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Reforming the paddy and rice industry will not undermine farmers’ welfare

Kuala Lumpur, 24 February 2021 –The Institute for Democracy and Economic Affairs (IDEAS) has published Policy Ideas No. 71, entitled “Paddy and Rice Sector Policy Roadmap: Towards Equity and Sustainability”. The paper was co-authored by IDEAS Senior Fellow Prof. Datin Paduka Fatimah Mohamed Arshad, Kusairi Mohd. Noh and Emmy Farha Alias.

For more than 50 years, the paddy and rice industry has been insulated from the external market. These protectionist measures have produced adverse outcomes such as a distorted market, allocative inefficiency and slow growth. The industry has not progressed beyond paddy and rice production. As most farmers are unable to move up the rice value chain, their livelihoods have not improved, and they are still among the poorest in our society. Hence, IDEAS’ latest report presents a roadmap to carry out the necessary reforms to smoothly transition the paddy and rice industry into a fairer, more equitable, competitive and sustainable industry with minimal social disruption.

The policy roadmap envisions both the deregulation of the farm subsidies and import monopoly of BERNAS and other institutional proposals. The paper acknowledges that the liberalisation of the industry must be implemented in stages as farmers are still not independent and resilient. Immediate elimination of farm subsidies would also not be in their welfare interest. Hence, this paper proposes the gradual transformation of the current distortive farm subsidies to a less distortive area-based decoupled payment (ABDP) that are not linked to farmers’ production decisions.  Furthermore, ABDP creates less distortion on the market, and farmers can decide how to manage their farms to optimise profit, thereby unlocking their creativity and entrepreneurship.  The report’s simulations suggest that farmer revenue and yield can be maintained when transitioning to these more optimised forms of subsidies.

As the government has extended Padiberas Nasional Bhd’s (BERNAS) import monopoly concession until 2030, IDEAS urges the government to use the ten years to implement the necessary reforms to prepare the farmers to adapt to an open market where import is deregulated. Under the right circumstances, deregulating the import would encourage competitiveness, efficiency and innovation within the local market. Without the necessary understanding and preparation, liberalising the entrenched role of BERNAS in this sector could lead to unintended consequences, such as a non-competitive and inefficient market.

Hence, this report calls for greater institutional support to enhance farmers’ capacity and to generate further agribusiness opportunities to reap the full benefits of a dynamic market economy. Collective action is needed to facilitate the entrepreneurial endeavours of farmers. The role of R&D in improving productivity through advanced technology and techniques should be expedited.  Another institutional proposal made by the paper is to establish a new National Rice Board that embraces a systems approach and the consultative process with stakeholders to formulate policies and strategies. The report further recommends the Singaporean model of stockpile management for reference and benchmarking.

The lead author of the Report, Fatimah, commented, “The decades-old of the vicious circle of stagnation of the rice industry can be transformed into a virtuous one by introducing some elements of deregulations to spur competitiveness, growth with inclusivity, and sustainability.”

Tricia Yeoh, CEO of IDEAS, concluded: “Farmers will continue to be at the losing end if we continue the status quo, and their livelihoods will not be improved. We need a concrete plan to encourage competition within this industry, ensuring growth and innovation. When farmers’ creativity and entrepreneurship potentials are unlocked, this will benefit their welfare in the long run.”

IDEAS will be hosting a webinar to discuss the issue tomorrow (Thursday, 25 Feb 2021) at 10 am. The event can be viewed live on Zoom (https://us02web.zoom.us/webinar/register/WN_Kn6IHdD-QT-EMrSy5Z3v9A) or on IDEAS Facebook page www.facebook.com/IDEASMalaysia/live.

A copy of the report can be viewed at https://bit.ly/PaddyRiceSectorPolicy

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Amir Ridzuan Jamaludin, Assistant Manager, External Relations

T: +603 2070 8881/8882  E:amir@ideas.org.my

2021-02-24T22:49:52+08:00 24th February 2021|Media Statements|Comments Off on Reforming the paddy and rice industry will not undermine farmers’ welfare