Sarawak's agriculture, forestry and fisheries sector continues to thrive even as the sector diversifies

As Sarawak’s largest employer, providing a livelihood for about one-fourth of the population, the agriculture, forestry and fisheries sector stands as one of the state’s key engines, even with the gains in economic diversification made in recent years. Sarawak also plays a central role in Malaysia’s agricultural sector as a whole, producing both foodstuffs for local consumption and cash crops for export.

The state was the third-largest contributor to the RM56.1bn ($17.1bn) sector in 2013, accounting for 15.2% of the nation’s agricultural output, after Johor (15.6%) and neighbouring Sabah (16.8%). In that year, food crops – including palm oil, fruits, vegetables and spices – fuelled sector growth as the global price of palm oil rebounded and production increased. This growth was tempered somewhat by lagging timber production, as well as decreases in output and exports of natural rubber, of which Sarawak is the country’s chief producer.

SELF-SUFFICIENCY GOALS: Malaysia’s dedication to achieving food self-sufficiency dates back to the Third Malaysia Plan drawn up for 1976-80, which set a target national self-sufficiency level (SSL) of 90% – which, remarkably, it exceeded at 92%. From then on, each successive Malaysia Plan and national agricultural plan targeted and exceeded an SSL of 65%, until a national food security policy was created in 2008 following a shortage in global food stocks. This policy sought to achieve an 80% SSL by 2010, though it fell short of this at 72%. This was followed by the current goal of 85% SSL by 2020, as laid out in the New Economic Model in 2010.

Such agricultural policies highlight the high cost of producing rice in Malaysia, as is partly reflected in SSL targets below 100%. Instead, the Ministry of Agriculture (MoA) now defines food self-sufficiency according to three criteria: availability (measured by both adequacy and consistency of supply), accessibility (measured by both adequacy and level of nutrition) and ability to provide sufficient nutrients.

Although still dependent on imports, Sarawak has improved its rice production over the past decade, with output rising from 122,901 tonnes in 2004 to 152,245 tonnes in 2013, according MoA data. This increase is the result not only of expanding planted paddy area – which rose from 126,419 ha in 2004 to 134,260 ha in 2013 – but also, and more encouragingly, due to growth in average yields, from 1728 kg per ha to 1890 kg per ha over the same time period. In all, Malaysia produced 1.69m tonnes of rice in 2013, which it supplemented by importing 876,136 tonnes at a cost of RM1.56bn ($474.6m).

GROWTH INITIATIVES: To achieve Malaysia’s self-sufficiency goals, both the state and federal government continue to fund a number of initiatives designed to raise value and yields and to encourage more investment in the sector through incentives. In its 2014 budget, Sarawak allocated RM2.4bn ($730m) for continued subsidies and incentives, according to the State Farmers’ Organisation of Sarawak. Such measures included low-interest loans to the industry; subsidies for fertilisers, seeds and rice prices; and other inducements.

Of this total, some RM634m ($192.9m) has been earmarked specifically to support National Key Economic Areas (NKEA) in producing goods for export, including priority projects such as rice planting, fish cages, seaweed cultivation, swiftlet harvesting, high-value herb growing, vegetable planting and fruit growing. The state is also funding non-incentive-based programmes such as training in agricultural technology and entrepreneurship.

Among the current schemes to boost output is a RM2m ($608,000) pilot programme run by the Sarawak Department of Agriculture (DoA) to improve infrastructure and implement double-cropping techniques which has expanded output four-fold. “Mechanisation is the path forward for dealing with the labour shortage currently being experienced by Sarawak’s agriculture sector, and mechanising rice paddy production is the only solution to furthering the commercialisation of the crop,” Lai Kui Fong, director of the Sarawak DoA, told OBG.

Another Sarawak-specific rice programme called Entry Point Project 11, part of the national development plan, the Economic Transformation Programme (ETP), aims to improve the productivity of paddy farming. For Sarawak this involves developing rice cultivation in the Bario Highlands and targeted for export to West Malaysia and Australia. Spearheaded by the Kemubu Agriculture Development Authority, the Bario project planted 140 ha of rice in 2013.

FORESTRY: The most valuable agricultural renewable resource in Sarawak after palm oil, the timber industry has a long and storied history in Sarawak. Demand from across the globe for increasingly rare and valuable tropical hardwoods native to Borneo has supported the livelihoods of loggers and timber companies for decades, even as practices and perceptions within the industry have evolved. In the past, the diverse nature of the island’s natural forest patterns largely spared them from wholesale clearcuts, as much of the logging was done selectively, starting with the largest and most valuable species. Only in the past few decades, with the rapid expansion of plantation agriculture, has wholesale clearing of forests accelerated.

Forest land in Sarawak is classified into three types: Permanent Forest Estate (forest reserves, protected forests and communal forests); Stateland Forest, in which timber harvesting is allowed; and Totally Protected Areas (national parks, wildlife sanctuaries and nature reserves), in which it is not. In all, there are more than 2000 different tree species in Sarawak, with around 80% (some 9.6m ha) of natural forests categorised as Hill Mixed Dipterocarp, which are richly diversified and contain the greatest number of economically important trees – including those prized by timber harvesters, such as Meranti, Kapur, Keruing and Mersawa, according to the Sarawak Forest Department (SFD). The other types of forest are peat swamp (about 750,000 ha) and mangrove forest ( just over 90,000 ha), with much smaller areas comprised of kerangas and montane forests. The state’s 43 licensed sustainable forest plantations, which span more than 2.83m ha of gross licensed area, have clear room for expansion, with only 325,312 ha of trees planted in a total planned planting area of 1.31m ha as of December 2013.

TIMBER OUTPUT: Log production has declined over the past decade as global demand for timber waned along with the economic slowdown, particularly in Sarawak’s largest market, China. The harvest output has been tailing off steadily since the start of the millennium, falling from 14.27m cu metres in 2003, which reaped state forestry revenues of RM895.27m ($272.3m), to 8.21m cu metres in 2013, netting the state RM593.3m ($180.5m). The vast majority of these trees were hill logs, accounting for 7.97m cu metres of the 2013 total, according to SFD data. Government forestry receipts are chiefly collected through royalties, which amounted to RM544.81m ($165.7m) in 2013; premiums and tariffs brought in another RM29.78m ($9.1m); and other fees accounted for the remaining RM18.72m ($5.7m).

SUSTAINABILITY: Another key factor in this decline is increased interest in forest sustainability, among both the regulatory bodies overseeing the forests and foreign purchasers of timber. On the supply side, the amount of available legal production forests in Sarawak is dwindling. To keep one of the state’s longest-running income streams flowing for the foreseeable future, the government has drawn up a Forestry Management Plan (FMP) designed to maintain logging operations at a perpetually sustainable rate while minimising illicit harvesting and sales.

A key component of the FMP is to set the annual allowable cut (currently at 155,000 ha in line with the 10th Malaysian Plan) and the average annual log production (currently at 9.2m cu metres). Besides restrictions on logging in natural forests, the plan also sets a maximum workable area of 6m ha of Permanent Forest Estate. To be cut down, trees must have a diameter of at least 45 cm for non-Dipterocarp species or 60 cm for Dipterocarp species. Within these limits, only 7-9 trees per ha are harvested, allowing an average yield of 54 cu metres per ha. After logging, each exploited area is then left to regenerate for 25 years before it is deemed mature enough to be harvested again.

ILLEGAL LOGGING: While these plans could be highly effective in theory, implementation and enforcement have proved difficult. As timber prices have risen over the years and a web of thousands of kilometres of dirt roads stretched further and further into Sarawak’s vast interior, illegal logging and fly-by-night jungle saw mills have put increased pressure on authorities to regulate and monitor the industry effectively (see analysis). “Illegal logging and corruption remain the two major endemic problems that the timber industry must face,” Bujang Mohd Nor, executive chairman of Harwood Timber, told OBG. “The agencies involved in the timber industry’s chain of control must increase manpower to deal with this, along with increased collaboration with other stakeholders, including road transport agencies and the police force.”

Even the relatively straightforward question of how much forest remains in Sarawak is widely disputed. Official government figures assert that the state maintains 80% forest coverage as of 2012. However, NGOs using satellite imagery estimate that deforestation is much more widespread, with only 20% of Sarawak’s forests still unblemished. Illegal harvesting, timber smuggling and illicit sawmills all undermine public and private sector efforts towards sustainability, while evading the royalty payments necessary to help fund further enforcement.

ENFORCEMENT: To combat these timber rustlers, the SFD has become increasingly proactive in recent years in its efforts to beef up monitoring and enforcement across the vast green swathes of land. Most recently, in September 2014 the Sarawak government authorised the SFD to supply firearms to 50 of its most senior enforcement officers to combat illegal logging, putting them on more level terms with the raiders, who are often armed. Also in 2014, the government announced plans to add more fourwheel-drive patrol vehicles. The move was supported by NGOs, including World Wide Fund for Nature - Malaysia, which endorsed it but also called for an independent third-party auditing system to further improve forest management.

Meanwhile, buyers of Sarawak timber are demanding more rigid and transparent certification procedures in order to ensure that products are secured from legal and sustainable sources. To comply with increasingly demanding certification of sustainability from foreign customers, including full chain-ofcustody documentation, many of Sarawak’s larger timber companies are implementing their own internal safeguards, such as Hardwood Timber’s “Harwood Endorsement”, which ensures the legality of logs following inspection and verification.

Efforts to expand downstream timber activities away from shipped raw logs also appear to be paying off in recent years, as exports of processed timber continue to climb even as overall production and shipments of raw logs declines. Plain plywood exports have risen from 2.65m cu metres valued at RM3.32bn ($1bn) in 2009 to 2.72m cu metres worth RM4.17bn ($1.3bn) in 2013, according to the Department of Statistics Malaysia. The export value of veneer sheets also increased from RM293.22m ($89.2m) to RM326.13m ($99.2m) over the same four-year span, while that of fibreboard shipments rose from RM243.6m ($74.1m) to RM290.41m ($88.3m). Raw sawlog exports in that period declined from 3.84m cu metres worth RM1.91bn ($581m) to 2.81m cu metres valued at RM1.70bn ($517m).

PALM OIL: Since the planting of the state’s first palm trees in Miri in the late 1960s, Sarawak’s palm oil industry has risen to prominence over the ensuing five decades to become the state’s dominant agricultural commodity and a major contributor to global supply. Plantation-scale production ramped up starting in the 1990s, when the number of hectares employed in palm oil cultivation first took off from 54,795 ha in 1990 to 330,387 ha by the end of the millennium, according to the Malaysian Palm Oil Board (MPOB). This figure has since risen even further, to 1.16m ha by the end of 2013, representing 22% of the national total, behind Sabah (28.2%) and Peninsular Malaysia (49.6%).

Due to its relatively late arrival on the palm oil scene, Sarawak has seen the strongest growth among Malaysian states by acreage in recent years. Despite softer commodity prices and the five- to seven-year lead time required for trees to reach maturity, declining production costs and uncertainty in the palm sector of Malaysia’s chief rival, Indonesia, continue to drive investment in the industry.

Part of the appeal driving the strong demand for palm products is their sheer versatility. Employed in an array of items from soaps to biodiesel, palm oil has a virtually unlimited potential for use in downstream applications. In the five years to 2013, oil palm acreage in Sarawak expanded by 416,000 ha, compared to 183,714 ha in Peninsular Malaysia and 141,542 ha in Sabah. As a result, production continues to increase, reaching 3.44m tonnes of crude palm oil in 2014, up from 3.11m tonnes in 2013 and more than triple the figure from 2003.

In all, the MPOB estimates that Sarawak contains 3.9m ha of land suitable for palm cultivation, meaning that the amount of palm oil acreage could conceivably double to 2m ha in line with government development plans. This land is located primarily in four oil palm corridors, of which the Miri-Bintulu corridor is currently the focus. Other areas targeted for later development include the Tatau-Sibu corridor, the Sibu-Sri Aman corridor and other areas south of Kuching, near the Indonesian border.

While most of these areas contain large swathes of undeveloped area suitable for large plantations, environmental concerns about clearing forests and converting peat land could pose challenges to further development (see analysis). Major purchasers of crude palm oil, primarily from Western markets, are becoming increasingly vocal in their demands for certified sustainable products, leading to at least one major producer, Wilmar Group, to commit to not planting on peat lands starting in 2016.

ROOM FOR IMPROVEMENT: Despite the steady gains in production and cultivated acreage of oil palm, Sarawak lags its competitors in one key area: efficiency. Monthly fresh fruit bunch (FFB) yields in Sarawak averaged just 16.23 tonnes per ha in 2013, compared to 19.26 tonnes per ha in Peninsular Malaysia and 20.88 tonnes per ha in Sabah. This relative inefficiency is due to a number of factors, Sulim Lumong, chairman of the MPOB's Sarawak chapter, told OBG. One of the most significant, according to Sulim, is the young age of the state's palm trees, many of which range from four to six years old, well short of the peak productivity age that starts at around 10 years. Other factors include heavy seasonal rains in October-December, which have an adverse effect on the development of FFBs, and sub-optimal pollination. Planting trees on peat soil has also proven less than ideal for palm oil cultivation, as the lessdense soil is unable to support the root systems of palm trees, which can leave them listing and thus less productive due to uneven distribution of sunlight. Nor is acidic peat soil conducive to oil palm growth. In all, these adverse factors can combine to cause losses of up to 30% of yield, although the second-generation palms tend to grow straighter as ground has then been compacted from previous work, allowing for greater productivity.

LABOUR SHORTAGE: Another factor that is causing increasing trouble for the sector is the growing labour shortage affecting the state. Sulim estimates the worker shortfall in the palm oil plantation industry to stand at 20-30% as locals increasingly shun such work in favour of more desirable jobs. Meanwhile, many of those who do work in the sector are employed only seasonally, contributing to unreliability and high turnover.

Nor is the exodus of the Indonesian workforce expected to reverse any time soon, with a number of new plantation companies opening up across the border. Demand for experienced plantation workers in Indonesia continues to climb, which has in turn boosted salaries there and made them more competitive with Malaysian pay scales.

In a bid to diversify away from the primarily Indonesian foreign workforce, the Ministry of Land Development has been working with the government of Bangladesh to find ways to permit more Bangladeshis to work in the Malaysian agricultural sector.

OUTLOOK: For both Sarawak and Malaysia as a whole, the agriculture sector will remain a key economic contributor, providing stable incomes and employment even as the state’s economy continues to diversify into other industries. Industrialisation within the Sarawak Corridor of Renewable Energy will also provide greater demand for agricultural inputs as downstream food processing activity expands, particularly in the Tanjung Manis Halal Hub.

The rapid expansion of plantations, particularly of oil palm, should slow over the next decade along with production growth as land availability declines and sustainable forestry policies constrain future growth. Raw timber exports are also unlikely to rebound due to stricter regulation and enforcement, although downstream industries fed by sustainable timber plantations should continue to thrive. Strong global demand, together with ongoing efforts to modernise and mechanise processing of food crops such as rice, fresh produce and spices, should also contribute to sustained growth in these sectors.