According to a study by Khazanah Research Institute (KRI), higher subsidies and guaranteed minimum price of paddy since 2005 have done little to significantly increase farmers ‘ income.
While farmers were responsive to subsidies for output and inputs, both instruments were inadequate for increasing their yield and revenue. KRI also included. This is because the farmers were constrained by ineffective institutional support especially in research , development and extension (RDE), as well as lack of local input.
KRI said spending on rice subsidies and opportunities has been on a rising pattern over the years, with a steady decrease in recent years alone. Between 2011 and 2015, paddy subsidies and incentives were spent in excess of RM2 billion annually.
This accounted for between 40% and 50% of the expenditure of the Ministry of Agriculture and Agri-Based Industry (MOA). KRI said that while the sum had sunk below RM2 billion annually between 2016 and 2019, the paddy and rice industries nevertheless earned more budget funding than any other crops.
However, the study noted that a sudden withdrawal of subsidies and incentives may adversely affect the productivity of national rice, and the net income of farmers , particularly in the short term.
The study suggests moving from input to output-dependent subsidy, which is focused on rewarding farm efficiency, and introducing efficient RDE and local input development to increase yield, respectively, and the production costs.
The industry’s success relies not on incentives but on impactful RDE schemes. A completely operational RDE is adequately efficient to energize the agricultural economy towards higher production, self-sufficiency rates and profits for farmers. Gradually, the 40-year-old input subsidy is not indispensable,” said senior fellow professor Datin Paduka Fatimah Mohamed Arshad, a lead author and KRI tour.
Based on the findings, the proposed new virtuous circle ecosystem includes optimum complementarity of RDE strategies, productive subsidies and incentives, and development of local inputs.
This includes energizing the RDE sub-system to improve production, crop intensity and efficacy of growth , creating competitive opportunities for the efficient use of inputs (land , labor and non-labor inputs and capital) and generating local inputs.
The research simulates a range of potential policy scenarios, consisting of various variations of subsidy mix (input and output) and RDE strategies (to achieve higher yielding variety and crop intensity and successful extension) and local input production.
The effect of such policy blends on production, net income for farmers and self-sufficiency in 2050 is contrasted with the Business As Usual scenario (without new legislation).