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IDEAS: Government should plan a concrete exit strategy and limit BERNAS’ concession as a single gatekeeper

Kuala Lumpur, 6 August 2020 – The Ministry of Agriculture and Food Industry has indicated that Padiberas Nasional Bhd (BERNAS) will continue to remain as the single gatekeeper for rice imports. Although BERNAS has fulfilled its social obligations, the monopoly has created unintended negative consequences and missed opportunities for the paddy and rice industry. The Institute for Democracy and Economic Affairs (IDEAS) urges the government to have a concrete plan to liberalize the paddy and rice industry if they are to grant an extension of the concession to BERNAS.

Commenting on the issue, co-authors of the IDEAS report, “Effectiveness of State Trading Enterprises in Achieving Food Security: Case studies from BERNAS in Malaysia and BULOG in Indonesia”, Prof. Datin Paduka Fatimah Mohamed Arshad and Dr Tey Yeong Sheng expressed that “The unwillingness of the government to revamp the local rice industry is understandable; continuing the status quo is a much a simpler decision than uprooting a 50-year-old system, despite the call from the previous government and industry players at large to liberalize the sector. It has other advantages too, such as minimal disruption and hence the stability of the rice system and no hassle of restructuring activities which can be a formidable and risky task.”

Fatimah and Tey continued, “However, this decision has a number of important implications. The problems that plagued the industry will continue to exist, if not be magnified. Such a non-competitive structure is inequitable, which leaves the small producers, the losers in the supply chain and as they are dependent on subsidies to exist. This explains the slow growth of the industry as well as the low investment of new capital and new entrants of young farmers into the industry as the prospect is unpromising. The market inefficiencies such as low quality of paddy and milling rate, limited technological progress, unethical marketing practices such as adulteration of rice, limited value-added activities, and minimal SME development will continue if the issues in the market structure are not addressed.”

They added, “If the government imposed additional social obligations on BERNAS, it would incur a higher cost to BERNAS which later may be transferred to producers or consumers either through lower price to producers or higher price to consumers.”

Tey remarked that “I think all stakeholders of the Malaysian paddy and rice industry should recognize that value chain development is the backbone of agricultural transformation. This is not just a matter of food security; it also concerns farmer and consumer welfare as well as improvement in the environmental and business ecosystems. If BERNAS is conceived as a change agent, BERNAS would have to take the lead in installing a competitive market, through empowering local entrepreneurs to seize opportunities and be part of nation building. The government will also need to play the facilitation role, including periodic monitoring and evaluation.”

Fatimah said “Looking forward, since the decision has been made there is now an urgent need to provide programmes that enhance the capacity of the smallholders by allowing them to participate in milling activities and input distribution as well as crop diversification. Cooperatives among farmers should be strengthened to improve their prospect of mobility in their business activities. Other public goods such as R&D has to be intensified to improve variety, cropping intensity, water management, small machines for small farms, sustainable practices, precision farming and so on.”

Tricia Yeoh, CEO of IDEAS concluded, “A concrete plan to open up the market, which includes increasing the capacity of smallholders and ease of entry into the industry, is required if the concession is extended. The timeframe of the extension should be reviewed as there are many missed opportunities and unintended negative consequences that come with the monopoly. In the long run, creating more competition would generate more innovation in the paddy and rice industry, which would enhance our national food security and ensure that our domestic rice production can compete at the global level.”

A copy of the Report could be downloaded here.

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2020-08-06T16:43:26+08:00 6th August 2020|Media Statements|Comments Off on IDEAS: Government should plan a concrete exit strategy and limit BERNAS’ concession as a single gatekeeper