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CHAPTER 7

ECONOMICS OF

AGRICULTURAL

DEVELOPMENT

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TOPIC 1. CONRIBUTION OF AGRICULTURE

TO MALAYSIAN ECONOMY.

Agriculture is part of the primary sector in theMalaysian economy which contributes to the grossdomestic product (GDP) over time. The relative

importance of the primary sector to the GDP hasdecreased since 1970.

Agriculture in Malaysia is characterised by a dualistic

system where the plantation sector exists side by sidewith the smallholder sector. Plantation or estateagriculture is normally single crop cultivation in a landarea of more than 40 ha.

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TOPIC 1. CONRIBUTION OF AGRICULTURE TO

MALAYSIAN ECONOMY.

Crops such as rubber, oil palm, coconuts,

cocoa, pineapples and tea are planted. The

plantation management is more systematic,

using modern technology and hired labour.

The smallholder consists of those farmers who

cultivate small areas, between 0.4 - 4 ha.

Consequently, production capacity is low dueto the limited technology and disorganised

farm management practices

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There are two types of small holders:

(1) the subsistence farmers who cultivate their land fortheir own consumption and sell the produce in themarketplace or to the middleman. These farmers normallypractice mixed cropping systems where vegetables andfruit trees are the main crops being cultivated. Others havemixed cropping and livestock farming systems whereby the

farmers grow cash crops and fruit trees at the same timeraising chicken, goats or cow on their farm

(2) those that practice monocropping type of subsistencefarming. Normally, these farmers cultivate their land withcommodity crops such as rubber, cocoa, or oil palm similarto those planted by the plantations.

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TOPIC 1. CONRIBUTION OF AGRICULTURE

TO MALAYSIAN ECONOMY.

In the past, emphasis was given to the productionof primary commodities from which the countryenjoys export earnings. However, agricultural hasexpanded into secondary downstream processing

for value added products. Malaysias agricultural development is guided by

the National Agricultural Policy (NAP).

The development programmes are aimed at

expanding food production to improve the foodtrade balance, increasing export of primarycommodities, and ensuring supply of rawmaterials for local downstream industries.

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1.1 Agricultural Growth

In the 7th Malaysia Plan (1995-2000), the agricultural sectorgrew at 1.2% per annum, lower than the targeted 1.9%.The 8th Malaysia Plan (2001-2005) targets the sector togrow at 3.0% annually. However, during the midtermreview, the agriculture sector grew only at 1.5% per annum.

Among commodities, from 1995 to 2005, the value ofrubber and forestry products has decreased while that ofpalm oil, livestock and fisheries has increased. In 2005,

industrial crop production accounted for 60% of the totalvalue in agriculture with the remaining 40% taken by thefood sector, with livestock and fisheries accounted forsignificant increases (Table 1).

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Table 1. Agricultural value of major crops (USD million).

________________________________________________________

1995 2000 2005

____________________________________Industrial Crop

Rubber 560 310 270

Palm Oil 1114 1631 1938

Forestry & logging 1089 893 799

Cocoa 322 305 314Food Crop

Padi 136 140 177

Livestock 251 292 383

Fisheries 517 625 789

Others 506 581 862

TOTAL 4496 4777 5531

_________________________________________________________

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TOPIC 1. CONRIBUTION OF AGRICULTURE

TO MALAYSIAN ECONOMY.

1.2 Land Utilisation For Agriculture

Agricultural land use increased from about 5.7million ha in 1995 to almost 6.0 million ha in

2000 (Table 2), due mainly to the opening-upof new land for oil palm cultivation in Sabahand Sarawak. The acreage in oil palm, pepper,

pineapple, vegetable and fruits has increasedwhile that of rubber, cocoa and coconut hasdecreased. About 400,000 ha of rubber andcocoa land were converted to oil palm.

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Table 2. Agricultural land use (hectares).

_____________________________________________________

1995 2000 2005

_________________________________

Industrial Crop

Rubber 1727000 1430700 1301500

Palm Oil 2507611 3460000 3100000

Cocoa 234538 105000 105000

Pepper 8600 11480 12500

Pineapple 9081 10233 16000

Tobacco 10539 15000 12500

Food Crop

Padi 592410 572196 611000

Coconut 298740 220000 201000

Vegetables 42000 51420 77290Fruits 244471 297436 379613

Others 268146 67534 67737

TOTAL 5743137 5949934 6314977

______________________________________________________

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1.3 Food Commodities

The implementation of The thirdnational agricultural policy (NAP3) tomeet the national food requirements as

well as broaden the export capacity ofthe agriculture sector have positiveimpacts on food production. As aresult, the self-sufficiency levels (SSL)

for food commodities except rice haveimproved (Table 3).

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Table 3. Self-sufficient level (%) of food commodities.

____________________________________________________Commodity Years

______________________________________________________________

1995 2000 2005

Padi 76.3 72.0 71.0

Fruits 88.9 105.0 109.0

Vegetables 71.6 78.0 80.0

Fishery produce 92.0 89.0 90.0

Beef 19.2 16.0 23.2

Mutton 6.0 6.0 9.0

Pork 104.0 99.0 100.0

Poultry 110.7 113.0 123.0Eggs 110.3 116.0 109.0

Milk 3.5 3.0 3.0

____________________________________________________

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The impressive growth in livestock production is mainlyattributed to the improvement in animal husbandry and

the shifting from traditional to commercial farmingpractices especially in the non-ruminant subsector.

Increase in feedlot and expansion of integrated beef cattlefarming in rubber and oil palm plantations havecontributed to the increase in beef production. However,Malaysia is still not self-sufficient in the production of beefand mutton, with local production catering 24.1% and7.3%, respectively.

Poultry production increase is due to the integratedpoultry farming system introduced by fast-food chains suchas Kentucky Fried Chicken. Poultry is the most popularmeat consumed due to pricing and religious acceptability.

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TOPIC 2. INTERNATIONAL TRADE IN

AGRICULTURE.

Over the years, agricultural trade has consistently generated tradesurpluses. In 2002, against a backdrop of USD7,375 million exports andUSD4,300 imports, a surplus of USD3,075 million was accumulated, duemainly to palm oil. In fact, in 2002, palm oil exports contributed almost52% of export share in agriculture.

Malaysia is still a food-deficit country. Food imports have continuously farexceeded exports. In 1985, food imports were worth USD0.92 billion,rising continuously to reach USD3.0 billion in 2000. Among the majorimport items include maize, sugar, wheat, rice, soybean and various foodpreparations. Raw rubber, palm oil and cocoa beans are imported,

processed, and then reexported as final products.

Malaysia itself exports palm oil, rubber, fatty acid complexes, palm kerneloil, various food preparations, sugar and cocoa butter. These itemsaccounted for at least 78% of the total agricultural exports in 2002 (Table4).

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Table 4. Total agricultural imports and exports (USD million).______________________________________________________________

Item Year = 1999 2000 2001 2002

______________________________________________________________

Import

Maize 259 255 218 262

Sugar 255 253 286 257

Wheat 215 187 206 201

Rice, milled 181 175 134 124

Natural rubber 119 214 180 185

Soybean 145 132 150 167

Food prep. 141 148 157 150Tobacco 89 96 133 199

Cocoa bean 63 77 93 141

Oil palm 92 15 46 137

TOTAL 3733 3792 4028 4300

Export

Oil palm 3738 2558 2534 3824

Rubber 521 589 427 580

Fatty acid 422 389 322 430

Pkoil 433 285 212 277

Food prep. 96 106 119 142

Shortening 99 110 111 119

Cigarette 142 141 139 117

Sugar 50 64 76 99

Pastry 87 103 96 96

Cocoa butter 108 83 84 93

TOTAL 7117 5821 5521 7375

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