Smallholders matter in nation’s economy

  • Letters
  • Saturday, 10 Aug 2019

THE socio-economic role of the nation’s smallholders must never be taken for granted. They produce the raw materials needed to feed the country’s downstream industry, notably rubber and palm oil.

The nation’s furniture industry depends entirely on the supply of rubberwood from smallholders. Now, almost 90% of the furniture we export is made from rubberwood.

The irony is that while all such downstream industries generate lucrative returns, what the smallholders earn is literally pittance. Smallholders have always been at the mercy of the fluctuating global rubber and palm oil prices, hence many are still lingering in the B40 group of the economy.

There have been occasions when high commodity prices did bring some cheer, but most of the time, they are at depressed levels.

The government has long acted on this. In fact, it has established a number of institutions to help alleviate the problems of smallholders.

Logically, it is not difficult to see where the solutions lie. A cursory look at the private oil palm and rubber plantations and how they are efficiently operated can immediately explain the smallholders’ dilemma, which is essentially effective integration of the upstream and downstream business of the commodities.

If this is done, the volatile prices would no longer be a major concern. This is because during times of low commodity prices, the downstream business would provide some relief. This was basically the reason why the government created agencies like Felda and Felcra (Federal Land Consolidation and Rehabilitation Authority), just to name two.

The aim was to bring the smallholders together in a plantation style grouping to create an economy of scale. In this way, it would be more feasible to venture into the downstream and other related value-added business, in a way copying the successful private plantation business model.

If a private plantation just a fraction of the size of the holdings managed by Felda and Felcra can generate such healthy returns year in year out, why not Felda or Felcra?

In the early years of Felda, the management did just that. They invested in many downstream businesses and generated good returns which were shared with the smallholders. Only lately, for some unclear reasons, have the returns been disappointing.

Unfortunately, the same cannot be said of Felcra, which remains stuck in the upstream business and exposed to the volatility of commodity pricing.

Besides Felda and Felcra, the government also created the Malaysian Rubber Development Corporation (Mardec) not long ago to help smallholders get better pricing. The business model was also similar – going downstream in the rubber products industry. Unfortunately, that also did not work out well.

Many factors have been cited as contributors to the dismal performance of the smallholders’ agencies. One put the blame on the smallholders for distancing themselves from technology.

Admittedly, adoption of the latest agronomic technologies among smallholders has been low, but some studies have blamed the technology transfer process for this. The ineffectiveness of the technology transfer agents also has to share part of the blame.

It is still not too late to revisit these initiatives, albeit with some necessary changes, to give some hope to smallholders.

The Felda model is the right business model for smallholders and Felcra should adopt this if it is to bring progress down the line.

The same model should be applied to the rubber sector. It is important that technology is effectively transferred to the smallholders. This requires close collaboration with research and development institutions for palm oil and rubber, namely the Malaysian Palm Oil Board (MPOB) and Malaysian Rubber Board (MRB).

Technologies cannot be effectively transferred through a middleman, as was evident when the technology transfer function was moved from the Rubber Research Institute of Malaya (RRIM) to the Rubber Industry Smallholders Development Authority (Risda). But most importantly, Felda and Felcra must adopt a private plantation work culture.

It must always be remembered that the smallholders community is a critical part of the socio-economic supply chain of the country and should not be taken for granted.


Fellow, Academy of Sciences Malaysia, UCSI University

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