13).

This is a relatively large amount, given that the price of ST15% is between

RM1.65 and RM1.80 per kilogram of rice. Furthermore, public expenditure on

building new infrastructures, R&D and the operating expenses of government

departments and agencies directly relevant to the paddy and rice industry were

not included in this calculation, which suggests that the amount could have

been more.

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Table 6.2. The total amount of government expenditure on rice and paddy incentives and

subsidies, 2014 – 2016 (RM m)

Programme

Actual Expenditure (m RM)

2014 2015 2016

Paddy Price Subsidy (Subsidi Harga Padi) 480 497 400

Fertiliser Subsidy

(Subsidi Baja Padi Kerajaan Persekutuan) 457 389 400

Increase in Paddy Production Incentive

(Insentif Peningkatan Hasil Padi) 80 - -

Paddy Production Incentive

(Insentif Pengeluaran Padi) 573 563 490

Rice Price Subsidy

(Subsidi Harga Beras) 512 520 -

Certified Seed Subsidy

(Subsidi Benih Padi Sah) 67 68 60

Hill Rice Fertiliser Subsidy

(Subsidi Baja Padi Bukit/Huma) -20 39

Total Expenditure on Subsidies and Incentives (A) 2,168 2,057 1,389

Domestic rice production (m MT) (B) 1.84 1.77 1.76

Subsidy per kg of rice (RM/kg) [(A)/1000] / (B) 1.18 1.16 0.79

Total Expenditure for MOA (C) 4,422 3,954 3,385

Percentage Spent on Subsidies [(A)/(C)] x 100 49.0% 52.0% 41.0%

Sources:

(A) Sum of actual expenditure on paddy-related special programmes for B.21 Ministry of Agriculture and Agro-based

Industries in Appendix 1: Operating Expenditure (pg. 117, 130-131, 126) of Federal Government Financial

Statements (2014, 2015, 2016), Accountant General of Malaysia (1990-2017) (Accessed 24 October 2018)

Expenditure (pg. 118, 132, 128) of Federal Government Financial Statements (2014, 2015, 2016), Accountant

General of Malaysia (1990-2017) (Accessed 24 October 2018)

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Figure 6.13. Estimation of the amount of public expenditure spent for each kilogram of rice

sold in 2016

2.7 million MT

Domestic paddy production

1.8 million MT

Domestic rice production bAmount subsidy

per kg of rice sold c

RM 0.79/kg

Total amount for

subsidies and incentives a

RM1.4 billion

RICE

Assumptions:

1. Figures for paddy and rice were produced in 2016

2. All 2.7m MT of paddy qualified for the subsidy and incentive programmes

3. Rice refers to all rice and rice-based products

Sources:

a Subsidies data from Appendix 1: Operating Expenditure for B.21 Ministry of Agriculture and Agro-based Industries

(pg. 117) in Federal Government Financial Statement 2016, Accountant General of Malaysia

b Production data from Table 3.1.4: Production of Paddy and Rice, 2011 – 2016, Agrofood Statistics 2016, MOA

(2016)

c Calculations by KRI

Illustration by KRI

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Rice Prices

Impact of Rice Price Volatility

Since a large proportion of the human population consumes rice, especially

those in developing countries, it is not surprising that many are vulnerable to

its price volatility, which in turn could trigger food security-related issues. For

example, after the sudden surge in food and fuel prices between 2006 and

2010, caloric food consumption declined in all developing regions, affecting as

many as 4.5 billion people207. In another example, a community-based monitoring

survey conducted in the Philippines estimated that a potential 40% rise in the

price of rice could lead to a 2% increase in poverty within the population208.

Social unrest is also a possible outcome. The 2007/2008 rice crisis led to the

2008 African food riots as prices of other food commodities rose, hitting

countries such as Mozambique, Egypt and Morocco209.

Considering this, policymakers recognise that production, consumption and

price trends in the rice industry have possible implications for food security,

poverty and the economic development of a nation210. In response, the rice

industry in many Asian countries has been highly regulated to achieve domestic

price stability and self-sufficiency211. But at what cost? What level of protection

does the paddy and rice industry need? While rice is a crucial component in

the diet of many Asians, other foods and other determinants of food security

should not be ignored. Having a balanced focus on these matters is important.

Domestic Prices

To protect Malaysian consumers from international price volatility, the domestic

prices of rice have been fixed at a ceiling price. The price of ST15% was fixed

since 1998 at a maximum price of RM1.80/kg whereas prices of SST10% and

SST5% were fixed since 2008 at RM2.40/kg and RM2.60/kg respectively212. This

is why, relative to imported rice, the prices of domestic rice are relatively consistent

across the states and over the years (Figure 6.14 and Figure 6.15). However, as

discussed in the previous chapters, there are costs to this price stability.

207 Brinkman et al. (2010)

208 Reyes et al. (2009)

209 Berazneva and Lee (2013)

210 Rejesus et al. (2012)

211 Tobias (2012) & Timmer (1989)

212 KRI’s stakeholder engagements and MOA’s elesen website

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Prices of local rice remain relatively stable across the states compared to imported rice

Figure 6.14. Prices of different types of rice in eleven states in Malaysia, 2015 (RM/kg)

Perlis

Kedah

Penang

Perak

Selangor

Kuala Lumpur

Negeri Sembilan

Melaka

Johor

Pahang

Kelantan

Terengganu

RM5.00

4.50

4.00

3.50

3.00

2.50

2.00

1.50

1.00

0.50

0.00

Basmati (normal)

Super Wangi AAA

Thai White Rice 5%

Super Special

Tempatan 5%

Super Special

Tempatan 10%

Super Tempatan 15%

/kg

Notes:

1. Retail prices are per 1kg

2. Basmati, Super Wangi and Thai White Rice are imported rice

3. Sabah and Sarawak are excluded due to missing data

Source:

Table C5: Average Monthly Wholesale Prices by Grade of Rice and State, Malaysia, 2015 (pg. 96), Paddy Statistics of

Malaysia 2015, DOA (2016b)

Chart by KRI

Prices of local rice remain stable relative to imported rice

Figure 6.15. Prices of different types of rice in Selangor, 2011 – 2015 (RM/kg)

2011 2012 2013 2014 2015

RM9.00

8.00

7.00

6.00

5.00

4.00

3.00

2.00

1.00

0.00

Basmati (Special)

Basmati (Normal)

Thai White Rice 5%

Super Tempatan 15%

/kg

Source:

Table C6: Average Monthly Retail Prices by Grade of Rice and State, Malaysia, Paddy Statistics of Malaysia (2011 – 2015), DOA (Various years)

Chart by KRI

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CHAPTER KEY TAKEAWAYS

Trends in National Rice Consumption

• While there is dietary diversification, the average person still consumes

rice as the main source of caloric intake in Malaysia.

• Furthermore, the increase in the total population means that as a whole,

the national consumption of rice is increasing.

• Rice, therefore, is expected to remain an important staple food for

Malaysia.

Patterns in Household Expenditure on Rice in 2016

• Within the F&B category, rural households spent more on rice than their

urban counterparts. The average household spent RM44/month on rice,

urban households spent RM42/month while rural households spent as

high as RM51/month on rice.

• By state, households in Perlis spent the least at just RM13/month while

households in Sabah spent the most at RM73/month on rice.

• By ethnicity, the main ethnic group households (Bumiputera, Chinese &

Indian) spent a similar amount on rice ranging between RM40 – 44/

month, while non-citizen households spent the highest at RM60/month.

• Thus, the poor and non-citizens are most vulnerable to rice price volatility.

Malaysia’s Invisible Consumption

• KRI estimated that about 200,000 MT of rice was consumed by 2.0

million documented migrant workers in 2014.

• In addition to this, there is a large number of undocumented migrant

workers living in Malaysia. The World Bank estimated that there is a

minimum additional 1.0 million workers.

• For every additional 1.0 million migrants, the amount of rice consumed

increases by 100,000 MT. If we assume that there are about 4.0

million migrants (both documented and non-documented) living in

Malaysia, this results in them consuming about 24.1% of the total

domestic rice produced.

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• Recommendation: For Malaysia to keep its SDG pledge of “leaving no

one behind”, it is important to understand the rice consumption trends

among its most vulnerable consumers: foreign workers who are poor and

invisible to national databases.

• Recommendation: Improve data capture of migrant workers for the

government to develop policies that are more inclusive.

Public Expenditure on the Production of Rice for Domestic

Consumption

• In 2016, for every kilogram of local rice bought, the government

contributed a total of RM0.79 through subsidies and incentives at

various stages of the supply chain.

• This is large given that the price ceiling of ST15% rice is between

RM1.65 and RM1.80 per kilogram.

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ABBREVIATIONS

ASEAN :Association of Southeast Asian Nations

b : billion

BC :Bario Ceria Sdn. Bhd.

BERNAS :Padiberas Nasional Berhad

BOLR :Buyer of last resort

BRM :Bumiputera Rice Millers

BULOG :Indonesian Bureau of Logistics

DOA :Department of Agriculture, Malaysia

DOS :Department of Statistics, Malaysia

DVS :Department of Veterinary Services, Malaysia

e : estimate

EPP 10 :Entry Point Project 10 under the Economic Transformation Programme

EPU :Economic Planning Unit, Malaysia

ESA :European Space Agency

EU :European Union

F&B :Food and non-alcoholic beverages

FAMA :Federal Agricultural Marketing Authority, Malaysia

FAO :Food and Agricultural Organization of the United Nations

FELCRA :Federal Land Consolidation and Rehabilitation Authority, Malaysia

GAS :Golden Apple Snail

GDP :Gross domestic product

GFSI :Global Food Security Index

GMP :Guaranteed Minimum Price

Ha :Hectare

HACCP :Hazard Analysis and Critical Control Points

HES :Household Expenditure Survey

HIS :Household Income and Basic Amenities Survey

IADA :Integrated Agricultural Development Area, Malaysia

IBPS :Insentif Benih Padi Sah (Certified Paddy Seed Incentive)

IFPRI :International Food Policy Research Institute

INGER :International Network for Genetic Evaluation of Rice

IPH :Insentif Peningkatan Hasil (Yield Improvement Incentive)

IRRI :International Rice Research Institute

ITPGRFA :International Treaty on Plant Genetic Resources for Food and Agriculture

KHAZANAH RESEARCH INSTITUTE 191

ABBREVIATIONS

JKTBKKIP :Jawatankuasa Teknikal Bantuan Kerajaan ke Industri Padi

dan Beras (Technical Committee of Government Assistance for

Paddy and Rice Industry)

JV :Joint venture

k : thousand

KADA :Kemubu Agricultural Development Authority, Malaysia

KATS :Ministry of Water, Land and Natural Resources

kg :kilogram

km :kilometre

KPDNHEP :Ministry of Domestic Trade and Consumer Affairs

LPN :Lembaga Padi dan Beras Negara

(National Paddy and Rice Board)

LPP :Lembaga Pertubuhan Peladang (Farmers' Organisation Authority)

m : million

MADA :Muda Agricultural Development Authority, Malaysia

MARDI :Malaysian Agricultural Research and Development Institute

MDTCC :Ministry of Domestic Trade, Co-operatives and Consumerism,

Malaysia

MESTECC :Ministry of Energy, Science, Technology, Environment and

Climate Change

MITI Ministry of International Trade and Industry, Malaysia

MOA :Ministry of Agriculture and Agro-Based Industry, Malaysia

MOF :Ministry of Finance, Malaysia

MOH :Ministry of Health, Malaysia

MOHA :Ministry of Home Affairs, Malaysia

MOHR :Ministry of Human Resources, Malaysia

MOSTI :Ministry of Science, technology and Innovation (now replaced

by MESTECC)

MT :Metric Tonne

MyGAP :Good Agricultural Practice (Malaysia)

NAFAS :National Farmers Organization, Malaysia

NAP :National Agricultural Policy

NCIA :Northern Corridor Implementation Authority, Malaysia

NEKMAT :Persatuan Nelayan Kebangsaan

(National Fishermen Association)

KHAZANAH RESEARCH INSTITUTE

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ABBREVIATIONS

NIAB :National Institute of Agricultural Botany

NKEA :National Key Economic Area

NSC :National Seed Council

OECD :Organisation for Economic Co-operation and Development

PPE :Personal protective equipment

PPK :Pertubuhan Peladang Kawasan (District Farmer’s Organisation)

PPP :Public-Private Partnership

PRMB :Paddy and Rice Marketing Board

R&D :Research and Development

RBI :Rice Bowl Index

RM :Ringgit Malaysia

SBPKP :Skim Baja Padi Kerajaan Persekutuan (Federal Paddy Fertilizer

Scheme)

Sdn. Bhd. :Sendirian Berhad (Private Limited)

SEA :Southeast Asia

SIPP :Skim Insentif Pengeluaran Padi (Paddy Production Incentive

Scheme)

SSHP :Skim Subsidi Harga Padi (Paddy Price Subsidy Scheme)

SST :Super Special Tempatan

ST :Super Tempatan

STE :State trading enterprise

SUK :Skim Upah Kisar (Milling Scheme)

SUMK :Skim Upah Mengering dan Kisar (Drying and Milling Scheme)

TWM :Tradewinds (M) Berhad

UK :United Kingdom

UN :United Nations

UN SDG :United Nations’ Sustainable Development Goals

US :United States

USD :United States Dollar

WTO :World Trade Organization

KHAZANAH RESEARCH INSTITUTE 193

ABBREVIATIONS

GLOSSARY

Area

harvested

:Data refer to the area from which a crop is gathered. Area

harvested, therefore, excludes the area from which, although

sown or planted, there was no harvest due to damage,

failure, etc. It is usually net for temporary crops and

sometimes gross for permanent crops. Net area differs from

gross area insofar as the latter includes uncultivated patches,

footpaths, ditches, headlands, shoulders, shelterbelts, etc. If

the crop under consideration is harvested more than once

during the year as a consequence of successive cropping (i.e.

the same crop is sown or planted more than once in the

same field during the year), the area is counted as many

times as harvested. On the contrary, area harvested will be

recorded only once in the case of a successive gathering of

the crop during the year from the same standing crops.

With regard to mixed and associated crops, the area sown

relating to each crop should be reported separately. When

the mixture refers to particular crops, generally grains, it is

recommended to treat the mixture as if it were a single

crop; therefore, the area sown is recorded only for the crop

reported (FAO Statistics Division).

B40 :The first 40% of the households in the income distribution

are considered as the Bottom 40% (B40). Therefore, B40

data in 2016 HES report refers to the bottom 40% of

households with monthly income of below RM4,360 (DOS).

BRICS :Brazil, Russia, India, China and South Africa (OECD Stats).

Economies

of Scale

:A proportionate saving in costs gained by an increased level

of production (Oxford Dictionaries).

Least

Developed

Countries

:African Republic, Chad, Comoros, Democratic Republic of

the Congo, Djibouti, Equatorial Guinea, Eritrea, Ethiopia,

Gambia, Guinea, Guinea-Bissau, Haiti, Kiribati, Lao People's

Democratic Republic, Lesotho, Liberia, Madagascar, Malawi,

Mali, Mauritania, Mozambique, Myanmar, Nepal, Niger,

Rwanda, Samoa, Sao Tome and Principe, Senegal, Sierra

Leone, Solomon Islands, Somalia, Soudan, Tanzania, Timor-

Leste, Togo, Tuvalu, Uganda, Vanuatu, Yemen, Zambia

(OECD Stats).

KHAZANAH RESEARCH INSTITUTE

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GLOSSARY

M40 :The middle 40% of the households in the income distribution

(i.e. between 41% to 80%) are referred to as Middle 40%

(M40). M40 data in 2016 refers to the middle 40% with

monthly income between RM4,360 and RM9,619 (DOS).

OECD :Australia, Canada, Chile, European Union-28, Israel, Japan,

Korea, Mexico, Norway, New Zealand, Turkey, Switzerland

and the United States (OECD Stats).

Parcel area :Parcel area is area cultivated with paddy in a season. This

is different from total planted area (kawasan bertanam) and

total harvested area (kawasan tuaian), which are the total

planted/harvested area for multiple seasons in a year. Thus,

paddy planted and harvested area are larger than parcel

area (roughly double, given that paddy is planted and

harvested twice a year).

Self-

sufficiency

Level (SSL)

:Syn: self-sufficiency ratio, formula = [Production/(Production

+ Import – Export)] x 100 (FAO statistics booklet).

T20 :Households in the last 20% in the income distribution, are

referred to as Top 20% (T20). Therefore, for 2016, T20

refers to the top 20% of households with monthly income

of RM9,620 and above (DOS).

World :For all OECD data, World includes its list of countries in

developed and developing countries (OECD Stats).

Yield :Harvested production per unit of harvested area for crop

products. In most of the cases yield data are not recorded

but obtained by dividing the production data by the data on

area harvested. Data on yields of permanent crops are not

as reliable as those for temporary crops either because most

of the area information may correspond to a planted area,

as for grapes, or because of the scarcity and unreliability of

the area figures reported by the countries, as for example

for cocoa and coffee (FAO Statistics Division).

KHAZANAH RESEARCH INSTITUTE 195

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Mar 2025

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Full-text available

Mar 2025

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Apr 2025

ABSTRAK Kadar sara diri (SSL) beras Malaysia hanya kira-kira 56%, jadi untuk mengekalkan kestabilan sosial dan ekonomi negara, pelbagai inisiatif telah diambil untuk meningkatkan hasil padi. Penanaman padi di kawasan tanah terbiar yang biasanya kurang subur boleh membantu meningkatkan produktiviti padi tetapi adalah penting untuk mengenal pasti genotip yang beradaptasi dengan baik di tanah kurang subur selain melakukan perawatan tanah. Penyelidikan ini bertujuan untuk mengenal pasti genotip padi yang mempunyai adaptasi yang tinggi terhadap tanah yang kurang subur. Prestasi morfo-agronomi 58 genotip padi moden dan tradisional telah dinilai di plot padi di Kompleks Rumah Tumbuhan, Universiti Kebangsaan Malaysia bagi dua musim penanaman. Kaedah amalan pengurusan plot adalah berdasarkan kepada 'Rice Check' oleh Jabatan Pertanian, Malaysia. Dalam kedua-dua musim penanaman, perbezaan yang signifikan antara genotip diperhatikan bagi kesemua tujuh ciri. Kesemua ciri mempunyai nilai keterwarisan (H) yang tinggi (0.79 < H ≤ 1.00), kecuali kandungan klorofil (CC) pada musim I (H = 0.51). Memandangkan pengaruh genetik lebih mendominasi persekitaran, ciri dengan nilai keterwarisan yang tinggi boleh digunakan untuk pemilihan langsung. Bagi kawasan kurang subur, genotip tradisional menunjukkan prestasi yang lebih baik berbanding genotip moden daripada segi hasil bijian (GY), panjang panikel (PL) dan bilangan panikel (PN), namun mempunyai hari berbunga (DTF) yang lebih panjang dan lebih tinggi dalam kedua-dua musim penanaman. Selain itu, hubungan korelasi positif yang signifikan diperoleh antara ciri GY dengan PN (r=0.40 dan 0.58, p<0.01) dan PL (r=0.45, p<0.001) untuk kedua-dua musim penanaman. Lima puluh lapan genotip (58) padi telah dikelompokkan kepada 8 kluster berdasarkan tujuh ciri yang dikaji pada kedua-dua musim penanaman. Genotip tradisional seperti Towuti, Pongsu Seribu, Ulat Kuning, Huma Kuning Lenggong dan Lumut boleh digunakan sebagai induk untuk membangunkan genotip padi baharu dengan semua ciri unggul seperti hasil tinggi, adaptasi yang baik dalam tanah kurang subur atau sistem penanaman input rendah, berketinggian sederhana dan tempoh matang yang lebih singkat dengan mengacukkan genotip ini dengan genotip moden yang matang awal dan berketinggian sederhana. ABSTRACT Malaysia's rice self-sufficiency rate (SSL) is only approximately 56%, so to maintain social and economic stability in the nation, numerous initiatives have been undertaken to boost rice yield. Planting rice in the wasteland areas that are typically less fertile can help to increase rice productivity, but it is crucial to identify genotypes that are well-adapted to less fertile soil. This research aimed to identify rice genotypes that are highly adaptable in less fertile soil. The morpho-agronomic performance of 58 modern and traditional rice genotypes was evaluated in paddy plots at the Greenhouse Complex, Universiti Kebangsaan Malaysia for two planting seasons. The plot management practices were conducted in accordance with the 'Rice Check' guidelines established by the Department of Agriculture, Malaysia. In both growing seasons, significant differences between genotypes were observed for all seven traits. All traits exhibited high heritability (H) values (0.79 < H ≤ 1.00), except for chlorophyll content (CC) in season I (H = 0.51). Considering that genetic influences predominate over environmental ones, traits with high heritability values can be used for direct selection. Under low

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Article

Full-text available

Mar 2025

This work compared the chemical and thermal properties of Malaysian and Thai rice cultivars. Malaysian rice was obtained from Terengganu, Malaysia, while Thai rice samples were Khao Hom Mali from Royal Umbrella Thailand. The paired-T statistic was employed to examine the chemical and thermal parameters. While there were no statistically significant differences in the amylose, moisture, and fat composition between the two samples (p>0.05), there were notable disparities in the protein, ash, carbohydrate, and fiber composition (p<0.05). Malaysian rice cultivars exhibited higher levels of protein (7.8%), ash (53%), and carbohydrate content (25.88%), whereas Thai rice possessed a fiber content that was five times greater. Regarding thermal characteristics, Malaysian rice exhibited higher values for onset (21.5%), conclusion (6.5%), and peak (8.7%), although Thai rice had a gelatinization range that was three times higher. These findings indicate that Malaysian rice yields firmer textures, rendering it appropriate for certain grain cuisines where separated grain is required. In contrast, Thai rice's softer, more adaptable texture might be suited to different culinary applications, improving consumer tastes and industrial utilization.

Enhancing Paddy Production in Malaysia: A Comparative Analysis of Multiple Regression with External Factors

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Full-text available

Feb 2025

Rice is a basic food that is consumed by almost half of the world's population, especially in Malaysia. Unfortunately, paddy productivity has recently decreased dramatically, which has hampered local rice supply and forced Malaysia to depend on rice from neighbouring nations. Therefore, the modelling of paddy production is important because it provides an insight that ensure a sufficient supply of a locally produced paddy. In this study, several multiple regression models were used to predict paddy production model in Malaysia from 1980 to 2022. The multiple regression models are then compared, and the best model is determined. The regression model used in this study are Multiple Linear Regression (MLR), Multivariate Adaptive Regression Spline (MARS) and Support Vector Regression (SVR). The developed models will be evaluated using RMSE, MAPE and Ljung-Box Test. These are excellent tools for gauging the precision of the fitted model, thus can be used to evaluate the model. Based on the study, the MARS model is better at modelling Malaysian paddy production from 1980 to 2022 since it has the smallest number of measurement errors. Therefore, MARS model is the best regression model to be used to model paddy production in Malaysia compared to MLR and SVR model. Since all the models have autocorrelation, a more effective approach and model can be presented to overcome the autocorrelation issue in the future.

Livelihood Strategies and Household Income of A Paddy Farming Community in Northwest Selangor, Malaysia

Article

Full-text available

Jan 2014

Social, ethical and environmental concerns have been used as important consideration for investment decision by an increasing number of investors. This can be seen by the size and growth of the socially responsible investment (SRI) industry in the developed economies. At the same time, scholars and commentators of Islamic finance have also called for Islamic investment industry to learn from the experience of SRI in incorporating social responsibility issues in the investment process, in line with the ethical principles of Islam and the overall objective of the Shari’ah (Maqasid al-Shari’ah). This would require Islamic investment sector to have a clear understanding of the SRI industry in order to effectively benefit from its experience. This is particularly critical due to the significant diversity of investors and complexity in the issues and strategies adopted in the SRI industry. Hence, this paper adds to the Islamic investment literature by providing an extensive and systematic survey of SRI industry in terms of its (i) underlying motivations and values; (ii) issues of concerns; (iii) types of investors; and (iv) screening strategies. It then synthesizes these components within the context of the ‘value-based’ investors. This synthesized framework offers a useful tool for Islamic investment practitioners to understand the theoretical and practical aspects of SRI. Subsequently, the paper highlights important implications of the findings for Islamic investment industry in terms of the issues that it needs to consider in emulating SRI practices and a number of lessons that it can learn from the SRI experience.

Remote Sensing Spatial Rice Yield Estimation Based on MODIS and Sentinel-1 SAR Data and ORYZA Crop Growth Model

Article

Full-text available

Feb 2018

Crop insurance is a viable solution to reduce the vulnerability of smallholder farmers to risks from pest and disease outbreaks, extreme weather events, and market shocks that threaten their household food and income security. In developing and emerging countries, the implementation of area yield-based insurance, the form of crop insurance preferred by clients and industry, is constrained by the limited availability of detailed historical yield records. Remote-sensing technology can help to fill this gap by providing an unbiased and replicable source of the needed data. This study is dedicated to demonstrating and validating the methodology of remote sensing and crop growth model-based rice yield estimation with the intention of historical yield data generation for application in crop insurance. The developed system combines MODIS and SAR-based remote-sensing data to generate spatially explicit inputs for rice using a crop growth model. MODIS reflectance data were used to generate multitemporal LAI maps using the inverted Radiative Transfer Model (RTM). SAR data were used to generate rice area maps using MAPScape-RICE to mask LAI map products for further processing, including smoothing with logistic function and running yield simulation using the ORYZA crop growth model facilitated by the Rice Yield Estimation System (Rice-YES). Results from this study indicate that the approach of assimilating MODIS and SAR data into a crop growth model can generate well-adjusted yield estimates that adequately describe spatial yield distribution in the study area while reliably replicating official yield data with root mean square error, RMSE, of 0.30 and 0.46 t ha −1 (normalized root mean square error, NRMSE of 5% and 8%) for the 2016 spring and summer seasons, respectively, in the Red River Delta of Vietnam, as evaluated at district level aggregation. The information from remote-sensing technology was also useful for identifying geographic locations with peculiarity in the timing of rice establishment, leaf growth, and yield level, and thus contributing to the spatial targeting of further investigation and interventions needed to reduce yield gaps.

Gene flow from Clearfield® rice to weedy rice under field conditions

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Full-text available

Jan 2016

Imidazolinone-herbicide-resistant Clearfield® (CL) rice permits the selective chemical control of weedy rice (Oryza sativa), a major weed problem in South-East Asian rice growing countries. However, there is major concern involving resistant individuals resulting from gene flow as the cultivated and weedy rice live side by side in the fields. An experiment was conducted in the rice fields of Kuala Rompin, Pahang, Malaysia to determine which Clearfield® rice cultivars and weedy rice cultivars are more prone to hybridization, and the effect on distance between the pollen donor and receptor plants. The experiment was piloted in a split plot design with four replications. Encircled population technique was used to determine the distance between the Clearfield® rice and detection of hybrids (F1). Resistance of progeny was determined after spraying with OnDuty™ and the confirmation of hybrids was done using the SSR primer RM251. Higher survival rate was recorded with cv. CL2 which was significantly different from cv. CL1. Weedy rice cultivar V1 and V2 in CL1 plots differed significantly from the same cultivar from CL2 plots. However, no significant difference was observed between weedy rice cultivars of V3 and V4, either in CL1 or CL2 plots. No survivors were found after second spraying. Suspected hybrids were found up to 5 m however the rate was much lower compared to only 1 m from the CL plots. © 2015 Czech Academy of Agricultural Sciences. All rights reserved.

Farmer's acceptance towards fragrant rice farming: The case of non-granary areas in the East Coast, Malaysia

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Full-text available

Jan 2013

Malaysia depends on imports for its fragrant rice, mostly from Thailand, Vietnam, India and Pakistan. The fragrant rice farming in non-granary areas has been included in the new Entry Point Project (EPP) under the National Key Economic Areas (NKEA). In order to realize the aspiration of producing fragrant rice in large areas, it would require full participation and commitment from the existing and new farmers. The objective of this paper is to investigate farmer's acceptance towards fragrant rice farming in two districts namely Pasir Mas and Tanah Merah, located in the state of Kelantan. The respondents of the study are 23 farmers and in-depth interviews are carried out to obtain farmers' responses towards fragrant rice farming. The results from the content analysis reveal innovation characteristics, extension services and market pressure are among several factors that explain farmers' acceptance towards fragrant rice farming.

Stagnating yields, unyielding profits: The political economy of Malaysia's rice sector

Article

Feb 2018

Jamie S. Davidson

Since the 2008 rice crisis, Malaysia's rice policies have been caught between government efforts to raise production and its support of the country's monopoly rice importer (Bernas). This article argues that when the politics behind the country's policies are revealed, the paradox is more apparent than real. The three principal policy components — gratifying Barisan Nasional's coalition partners in East Malaysia by expanding the acreage devoted to rice; buttressing the rural Malay economy by providing subsidies through a yield-enhancing programme; and relying on big business for financial support (Bernas's new owner is one of Malaysia's richest businessmen) — aim to serve the same end: to perpetuate UMNO's political power amid increasing electoral competition.

Control of golden apple snail, Pomacea canaliculata (Lamarck), in Taiwan.

Article

Jan 2006

Intergenerational Mobility in Norway, 1865-2011

Article

Aug 2016

Jørgen Modalsli

There are large differences in intergenerational mobility between countries. Little is known, however, about how persistent such differences are, and how they evolve over time. This paper constructs a data set of 835,537 linked father–son pairs from census records and documents a substantial increase in intergenerational occupational mobility in Norway between 1865 and 2011. The increase is most pronounced in non-farm occupations. The findings show that long-run mobility developments previously described for the US and UK are not necessarily representative for other countries, and that high mobility in a given country today need not reflect high mobility before industrialization.

Population Fluctuation and Dispersion Patterns of Apple Snails, Pomacea spp. (Gastropoda: Ampullariidae) in a Rice Ecosystem

Article

Mar 2016

A field study was conducted for two consecutive rice-growing seasons from August, 2013 to May, 2014 to understand the population dynamics of exotic apple snails, Pomacea spp. (Ampullariidae), as affected by ambient weather and aquatic weeds. A one-acre rice field was divided into four blocks and eight samples per block were taken using a 0.5x0.5m quadrat. Collected snails were recorded as numbers of egg clutches, juveniles, adult females and males. Average rainfall, relative humidity, temperature and water pH, along with number of aquatic weeds and seedlings, were also recorded. Results confirmed the presence of only Pomacea maculata. The numbers of egg clutches, juveniles and adults were relatively high during the off-season as compared to the main-season. Meanwhile, relative humidity had a significant effect on the number of egg clutches, and rainfall affected the densities of juveniles and adults. Among the weeds, Limnocharis flava (Alismataceae) had significant effect on the densities of different snail stages. Different stages showed uniform dispersion pattern during both seasons due presumably to continuous availability of water and abundant food. Thus, results obtained could be helpful in understanding the population dynamics of P. maculata and devising appropriate management strategy.

Role of Seed Quality in Improving Crop Yields

Chapter

Jan 2015

Rinukshi Wimalasekera

Despite being an important source of food and feed, seeds are essentially an important delivery system of genetic information. Seed quality is a crucial determining factor of yield and quality of crop production. Good quality seed is superior to other standard seed in genetic and physiological purity and is free from seedborne diseases and disorders. The quality of the seeds is determined by the interaction of a number of genetic and environmental factors and climatic changes significantly affect seed characteristics. Production of better quality seeds in an effective and efficient manner is a challenge for increasing food demand. Seed quality is a complex trait and novel research approaches to improve seed quality involve a combination of seed technologies, genetics, and molecular biology. Some of the classical methods of seed improvement include coating, pelleting, priming, and production of artificial seed. Development of hybrid seed varieties that adapt to unfavourable climatic conditions and are resistant to a range of pests and diseases are at the forefront of the seed industry in improving crop yield. Hybrid seed varieties of rice, wheat, corn, barley, soybean, and diverse field crops are commonly used in various regions of the world for enhanced crop yield. Modern gene technology methods are being used to modify (GM) crops/seeds genetically to carry one or more beneficial traits such as herbicide and insect resistance, better resistance to drought/waterlogging, and modified nutritional profiles. Research on genetics of seed development and chemistry of seed reserves is an essential need in developing new technologies for crop improvement. The key challenge ahead is the identification and incorporation of beneficial genes and traits into elite cultivars, and development of new approaches to producing GM crops to minimise regulatory constraints and increase consumer acceptance.

Impacts of fertilizer subsidy on Malaysian paddy/rice industry using system dynamics approach

Article

Jan 2012

The Status of the Paddy and Rice Industry in Malaysia

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