Kuala Lumpur, 29 November 2019 – The Institute for Democracy and Economic Affairs (IDEAS) published a report that looked into the effectiveness of state trading enterprises (STEs) in the rice industry at achieving food security for the country. The report found that the rice policies in Malaysia and Indonesia that were intended to achieve food availability and price stability have resulted in windfall losses to the industry.
The Malaysian chapter on Bernas concluded that, since its establishment in 1994, Bernas has been relatively successful in fulfilling their government-mandated functions including price stabilisation and national stockpile management.
However, this came at the expense of resource efficiency, equity, growth and sustainability in the long term. The market protection instruments used to ensure food security led to unintended consequences including crowding out of competition, limited incentives for innovation, created an uneven playing field and led to a lack of SMEs (upstream and downstream) in the industry. The authors conclude in the report that “business-as-usual will create more of the same outcome, hence, restructuring is imminent.”
In 2018, the Malaysian government had decided to address these unintended consequences by opening up rice trade and discontinuing Bernas’ import monopoly in 2021. The promise to re-examine Bernas’ monopoly had also been mentioned in the Pakatan Harapan’s manifesto in the run-up to the 14th General Election.
Towards the government’s reformation of the industry, the report recommended that a meso, or mixed-approach be adopted to achieve a smooth transition and minimise social disruptions. The report also proposed the following policy considerations for Malaysia:
- Ensuring market deregulation as an efficient alternative to an STE;
- Building an efficient, dynamic and growing paddy and rice industry to boost food security;
- Sharing the access to and responsibility of the national rice stockpile among a subsector of private actors;
- Reviving the framework for new cooperatives and encourage adoption of ICT;
- Re-introduction of a “National Rice (Value Chain) Board” to undertake a long-term structural transformation of the industry; and,
- Encouraging environmentally friendly paddy farming.
Speaking at the launch of the report, IDEAS CEO Ali Salman said that “PH government has already announced abolishing Bernas. It is time to see a clear roadmap and implement this announcement. We can ensure food security by opening the rice trade and embracing technology instead of relying on a government-sanctioned private monopoly.”
In her presentation of the report, the co-author, Fatimah Mohamed Arshad remarked that “The country has attempted to resolve the so-called “market failure” through an STE to “get prices” right with enormous market distortions and costs. Hence, it is ripe now that Malaysia to focus on getting the “institution right” to achieve a truly food secured economy. World price volatility is given and beyond the country’s control, but domestic capacity development is within the country’s grasp.”
The report titled “Effectiveness of State Trading Enterprises in Achieving Food Security: Case Studies from Bernas in Malaysia and Bulog in Indonesia” is a joint publication by IDEAS and the Center for Indonesian Policy Studies (CIPS). The Malaysian case study was authored by Fatimah Mohamed Arshad and Yeong Sheng Tey from Universiti Putra Malaysia, and Bustanul Arifin from University of Lampung (UNILA).