Academic shines light on structural problems in padi industry

Universiti Malaya economics professor Fatimah Kari.

PETALING JAYA: Padi farmers are still one of the most marginalised groups where poverty rate is among the highest in Malaysia, despite large investments in subsidies and training provided by the government.

Fatimah Kari, an economist from Universiti Malaya and a senior fellow at the Institute of Democracy and Economic Affairs, partly attributed this to the unfair market structures within the padi industry’s supply chain.

“From the calculations that I made, the rent-seeking index in the industry was very high and came to about 1.8, almost 2,” she told FMT during an exclusive interview after the launch of her report.

She said this meant that for every RM1 a farmer makes, large corporations such as Padiberas Nasional Bhd (Bernas), distributors and retailers will make the same amount, without having to face the same risk factors, bear the same cost, or put in the same amount of labour that farmers would have to endure.

“Whatever the farmer makes is equally created in distribution centres or big corporations in the supply chain who face a different, more favourable risk profile,” she added.

Her paper reflected the burden that farmers continue to face in a time of technological advancements and development, and economic uncertainty.

Her other findings included government subsidies often missing the mark, and farmers remaining as mere producers instead of expanding into major players in the market.

Speaking about Bernas in particular she said, “The rent-seeking index means that Bernas is getting 100% of the farmers’ capital.

“Worse still, with Bernas, you are talking about their rent-seeking behaviour not only in terms of control of imports but also control of inputs.”

Bernas is the major importer of rice in Malaysia. It also produces over 30% of all padi production in the country, equivalent to 800,000 metric tonnes of rice.

It also operates private wholesalers, distributors and rice mills.

It even owns a share of the “input market” to the padi industry, which refers to the market selling fertilisers, seeds and other farming necessities to the farmers, she said.

She argued that calculating Bernas’ rent-seeking index would include all its profits from both importing and producing rice.

“That is their rent-seeking value because you must understand that they do not take similar risks as the farmers,” she said, adding that farmers were the ones who would have to farm the land, pay the labour, and use their own resources.

However, Bernas CEO Ismail Mohamed Yusoff, who believed that there was a need for some monopoly, said during a press conference in July this year that Bernas was not attempting to make “monopolistic profits”.

“Contrary to popular belief, Bernas does not make monopolistic profits,” he said.

Citing data, Ismail said Bernas’ profit margins were minimal – between 0.4% and 1.8% over the past three years.

He added that Bernas’ return on equity (ROE), or its net assets or assets minus liabilities, stood at 4.9% in 2017.

“This in comparison with fast-moving consumer goods companies such as Dutch Lady Milk Industries Bhd or Nestle (M) Bhd, whose ROE were above 100% that year.”

Padi farmers are still one of the most marginalised groups where poverty rate is among the highest in Malaysia. (Bernama pic)

Break up the monopoly

It was announced by the Pakatan Harapan government that there would be a revision of Bernas’ control over its licence to import rice.

But “despite the government’s formal announcement, the corporation’s ownership has continued to be controlled by dominant personalities”, Fatimah’s report stated.

In October, The Edge reported Agriculture Minister Salahuddin Ayub as saying that the government would take over the function of Bernas after its concession terminates in 2021.

Fatimah said efforts were needed to break up the monopoly to ensure open competition with other players – importers, major wholesalers and millers – who are just as good and knowledgeable about the market.

She said these “other players” must also comprise of the farmers themselves.

“The farmers themselves must be part of the market chain, otherwise that monopoly will distort the whole market.”

She said they could be under a cooperative or an umbrella of small traders or small millers, who could control a part of the market.

“Only then will you have a level playing field. Otherwise, now we are seeing a structure that is not working at all.

“The other reason why breaking a monopoly like Bernas may be beneficial to the industry is you cannot have one corporation controlling almost everything in the supply chain.

“It wouldn’t make sense for Bernas to help farmers because if farmers become major producers, it would affect their market share of the padi industry that they get from their rice imports,” she said.

Fatimah acknowledged Bernas’ existing model which aims to help farmers, but said it was ineffective.

“After a few years of having this model, its just not working. The farmers are still struggling.”

She recommended that Bernas be revamped to reflect the reality of farmers on the ground, adding that they remained just as poor as they were 20 or 30 years ago.

Food crisis

In 2008 when Malaysia had a food crisis, she said Bernas automatically made the decision that it would not increase its rice imports.

Back in 2007 to 2008, rice prices surged due to export restrictions by key rice exporting countries such as India and Vietnam, in tandem with panic buying from rice importing countries such as the Philippines.

This resulted in an increase in world rice prices by 117% to 149% in the first quarter of 2008.

Fatimah said Bernas having such autonomy and decision-making power in these matters made for a very vulnerable market structure.

She added that this threatened food security and national self-sufficiency, which refers to a country’s capability to produce its own food.

Fatimah’s report cited a 2018 Khazanah Research Institute paper, which argued that there was growing concern related to food security and Malaysia’s capability to be self-sufficient in its rice production due to high rice production costs, limited production capacity and reliance on imports.