Scaling up: Boosting productivity in rural areas

A local labour shortage has had serious impacts on the agriculture sector. Just under 12% of the country’s total population is employed in the agricultural industry in some capacity, according to statistics from the Malaysia Investment Development Authority, with a great majority of these employees working as labourers in the palm oil, rubber, timber and cocoa segments. While this number is high for a country at Malaysia’s relatively advanced stage of development, this figure has been falling steadily for the past 50 years. In 1966 more than 80% of the country’s total workforce was employed in the agricultural sector, according to statistics from the Ministry of Agriculture and Agro-based Industry (MOA). The number had dropped to around 37% by 1980 and was hovering around 18% by 1998.

THE CHALLENGE: The labour shortage in more recent years is primarily the result of poor productivity, which has led to low incomes for farmers. Data published in 2009 from the government’s Economic Transformation Programme (ETP) shows that, the average income for a rice paddy farmer is RM1400 ($451) per month, while fruit farmers earn RM1860 ($600) per month on average. According to the ETP, around 35% of Malaysians live in rural areas, and nearly 44% of rural inhabitants are employed in the agriculture sector. Low incomes in rural areas have resulted in a large (and growing) percentage of young Malaysians moving to major urban areas to seek work, where they have a better chance of finding a job and can earn nearly double a farmer’s average annual income. As a result of this rural flight, plantation firms and smallholders alike have been forced to hire foreign labour, mostly from other South-east Asian countries. The fact that the younger generations are fleeing the countryside has strained the agricultural workforce further. According to data from the MOA, in 2006 – the most recent year for which this information was available – 45% of Malaysian farmers were 55 or older, and an additional 25% were between the ages of 45 and 55. In an effort to cut back on rural flight and reduce the sector’s reliance on foreign labour, the government is working to boost productivity, and therefore incomes, among rural agricultural concerns.

THINKING BIG: The government is planning to boost farmers’ incomes by two-to-four times and create 74,6000 new job opportunities by 2020. Additionally, the agriculture sector’s contribution to gross national income (GNI) is expected to jump to RM49.1bn ($15.8bn) by 2020, up from RM20.2bn ($6.51) in 2009, not including commercial products. As described in the ETP, the government will carry out 16 entry point projects (EPPs) to reach these ambitious targets, including initiatives aimed at capitalising on existing competitive advantages; going after new opportunities in high-value premium markets; investing in food security initiatives, which will help reduce food imports and thus positively impact GNI; and ramping up participation in regional agriculture activities. More specifically, the agriculture component of the ETP includes EPPs aimed at boosting production of rice, fruits and vegetables, fish and fish products, swiftlet nests, seaweed, cattle and dairy products, and herbal products. Many of these are used in the rapidly expanding processed food segment, which itself is the subject of an RM574m ($185m) EPP that aims to create an integrated food park. Finally, the government is working to turn Malaysia into a centre for biotechnology research, with an initial focus on developing biological alternatives to pesticides.

CLUSTER EFFECT: These EPPs have the potential to completely transform rural life in Malaysia. Currently, the majority of farmers control only 1-2 ha on average, which means they cannot take advantage of economies of scale. Under the ETP farmers will be encouraged to band together into integrated clusters, forming medium-sized agribusinesses that could eventually move into lucrative downstream activities. Additionally, the ETP is meant to encourage a substantial percentage of rural agriculture players to move into the production of high-value-added products, such as premium fruits and vegetables and organic rice, which will also drive up incomes.