AmBank Anthony Dass
JUST about every part of the world is facing a food crisis. Shortages of certain food products, spiraling prices and empty shelves in supermarkets is a global phenomenon these days.
The United States has a nationwide infant formula shortage, while customers in the United Kingdom face limits to the amount of cooking oil they can cart away from their supermarket visits.
It is well documented now that the Russia-Ukraine conflict is contributing significantly to the food crisis.
Asia is not spared. A food industry group in the Philippines warned that the country could face a food shortage by the fourth quarter of 2022.
Even before the Russia-Ukraine war, warning signs were already present.
Global food prices started to rise in mid-2020 when businesses shut down due to the Covid-19 pandemic, straining supply chains.
Afzanizam: Adopting high technology in producing agro food products is the way to go to attract the younger generation.
Russia’s invasion of Ukraine in late February, resulting in a disruption to the food, fuel, and fertiliser markets, worsened things.
Worryingly, it has triggered a protectionist mindset in many countries, as governments look to safeguard local supplies.
To be sure, this is not the first time the world has gone through an agricultural commodity price shock.
In the aftermath of the global financial crisis from 2007 to 2008, countries like Ukraine and other major grain exporters had also restricted exports to protect domestic prices.
How is Malaysia faring?
According to economists, Malaysia is food secure today by various internationally accepted criteria.
“All major foods are available in sufficient quantities to meet market demand. Production has improved for poultry and vegetables, while rice production is supplemented by imports,” points out the Institute for Democracy and Economic Affairs (Ideas) CEO Tricia Yeoh.
Where data goes, Malaysia is ranked 39th in the Global Food Security Index in the report released by the Economic Intelligence Unit for 2021 out of 113 countries worldwide.
The report measures food affordability, availability, quality, and safety.
Within Asia-Pacific, Malaysia is ranked eighth and among South-East Asia nations, Malaysia is second after Singapore.
This is interesting as Singapore only has 1% of land available for food production and relies on a complex global supply chain to ensure food security for its people.
Malaysia, on the other hand, has 800,000ha of land for agro-food production.
There is room for improvement.
“Our agricultural sector accounts for about 7% of gross domestic product for a relatively small population. Still, we are unable to be self-sufficient in some basic food production,” notes AmBank group chief economist Anthony Dass.
The country continues to depend on food imports, which in 2020 amounted to a record-setting RM55.5bil or around 60% of the food needs.
“Our self-sufficiency level of major food commodities of rice, vegetables, fruits and milk is about 63%, 45%, 78% and 63% respectively. The country is dependent on imports of mutton at about 89% and beef around 77%.
“While we were once self-sufficient in poultry, we are now importing chicken to fill the void in the market due to the closure of many poultry farms,’ points out Dass.
Against this backdrop, Malaysia should not be complacent when it comes to food security, say economists.
“The disruption in global food production and supply chain will indirectly affect Malaysia as we rely on food imports quite heavily.
“Banning exports or reducing imports might help with the local production and supply chain, but we need to bear in mind that this might affect another country when a disruption in the supply chain occurs.
“Once each country starts to ban exports and reduce imports, this is where the global supply chain is significantly disrupted,” explains Yeoh.
She points out that the vulnerability of Malaysia’s food security came under the spotlight during the Covid-19 outbreak and the severe floods in December 2021 where there was a lack of food supply, followed by price hikes after the floods and just before the festive season.
Food inflation has taken hold worldwide
As a net-food importer, Malaysia is highly exposed and affected by the strong rise in global food prices.
“The global food price index stood at 158.5 in April from a low of 124.6 in July 2021. This would add pressure on Malaysia’s consumer price index (CPI) given that the food component accounts for almost 30% of the CPI basket,” explains Dass, who is also a member of the Economic Action Council.
Data released this week showed that Malaysia’s food inflation had increased to 4.1% year-on-year – the highest since January 2018.
Looking ahead, analysts expect Malaysia’s domestic food inflation to stay on an increasing trend following the rise of global food CPI amid elevated commodity prices and supply chain disruptions in the European Union and China.
To ensure sufficient food supply, the Malaysian government recently decided not to impose the approval permit (AP) requirement for food importation.
This will cut the “middle-man” cost and abolish any monopolistic dynamic in the food industry.
Beside this, there is a ban on chicken export from June 1 to stabilise domestic supply and price level, albeit this may only work for a shorter term period, say economists.A fuel price ceiling and subsidies on certain food items have eased some inflation pressure here as compared to other countries.
But it begs the question, of “whether the government is willing to continue paying subsidies as global food and oil prices get increasingly higher?,” poses Dass.
The recent news that the government is looking to implement a targeted oil subsidy rather than a blanket one is a “signal that the costs are too much for them to bear. With the weakening ringgit, importation costs will rise further”, he says.
Furthermore, with demand for food expected to increase in view of population growth, the food security issue needs a more long-term solution.
Sadly, agriculture took a backseat in the 1980s to 1990s with the country’s push towards industrialisation and priority on industrial crops such as oil palm, rubber and cocoa.
“Our agriculture in terms of food production is neglected, disorganised and in disarray.
“Smallholders are at the mercy of middlemen and market data indicates that the average age of Malaysian farmers is 50 with the majority in the bottom 40% or B40 household group,” says Dass.
The younger population tend to shy away from agriculture, seeing it as something belonging to the past and being part of the 3D (dirty, dangerous and difficult) jobs.
“But that is a mistake,” opines Centre for Market Education CEO Dr Camelo Ferlito.
According to him, modern agriculture is similar to manufacturing where it can be profitable, technology-driven and fulfilling.
Citing poultry as an example (which is the only livestock Malaysia is self-sufficient in) he notes this was achieved through modern technologies and the participation of big players with financial muscle, including Bursa Malaysia-listed companies.
“This is the way we should go for other food products, in particular, for processed food where we are lacking – accounting for 40% of the food import bill in 2020.
However, for entrepreneurship to emerge, local conditions must allow for profitable and competitive production. Otherwise, it is better to import,” adds Ferlito.
Structural issues
According to him, certain policies have kept the agro sector behind. One is subsidies in the rice sector, which have created dependence and impeded development. Second is import barriers.
“To produce everything domestically is utopia, a very costly utopia.
For example, when Indonesia reduced the import of corn to promote domestic corn, the result was prices doubled and consumers ended up paying more for their chicken given that corn is the main component for feed,” he explains.
On the other hand, he believes that free trade is an essential component for food security, enabling countries to exploit their comparative advantages.
Lastly is price ceilings, which create a negative incentive to production (and to import), preserving inflationary tendencies for a longer time.
“In order to be effective, the removal of APs should be paired with removal of price ceilings. With price ceilings, the incentive to import is nullified. And, if supply does not grow, pushed by price incentives, then prices will never go down,” he adds.
Ideas’ Yeoh says the issue of idle agricultural land and abandoned holdings have been a perennial problem.
“Land in Malaysia is under the jurisdiction of the state. Under the present political climate and essentially bipartition politics, there is always this political innuendo when it comes to land issues between the federal government at one end, and the state governments on another,” she says, adding that it can slow down the process of acquiring land for agricultural ventures at commercial scale.
Bank Islam chief economist Dr Mohd Afzanizam Abdul Rashid notes that adopting high technology in producing agro food products is the way to go to not only improve crop yield, but attract the younger generation to get involved in the sector.
“If we could address 10% of the total agro food import, that would mean potential sales of more than RM6bil.
“Nonetheless, one has to be resilient and for this a strong support system has to be put in place to ensure that potential agroprenuers would have the tenacity to face various forms of challenges such as threat from pests, diseases and natural disasters, which could compromise crop yield,” he adds.
However, modern agriculture requires capital investments for machineries and research and development (R&D), which is relatively low and focused more towards industrial crops such as oil palm.
Citing the Netherlands, Dass notes that despite accounting for only 0.02% of world’s total land mass (Malaysia: 0.2%), the country is the world’s second largest food exporter as opposed to Malaysia being a net importer.
This was achieved through innovative technologies following relentless improvement made in R&D.
Strategies on food security
In response to the 2008 food crisis, which saw sharp surges in cereal prices, rice export restrictions and panic buying, the Malaysian government had launched the National Food Security Policy (2008–2010) to address rice self-sufficiency. Subsequently, the National Agrofood Policy (2011–2020) was introduced with renewed focus on food production.
The current National Agrofood Policy covers the 2021-2030 period and aims to transform the agrofood industry into a sustainable, competitive and high-technology sector and to boost economic growth.
To achieve this, the country needs to address the structural issues and look beyond stop-gap policy measures.
“Policy targets must be adhered to strongly and not flip-flop as and when a new person comes in.
“This is where we need a strong ‘champion’ who can clearly execute the defined food security targets and reflect the current as well as the future dietary realities,” says Dass.
This will avoid the risk of policy mismatch and help secure greater buy-in from the private sector stakeholders, which play an important role in modernising and diversifying the agrofood sector.
He believes Malaysia should not merely emphasise on self-sufficiency of rice, but look at nutritional needs and pivot towards greater non-rice food production.
“For example, Singapore’s ‘30 by 30’ goal aims to produce 30% of its nutritional needs locally by 2030.
“We could start with more awareness programmes on public health issues and food wastages to improve our behavioural decisions on nutritional intake. On a more macro level, the need for broader economic policies that would sustainably raise the income levels to strengthen our ability to purchase food from both domestic sources and abroad,” Dass adds.
