Chapter 08

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Chapter 4
Development of
Agriculture
Osman-Rani Hassan
Pazim @ Fadzim Othman
Rajah Rasiah

INTRODUCTION
 Agriculture was the dominant sector in Malaysia

until manufacturing rose to prominence from 1980s.
 The Malaysian government targeted agriculture for
the following reasons:
1. To increase food supply for domestic consumption
2. To assist large segment of the rural Malaysian
population

INTRODUCTION
 This chapter examines the theoretical arguments,

government policies, growth and structural change, and
the challenges confronting agriculture in Malaysia.
 The rest of the chapter is organized as follows:
• Theoretical foundations considered
• Government policy on agriculture
• The contribution of agriculture and structural changes in
the Malaysian economy until the 1980s
• Significance of the new agriculture
• Challenges facing Malaysian agriculture
• Summary and conclusions

4.1 Main Arguments
 Economic development is typically viewed to start

with the primary sectors of agriculture and mining
 Importance of structural change in economic
development
 Neoclassical arguments on agriculture
 The Lewis Model
 The heterodox argument on the significance of
agriculture in stimulating manufacturing

4.2 Government Policy on
Agriculture
 Emphasis on rubber and timber in the 1950s (see
Figure 4.1)
 The New Economic Policy of 1971–1990 and the
expansion of land tenure schemes and oil palm
cultivation (see Table 4.1)
 Land tenure schemes targeted at alleviating rural
poverty
 The National Agricultural Policy 1 and 2 focused on
food security, raising productivity and sustainability

4.2 Government Policy on
Agriculture (cont.)
 The National Agricultural Policy 3 focuses on
sustainability, biotechnology and the new agriculture
• Agro-eco-tourism (see Table 4.2)
• The promotion of Malaysia as halal food hub
• Promotion of the use of biotechnology in agriculture

Figure 4.1 Agricultural policies, Malaysia, 1950–2010

Table 4.1 Five-year plan development expenditure: Allocation for agriculture (in RM million)
5MP 6MP 7MP 8MP 9MP

Programme
(Expend) (Expend) (Expend) (Expend) (Alloc)
New land development 2,117.5 1,184.0 475.9 – –
Regional development 657.1 930.5 807.0 1,059.9 1,754.9
In-situ land development1 2,669.3 3,019.6 2,941.9 1,629.7 2,613.7
Forestry 120.8 156.4 143.8 199.6 251.5
Fishery 264.4 370.0 465.3 663.8 798.8
Livestock 130.9 191.4 176.3 202.8 519.8
Support services2 1,011.8 1,282.5 354.3 1,305.8 2,558.0
Irrigation and flood mitigation 77.2 844.6 1,929.9 780.0 1,458.1
Others programmes 239.3 236.2 844.9 366.3 606.5
Total 7,325.0 8,215.2 8,139.3 6,207.9 11,435.0
Agriculture as percentage of total 11.8 7.0 3.7 4.6 5.7
1 Includes IADPs, replanting scheme and land consolidation and rehabilitation programme.
2 Includes agricultural credits, R&D (excluding allocation under IRPAs), marketing and extension
and other services.

Table 4.2 Composition of GDP by sector, Malaysia, 1965-2009 (%)
Sector 1965 1970 1975 1980 1985 1990 1995 2000 2005 2009
Agriculture 31.5 29.0 27.7 22.9 20.8 15.2 12.9 8.6 8.4 9.5
Mining 9.0 13.7 4.6 10.1 10.5 11.8 6.2 10.6 14.4 12.9
Manufacturing 10.4 13.9 16.4 19.6 19.7 24.2 26.4 30.9 29.6 26.6
Construction 4.1 3.5 3.8 4.6 4.8 3.9 6.2 3.9 3.0 3.3
Electricity, gas
1.1 1.1 2.0 1.4 1.8 2.2 2.6 3.0 2.7 2.6
and water
Services 43.9 38.8 45.5 41.4 42.4 44.3 47.8 46.2 44.0 48.3

4.3 The Old Agriculture
 The focus on the old framework of agriculture

extended from colonial methods
 Land acreage and irrigation was expanded in this
period with the prime focus on poverty alleviation in
rural areas
 Agriculture’s contribution to GDP and to total
employment began to fall sharply over the period
1970–1990 (see Tables 4.3 and 4.4)

4.3 The Old Agriculture (cont.)
 Lack of technical change and greater promotion of
manufacturing saw manufacturing overtaking agriculture as
the main contributor to Malaysia’s GDP and employment in
the second half of the 1980s and the mid-1990s,
respectively (see Figure 4.2)
 Manufacturing overtook agriculture as the main export
earner from the second half of the 1980s, though oil palm
had become a major export earner from the late 1970s (see
Table 4.5)
 Old agricultural technology in food production could not
sustain the sector’s competitiveness and hence this sub-
sector began to face growing trade deficits from the 1980s

Figure 4.2 Agricultural growth versus manufacturing growth, Malaysia, 1970–2005

Table 4.3 Distribution of employment by sector, Malaysia, 1970–2009 (%)
Sector 1970 1975 1980 1985 1990 1995 2000 2005 2008 2009
Agriculture 53.5 49.3 39.7 35.7 26.0 19.0 16.0 12.9 12.0 12.0
Mining and
2.6 2.2 1.7 1.1 0.6 0.5 0.5 0.4 0.4 0.4
quarrying
Manufacturing 8.7 10.1 15.7 15.1 19.9 25.7 27.1 28.7 28.8 28.4
Construction 2.7 2.9 5.6 6.9 6.3 8.9 9.2 7.0 6.6 6.6
Services 20.5 22.5 23.6 26.2 34.5 35.1 37.2 51.0 52.5 52.6
Government
12.0 13.0 13.7 15.0 12.7 10.8 10.0 9.7 10.9 11.0
Services
Total
Employment 3,340 3,928 4,817 5,625 6,686 8,024 8,547 10,895 11,577 11,585
(‘000)
Primary 56.1 51.5 41.4 36.8 26.6 19.5 16.5 13.3 12.4 12.4
Secondary 11.4 13.0 21.3 22.0 26.2 34.6 36.3 35.7 35.4 35.0
Tertiary 32.5 35.5 37.3 41.2 47.2 45.9 47.2 51.0 52.2 52.6

Table 4.4 Distribution of employment by sector, Malaysia, 1970–2009 (%)
Year Manufacturing Non-manufacturing Total (RM billion)
1970 11.1 88.9 5.6

1975 20.9 79.1 10.2
1980 21.8 78.2 30.7
1985 32.7 67.3 42.5
1990 58.8 41.2 88.7
1995 84.2 15.8 204.0

2000 91.2 8.8 427.0
2005 81.6 18.4 552.1
2006 80.8 19.2 590.9
2007 79.7 20.3 617.3
2008 76.2 23.8 625.4

4.4 The New Agriculture
 The new agriculture has extensive focus on the use

of biotechnology, modern marketing that emphasizes
connecting with supermarket-driven value chains
and sustainable development
 Whereas the old agriculture was associated with
diminishing returns, new agriculture sought to raise
unit productivity by increasing the utilization of
knowledge
 Output and productivity of a number of commodities
have risen since 2005 (see Tables 4.6 and 4.7)

4.4 The New Agriculture (cont.)
 As a share of overall agricultural value added, oil

palm and other crops have remained as the most
important over the period 2000–2009 (see Table
4.8). Fishing overtook forestry and logging in 2009
 Oil palm has been the dominant crop to enjoy local
downstream processing over the period 1990–2010
(see Table 4.9)

Table 4.5 Production of agricultural commodities, 1980–2010 (‘000 tonnes)
Commodities 1980 1985 1990 1995 2000 2005 2010a
Agricultural-industrial
commodities
Rubber 1,530.0 1,470 1,291.0 1,106 928 1,124 1,293
Crude palm oil 2,575.9 4,123 6,094.6 7,814 10,842 14,961 19,561
Palm kernel oil 222.3 1,212 1,844.7 2,396 1,384 1,868 2,570
Sawlogsb 27,916 30,956 40,099.0 32,200 23,074 21,334 19,475
Cocoa 36.5 100 247.0 152 70 28 57
Pepper 31.6 19 31.0 17 24.0 19.1 30.0
Pineapples 185.3 153 168.3 178 265.7 407.6 1,106.0
Tobacco n.a. 9 10.2 10 7.4 14.0 12.0
Flowersc n.a. n.a. 56.5 113 120.4 126.4 147.3
(Continued…)

Commodities 1980 1985 1990 1995 2000 2005 20101
Food commodities
Padi 2,040.2 1,953 2,016.3 2,159 2,141 2,400 3,202
Fruits n.a. 852 1,530.8 2,191 993.0 1,587 2,555.7
Vegetables n.a. 184 693.9 793.8 404.0 771 1,133.3
Coconutsd 787.5 1,826 1,257.0 1,136.0 475.7 602 660.0
Fisheries 743.7 626 1,003.6 1,306.2 1,454 1,575 2,071
Marine n.a. 575 951.3 1,181.2 1,286 1,325 1,409
Aquaculture n.a. 51 52.3 125.0 168 250 662
Livestock
Beef 17.2 17 12.8 15.6 17.5 28.5 45.0
Mutton 0.8 0.6 0.8 1.1 0.9 1.5 2.3
Pork 135.9 164 385.9 647.0 159.8 209.0 241.0
Poultry 125.6 251 227.9 305.0 714.3 980.1 1,295.0
Eggsd 2,535 3,395 5,505.0 7,750 399.0 443.0 600.0
Milke 8.3 24 28.9 33.8 29.5 41.1 68.4
a Forescastby the Ministry of Agriculture and Agro-Based Industry
b Measured in thousand cubic meters
c Measured in million stalks
d Measured in million units (for 1980, it was referred to as copra and measured in ‘000 tonnes)
e Measured in million litres, Note: n.a. – not available

Table 4.6 Farm productivity (tonnes/ha) for selected commodities, 1990–2008
Sub-sector Rubber
Oil Palm
Year Smallholding Estate
1990 3.56 0.91 1.34
1995 3.95 0.96 1.14

2000 18.88 0.86 1.15
2001 19.50 0.94 1.14
2002 18.00 0.92 1.22
2003 19.70 1.29 1.33
2004 19.70 1.37 1.37
2005 18.90 1.32 1.38
2006 19.60 1.35 1.53
2007 19.00 1.38 1.55
2008 20.20 1.42 1.60

Table 4.7 Local processing and utilization of selected agricultural-industrial commodities, 1990–
2010 (‘000 tonnes)
Items 1990 1995 2000 2005 2010*
Palm oil production 6,001 7,554 10,842 14,961 19,561
PPO used for end-products 900 1,284 1,018 1,189 2,061
Percentage of PPO used for end-products 14.8 16.4 9.4 7.9 10.5
Rubber production 1,291 1,106 928 1,124 1,293
Rubber used for end-products 188 320 364 401 500
Percentage of rubber used for end-products 14.6 28.9 39.2 35.7 38.7
Sawlogs production (‘000 cubic metres) 11,127 15,000 23,074 21,334 19,475
Sawlogs used for end-products 720 1,300 16,590 15,450 14,748
Percentage of sawlogs used for end-products 7.9 13.7 71.9 72.4 75.7
Cocoa production 84 64 70 28 57
Cocoa used for end-products 13 23 8 3 7
Percentage of cocoa used for end-products 5.3 14.9 11.5 10.0 12.3
Pepper production n.a. n.a. 24 29 30
Pepper used for end-products n.a. n.a. 2 4 6
Percentage of pepper used for end-products n.a. n.a. 8.3 18.3 20.0
*Forecast figures, n.a. – not available

4.5 Challenges and Choices
 Agricultural entrepreneurs and professionals

 Impact of trade liberalization arising from the World
Trade Organization and ASEAN Free Trade Area
initiatives (see Table 4.10 on tariff lines)
 Targeting poverty in agriculture. Table 4.11 shows
poverty incidence by agricultural sub-sectors.
 Growth in agricultural land use (see Table 4.12)
 Scale issues. Table 4.13 shows the concentration of
agriculture in small farms in Peninsular Malaysia
 Foreign workers (see Table 4.14)

4.5 Challenges and Choices
(cont.)
 Food security. Table 4.15 shows self-sufficiency
levels in food commodities over the period 1990–
2010
 Environment and sustainable development

Table 4.8 Peninsular Malaysia: Incidence of Poverty in Agricultural Sector, 1970–1999 (%)
Sub-sector 1970 1980 1985 1999
Rubber smallholders 64.7 41.3 39.2 15.7
Oil palm smallholders 30.3 7.7 5.7 10.4
Coconut smallholders 52.8 38.9 31.1 12.3
Padi farmers 88.1 52.7 58.3 33.9
Other agriculture 91.8 64.2 47.5 14.6
Fishermen 73.2 45.3 43.5 10.2
Estate workers 40.0 35.1 39.0 9.8
Agriculture 63.8 45.7 42.6 16.4
National 49.3 29.2 24.1 7.5
Ratio of padi farmers/National Figure 1.79 1.80 2.42 4.52

Table 4.10 Peninsular Malaysia: Distribution of farmers and farm size, 1990
All farmsa Padi farms

Farm size (ha)
No. of farmersb Percentage No. of farmers Percentage
< 0.5 139,005 29.63 47,147 36.28
0.5–0.9 110,986 23.77 39,958 29.90
1.0–1.4 82,917 16.97 22,486 16.83
1.5–1.9 44,314 8.08 8,139 6.09
2.0–2.4 49,634 8.79 8,776 6.57
2.5–2.9 19,257 2.92 1,952 1.46
3.0–3.4 18953 2.70 1,262 0.94
3.5–3.9 8,510 1.23 748 0.56
4.0–4.4 20,534 1.94 1,040 0.78
4.5–5.0 5,001 0.70 458 0.34
>5.0 18,139 3.29 1,658 1.24
Total 508,740 100.00 133,620 100.00
Note: a Includes padi, fruits, vegetables, cocoa, coffee, coconuts, oil palm and rubber.
b Includes owner-occupied and rented farms.

Table 4.11 Employment of foreign workers by sector, Malaysia, 1995–2004 (%)
Number of foreign workers (‘000) Percentage share of total (%)

Sector
1995 2001 2003 2004 1995 2001 2003 2004
Agriculture 173 284.1 185.9 335.2 36.1 32.9 16.5 24.7
Mining 1.8 2.1 – – 0.4 0.2 – –
Construction 64.8 99.0 265.9 269.1 13.5 11.5 23.6 19.8
Manufacturing 115.7 213.0 355.4 414.3 24.1 24.1 31.5 30.5
Services 124.0 265.6 319.6 340.9 25.9 30.7 28.4 25.0
Total 479.3 863.8 1,126.8 1,359.5 100.0 100.0 100.0 100.0

Table 4.12 Agricultural land use for major crops, 1980–2010 (‘000 hectares)
Crop 1980 1985 1990 1995 2000 2005 2010a

Oil Palm 1,023 1,482 2,029 2,479 3,377 4,049 4,555
Rubber 2,005 1,949 1,823 1,696 1,431 1,250 1,179
Padib 735 649 683 666 478 452 450
Fruitsc 105 119 177 244 304 330 375
Coconuts 349 334 314 284 159 180 180
Cocoa 124 303.9 419.8 275 76 33 45
Vegetables 12.8 14.6 31.5 36.3 40 64 86
Tobacco 12.5 16.2 10.2 10.5 15 11 7
Pepper 12.7 5.2 11.5 8.6 13 13 14
Totald 4,380 4,952 5,489 5,712 5,893 6,383 6,891
Note: a Forecast by the Ministry of Agriculture and Agro-Based Industry.

b Based on padi parcel.
c For 1980, fruits were categorized as orchards (includes fruits trees, bananas, watermelon
and pineapple).
d Excludes areas for other crops like tea, coffee and herbs as well as aquaculture.

Table 4.12 Self-sufficiency levels in food commodities, 1990–2010 (%)
Commodity 1990 1995 2000 2005 2010*
Rice 80 75 70 72 90
Fruits 94 103 94 117 138
Vegetables 93 87 95 74 108
Fisheries 91 91 86 91 104
Beef 30 22 15 23 28
Mutton 10 6 6 8 10
Poultry 115 114 113 121 122
Eggs 109 114 116 113 115
Pork 115 101 100 107 132
Milk 4 4 3 5 5
Note: * Forecast by Ministry of Finance, Malaysia.

4.6 Summary and Conclusions
 This chapter focused on the policies used to promote

agriculture, the contribution of the sector, and the
challenges and choices currently available for the
rejuvenation of its role in the Malaysian economy
 The new agriculture did revive in absolute terms both
output and productivity of the main agricultural crops
since 2005

4.6 Summary and
Conclusions (cont.)
 Agriculture remains a key issue of development in
the country because it has implications for:
• Productivity implications as the country seeks to
become a developed economy by 2020
• Rural poverty
• Food security
• Environment and sustainability

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Malaysian Economy All Rights Reserved

© Oxford Fajar Sdn. Bhd. (008974-T) 2011 Ch. 4: ‹#›

Malaysian Economy All Rights Reserved

© Oxford Fajar Sdn. Bhd. (008974-T) 2011 Ch. 4: ‹#›

 Agriculture was the dominant sector in Malaysia

Malaysian Economy All Rights Reserved

© Oxford Fajar Sdn. Bhd. (008974-T) 2011 Ch. 4: ‹#›

 This chapter examines the theoretical arguments,

© Oxford Fajar Sdn. Bhd. (008974-T) 2011 Ch. 4: ‹#›

 Economic development is typically viewed to start

Malaysian Economy All Rights Reserved

© Oxford Fajar Sdn. Bhd. (008974-T) 2011 Ch. 4: ‹#›

Malaysian Economy All Rights Reserved

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Malaysian Economy All Rights Reserved

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Malaysian Economy All Rights Reserved

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5MP 6MP 7MP 8MP 9MP

Agriculture as percentage of total 11.8 7.0 3.7 4.6 5.7

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 The focus on the old framework of agriculture

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Year Manufacturing Non-manufacturing Total (RM billion)

1970 11.1 88.9 5.6

1995 84.2 15.8 204.0

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 The new agriculture has extensive focus on the use

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 As a share of overall agricultural value added, oil

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Commodities 1980 1985 1990 1995 2000 2005 2010a

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1995 3.95 0.96 1.14

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*Forecast figures, n.a. – not available

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 Agricultural entrepreneurs and professionals

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Sub-sector 1970 1980 1985 1999

Rubber smallholders 64.7 41.3 39.2 15.7

Oil palm smallholders 30.3 7.7 5.7 10.4

Coconut smallholders 52.8 38.9 31.1 12.3

Padi farmers 88.1 52.7 58.3 33.9

Other agriculture 91.8 64.2 47.5 14.6