Reset national agenda, invest in agricultural modernisation as geopolitical, climate risks increase
MALAYSIA’S food security has caught the public’s attention in recent years, with global events revealing significant weaknesses in the domestic supply chain. This was most acutely experienced during the recent chicken shortage, which resulted from United States dollar imports for corn-based chicken feed amid the geopolitical situation in Ukraine and the passing down of costs to input buyers.
The price of corn, a principal component in chicken feed, increased by 28%, from US$591 (RM2,805) per bushel in December 2021 to US$756 in July 2022. Meanwhile, price ceilings that capped the price of chicken at RM9.40 per kilo have forced producers to absorb the higher input costs.
The relative weakness of the ringgit is expected to persist through to 2023, with many economists predicting further monetary tightening by the Fed Reserve in a bid to reduce domestic inflation and dampened Chinese demand arising from Beijing’s zero-Covid policies.
While Malaysia’s food insecurity may not be as dire as Sri Lanka’s or Pakistan’s, climate-change-induced droughts, floods and heatwaves are becoming the global norm and will impact on the supply of food and agro-input supplies, such as fertilisers and phosphates.
The pandemic likewise highlighted the threat of inconsistent supply chains among key food items. For instance, Malaysia imports 30% of its rice from nations, such as Vietnam. Thus, when Hanoi announced a freeze on rice exports in early 2020 to boost domestic supplies, Malaysian prices soared drastically after the loss of a key import source.
As the world gradually retreats from globalisation towards protectionism, Malaysian policymakers must learn to deal with this new reality.
In the worst-case scenario, should geopolitical tensions and uncertainties escalate, for instance, a large-scale conflict in the Ukraine or South China Sea, will heighten existing food insecurity issues to a terrifyingly uncertain degree.
Disruptions in global trade
External threats to food security include the surge in the strength and influence of the dollar in global trade, creating serious economic implications for Malaysia, given the currency’s central role in international trade, commodities and finance. While the relative strength of the dollar has been largely driven by external developments, it has exposed cracks in Malaysia’s food security.
More importantly, the “dollarisation” of the global trading system makes Malaysia’s fight against food inflation more challenging and expensive as the agriculture supply chain relies on dollar-denominated inputs for much of its food production.
These external challenges make it more difficult to feed the population. A weaker ringgit and reduced global supplies have resulted in higher import costs, forcing producers to confront costlier intermediate and capital goods. Higher input costs also raise prices for consumers while slowing down capital investment.
As Malaysia imports roughly 60% of its food needs, the impact from global economic trends is palpable. Notably, Malaysia’s food import bill stood at RM63 billion in 2021, a sharp 13.5% nominal increase from 2020’s RM55.5 billion.
The impact of higher prices amid a weaker ringgit will thus limit the recovery in private consumption, reduce real consumer spending power, widen the trade deficit and soften post-pandemic recovery efforts, as food inflation erodes spending in non-food consumption.
The confluence of external challenges – ringgit depreciation, reduced global agricultural supplies and escalating geopolitical tensions – means that policymakers must address domestic food insecurity immediately. Food insecurity can quickly devolve into a national security issue. Policymakers should alter their stance and adopt an output-oriented and productivity-based approach to solving the nation’s reliance on food imports.
Investments in modern farming
Malaysia faces the challenge of limited productive capabilities. For instance, agriculture policies for key food staples, such as rice, have long adopted a protectionist stance. While such policies were designed to protect farmers from foreign competition through guaranteed minimum pricing and input subsidies, they have had an unintended effect of reducing investment in modernising a majority of farms.
Decades of subsidies amid outdated farming methods, coupled with the rising cost of production, have turned many rice farmers into one of the most vulnerable groups in the country. Any reduction in subsidies will thus impact on the more than one million farmers and cripple agricultural production.
A reliance on foreign workers also means that the farm sector is experiencing post-Covid labour shortages like many other sectors.
A shift in focus from input subsidies to output-based incentives and modern farming technologies should thus be prioritised and applied across the supply chain. Investments in modern greenhouses, drip farming and fertiliser optimisation can reduce input usage and improve productivity. Higher yields can transform the farming industry, making supplies more abundant and prices more competitive.
According to government economic data, food-crop production has relatively high forward linkage and multiplier effects on the economy, especially for small businesses, indicating the downstream potential in agro-food processing. This will increase total output and help uplift millions of Malaysians who operate small and micro enterprises.
It is welcoming that Budget 2023 had taken steps to address food security through the provision of various billion-ringgit financing schemes with the goal of enhancing digitalisation and raising productivity.
But to ensure success, the government must still ensure that there is enough local talent to optimise the allocations. This translates into additional funding grants to universities for agriculture-based research and a national push for public universities to produce the talent needed for a modern farming workforce.
Such talent should be followed by the establishment of a food safety and quality inspection centre for local produce in line with global standards to help farmers market internationally.
Malaysia should take stock of the agricultural farming policies in the Netherlands, where despite its small land area it is the second largest food exporter after the US.
Nearly two decades ago, the Dutch government made a national commitment to sustainable and productive agriculture under the slogan “twice as much food using half as many resources”, managing to reduce its water dependency for crops by as much as 90%.
This was done through a consistent focus on various agriculture research grants, equipping institutions such as Wageningen University with modern agro-research facilities, now ranked the world’s best in agricultural education and attracting research investment from 12 of the world’s biggest food and beverage companies. These were instrumental in producing the agronomists, agro-engineers and specialists needed to develop the home-grown capabilities of the Dutch farming industry.
Thus, whichever government takes over after the 15th general election must work to ensure that food security remains an ongoing policy agenda, prioritising water and input efficiency, investing in the education and skill-sets needed and developing an output-optimised framework.
