THE FOOD SECTOR IN A RAPIDLY GROWING ECONOMY : THE CASE OF MALAYSIA

Abstract

The main objective of this study is to relate the analysis of the food sector in Malaysia to the rest of the economy. Initially, this is done by identifying the main linkages such as the development of the food industry and the changing pattern of employment in the food sector and noting the changes in these linkages over the period of significant growth in the economy. It was found that the modernisation of the food sector has helped to release some of the rural labour to the industrial sector. Thus, the use of more capital intensive modes of production techniques has indeed helped to alleviate the problems of labour shortage not only in the rural areas, but also in the whole economy. This therefore has facilitated the internal migration and ultimately speed up the pace of industrialisation. Besides these major linkages, important issues related to the food sector were considered. From analysing the issues on food security, it was noted that policy makers have shifted their focus from food self-sufficiency to food security, where a greater emphasis is placed on increasing the access to food supply especially by the poor people in Malaysia Much effort has been taken by the government to reduce the incidence of poverty in both the rural and urban areas and it was found that the government was quite successful in reducing the poverty incidence in spite of the rise in population over the years. However, despite the overall reduction in the level of poverty, the incidence of poverty is still relatively high in the rural sector. It has often been alleged that the middlemen exploitation is a key factor contributing to the poverty problem in the rural areas. However, a review of several research findings showed that there is a relatively high degree of competition at the lower levels of the commercial pyramid and this has tended to limit the profit margins obtained. Thus, most of the middlemen who are engaged in the first level buying and retailing make small profits as the distribution of the profits is more concentrated at the top of the pyramid. Also, it was found that the middlemen are indeed beneficial to the farmers as they provide the important services in the market. This was substantiated by the analysis of government intervention in the rice sub-sector. The government actively intervened in the rice sub-sector because of the existence of marketing imperfections and perceived middlemen exploitation. However, it was found that although the government had achieved considerable success in raising the income of the paddy fanners, this had been done at a very high economic cost. Thus, it is difficult to give a definite conclusion as to whether the government provided services have indeed been a viable source of alternative to those provided by the private traders and millers, because one needs to also consider various social, political and economic objectives in evaluating government intervention. Nevertheless, it becomes quite evident that the middlemen do serve a useful purpose as they provide services that benefit the society as a whole. There has also been changing emphasis on the various sub-sector activities such as production, processing, distribution and consumption of food. In the past, the focus was very much on increasing the level of domestic food (rice) production and achieving a high self-sufficiency target. By giving the various incentives to increase domestic production, the policy makers also aimed to raise the rural income of the fanners and reduce the incidence of poverty in these areas. However, with the growing importance of these latter issues, the policy makers formulated a new food security agenda which focused more on the diversification of food production as well as increasing the access to food supply particularly by the vulnerable segments of the population. More recently, there is a great deal of emphasis on the processing and marketing activities. A lot of the public resources have gone into developing an efficient and high value-added food processing industry which contributes significantly to the gross value of output as well as the domestic level of employment. The policy makers have also taken much steps to improve the marketing and distribution of the various food commodities. This is because an efficient food marketing system plays a vital role in the development of the food sector, both as a means of transmitting price signals to the fanners and in the provision of services necessary to the physical distribution of increased production from the farmers to the consumers. Furthermore, these activities in the food sector have now become very much market driven. The high economic growth has resulted in high increase in the income per capita which in turn has led to changing market demand for the various commodities. Thus, the domestic food production and food processing activities are now catering to the changing consumer tastes and preferences to ensure that there is a continued demand for these domestic food products and hence, there is no need to become over-dependent on food imports from other countries.