Launch of The State of Food in Malaysia

1. The Status of the
Paddy and Rice
Industry in Malaysia
Sarena Che Omar
Ashraf Shaharudin
Siti Aiysyah Tumin
The State of Food in Malaysia
Date : 10 April 2019
Venue : Mercu UEM

2. KhazanahResearchInstitute
Key Findings of the Report
Food Security is more than just rice production1
The slow release of paddy varieties2
The paddy industry is weak as a result of segment
favoritism
3
The poor, rural and migrants are the most vulnerable
consumers
4

3. KhazanahResearchInstitute
Why Study this Industry?
Source: Federal Government Financial Statements (various years)
Years of intervention, but household income is still below national levels.
The average household income of paddy farmers in 2016 stood at
RM2,526.60/month, and the nation is still a net importer of rice. Is this a
justifiable observation of the industry?
Figure 1:Total nominal public expenditure on paddy and rice subsidies, 1990 – 2017
0.36
1.79
0.0
0.5
1.0
1.5
2.0
2.5
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
RM2.5b
Study the current status of the industry, identify challenges, and provide
mid-long term policy recommendation/s where appropriate.
Objectives

4. KhazanahResearchInstitute
The ‘Forest’
Paddy & Rice Industry
INPUT PRODUCTION
MILLING &
WHOLESALE
TRADE &
STOCKPILE
CONSUMPTION

5. KhazanahResearchInstitute
The Forest: Industry Overview
Figure 2: Paddy and rice supply chain, 2016
Sources: Various sources cited in ‘The Status of the Paddy and Rice Industry in Malaysia’ KRI report.

6. KhazanahResearchInstitute
Our History
Our Policies on Paddy and Rice goes way back
1950s 2020

7. KhazanahResearchInstitute
Food security
“people, at all times, have physical and
economic access to sufficient, safe and
nutritious food to meet their dietary needs
and food preferences for an active and
healthy life”
World Food Summit 1996
Food Security ≠ Rice Production
Observations
• Rice self-sufficiency level (SSL) is not the
best proxy for food security
• Food Security is multidimensional
• Work by Prof Jomo & Tan Zhai Gen
Recommendations
• Policy targets no longer be driven only by
production
• Incorporate: food safety, traceability and
environmental sustainability
• Consider other indicators when measuring the
performance
• e.g. recognition for the adoption of MyGAP,
adherence to Good Manufacturing Practices,
traceability and transparency measures (e.g.
Blockchain technology)
Figure 3: Multidimensionality of food security

8. KhazanahResearchInstitute
Farm Input
Industry Review By Segments
INPUT PRODUCTION
MILLING &
WHOLESALE
CONSUMPTION
TRADE &
STOCKPILE

9. KhazanahResearchInstitute
Breeding and Seed Segment
Why is breeding important?
Answer:
• It is a constant race between the crop and the environment
(biotic and abiotic). Therefore, having a number of different
varieties prolongs our on-farm advantage
• Each farm is unique and is constantly evolving. A selection of
varieties gives options for farmers to use one that best suits its
current needs

10. KhazanahResearchInstitute
Figure 4: Number of paddy varieties released by country, 1961 – 2014
1,961
277 238 183 96 82 78 76 61 60 38 37 35
-
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
India
SouthKorea
Philippines
Indonesia
Vietnam
Thailand
Myanmar
Bangladesh
Nepal
SriLanka
Cambodia
China
Malaysia
No. of releases
0
MALAYSIA
Slow release of new varieties
Source: Number of paddy varieties released, IRRI (2013 & 2014), figure from “The Status of the Paddy and Rice Industry” KRI report.
2018 – 50 varieties
Why?
• Only MARDI is pulling the weight on breeding work
• Complex processes SOPs and processes are complex and lengthy (~12 years)

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Plant breeding and seeds
10-12 years!

12. KhazanahResearchInstitute
HOW?
• Get the other breeders involved:
a) Be Introvert-Friendly
Standards & processes easily
accessible
b) Update the technical
breeding committee’s
membership
c) Everyone to utilize
International resources - Rice
gene bank & INGER programme
130,000 types of seeds
Figure 5: Process flow to recognise new paddy varieties
Slow release of new varieties
Recommendation
• More private sector & university
breeders

13. KhazanahResearchInstitute
Industry Review By Segments
INPUT PRODUCTION CONSUMPTION
Paddy Production
MILLING &
WHOLESALE
TRADE &
STOCKPILE

14. KhazanahResearchInstitute
Farming
Figure 6: Number of farmers according to crop type (food),
2016
Source: Statistik Tanaman (Sub-sektor Tanaman Makanan) DOA (2017), figure from “The Status of the Paddy and Rice Industry” KRI report.
Demography
• 194, 931 paddy farmers,
688, 770 Ha planted area
= 3.5 Ha per farmer
• Ageing population
• Largest amount in MADA
area ~40% of national
production (50,000 farmers
– 100,000 Ha
= 2 Ha/farmer)

15. KhazanahResearchInstitute
Farming – Cost of Production
Figure 7: Cost of production in key rice growing areas in seven countries, 2014 (USD/Ha)
Sources: Perangkaan MADA (2014), Bordey, Moya et al (2016) and IMF Exchange Rates (n.d.),
Findings
• Regionally, Malaysia’s paddy cultivation is competitive (with subsidies)
0 200 400 600 800 1,000 1,200
0 500 1,000 1,500 2,000 2,500 3,000
Zhejiang,
China
West Java,
Indonesia
MADA,
MALAYSIA…
Nueva Ecija,
Philippines
MADA,
MALAYSIA…
SuphanBuri,
Thailand
Can Tho,
Vietnam
Tamil Nadu,
India
Total cost
Net profit
USD/Ha
1,200
Net profit
Cost of Production
944
1,036
1,102
1,151
1,489
1,599
2,171
2,530
MADA, Malaysia
(with subsidies*)
MADA, Malaysia
(without subsidies*)
3,000
USD/Ha
(206)
(1,076)
(604)
(884)
(728)
(850)
(436)
(724)
Exporting
Countries
Importing
Countries

16. KhazanahResearchInstitute
Farmers’ Income
Figure 8: Mean monthly income for Malaysian households and MADA farmers, 2016
2,527 2,848
6,502
16,088
-
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
MADA Bottom 40% Middle 40% Top 20%
RM
0
Sources: Household Income Survey, DOS (2016) and MADA Annual report (2016). Figure from “The Status of the Paddy and Rice Industry” KRI report.
Findings
• But, within Malaysia, farmers remain relatively poor

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Farmer’s Household Income
Figure 9: Illustration on the sources of income for paddy farmers
Source: “The Status of the Paddy and Rice Industry” KRI report.
Quality
& Quantity
Costs

18. KhazanahResearchInstitute
Industry Review By Segments
INPUT PRODUCTION CONSUMPTION
Paddy Production & Processing
MILLING &
WHOLESALE
TRADE &
STOCKPILE

19. KhazanahResearchInstitute
Segment Favouritism
Figure 10: Squeezed midstream in the supply chain
Sources: Various sources cited in ‘The Status of the Paddy and Rice Industry in Malaysia’ KRI report.
Farmer’s Income Food Security

20. KhazanahResearchInstitute
Midstream – A loss-making segment
Figure 11: Selling prices for paddy according to states, 2014 and 2014 (RM/MT)
900
950
1,000
1,050
1,100
1,150
1,200
1,250
1,300
1,350
Selangor
Pahang
PulauPinang
Johor
NegeriSembilan
Melaka
Kedah
Perak
Perlis
Terengganu
Kelantan
Price range (2013) Price (2013) Price (2014)
SELANGOR
KEDAH
KELANTAN
RM1,350/MT
Source: Maklumat Perangkaan Industri Padi dan Beras 2016, MOA, figure from ‘The Status of the Paddy and Rice Industry in Malaysia’ KRI report.
Small – medium (<5,000 MT) scale:
-RM19/MT paddy purchased
Pre- 2014: 16 millers in Kelantan
2016: 1 left

21. KhazanahResearchInstitute
Figure 12: Squeezed midstream in the supply chain
Sources: Various sources cited in ‘The Status of the Paddy and Rice Industry in Malaysia’ KRI report.
Findings
• Segment favoritism weakens the supply chain
• Price floor & price ceiling over time, tightened the midstream segment
• Middle players have to survive: Diversify, conduct malpractices or close shop
• This perpetuates distrust between farmers and millers
Issue: Segment Favouritism

22. KhazanahResearchInstitute
Want: Improved income
1. Increase amount & quality
2. Lower cost of production
Want: Profit
1. Assured supply
2. High quality
Reality
Pay more for poor quality grains
Price ceiling at the end
Reality
Produce low quality grains
Higher cost of production
Recommendations
• Encourage the growth of each segment of the supply chain
• Contract farming and Blockchain may help improve trust and knowledge exchange
between the farmers and millers.
Weak linkage between segments

23. KhazanahResearchInstitute
Figure 13: How can contract farming produce win-win outcomes?
Sources: Figures from ‘The Status of the Paddy and Rice Industry in Malaysia’ KRI infographics booklet.
Win – win outcome: Contract Farming

24. KhazanahResearchInstitute
Industry Review By Segments
INPUT PRODUCTION
MILLING &
WHOLESALE
CONSUMPTION
TRADE &
STOCKPILE
Consumption

25. KhazanahResearchInstitute
Malaysians – How do we eat?
Figure 14: Percentage monthly household expenditure on rice from the total amount spent F&B
by income level, 2016 (%)
FYI
Households spent an average
of RM726/month or 18% of
their total monthly household
expenditure on food and non-
alcoholic beverages (F&B) in
2016
9.2
5.2
0.0
4.0
8.0
12.0
UnderRM1,999
RM2,000-
RM2,999
RM3,000-
RM3,999
RM4,000-
RM4,999
RM5,000-
RM5,999
RM6,000-
RM6,999
RM7,000-
RM7,999
RM8,000-
RM8,999
RM9,000-
RM9,999
RM10,000-
RM14,999
OverRM15,000
(%)
RICE
Source: Household Expenditure Survey, DOS (2016), figure from “The Status of the Paddy and Rice Industry” KRI report.
Findings
• 80kg rice pp/year vs 55kg world average
• Average household –RM44/month on rice, 6.5% of the total spent on food and non-
alcoholic beverages (F&B)
• Households with lower income and from the rural areas spent more on rice

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Malaysians – How do we eat?
Figure 15: The percentage share of caloric supply of total calories, 1961 – 2013
Source: Household Expenditure Survey, DOS (2016), figure from “The Status of the Paddy and Rice Industry” KRI report.
0
10
20
30
40
50
60
1961
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
Milk
Wheat and products
Meat
Fish and seafood
RICE
Eggs
Fruits Vegetables
(%)
Findings
• Our diet is diversifying
• Share of rice in the total caloric supply has been declining. However, rice remains
the highest source of calorie

27. KhazanahResearchInstitute
Figure 16: Percentage of rice expenditure from the total household expenditure on F&B by
States, 2016 (%)
11.9
7.7
1.7
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
Sabah
Sarawak
W.P.Labuan
Kelantan
Kedah
W.P.Kuala
Lumpur
Pahang
Selangor
Johor
Melaka
NegeriSembilan
Perak
W.P.Putrajaya
PulauPinang
Terengganu
Perlis
(%)
Average, 6.1%
PERLIS
SABAH
Malaysians – How do we eat?
Source: Household Expenditure Survey, DOS (2016), figure from “The Status of the Paddy and Rice Industry” KRI report.
Findings
• Our consumption pattern varies across the states
• Perlis least at RM13/month, Sabah most at RM73/month

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Invisible Consumption
The Status of the Paddy and Rice Industry in Malaysia
“… we pledge that no one
will be left behind.
Recognizing that the dignity
of the human person is
fundamental, we wish to see
the goals and targets met
for all nations and peoples
and for all segments of
society.”
2030 Agenda for
Sustainable
Development
“Immigrant labor
plays a crucial role in
Malaysia’s development.
Immigrants – both high-
and low-skilled – will be
needed for the country to
achieve high income
status by 2020.”
Malaysia Economic
Monitor, December
2015 - Immigrant
Labor, World Bank

29. KhazanahResearchInstitute
Invisible Consumption
The Status of the Paddy and Rice Industry in Malaysia
9.6
5.8
8.3
5.9 5.7 5.3
0.0
4.0
8.0
12.0
Non−Malaysian Citizens Others Bumiputera Indians Chinese
(%)
Average 6.1% (RM44)
NON-MALAYSIAN
CITIZENS
(RM60)
(RM43)
(RM53)
(RM44) (RM40)
(RM40)
Figure 17: Percentage of monthly expenditure on rice from the total amount spent on food and non-
alcoholic beverages by ethnicity and citizenship, 2016 (%)
Source: Household Expenditure Survey, DOS (2016), figure from “The Status of the Paddy and Rice Industry” KRI report.
Findings
• Vulnerable migrants. Non-citizens spent the highest on rice at RM60.00/month
• We don’t know: The actual number of migrants, the amount needed, and the pattern of
consumption

30. KhazanahResearchInstitute
The Status of the Paddy and Rice Industry in Malaysia
Recommendations
• Awareness and care for our migrant workers
• Improve data capture of migrant workers
• Develop more inclusive policies
Invisible Consumption
2.2m migrants consumed 8.4% of the total rice consumed in 2014
Sources: Calculations by KRI, various sources cited in ‘The Status of the Paddy and Rice Industry in Malaysia’ KRI report

31. KhazanahResearchInstitute
Don’t Get it Wrong: Migrants are Not Eating up Our Subsidies
and is Not a Threat to National Rice Supply
The Status of the Paddy and Rice Industry in Malaysia
Figure 18: Expenditure on paddy subsidies and incentives by recipients, 2014
3.1%
RM67m
73.3%
RM1.6b
23.6%
RM0.5b
Seed suppliers Farmers Consumers
Total: RM2.2b
201
6
2014
4.3%
RM60m
95.7%
RM1.3b
Total: RM1.4b
2016
91.6%
2.5m
MT
Citizens
(27.9m)
Non-Citizens
(2.1m)
National rice consumption 2014 (2.7m MT)
8.4%
0.2m MT
Sources: Various sources cited in ‘The Status of the Paddy and Rice Industry in Malaysia’ KRI report.
• Subsidies are concentrated at the farm segment
• In 2016, rice is not subsidized at the consumer end.
Therefore, migrants are not directly benefitting from our
subsidies
• The total amount of rice consumed by 2m migrants is far lower
than the amount consumed by 28m citizens
• Summary – the welfare impact of neglecting our migrants
outweighs the perceived risks they pose to our industry

32. KhazanahResearchInstitute
Key Takeaways
Food Security is more than just rice production
Expand and incorporate other factors: sustainable farming, food
safety and nutrition
1
The slow release of paddy varieties
Encourage the entry of more breeders2
The paddy industry is weak as a result of segment
favoritism
Adopt a risk-sharing approach with a win-win outcome
3
The poor, rural and migrants are the most vulnerable
consumers
Increase data capture and inclusivity
4

33. KhazanahResearchInstitute
Bringing it all together:
The Status of the Paddy and Rice Industry in Malaysia
Full report
Infographics booklet

34. KhazanahResearchInstitute
Paddy and Rice Industry
To truly protect our 200,000
farmers and 31m consumers,
we must take care of everyone
across the supply chain

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THANK YOU
Jitra, Kedah 2018

36. KhazanahResearchInstitute
APPENDIX

37. KhazanahResearchInstitute
Recommendations
Few Varieties
• More private
sector
breeders
• Transparency
& accessibility
in the recognition
processes
• Review the
technical
committee
Competitiveness?
• We are
regionally
competitive
• Improve income
& quality of
goods via contract
farming
Invisible
Consumption
• Attention
towards needs of
migrant
workers
• Better data
capture on
consumption
patterns
Favourtism =
Distrust &
Malpractice
• Nurture the
growth of every
segment
• Adopt contract
farming &
Blockchain
Net Importer &
BERNAS
• Acceptable to be
a net importer
• Care in the
removal of
BERNAS
Industry Wide
• Move away from production-centric targets (self-sufficiency level)
• Include other factors of food security (accessibility, stability & utilisation)
INPUT FARMING MILLING CONSUMPTIONWHOLESALE
& RETAIL
TRADE
Sources: “The Status of the Paddy and Rice Industry” KRI report.

38. KhazanahResearchInstitute
Farming is Now Location-specific
Figure: The average return on investment (ROI) of 27 PPKs in MADA, Musim 1, 2016
MADA Headquarters
Note: Green rows are the top performers
Source: CSS data (2016) from MADA, table from ‘The Status of the Paddy and Rice Industry in Malaysia’ KRI report

39. KhazanahResearchInstitute
Contract Farming
Figure: How can contract farming help?
Source: Figure from “The Status of the Paddy and Rice Industry in Malaysia” KRI report.

40. KhazanahResearchInstitute
Blockchain
The Status of the Paddy and Rice Industry in Malaysia
Source: Figure from “The Status of the Paddy and Rice Industry in Malaysia” KRI report.

41. KhazanahResearchInstitute
Import
Observations
• Malaysia is a net importer of rice despite decades of policies and investments
• The FAO-OECD Agricultural Outlook 2018-2027 predicted that Malaysia’s will continue to
import
• Geography is one of the possible reasons that a SEA country is historically a net rice
importer or exporter
• Malaysia sits in between: Peninsular and Borneo
• While it does not have vast flat lands with river deltas, it is not made up of hundreds of
small islands
Recommendations
• Expecting Malaysia to be a net exporter is unrealistic.
• Achieve a balance of being a net importer with local farmers producing higher quality
grains, adhering to good agricultural practices and enjoying higher income.
• There is also an increasing trend in consuming imported specialty rice.
• Malaysia’s status as a net rice importer should not be seen as a failure of the
industry.
Sources: Dawe, D. 2013. “Geographic Determinants of Rice Self-Sufficiency in Southeast Asia.” and Dawe, D. , Steven Jaffee, et al. 2014. “Rice in the Shadow
of Skyscrapers: Policy Choices in a Dynamic East and Southeast Asian Setting.” cited in “The Status of the Paddy and Rice Industry in Malaysia” KRI report.

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