• The Financial District


Higher subsidies and guaranteed minimum price of paddy since 2005 have done little to significantly increase farmers' income, according to a study by Khazanah Research Institute (KRI), Farah Adilla wrote for the New Straits Times on Wednesday, June 24, 2020.

While farmers were responsive to output and input subsidies, both instruments were inadequate to increase yield and revenue to them, KRI added. This is because the farmers were constrained by ineffective institutional support particularly in research, development and extension (RDE), as well as lack of local input. KRI said expenditure on rice subsidies and incentives had been on an increasing trend over the years, with a gradual decline only in the last few years. Between 2011 and 2015, more than 2 billion ringgit was spent on paddy subsidies and incentives yearly. This translated into between 40 percent and 50 percent of the Ministry of Agriculture and Agro-Based Industry's (MOA) expenditure.

KRI said although the amount had dropped below RM2 billion annually from 2016 to 2019, the paddy and rice industry still received more budgetary assistance than any other crops. However, the study noted that a sudden removal of subsidies and incentives might negatively affect the national rice productivity and farmers' net profit, especially in the short-term.

The study recommends a shift from input to output-based subsidy, which is based on rewarding farm performance, and implementation of effective RDE and local input production to improve yield and reduce production cost, respectively. "The future of the industry relies not on subsidies, but on impactful RDE programs. A fully functioning RDE is effective enough to energize the whole system towards higher yield, self-sufficiency level and farmers' income. Done gradually, the 40-year old input subsidy is not indispensable," said lead author and KRI visiting senior fellow Prof. Datin Paduka Fatimah Mohamed Arshad.

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