Malaysia is dependent on imports for all major food items except vegetable oils and is heavily dependent on imported feedstuffs. The country’s three major production crops are palm oil, rubber and cocoa.
In the past 20 years, Malaysia has become the world’s largest producer and exporter of palm oil, with the palm crop covering about one-third, or 2.5 million ha, of the country’s cultivated area. The development of the palm oil industry has been based on favorable climatic conditions, increasing prices relative to other export commodities and strong global demand for fats and oils.
Malaysia’s agriculture comprises two primary sectors, estates and small farmers. The estate sector consists of mostly privately owned farms using hired labor and modern technology. Most also own some of the necessary processing or refining facilities, and many are under publicly traded corporate ownership.
The small farming sector includes independent producers on private holdings, as well as participants in government land development programs and tenants. Smallholders often farm part time to supplement other income sources and cut back or temporarily abandon farming when prices are low.
Malaysia’s Third National Agricultural Policy, known as NAP3, sets out policy objectives that include assuring national food requirements, enhancing competitiveness and profitability, capitalizing on added-value opportunities and encouraging integrated development in the food sector. NAP3, which runs through 2010, is shifting policy from a commodity-based approach to a product-based approach that concentrates on market demand, demand potential and consumer preferences.
Although food production increased by about 4.2% a year during the 1985-95 period, that growth did not keep up with domestic demand, a continuing trend. In NAP3, the government notes that "it is not in the long-term interest of the country to be increasingly dependent on external sourcing for food," but recognizes that economic factors limit Malaysia’s ability to fully meet domestic food requirements.
Against this scenario, officials are looking to modernize domestic agriculture and adopt strategic sourcing to ensure adequate supplies. Officials also want to position Malaysia as a global player in selected food products that have comparative advantages in the international market and have announced various tax incentives to stimulate more private investment.
WHEAT AND FLOUR MILLING. When Malaysia’s first flour mill opened in 1967, the government classified the facility as a "pioneer industry." Today, Malaysia has a modern milling sector that produced nearly 800,000 tonnes of flour in 1998, up 44% from the 1990 production level.
Much of the country’s flour mill boom occurred during January 1995 to April 1999, when seven new or expansion projects were approved. Total investments during that time were RM74.4 million (U.S.$19.6 million), with about 81% of that from local sources.
Most of Malaysia’s major flour milling companies are part of larger corporate interests involved in other agricultural areas such as feed milling, transportation or packaging. For example, Singapore-based Gold Coin owns Prestasi Flour Mills, Sabah Flour and Sarawak Flour Mills, and Pernas owns United Malayan Flour. Other companies include Malaysia Flour Mills, Kuantan Flour Mills and Sebarang Flour Mill.
The largest company in terms of capacity is Federal Flour Mills, which operates six Malaysian facilities with a daily capacity of 1,650 tonnes. FFM plans to bring a new 500-tonne mill in Pulau Indah, Selangor, on line in June and is constructing another 220-tonne mill in Sarawak, expected to open in the third quarter of 2002. FFM plans to close one older mill, in South Port, after the Pulau Indah facilities come on line.
The export market is a major one for Malaysia’s flour milling industry, corresponding to the government’s emphasis on adding value and promoting exports where they are competitive.
In 1998, Malaysia exported about RM80.7 million (U.S.$21.2 million) in wheat flour, with about 57% of the total shipped to Singapore.
In 1999, Malaysia had 37 baking companies. One of the largest is Gardenia Bakeries, a subsidiary of Singapore-based QAF Ltd., with a 55% share of the country’s bread market. Gardenia later this year will bring on line a new plant in Selangor that will increase the company’s bread-making capacity by 50% to 300 million loaves a year.
In January, Padiberas Nasional Bhd (Bernas), a major Malaysian agricultural and food company focused on rice, bought a 30% stake in Gardenia. The two companies signed a memorandum of understanding to cooperate in the food industry, particularly in the areas of instant noodles, biscuits, flour milling and other wheat or rice-based products.
RICE. Rice is a food staple. Per capita consumption declined from 102.2 kg in 1985 to 93.0 kg in 1998, but total use is projected to increase slightly to 2.3 million tonnes in 2010 from 2 million in 2000 based on population increases.
Rice farmers receive government fertilizer subsidies and price support programs. The fertilizer support program has not been as effective as price and other indirect support programs in increasing paddy production and farmer incomes, according to the Ministry of Agriculture, because of administrative difficulties and high public costs.
In the past, the rice self-sufficiency goal was 70%, and the government set price subsidies at high levels to encourage reaching the target. Over the 1985-98 period, domestic production accounted for about 77% of total domestic consumption.
High price supports, as well as chronic labor shortages, have helped to make Malaysian production costs much higher than neighboring countries. Malaysian paddy rice production costs recently were calculated at U.S.$171 per tonne, compared with Thailand’s U.S.$144, Vietnam’s U.S.$118 and Indonesia’s U.S.$92.
This situation, along with tight import controls, has resulted recently in widespread smuggling of cheaper and higher quality Thai rice, which, in turn, forced officials in January to set up watchtowers along the border to try to curb the illegal activities. This predicament also stirred fears that the Malaysian rice sector may not stand up to the impact of competition arising from globalization and regional free-trade agreements.
In response, the Agriculture Ministry has developed plans to cut the minimum self-sufficiency level to 65%; to increase production of higher quality, specialty and fragrant rice; and to maintain a strategic quantity of rice stockpile.
Other policies include identifying suitable areas, especially in Sabah and Sarawak, for large-scale commercial paddy production by the private sector; accelerating land consolidation and creating an information clearinghouse between landowners and "entrepreneurial farmers" to collect and disseminate information on idle paddy land; and reviewing price and grade controls to allow market forces and preferences to determine price and quality. The government will control only one grade of rice to protect the interest of lower income consumers, and more players will be allowed to participate in imports to encourage healthy competition.
COARSE GRAINS AND FEED. Maize is not grown commercially in Malaysia, and the country imports almost all of its requirements for livestock feed. In recent years, livestock producers have attempted to grow maize locally to reduce their dependence on more costly imports. Output so far has been negligible compared with domestic consumption needs, but maize production possibilities have drawn some interest among Malaysian investors.
Malaysia also imports some soy products, mainly cake and seed, for use as feed ingredients. Soy imports, primarily from the U.S., Argentina and China, increased by 24% between 1996 and 1998, a trend that is expected to continue as long as the livestock industry depends on products for feed ingredients.
An outbreak of Japanese encephalitis in Malaysia’s swine population in 1999 was suspected of involvement in some human deaths, led to the destruction of more than 1 million pigs and caused a decline in feed use. At about the same time, the Indonesian egg industry began to recover after the Asian financial crisis, resulting in a 91% decline in Malaysian egg exports to Indonesia.
Conditions in the Malaysian swine and egg industries have improved in the past year. Malaysian consumer confidence has returned, and the fear of eating pork has disappeared altogether. In fact, pig farmers are currently unable to meet all the domestic demand for pork.