A 10-year plan could provide better certainty to stakeholders in their business planning, and would yield greater sustainability for the paddy production

By AFIQ AZIZ / Pic By BERNAMA

THE government should start drafting a long-term strategy in reducing paddy farmers’ subsidies instead of making any excessive adjustments and cut in incentives.

An analyst said the long-term plan — that would cover at least 10 years — could provide better certainty to stakeholders in their business planning, which in turn, would yield greater sustainability for the paddy production and the industry as a whole.

Putrajaya saved RM520 million in farmers’ subsidies from its coffer in Budget 2019 from RM1.62 billion in 2018, before proposing a “correction” to RM1.55 billion next year.

Khazanah Research Institute (KRI) senior research associate Dr Sarena Che Omar said the pattern of a large sudden reduction would not bode well with the farmers and industry players.

On the other hand, resuming subsidies without proper planning would also dampen the industry’s growth.

“A sudden complete withdrawal is likely to be detrimental to our poor and vulnerable ageing farmers, while continuing with the subsidy programme will contribute towards the stagnation of the industry,” she told The Malaysian Reserve in an email reply recently.

During the Budget 2020 tabling early this month, Finance Minister Lim Guan Eng proposed an increased allocation to the Ministry of Agriculture and Agro-based industry (MoA) from RM4.4 billion in 2019, to RM4.9 billion in 2020 — about 1.4% and 1.6% of the total budget in the respective years.

Sarena said the allocation was primarily attributed to the changes in the operating expenditure segment, which enjoyed an overall increase of nearly RM500 million.

More than RM400 million also came from increases in paddy subsidies and incentives.

“A gradual decline in subsidies especially input subsidies, will give time for players to adjust and innovate in order to improve their productivity and competitiveness.

“This can be done by having a decisive subsidy removal plan spanning around 10 years,” she said.

A recent KRI report revealed that paddy growers made up about 40% or 200,000 of the total half a million farmers in the country, which explains the level of attention that has been given by the authorities to the stakeholders’ social being.

The paper stated that without subsidies, the cost of production (COP) is relatively high, stating that paddy cultivation of RM2,892 per ha per season is affected by the COP at RM3,766 per ha per season, mainly attributed by land rental and machinery.

As such, Sarena said a gradual reduction of subsidies and incentives over a long-term period are the “strategy of choice”, and would be highly dependent on the government political will for implementation.

“This decisive subsidy removal plan is a programme that may take many years to bear fruit and should be implemented without short-term interruptions — such as whenever there is a management change within the ministry. That is why political will is so important,” she said.

Sarena said the government could consider reducing the portion of subsidised chemicals such as fertilizers and pesticides in stages by a small amount of ringgit per year over a 10-year period.

“This can be made even less drastic by converting some of the input into output like reward-based, depending on how much paddy a farmer produces. This is to minimise shocks to the farmers, yet inevitably creating an environment that will foster competitiveness and innovation,” she said.

Sarena added that any policy such as subsidy cuts in the rice and paddy industry should be designed in a holistic manner.

She said by focusing on one particular section and ignoring its ripple effects on the next segment of the chain would be detrimental to the industry.

“For example, if we look in silo at the welfare of a farmer, a quick reaction is to increase the guaranteed minimum price (GMP), which is the minimum amount of money a miller must pay to a farmer for the paddy grains sold.

“The logic is that, the more a miller pays the farmer, the more the farmer may earn,” she said.

Sarena said while this may be true immediately in the upcoming harvest season, simply increasing the GMP without thinking of the profit margin impact on the downstream millers and wholesalers, could mean trouble in the many harvesting seasons to come.

“As the market adjusts, the impact of reduced profit margins experienced by the millers and wholesalers would trickle to the consumers by increases in food prices or a reduction in food quality, and in full circle, this goes back to the farmers who are also rice consumers,” she said.

Currently, Malaysia grows about two million tonnes of rice or about 70% of the total local consumption of 2.7 million tonnes.

As the number had not been changed much over three decades, MoA had renewed the target — set to achieve rice self-sufficient rate at 80% by 2022, and reducing the imported rice dependency that cost some RM1.18 million to the federal government last year.