Kuala Lumpur, 6 December 2018 –The Institute for Democracy and Economic Affairs (IDEAS) officially launched the Malaysia Agricultural Subsidies Report “Evaluation of Agricultural Subsidies and the Welfare of Rice Farmers” at University Malaya today. The study is authored by Prof. Dr. Fatimah Kari, IDEAS Senior Fellow and Professor in the Department of Economics, University of Malaya.
In conjunction with the launch, a public lecture was organized to present the findings and policies recommendations. The main findings of the report are:
- Agricultural subsidies benefit the big farm owners rather than smallholders. Agricultural input subsidies such as fertilizer and pesticides are allocated based on the land size owned by farmers, therefore it benefits the farmers with big farm size more than the smallholders. This study calls for subsidies that are targeted to help the smallholders rather than subsidies for all regardless of scale.
- Sekinchan model is a success story that other paddy farming communities could learn from. Despite facing the same struggles such as increased input costs, climate change and diseases, the Sekinchan paddy farming community is still more productive than other communities. It shows that a bottom-up initiative is effective in developing agricultural clusters. One of the important characteristics of the Sekinchan community is their openness to experiment and try small-scale innovations.
- The rice sector has yet to achieve the optimal efficiency level despite substantial public investments have been made through all the subsidy programs. The governance structure of the industry tends to over-invest in certain regions where productivity remains low and lagging. Whist, the subsidy program must remain inclusive to achieve social equity, there is a trade-off between efficiency and equality and such trade-off has resulted in escalating costs in the industry.
This report recommended the following policies for the consideration of the government:
- Rationalization of subsidies is needed. On one hand, inefficiency and wastages must be tackled and support should be targeted. On the other hand, more investment in research and development is needed to enhance technology and skills of farmers if the paddy farming industry is to move forward.
- Exit strategy for policies is necessary. Subsidies and policies to help farmers should have an exit strategy designed at the beginning of policy implementation. Exit strategies should be seen as a positive achievement, in which beneficiaries graduate from a policy due to the successful intervention, rather than viewed negatively as a withdrawal of help and support to the farmers.
- Long term focus and strategies are required to increase productivity and reduce cost. Short term measures are necessary but not sustainable. Therefore, measures to improve productivity such as investment in increasing skills and technology and reducing cost are pertinent to the growth of the industry.
The budget for 2019 has reduced allocation to agricultural subsidies. On this issue, Prof. Dr. Fatimah opined that “There is an urgent need to rationalize agricultural subsidies to eliminate leakages and market distortion effects to ensure that subsidy program remain financially sustainable in the long term. The reduction in budget allocation must also include the need to come up with better targeting and rationing mechanism which can be based on farms characteristics, location, efficiency, productivity as well as quality of rice produced.
IDEAS Social Policy Analyst, Wan Ya Shin, commented that “In order for the paddy and agricultural industry to breakthrough to the next level and beyond, we need to empower the farmers to become high-skilled, innovative and independent producers. This study is timely, given the budget reductions in agricultural subsidies, as more targeted measures as well as sustainable and long-term measures are needed to increase the skills and technology of the industry. These measures would be more effective to empower and support the farmers especially those who are in the B40.”
The Agricultural Subsidies Report could be downloaded from IDEAS’ website.