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Overview of Agriculture Trade in Malaysia
2019-09-02
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Rozhan Abu Dardak
Malaysian Agricultural Research and Development Institute (MARDI)
Persiaran MARDI-UPM, 43400 SERDANG, Selangor, Malaysia
Email: rozhanabudardak@gmail.com

ABSTRACT

International trade is very important to every nation including Malaysia. This activity generates revenue, creates employments and brings technologies, especially when the country imports high-capital goods. Malaysia is a trading nation. Malaysia has been recognized as one of the 25 most active trading nations in the world. The volume of trading (export and import) by Malaysia has reached more than RM1.5 trillion (US$0.357 trillion) level in 2015, and keeps increasing every year. Export of agricultural commodities such as palm oil, rubber and agro-food (fruits, vegetable, fisheries and livestock) contributes more than RM45 billion (US$10.71 billion)  to Malaysia’s revenue. The value of agricultural trade by Malaysia is expected to increase due to higher demand by traditional and new markets in the world. The openness of Malaysia in international trading will affect the domestic industry. Thus,  the Malaysian government should balance up between trade liberalization and the protection of  its domestic industry. The balance of trade will enhance the economy of Malaysia and at the same time secure the domestic industries.

Keywords: International trade, export, import, agricultural products  

INTRODUCTION

Agriculture remains as the third engine of economy growth for Malaysia. In 2017, the agricultural sector contributed about RM96.0 billion (US$22.857 billion) to the National gross domestic product (GDP). It represented 8.2% of the Malaysia’s GDP which amounted US$314.708. The agricultural sector recorded 2.4% growth in 2017 compared to 2016. In general, about 65% of the GDP of the agricultural sector come from international trade, especially palm oil, rubber and timber.

International trade is very important to Malaysia’s economy because it generates revenue, creates employments and brings in technologies from other countries. The export of products and services generates income for manufacturers, service providers and improves the socio-economic life of farmers. Malaysia’s openness to trade and investments, and related export growth have translated into higher labor earnings and jobs. Around 40% of Malaysia’s jobs were supported by exports, either directly or indirectly. The importation of capital goods and high-technology products will bring together the new technology into the country. The transfer of technologies from developed nations will improve the production of commodities in Malaysia. For example, the import of drones from Taiwan speeds up the application of fertilizers and herbicides in the palm oil, paddy field and rubber plantation. The import of mini combine harvesters from Holland has reduced post harvest losses in paddy fields and the application of IOA helps Malaysia in developing the precision farming technology.

For many years, Malaysia has been recognized as one of the 25 most active trading nations in the world. Malaysia’s share in the world total export is around 1.23% in 2017. Malaysia opens its door to products and services from almost all nations in the world. Currently, Malaysia traded with more than 165 countries in the world. Malaysia also fully supports the implementation of trade liberalization, which is championed by the World Trade Organization (WTO). In reality, Malaysia is one of the founder members of this international organization.

However, the implementation of trade liberalization affects the domestic industry in Malaysia. Many cheap products flooded the Malaysian markets and become the competitors to domestic products. The government recognized these issues and challenges, and introduced new policies and measures that could protect the local industry. This paper provides an overview of the agriculture trade and highlights some agricultural trade policies in Malaysia that could balance the international trading for economy development and the interest of the domestic industries.

TRADE PERFORMANCE

Malaysia is a trading nation. Malaysia’s total trade surged 22.6% in 2017 mainly driven by higher global demand and robust domestic activities.  Both export and import volume shows an increasing trend year after year and resulted in positive balance of trade. The total trade in 2017 was RM1.74 Trillion (US$75.76 billion), increased 1.5% compared to 2016. The export increases from RM786.96 billion (US$187.37 billion) in 2016 to RM917.67 billion (US$218.49 billion) in 2017. On the other hand, imports also increased from RM698.82 billion (US$166.38 billion) (2016) to RM822.88 billion (US$195.92 billion) in 2017 (Table 1). Despite the fact that growth of imports is higher than the export volume, the balance of trade is still positive.

Malaysia has successfully diversified its export products and expands its markets in the global areas. The number of partners has also increased every year due to the implementation of trade liberalization and multilateral agreements with many regions. In general, the export destinations have become more diversified over the years. However, the main export destinations are Singapore and China (13.9%), followed by USA (9.1%), Hong Kong (7.5%) and Japan (6.9%) (Figure 1)

On the other hand, the main sources of imports are from China (19.9%), followed by Singapore (11.7%), USA (7.4%), Chinese Taipei (7.2%) and Japan (7.2%) (Figure 2). Singapore is an important trading partner for Malaysia. 13.9% of Malaysia products are exported through Singapore, while 11.7% of the imported products also come through this country. Its location in the middle between the east and west regions creates opportunity for Singapore to be the middleman in the international trade activity.

AGRICULTURAL TRADE

Agricultural trade continues to play an important role in the Malaysia’s economy. Agricultural products contribute 13.5% of the total export and 10.4% of the total imports in 2017. Malaysia’s agricultural trade remains strong in line with the increase in global demand, especially the palm oil, rubber and other agro-food products, such as pineapple, watermelon, tomato, fish and processed foods. The increase in agriculture trading is also influenced by higher production, which is supported by the development of infrastructure projects and programs. For example, the production of palm oil has increased about 12.2% to 14.1 million tons, rubber rebounded 19.1% to 495,049 tons and  livestock sub-sector grew 3.9% in 2017. The production of brackish water agriculture was 324,300 tons in 2017, rose by 6.7% against 304.000 tons in the preceding year.

Malaysia continues to maintain a relatively liberal agricultural trade regime. In general, Malaysia applied low tariffs or non-tariff barrier on agricultural imports. At the same time, Malaysia applied tariff-rate quota to allow the domestic industry to sustain and develop. For example, Malaysia only allows importers to bring in 100 million coconuts and 500,000 tons round cabbage a year as a way to protect their local industry. The imported coconut is mainly for processed industry, while the domestic production is for fresh consumption. Currently, more than 80,000 hectares of land are cultivated with coconuts and involves more than 50,000 farmers. In this regard, importers are required to apply the import permits from the Department of Agriculture before they are allowed to import the commodities.

In 2016, Malaysia exported agricultural products valued about RM115.693 billion (US$27.546 billion), increased from RM109.959 billion (US$26.180 billion) in 2015. At the same time, Malaysia imports agricultural products and capital goods valued at more than RM84.665 billion (US$20.158 billion). The value of import also increased to about 10.847% as compared to 2015. The higher value of exports has led to a positive balance of trade for the agricultural sector.

In 2017, the top exported agricultural products are shown in Table 3. Palm oil and palm oil based products dominate the export value by nearly US$ 1 billion. This is followed by industrial based products, animal or vegetable fat and palm kernel oil. In other words, the top exported agricultural products come from palm oil commodity.

On the other hand, the top five imported agricultural products are shown in Table 4. Cane and sugar are the most imported agricultural products, followed by maize. These commodities are not suitable to be planted in Malaysia because of the country’s weather condition. Maize is imported mainly for animal feeds. Malaysia imports cocoa bean for its processing industry. The cocoa beans are processed or  manufactured and re-exported to other countries.

TRADE POLICY

The policy related to international trade is generally approved by the Cabinet and coordinated by the Ministry of International Trade and Industry (MITI). The direction of trade policy was developed in 1991 to transform Malaysia into a self-reliant and industrialized nation by the year 2020. This policy was reviewed in 2010 when the government introduced the Economic Transformation Program (ETP) and Government Transformation Program (GTP) that include key strategies that could affect the ecosystem for business, trade and investments. Under these two programs, the government aims to encourage private sector to lead the economic growth and integrate Malaysian companies into global chains. The government also aims to reform many regulatory measures at various government levels and stress that Malaysia must make stronger inroads into fast-growing markets in Asia and the ASEAN, and other regions through trade promotion activities, trade agreements and other measures.

Malaysia is an active member of the World Trade Organization (WTO), the Asia-Pacific Economic Cooperation  (APEC) and the ASEAN. As a member of the World Trade Organization (WTO) Malaysia continues to support the implementation of trade liberalization and bilateral/ multilateral trading agreements with countries within and outside the region.

Malaysia has continued to liberalize its trade and trade-related policies, mainly through unilateral tariff cuts, intellectual property rights protection, competition policy and consumer protection. Malaysia’s trade policy aims to enhance its global position as a trading nation. It focused on efforts towards creating a more liberalized and fair international trading environment. The trade policy is also geared toward developing high-quality products, creating brand awareness and customer recognition. To ensure that export growth remains robust, trade policies are also focused on strengthening Malaysia’s traditional markets and exploring new markets, especially in the Middle East regions. The government’s new agricultural policy and directions support the agriculture industry and liberalized the trading between Malaysia and other countries in the regions and in the world. In other words, Malaysia’s trade regime for agriculture remains liberal and supports the international trade liberalization requirements.

Even though Malaysia supports trade liberalization, tariff is still one of the main trade policy instruments and generates some revenues. The tariff schedule is reviewed every year, mainly as a part of the national budget process. Import duties for many agricultural produce were abolished for certain items or reduced, while some products were exempted from duties. In tandem with the ASEAN-free trade agreements, Malaysia reduced many tariffs for agricultural produce from ASEAN countries. In other words, the tariff for agriculture products entering Malaysia will be between zero and 15% depending on the product categories. 

However, Malaysia also implements measures to support the domestic agricultural products and protects the domestic industries through fiscal and non-fiscal instruments. In other words, Malaysia’s trade policies focuses on both internal and external improvement to ensure that exports continue to grow and at the same time the domestic industries are also protected. For the domestic industry, the policy supports the development of agri-food industry, with focus on the paddy, fisheries, livestock, vegetables and fruits. It aims to ensure sufficient and safe food supply, making agri-foods viable and sustainable. This will ensure food security and at the same time support the international trade.

Some measures were also introduced to protect the domestic industry as a trade barrier for the foreign products to enter the Malaysian market. For example, a wide range of agricultural products are subject to import licensing requirements. This measure will determine the quantity of agricultural produce that can enter the market at one time. For example, the government will issue more licenses which will allow importers to bring in more vegetables during the festive season. The enforcement of the sanitary and phytosanitary regulations is used to ensure the safety of the agricultural produce being imported to Malaysia. The Halal certification will ensure only animal (sheep, goat and cattle) slaughtered in accordance with Muslim laws that are permitted to be imported. Malaysia also uses International standards that  allows only certain products that complies with the standards to enter the markets. In this regard, Malaysia has strengthened its enforcement by establishing the Malaysian Quarantine Inspection Service (MAQIS). 

INITIATIVES TO FACILITATE AGRICULTURAL TRADE

Malaysian government has been active in facilitating agricultural trade, and some initiatives are as follows:

  • Introduction of the National Policy for development and implementation
  • Modernization of Customs Department
  • Establishment of the Malaysian Quarantine Inspection Services (MAQIS)
  • Export promotion program
  • Transformation of the service sector
  • Strengthen bilateral agreements

Introduction of the National Policy for development and implementation

  • The National Policy for development and implementation of regulation was introduced in July 2013. This policy aims to address the gaps in the national-regulatory infrastructure to ensure that Malaysia meets international best practice regulations of good regulatory practices (GRP). This initiative will enhance transparency and predictability of regulatory actions and to create a more conducive business climate.

Modernization of Customs Department

  • The modernization of this department aims to improve the effectiveness, efficiency, transparency and predictability of the administration and enforcement. Among the efforts carried out are capacity building, system development and output/outcome development.
  • This department sets a vision to be a world-class organization through a transformation program that can be achieved in ten years.

Establishment of MAQIS

  • The MAQIS was established in 2011 under the Ministry of Agriculture and Agrobased Industry. It provides integrated services relating to quarantine, inspection and enforcement at entry point, quarantine station, quarantine premises and certification for the import and export of plants, animals, carcasses, fish, agricultural produce, soil and microorganism.
  • This department assists exporters in issues pertaining to market access and to comply with the requirements of the importing country through integrated services
  • This department also ensures that all products exported from Malaysia comply with the health aspects of human, animals, plants and fish and food safety requirements.

Export promotion program

  • The government continues to facilitate export promotion activities through its agencies and agriculture consulates in traditional and new potential markets. Many programs were carried out such as through international trade fairs, trade missions, specialized marketing missions and business-matching programs. Currently, Malaysia has more than 40 trade offices in major commercial cities in the world.

Strengthen bilateral agreements

  • Malaysia has signed and implemented many free-trade agreements (FTA) with certain countries and participates in the regional trade agreements. Some of the bilateral agreements are with countries like Chile, Australia, India, New Zealand and Turkey. While the regional trade agreement include the ASEAN Free Trade Area or AFTA, ASEAN and the European Union (ASEAN-EU), ASEAN,  Australia and New Zealand (AANZFTA), ASEAN and the People’s Republic of China and ASEAN-Korea.
  • The involvement with these agreements indicates the commitments and obligation of Malaysia towards elimination and reduction of import duties and removal of Non-Tariff Barriers. The agreement will enable the free flow of agricultural products between the country partners.
  • Malaysia also participates actively in the Asia-Pacific Economic Cooperation or APEC. The participation in this cooperation aims to strengthen its trading and investment linkages, and enhance the technical and economic cooperation. APEC is very important to Malaysia as more than 75% of its total trade, including agricultural products is traded within the Asia-Pacific region.
  • The trade agreements will facilitate the improvement in the business environment and Malaysia’s transition to become a high-income nation. 

CONCLUSION

International trade is important to Malaysia as a source of income and economic growth. Over the years, the volume of trade is increasing and this indicates that Malaysia’s products are well accepted and have competitive advantages in the global markets. Malaysia’s products are competitive if compared with developing and some developed countries. Despite of its importance, trade liberalization can also be a threat to the domestic industry. Thus, it is the role of the government to balance-up between the openness to trade liberalization and securing the domestic industry.

 Malaysia has embarked on “new generation” trade agreements that will set trade and investment rules over the next few decades. Many more trade agreements will be signed with other countries and economic regions, and these new trade agreements will open up opportunities for Malaysia to move up the value chain, diversify its exports and finally create new employments for the Malaysian people. 

REFERENCES

Comtrade (2018). INternationa Trade Statistics Database, http://comtrade.un.org

Jyrki Niemi (1998). Agricultural trade relations between ASEAN and the EU. Research reports 223. Agricultural Economics Research Institute, Finland.

Ministry of Agriculture and Agrobased Industry (2011). National Agrofood Policy   2011-2020. Ministry of aAgriculture and Agrobsed Industry Malaysia.

The Statistic Department Malaysia (2018). https://www.dosm.gov.my/v1/index.php?r=column/pdfPrev&id=d3g5T2VOQUpEYzRLNi9ZZGMzdm5TUT09

World Trade Organization (WTO) 2019. https://www.wto.org/

Date submitted: July 8, 2019
Reviewed, edited and uploaded: September 2, 2019
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