PETALING JAYA: The growth and sustainability of the paddy industry will require a restructuring of subsidies and stronger institutional support, research shows.
According to a study titled “Implications of the Dominant Shift to Industrial Crops in Malaysian Agriculture, Phase 1: System Dynamics Model of the Paddy and Rice Sector” by Khazanah Research Institute’s (KRI), increasing subsidies and guaranteed minimum pricing for paddy since 2005 have failed to significantly boost farmers’ incomes.
Although farmers have received assistance such as cash price transfer and subsidised fertiliser and seeds, these aids were inadequate to increase yield and revenue for farmers as they are constrained by ineffective institutional support particularly in the area of research, development and extension (RDE).
“The future of the industry relies not on subsidies, but on impactful RDE programmes. A fully functioning RDE is effective enough to energise the whole system towards higher yield, self-sufficiency level and farmers’ income. Done gradually, the 40-year old input subsidy is not indispensable,” said Prof. Datin Paduka Fatimah Mohamed Arshad, the lead author of the study and visiting senior fellow of KRI.
She noted that over the years, the expenditure on rice subsidies and incentives have been on an increasing trend, with a gradual decline only in the last few years.
Between 2011 and 2015, more than RM2bil was spent on paddy subsidies and incentives annually. This translates to between 40% and 50% of the Agriculture and Agro-based Industry Ministry’s expenditure.
While the amount has dropped from 2016 to 2019, the paddy and rice industry still receives more budgetary assistance than any other crop.
The study recommended a gradual shift from input to output-based subsidy, which is based on rewarding farm performance, and the implementation of effective RDE to improve yield and reduce production cost.
Based on the findings, it proposed a new virtuous circle of optimum RDE strategies, productive subsidies and incentives and local input development to more effectively alleviate farmers’ income.
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