rD u J, A. 4._., . Fhc P ohltica F. nT 1xVau tural Pricing !'oLI Trade, Exchange Rate, and Agricultural Policies in Malaysia G len n P )e n k u _ _t _ _ _ _ _ Andrevi Wa - moKm BEST AVAILABLE COPY r 4 r~~~ i'! a I~~ ~~~ ~~~ ~~~ ~~~ ~~~ ~~~ ~~~ ~~~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ fW +~ ~ ~ ~ ~ ~ ~ 4~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~. suP 2~~~~~~~~~~~~~~~~~~~~~~~~~~ BIBLIOGRAPHIC INFORMATION PB89-225197 Report Nos: ISBN-0-8213-1259-6 Title: Political Economy of Agricultural Pricing Policy: Trade. Exchange Rate, and Agricultural Policies in Malaysia. Date: c1989 Authors: G. P. Jenkins, and A. Lai. Performing Organization: International Bank for Reconstruction and Development, Washington, DC. Type of Report and Period Covered: World Bank comoarative study. Suppleuentary Notes: Library of Congress catalog card no. 89-14803. NTIS Field/Group Codes: 96G. 96C. 98B P.ice: HF A01 Availability: Available fro; the National Technical Infor-ation Service, Springfield, VA. 22161 Number of Pages: 373p Keyvords: *Malaysia, Political systeus, Exports. International trade, Agriculttural economics. Fiscal policies. Tables(Data), Subsidies, Economic development, Developing countries, Foreign exchange rate. *bstract: Malaysia. a country of approximately 16 million people which gainee independence in i957, relied heavily on trade to achieve substantial growth in GNP during the 1960s (6./I per year) and 1970s (10.5. per year). In the period 1980-83, however, the rate slipped to 3.1Z per year. Kalaysia's traditional exports are natural rubber and palm oil, but in the 1970s the country also became an important exporter of crude oil. During the study period (1960-1983), government intervention through the taxation of natural rubber and palm oil has made the cultivation of these two products less profitable ror farmers while also reducing foreign ,exchange earnings. In contrast to its policies for natural rubber and pain oil, Malaysia steadily intervened in the pric of rice during the study period to improve producer prices. Direct interv( Lion in rice prices has taken tf- form of a guaranteed minimum price which was raised substantially in the late 1970s. Agricultural pricing ?olicies in Malaysia have been remarkably stable cvt: time. in return. the Malay paddy farners Fave faithfully supported the moderate Malay political parcies. hence. keeping the pro-development political coalition in power throughout this period. (Copyright (c) 1989 The International Bank fo. Reconstruction and Development/The World Bank.) i I I I The Political Economv of Agricultural Pricing Policy Trade, Exchange Rate, and Agricultural Pricing Policies in Malaysia Glenn P. lenkins Andr-~v Lai WORLD BANK COMPARATIVE STUDiES The World Bank Washington, D.C. I I Copynght C 1989 The Intemnational Bank for Reconstrucon and Developrnetn ii wokit) B.tAK 1818 H Street, N.W Washington, DIC. 21433 All rights reserved Manttfactured in the United States of America First printing August 1989 World Bank Comparabve Studes are undertaken to increase the Bank's capacit- to Gffer sound and relevant pohcv recommendations to its member countries. Evah senes of studies. of which The Pcitical Econmv of Agriculutwal Prcing Policv is one. corrpnes several empircal. mutwountrv reviews of kev economic policies and their effects on the developmnent of the countries in whic thes were trnplemented A synthesis report on each senes will compare the findings of the studies of individual counties to identihf common patterns in the ie4athorn beli een potic and outcome-thus to increase understanding of developtmient and econonic policy The seres The Political Economv of Agnrcultural Pricing lPokv, under the durection of Anne 0. Kruegi-r, Maurire Sbioff and Alberto Valdes. was undertaken te examine the reasons Luderivmg pricing polky, to quantify the svstematic and extensive intenrention of deveklying countnres in the pricing of agricultural nrnmlodities duning 196"5, and to understand the effects of such intervention over timn. Each of the eighteen cou ntrv studies uses a tomnmon methodology to rneasr-e the effect of secteral and economii-wide piice intervention o n agrciultural incentives and focld pnice. as well as their effects on output. ccnsumption. tradc, interseetoral transfers. government budgets. and income distibution. The poliic.' and economic forces behind price intervention are anah -.ed. as are the eiforts at reform c f p-,cing polic and thtir consequences. The findings. interpretations, and conclusions in this s i,ts are entirelv %ho¶e of the authors and should not be attnbutec! in any mnanner to the World Bank. to its affiliated organizators, or to members of its Board of Executiv e Directors or the COL_ntrWs they represent The material in this publication is copvnghted. Requests fo- permission to reproduce portions os it should be sent #o rirector, Publications Department, at the address shown in the copvryght notice above The World Rank encourags dissernmrat in of its work and 'A 0i norialls g7ve permissi-) p-C`-r.pt1v and. whern the reproduction b ior nkinc-mrnerci0l purpo.ses without asking a fee Permission to photocopy portions for classrvni uce is not required, though rotification ot such use having been mnade will be appreciated The complete backiist of World Bai.;s publicatiorn it; show-n in the annual Index of Pubbicatb^nvi which contaitns an alphabetcal title list and indexe. of ctub5,cts. authors, and countnes- ard regions. it is of value prin.paliv tc ...aries and instutitional ptrchascrs Thelatest edition is availab'e free of charge from Publications &.Ps Unit, Depart-ment F The %%orid Bank, 118 H ',tree. N W' Washington. PC 43*, iUS A .or t-rn) Publication .The tWorld iank. f, av-enue d'ierna, 71e, Pans, France. Gl'nn P Ierikin, is a tellow oi. and Andrew L-ia a rt-parcher at. the Harvard Institute for Intermational Developmenit both are consoiltants to tdie %orld Bank Libr-rv of Coigress Cataloging-in4'ublication Data .Jenr cs, v' ,r Q . ,o. Cc Bank crc a-a ve s crCes. -c' 'za' econc,y o; ag ic,ftu-a' 'c-'^r'5 CC':~ Bit' ogoacr" C TS5N C-8273- '259-6 '.Az^'j:. -'e an std~e--M4a2ys ':. 2. Ag^czxY:&e' c-,es- -ucve-- cz - cv--- a'a2v5'a. 3. Mc''s $a--C ;e'.-za pc ~. sc n 5 ;w. K e. .;.Se'--es. HD2O&', 6. wA6 '89 338.1 '8--ac2 83- :48v3 *TIS i -uzed t raeuauC, ajnd <#jj ih, rwntt PWusr tr lw rep-och" auI b abihunai 1is tal tBrilrigm rw. I i l - ii i - Abstract Malaysia, a councry of approim.&ately 16 milLion people vhich gained independence in 1957, relied heavily on trade to achieve substantial growth in GNP during the 1960s (6.7 percent per yea ' and 1970a (10.5 percent per year). In the period 1980-83, however, the rate slipped to 3.1 percent per year. Malaysia's tradicional exports are natural rubber and palm oil, but in the 1970s the country also became in important exr:> ter of crude ' oil. During the study perioA (1%0-83), government intervention through the taxation of natural rubt--r and palis oil has made the cultivation of these two products less profitable for farmers while also reduicing foreign exchange earnings. At the same time, the government organized a research and replanting system for these crops that has dramatically increased their average yield, and as a consequence, farmers' income. In contrast to its policies For natural rubber and pals oil, Kalaysia steadily intervened in the price of rice during the study period to improve producer prices. Self-sufficiency in r.ce production has long been a goal, but one that tias never been achieved, even though per capital consumption fell from 140 kg in 1960 to i04 kg in 1983. Direct interv2ntion in rice prices has taken the form of a guaranteed minimum price which was raised substantially in the late 1970s. Agricultural pricing policies in Malaysia have been remarkably stable over time. They have ensured that the price of paddy relative to nonagricultural prices has increased slightly over time, while maintaining the teal income of rubber and palm oil farmers through increases in productivity. In return, the Halay paddy farmers have faithfully supported the moderate 1lalay political parties, hence, keeping the pro-development political coalition in power throughout this period. I Althou,1h the potential for political instability is always present in t.his ethnirally divl'rse country, the government's agricultural policies have helped to maintain a level of political stability that has allowed the economy to fLourish. I I f V tABLE OF COrrN!T3S Chapter Title Page List of Tables Vi _1 ESthnicity. Political Compromise and Economic Crovth 1 2 IThe Agricultural Sector in Malaysia 25 3 Government Interventions in ch Economy 52 4 Agricultural P-ricing Policies 68 5 Me&astres of Intervention 102 f t 6 Effects of Pricing Policies on Output, Consumption 131 and Foreign Exchange 7 Effects of Pricing Policies on the Budget 157 8 Effects of Pi-icing Policies on the Transfer of Resources 167 [ ~ 9 Effect of Pricing Policies on Incoe Distribution 177 I 4 10 Variability ia Pricos and Quantities 200 5 l 11 eterminants of Protection 218 12 Political Economy of Pricing Policy Interventions 223 I List of Appendix Tables 255 tibliograph- 355 I 1 I . I v i LIST Or TABLE Tablo Title Chaptir 1(A) Population and labour force, 1980-83 1 1(B) Et hnic composition of the popuLation ia Peninsalar 1 Nalaysia, 1970-83 2 Econcuic indicatozs (Share in real GNP), 1960-83 1 3(A) Importance of agriculture in the economy, 1960-83 2 3(3) Indices of .gricultura1 output for traded and 2 non-traded products. 1960-83 3(C) Area planted by major crops 2 4 Food production and consumprion. 1960-23 2 5 Government revenue, expenditure and deficits, 3 1960-83 6 Current account and exchange rates, 1960-83 3 7(A) Agricultural output prices for selected 3 comodities, 1960-83 8(A.1) Relative veights of objectives relating to 3 the policy on rubber industry 8(A.2) Relative weights of objectives relatit.i to 3 tho policy on pals industry 8(A.3) Relative weights of objecti-os relttitg to 3 the producer price policy for rice, 1960-83 9 Relative prices for srallholdbr rubber, palm oil 5 and umilled rice, 1960-83 10,1) Effect of direct price intervontions on relative 5 prices based on es ate rubbor and paddy prices, 1960-83 10(2) Effect of direct pricc -nterrentions on relative 5 prices based on suallholder rubber and paddy p , 1960-83 I ~~~~~~~~~~~~~vii 10(3) Effect of direct price interNventions on relative 5 3prices based on palm oil and paddy prices, 1960-83 w 1G(A.1) indirect effect of trade and exchangoe rate policies 5 cx the relative prices of estate rubber and paddy. 1960 83 11(1) Direct and indirect effects of trade and exchange 5 rate policies on the relative price of estate rubber and rice, 1960-83 11(2) Direct and indirect effects of trade and exchange 5 rate policies on the relative orice of soallholder rubber, 1960-83 11(3) Direct and indirect effects of tr4de end exchange 5 rate p licies on the relative price of palm oil, 1960-83 12(1) Indirect effects of trade and exchange rate 5 policies on the relative value added of estate rubber and paddy, 1960-83 12(2) Indirect effects of trade and exchange rate 5 I policies on the relative va'Lue added of smallholder rubber, 1960-83 12(3) Indirect eff'cts of trade and exchange rate 5 policies on the relative value added of palm - ^ oil, 1960-83 12(A.1) Direct and indirect effects of trade and exchange 5 rate policies on the relative value added of estate rubber and paddy, 19,60-83 12(A.2) Direct and indirect efftcte of trade and exchange 5 rate policies on the relative value 4dAed of seallholder rubber, 1960-83 12(A.3) Direct ane indirect affect!s of trade and exchange 5 rate policies on the relati-oe value added of palm oil, l60-83 13(A.1) Short run diroc', effect of price -nterventions 6 on output of rubozz, palm oil and tico, 1960-83 13(A.2) Short run total *ffect of price inter.-entions 6 on output of rubber, palm o'1 and rice, 1960-83 p 13(B.1) Cwulative direct effect of price interventions 6 on output of rubber, palm oil and rice, 1960-83 I I I I viii 13(B.2i Cumulacive total effect of price interventions 6 on output of rubbar. palm oil and rice, 1963-1980 13(C 1) Direct effect of price interventions on quantity tif 6 rice demanded, 1963-1980 13(C.2) Total effect if price interventions on quantity of 6 rice demanded, 1963-80 14(A.1) Shore term direct effect of price interventions on 6 foreign exchange ear-ngs faifr rubber, pals oil and rice, 1963-80 14(A.2) Short term total effect of price interventions on 6 foreign exchange earnings for rv.bber, pals oil and ! ri a, 1963-80 l l;(B 1) Cuiul.trive direct effect of price interventions on 6 foreign exchange exirnings fcr rubber, pals oil and rice, 1963-80, 14(3.2) Cumulative total effect of price interventions on 6 foreign exchange earnings for rubber, palm oil and rice, 1963-80 15 Impact of pricing policies on the gnvernment budget, 7 1960-83 16 Taxes and subsidies on fv,od cz-.p and export crop 7 17 - Goverrnnen investment and expenditure bias, 1960- 7 1983 18(A) Direct and nominal transferZs due to o'atput price and 8 input price interventions ou: of (-) and into (+) agriculture, 1963-80 18(B) Transfers due to direct pri:. interventions out of 8 (-) and into (+) agriculture [deflated by unadJusted CPu] 18(BR) Real transfers due to direct price interventiors 8 out of (-) and into (+) agriculture (deflated by adjusted CPI] 18(C) Transfers into (+) and out 'of (-) agriculture, 1960- 8 1983 19(A.1) Income changes ir astate rubber due to direct and 9 rotLl effects of pricing policies on labour, 1960- l9g ) I - ~~~~~~~~~~~~~~~~~~~ix t9 (A. 2) Income deanes in sualtholder rubber due to direct 9 _ aand total effects of pricing policies on labour, 1960 1983 19(A.3) Income changes in oil pal. due to direct and total 9 effects of pricing policies on labour. 1960-83 -9(A.4) Income chanes to paddy producers due to direct and 9 iX and t1tal offects of pricing policies on labour, 19%0-83 19(A.5) Impact of direct .ind i:otal effects of priUng policies 9 on inco_ of paddy producers. 196G-33 1 19(B1.1) ProportiotAl change in cost of living in urban areas due 9 I to direct effects of rice pricing policies for households I - anot producing rice, 1960-83 W19(B1.2) Proportional change In cost of living in urban areas due 9 E co cotal effects of rice pricing policies for hcusehold S znot producing rice. 1960-83 19(B2.1) Proportional change in cost cf living In rural areas due 9 to direct effects of rice pricing policies for households not producing rice, 1960-83 19(92.2) Proportional change In cost of living in rural areas duo. 9 to total effects of rlce pricing policies for ho'isebold not producing r'ce, 1960-83 B 20 Table of variances for producer, border and 10 I adjusted border prices on estate rubber, ssallholder I rubber, pals oil and paddy 1 21 Table of Z statistic values for producer, border 10 adjusted border prices on estate rubber, smallholder rubber, pals oil and paddy 22 Regression results for the d.recr ard total effects 11 of pricing policies on estate ztYber. saliholder rubber, plm oil anci paddy IL I I I 4 ACKNOWLEDGMENTS The luthors would like to express their appreciation to Anne Krueger, Maurice Schiff, and Alberto Valdes. directors of the multi-country comparative study on the political economy of agricultural Dricing policies, for inviting us to participate in this study. They have provided us with constant guidance, encouragement, and ideas for improvement over the duration of this investigation. We have also benefitted greatly from the insightful comments of Romeo Bautista, who carefully read the various drafts of this study on Malaysia. The final praduct bears his imprint as well as the helpfuL suggestions of the four research workshops associated with this project. Our sincere thanks also goes to Fernando Fernholz and Frances T.Y. Wong for their excellent research assistance. Their keen sense of accuracy and detail ,wIs invaluable in the preparation of the statistical analysis carried out for -nis study. Finally we thank the World Bank for providing the financial support that made this ambitious multi-country research project possible. The usual disclaimers apply. I I t CRAPTER ONE ETHNICITY, POLITICAL COMPROCISE AND ECONOMIC GROWTH Fanv developing countries have pul: in plare policies which have strongly favcred industrial development througn Import substitution, while diirectly and indirectly discriminating against the agricultural sector by maintaining low prices for food crops and heavily taxing agricultural exports. These have ofter, been accompanied by a high degree of instability in the policies themselves, with major changes being made whenever the political winds 0hift. Malaysia has been a clear exception to most of these characterizations ^f trade and agricultural pricing policies in developing coulntries. li has dispiayed a strong tendency towards m.cderation and stability in these polic_es r __ng the e:-.i-e 24 years of the period examined by this study. While operati-g :na alti-acial society with its share of ethnic-based economic and political : Eens-ios, policyaiEkers have found a high level of complementarity between zneir : _ti eal cb-ectives and a set of agricultural pricing poiiies t-at e7pnhasized .-.a-_s- and stabilitv. At the time of political independence from. Britain in 1957, there exis-ed a wel es-ablished rubber plantation ano sriallholder sector and a large pad_c-.- sector connated by rainfed single-cropped farms. From this base, a se-a tc. C a.. pri4C:g policies was developed that ha-vfe been mcdified orn n r _ce--ee since then. These eolicies ha*-e been made u? of essent4-aliy five elements: i;. .Maintain tEe producer price of rice at a stable level n terms of the real purchasing power cf the politica" powerful paddy farming sector to obtain politi-al stability and to achie-ve food (rice, security. I 2 2. Assist the export-oriented rubber and oil palm sectors in improving productivity through research and replanting grants. 3. Set leve's of tax- on on the rubber and oil palm sectors to both finan-ce the public investments made in these sectors, and to provide s surplus to finance otner public sectnr development investments. 4. Maiatain an open economy with fairly low and ur,iform set of tariffs on the imports of consumer goods and with very low or no tariffs an imported inputs used by the exporting sectors. t _. Distribute significant amounts of the increase in oil revenues during the late 1970s to the agricultural sector by directly suLsidizing the production of pzddy and by feducing the rate of export tax on rubber and palm oil. In terms of both economic development and political stability, these policies have been !'ighly successful. From time to time, adjustments have had to be made in order to fine-tone these policies when world prices of export commodities have fluctuated greatly. It is the analysis of the history of th.ese o'licies and their impact on Malaysian agriculture that is the focus of this lcontrv Packground Malaysia is located in Southeast Asia on the southernmost part of the t'alay Peninsula, and the northern half of the island of Borneo. The total .and area of the country is 330,434 km2 The part of the country on the mair.lar.d, s-z. as Peninsular Malaysia, is separared from the two states of Sabah a-n, Sarawak on the island of Borneo by somie 650 km of the South China Sea. These ^-.oc states have some 60 percent of the land area but onlv ;7 percent . :..e population. Malaysia came into being in 1963 witt. the merger of the indepen_ent IFederation of Malaya, the two Britisn colonies of North Borneo and Sarawak. an.d the self-governing British colony of Sinigapore. However, for political and r I 3 ethnic reasons. Singapore vas separated from Malaysia to become the indepencent Republic of Singapore in 1965. Topography Malaysia is dominated by mountain ranges which decline abruptly to the flat alluvial plains, and consequently there are no extensive flood plains built up by river systems such as these in Thai-land and Burma. The existing coastal plains are generally narrow and flat and covered with aliuvium. Most of them are low-lving and are more of.en than not freshwater marshes and brackish water r ¢ swamps. Malaysia is free of recent volcanic activity since the major fault line I * t in the earth's crust bypasses the courrry's mountain ranges. Climate The climate in Malaysia is equatorial. It is hot and humid, although highlv modified by the insularity and exposure of the country o' monsoons from both the Southwest and the Northeast during the course of the year. The temperature is uniformly constant, ranging from 25.6 to 27.80C (78 to 820F) throughout the year, since it is highly moderated by the heavy cloud cover anc high relative humidity. Rainfall occurs throughout the year, and conrJectional and localized t'hunderstorms in the afternoons and early evenings are common. There are two poorly defined monsoon seasons, the northeast mens on during November to january, and the southwest monsoon fror. June to August. During these mons^ona neriod.'. there is some ce'ncentrat-on of rainfall, but there ic no sustained level of rainfall even then. The me3r annual rainfall ir about 230 cm with considerable monthly variations from year to year. Consequently, it is not slurprIsing that in any one year, there is at least one month in which there is less thaan 1 .4 cm of rainfall, the amount necessarv to meet the crop moisture I 4 requirements for rubber and oil palms. Often there are three consecutive months in which there ia less than this critical snount of rairnfni. In the last 24 years from 1960, there had been two major droughts in which crop production was seriously and substantially reduced, and several minor droughts where output was less than the average. Annually, there is a 'wintering' season for the rubber trees during the two dry months of February and March on the west coast of Peninsular Halaysia, where most of the crop is grown. Ourput of rubber cften drops sharply in these two months. Soils Most of the soils inland from the coastal plains are laterites. derived from the weathering of primary rocks. These soils are acidic, rich in iron and aluminum, and being free draining are poor in retaining moisture for plant use. Thef are hence unsuitabl2 for field crops, but are able to support tree crops productively with proper application of fertilizers and soil erosion controls. Allbtvial soils cover about 15 percent of the land area of Peninsular Malaysia. These soils are found in the coastal plains and the broader river valleys. They are more fertile than the lateritic soils found inland, being aMl to retain moisture for crop use. Rubber and oiI palms planted in these scils are among the most productive In the country. Unfortunately, about a third of these soils are unsuitable for cropping because of their saline intrusions or poor drainage. Should these poorly drained soils be dried out through drainage, they convert to highly acid sulphate soils. -which are useless for cropping putrposes without heavy applications of lime for several years to neutralize their acid nature. There are about 2.5 million hectares of peat and muck soils in Malaysia, mostly in Sarawak. These are organic acid soils ard are often deficient in I _ r ~~~~~~~~~~~~~~~~~~~~5 plant nutrients. They are friable and are unable to provide proper support for tree crops besides being subject to considerable subsidence and shrinkage if they are drained. Although suitable for field crops, heavy fertilizer applications are necessary to supplement the deficient plant nutrients. Presently, only pineapples are cultivated with any economic success in these soils in Malaysia. Population The population of Malaysia is shown in Takble lA, while its ethnic and t rural-urban distributions are foun' ir. Table lB. The last population cens,'s was conducted in 1980 which ';howed that there were 13.7 mill;on people living in Malaysia. Since then, the population has increased to 14.5 million in 1983. The population growth rate was 2.6 percenlt per annun between 1971-L980, having declined from a growth rate of 3.0 percer,t in the previous decade. Compared to other Asian countries, the population density in 1980 of 46 persons per kM2 in Malaysia is quite low. About 83 percent of the population live in Peninsular Malaysia, where the ethnic mix of the population is 54 percent Malay, 35 perzent Chinese, 10 percent Indians, and 1 percent Others (Eurasia:is. Europeans, etc.). During the decade of the 1970s, this ethnic mix remained relatively stable as indicated by tho 1980 Population Census. In Sabah and Sara-.ak, the ethnic comDosition of the population is different. The principal ethnic groups are the Kadazans, Ibans, Muruts, Malays, Melanaus, and Chinese. The labor force in Malaysia cons;.sts of approximately 39 percent of toe population. Of this proportion, about 38 percent are engaged in agriculture. The adult literacy rate ir. 1980 vas 60 percent. which could be traced to the high regard for teachers and education among all the ethric groups. Since I 6 education is free, the enrollment in the primary schools is as high as 95 percent of the eligible chi^ldren. Urbanization Urbanization is encouraged implicitly by the government in its development plans, the objective being to ensure a more even geographic distribution of the three principal ethnic groups. in consequerce. the urban population in Peninsular Malaysia increased from 29 and 32 percent of the total in 1970 and 1975. respectively, to 35 percent in 1980. rhe growth rate of urbanization was the highest in the Malay community at 6.7 percent a year betweer. 1971-1980 as compared tc 3.7 percent for the Chinese community and 4.2 percent for the Indians. One feature of the urbanization progrzm in Malaysia is that the migration from the rural areas is not due to a movemt:nt of unemployed rural poor to the urban centers but a movemernt of educeted youth in search of better employment opportunities. The consequence is a labor shortage in the rural areas which has led to accelerated farm mechanization and use of both legal and illegal mrvigrant labor from Indonesia and the Philippines. Urbanization in Malaysia did not produce the urban blight of shanty towns so frequently seen in many developing colntries. One reason is the active planning provision of adequate basic housing in the urban areas to accommodate the influx of rural migrants to the urban centers. The socio-cultural and family linkzages of belonging to the same village also remain strong. These fcores have ensured that temporary assistance is available for the mare recent arrivals. Urbanization also has been coinparatirely dispersed among all the urban centers, although the capital city of Kuala Lumpur did attract a large prCport-on of the rural migrants. Finally, Halaysia has not enforced minimum ._ ___ I 7 wages that are above those that would clear the labor rarkets in the urban areas. The secondary sectors have been hea'thy and expanding. The Chinese comprise the largest urban ethnic group. This is partly an historical development. D&ring the conaxnist insurgency of 1948-1960, the British colonial administration compulsorily resettled the rural Chinese in the fortified new viLllages constructed on che fringes of the urban centers in ord-r tc deny support to the insurgents.1 Over time, these new village, were inv.egrated and assimilated as parts of urtan centers. The Chinese presence in the urban centers has given the commrunity access to better educational facilities and social amenities. ana ensured that the community continues to be over- represented in the business and proiessional classes in the economy. The rural population, by contrast, is dominated by Malays t.hcse principal oc-upations are paddy farmers aad rubber smallholders, with Indians forming a majority in the estate labor force. In .-ecent years, more Ilalays are moving into the estate sector to work there, replacing those Indians who have miZrated to the urban centers. There 's a considerable number of Chinese rubbez srmallholders, but there are ver-,; few Chinese paddy farmers. Most rural Chinese are concentrated in commerce as suppliers of agricultural i. ,uts and consusner products and buyers of agricultural produce. Political Overview Government Structure Malaysia has a federal system of govrernment, with the central government being responsible for subject matters not explicitly delegated by the Fednral ' The irsurgents were principally Chinese, while the army and the police fighting them were British and Malay. This identification of the conflict in terms of race has continued to color Malaysian ethnic relationship in the long .er-.. (Young, Bussink and Hasan, 1980; pl5). I I 8 Constitution to tne 13 state governments or managed on a concurrent federal- state basis.2 Parliamentary democracy on the Westminster model is practiced with a bicameral parliament. The Senate or Dew4n Negara is appointive. with its members representingi the 13 state legisla,ive assemblies and the minority interests and groups in the country. Appointments are for a six-year term for each Senator, which is renewable. The Flouse of Representatives or Dewan Rakyat is elective. with each member winning on a majority basis. The Prime Minister is a menber of the Dewan Raykat, an:i must command its confidence. Members of the governmer.t can be appointed frcm either chambers of Parliament. Elections are held once every five years, unless the House of Representatives is dissolved earlier by the Yang di Pertuan Ag2ny,, or the cotistitutional He3d of St-ate, on the advice of the Prime Minister. The Yang di Pertuan Agong is selected from among one of the nine ruling sultans, who are hereditai alers of states in Peninsular Malaysia. The Agong or King serves for a term of five years. In the five states where there is no hereditary ruler, a governor is appointed by the King, on the advice of the state's Chief Minister, to serve for a terr. of five years which can be renewable. The King, toFether with the other rulers, constitute the Conference of Rulers which advises the government on mlatters pertaining to Islam, custom.ary Malay practices, and the rights -nd privileges of the sultans themselves. The Conference of Rulers also elects the Agong. The governors appointed as heads of government in the other states attend the Conference by invitation. 2 The individual state governments have control of land, agriculture and forestry, and the royal.ties and incom.e from licenses derived from them. Matters of concurrent responsibility include social. welfare and drainage and irrigation. With regard to the concurrent items, che Federal Goverrment has the final authority in any conflict of interest between it and the state government. L I U 9 The multiracial population in Malaysia forms the basis of the political setting in the country. Prior to- the cotntry becoming independent in 1957, a coalition of the three majo,r ethnic commurnities of Malays, Chirese. and Indians negotiated with the Britishigovernment for independence. Under the 'soc!al contract' agreed upon by consensus then, th;e non-Malays would be given citizenship (within specified crnditions). the right to participat! in the political process, and the freedom to continue pursui.lg their economic interests without undue restrictions or interference. The Malays, as provided in the social contract, would have political supremacy and control of the army and the civil service, with special privileges in land, scholarships and places at educational institutionis of higher learning, and licenses and permits for certain types of trade and businesses. Primarily, the social contract sought to balance the econortic dominance of the Chinese and indians in commerce and industry with the supremacy of the Malays in the political arena. The identity of the states and the prestige of the sultans are upheld in the Constitution. Islam is recogniz^ed as the religion of Malaysia.3 The laws and system cf julstice are based solely on the British legal system.4 Malay is 3 Constitutionally, it was speci.;ied that a Malay must be a Muslim, in addition to speakir.g the tialay ianguage, follow Malay customary practices, and dress in tiLe Malay style. This emphasis on Islam is to distinguish them from t'ie Straits boz-n Chinese (known as nonya and baba) who migrated to and settled in Malaysia in the fifteenth century, and who dress and live as the Malays, but who practice the Chinese religicn. i I. 4 One mir.or point to note aoout the legal system is that 1-isputes related to islam can be brought to trial in the Shariah Court, where the Koranic jurisprudence prevails. L I 10 l to be used for ail official affairs and correspondeuce, while the use of the ',t'Aer languages, int.uding Englis;, is freely perm-tted.5 r ?~~olitical titution The three ethnic political -r- ! n s which negotiated with the British for independence came together .s a tical coal'ition under the name of the Alliance Party, although eaci e0hn-:. groaping explicitly retained its own organizational structure and idL.acity among its own community. The Alliance Party won comfortable majorities in the parliamentary elections of 1959 and 1l964. But from 1959 to 1976, it lost control of Kelantan, a rural state on the east coast of Peninsular Malaysia, to the opposition Islamic party, PAS (Parti Al-IsLami Semananjung). which was the religious and ethnic rival of UMNO (United Malay National Organization), the Malay partner in the Alliance Party. In the elections of May l969, the Alliance Party retained control of Parliament. but it lost the state of Penang. was staie-ited in the states of Perak and Selangor. and failed to defeat the oppositicn PAS government in Kelantan. Since the electoral gains w-ere won by the opposition multiracial, b'tt principally Chinese. political parties which championed the tights of the non- Malays6. the Malays regarded the results of the elections 'as a strong challenge to Malay political supremacy'. (Young, Bussink and Hasan, 9, '.- Tensions and uncertainty led to race ricts in Kuala Lumpur on May 1., a tc- *4ays after 5 Language was a highly sensitlive anc emotive po'itical issue then as it is even now. The medium of instruction in all levels of education and in all nation-wide examinations is now conducted in Malay or Bahasa Malaysia. The other races could have their own languages taught in schools as a subject at public expense. 6 The Chinese partner, the Malaysian Chinese Association (MCA), in the Alliance Party lost a large number of state and parliamentary seats in this election, which was fought ot. the emotive issues of Malay special rights, citizensniD and language. I the ejections. A state 'of emergency was declared when the trouble continued, and the army and para-military police field force were called to quell the riots and restored order. Parliament and the state legislative assemblies were st!spanded. The country came under the rule by decree nf a National Operations Council in which civilian politic.ans hadl contrcl. When parliamentary rule was restored in February 1971, cornstitutional conditions were imposed to make discussions of Malay special rights, language provisions for Bahasa Malaysia as the national lang-iage, citizenship, and the status of the sultans seditious under the law. Since there were underlying economic issues relating tc the racial riots, j the government introduced a New Economic Policy (NEP) to 'provide an economic security net to the Malays' (Mehmet, 1986; p9N in addition to the political one already available under the provisions of the Constitution. The expanded participation of the Malays in commerce and industry under the NEP was to comtpensate fc. the perceived inroads mrade by the Chinese in the politicai sphere. (Aknan.i, 1983; p8-9). The three original ethnic partners in the Alliance Party extended membership to the opposition parties to join it in the gc.vernment as coalition partners in 1972. As the enlarged Barisan Nasional or National Front, the government was returned with an o; rwh-lming majority in the general elections in 1974. Since then, the Barisan Nasional governLment has ai:ays been returned with a two-thirds majori'ty in every election, a majority which gives ic the power to amend the Constitution. Political Environment To understand the underlying raison d'etre for the agricultural pricing policies in Malaysia, it is necessary to know vhe political environment in which I 12 government policies are formulated.' The interplay of race and economics in the Malaysian scene is an outcome of the population mix and the perceived relative economic strength of one ethnic group vis-a-vis another. This is reflecced in the political environment, which is structured aloz* ethnic lines like the political parties themselves. The Malay political parties, UMNO and PAS, are not only rivals for the Malay viote but are also idcolo6ical opponenits. UMNO is a nationalistic party with a dev3lopmer.t platform which appeals to both Malays and non-Malays alike, while PAS strongly emphasizes its Islamic credentials and its pan-national Islamic outlook. The political programme of PAS has very little electoral appeal to the non-Malay non-Muslims who make up about half the population. In competing with PAS for the rural, more fundamentalistic Malay vote, which iLcidentally holds the key tc control of ,ne government,7 UMNO has had to play a catching-up game with regard to its Islamic credentials. This ideological challenge with PAS, however, has to be tempered by the need to consider the legitimate religious aspiraticns of the other ethnic communities. UMNO as the dominant partner oi the coalition government has to worK for a national consensus, unlike PAS which can promise its Malay supporters that it will introduce Islamic jurisprudence and fully apply thp shariah laws to all citizens, and Islamize all government institutions. The UMNO-led coalition government has instituted a number of Islamic projects to promote the religious fervor cf thF Malay community, such as the 7 This is because the Parliamentary and stale constituencies are biased towards the rural areas. The population in most rural _onstituer.cies is a fractiout of that in the large urban constituencies. This was a deliberate decision by the British colonial government to ensur'e that the Malays will hold political power, and thst winning the Malay vote will be a necpssary condition to gaining power in Malaysia. |_iii.aS~~~ .- _ -.. . . . . . .. . ...................... - - - - . - I s\ 13 International Islamic University, the Islamic Bank, an Islamic insurance company, and the Islamic Pilgrimage Board. A specific policy of introducing islamic principles to government procedures has already been adopted. All these moves are aimed at counteracting the thrust of PAS's c1allenge on UMNO's credenitials. T vo win the rural Malay vote, UMNO has strongly and consistently emphasized a rural development and assistance program. with infrastructural and institutional development as the bases of the policy. These support structures have promoted productivity increases among the rural Malay farmers. However, E the program does not include agrarian land reform, only development of new virgin land.8 This is because UMNO is a party of urban-rural land-owning [ r-lites. who would be against any land reform or redistribution, and party I policies are shaped by them. The Chinese comrunity is seriously split down the middle, and this is reflected in the electoral success of the Chainese political parties, both inside and outside the government. The political objectives of the Ch_nese community I can be summarized into the need to propagate the use of the Chinese language (Mandarin), and to preserve and practice Chinese culture and religions. This is! in addition to the constitutionally guaranteed rights of political participation and economic freedom to conduct legitimate businesses without interference. As long as the Malaysian Chinese Association (MCA), the principal Chinese party in the Barisan Nasional coalition government, is seen to support these social objectives of the ccnmur.it), the party has the support of the large 8 Fortunately for UMNO, its political rival, PAS, does not have a land reform program or, its political agenda. - K ,r A 14 swing vote in the community. Otherwise, the opposition Democratic Action Party (DAP), emphasizing itS championship of these objectives, will make political capital and inroads among these floating Chinese voters. This explains the fluctuating fortunes and influence of the MCA in tl.e coalition government, since it cannot demonstrate its influence openly. t The political bargaining in the coalition is a delicate balancing act. By being seen to give in to pressure from the MCA on these objectives, UMNO experiences a vocal reaction from its members. It is clear that the influence of the MCA in the coalition goverrtment: is inversely proportional to the electoral success of UMNO against PAS and directly proportional to the party's own ability to win the support of the Chinese community. And neithter is under the control of the MCA per se. The Malaysian Indian Congress (MIC) has always been a junior partner in the coalition government. Although the Indian community is the thiri largest in the country, it does not possess an arbitratlng role in the coalition. This is because the community is too dispersed geographically and numerically to iav a swing vote in any constituency. Given this political environment, it is not surprising that the government has adopted agricultural pricing pc.icie, which emphasize assistance to tne :ral Malay voters in order to secure the electoral base cf UMNC. Because the Chinese voters i-n the urban areas are more concerned about its scrial objectives, the impact of these pricing policies i's less obtrusive, af"ect ing only the price of rice. This is kept artiLf'cially high as a resu:- c' ofe pricing policies. However, the stability of the rice price over the perid ao this study had moderated its impact on the urban constituents cf all rakes. I _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ l1 5 * Economic Overview The Malaysian economy is a very open economy with the degree of openness ranging from 40 tc 53 percent between 1960 and 1983.9 This open economy is the consequence of hisltoricai developments of the country. The discovery of alluvtal deposits tin and the subsequent development of 3 tin mining indus:ry, followed by,the development of the rtbber industry in Malaysia, both of which came about as a result of comparative advantage, contributed to the heavy reliance of the economy on international trade. Food and manufactured goods were the principal imports. Exposure to) international prices r-romoted pragmatic decisions on the part of the British colonial administration and the Malaysian government after independence in 1957 to raintain the open nature of the economy. Changes in the political parameters after the race riots in May 1969 did not alter the need for an open economy. The New Economic Policy iThe New Economic Policy (NEP), introduced in 1971 and incorporated into the Second Malays5ia Plan 1971-1975, is a policy package with a time frame of 20 years ending in 1990. The policy seeks to provide equal economic - crtunity for all .Ialaysians by eliminating the identification of economic func or. wirh race. (Ma2aysia, 1971; p7fl It a1so seeks to eradicate poverty by raising income levels. Taken together, the NEP can be described as 'an affirmat:ve action programme' (Mehmet, 1986; p8) for the M.alays, who account for half the national population. Implied in the NE? was the need to offset perceived historical economic disadvantage of the Halays relative to the Chinese for which The degree of opennress of the economy is calculated using the f^r.mula: 0.5 * [(X r M)IGNP) where X and M are the value of exports and imports respect:vely- _--- - -- O I 16 the special rights of the Malays, as guaranteed under the Federal Constitution. was emnhasized. (Mehmet, 1986; p7.) The NEP objective of poverty eradication was acceptable to all ethnic groups, but in the implementation1of the policy, emphasis was on rural Malay poverty while urban non-Halay poverty was often neglected. This particular NEP objective has the most impact on the a7ricultural pricing policies examined in this study, in particular the policy on locaL paddy production. The restructuring of society to correct economic balance has been interpreted to mean the transfer of wealth and ownership of corporate assets from foreigners (non citizens) to Malays.lC Local Chinese ownership of such wealth, however, would not be affected in the restructuring process. (Mehmet 1986; pl01). Restructuring does not imply a reaistribution of existing ownership, but in tht creation of new assets, preference would be given to l4alays. This is possible only in an expanding economy. Si-nce Malay savin's were short and the number of Malay entrepreneurs few. the government conceived the policy instrument of trusteeshiD in its restructuring of corporate wea'th under the NEP for the benefit of the Malay community. A number of special purpose public enterprises were established to acquire new corporate assets for and on behalf of the Malay community, with Malay bureaucrats sele ted from the civil service managing them. Public funds were utilized to buy into established plantation and industrial ccrporatiot.s, to take up the Malay reserved portion of new stock issues of existing companies, and to participate in joint ventures with foreign firms. 10 In 1971 at the start of the NEP, the Malays owrned only 4.3 percent of total corporate assets; the Chinese, 34.0 percent; and foreigners, 61.7 percent. (Malaysia, 1976; table 3.i4. p62). I 17 Structural Aspects of the Economy .or the period of this study which covers the years between 1960 and 1983, real CaiP in Malaysia increased from MS11,837 to MS%.382 million for an average t,rowth rate of 6.8 percent. (See Table 2.) In the decade between 1960 and 1969, the growth rate of real C-NP was 6.2 percent a year, which then increased substantially to 10.5 percent per year in the following ten years, before declining to an annual rate of 3.1 percent between 1980 and 1933. Per capita real GNP rose from M$1,459 in 1960 to MS3,606 in 1983, at an average rate of 4.0 percent a year. Gross investments in Malaysia in seal terms rose by 5.1 percent a year between 1960 and 1969, and thten by 16.7, percent annually in the following decade. The rate declined to 10.4 percent a year between 1979 and 1983. The growth of investments in the 1960s occurred in all sectors of the economy, with the agr;cultural sector providing the lead thro:tgh rubber replanting. oil )al:n diversification. and large irrigation projects for paddy. During this decade, the investment growth came from both the puolic and the orivate sectors. In the foilowit.g de'ade, the public sector lecl the private sector in investments. Agriculture continued to be the principal recipier.t of pub.lic sector inve.-ment with the emphasis on land development and settlement, and agricultural modernization. Durirg the same period, investment in the oil industry increased substantially. From 1980, private sector non-oil investments recovered frcm-i its decline iii the previous decade, supplementing investments from the public sectr~ 7,=ressed as shares in real GNP, real grLss investmEits aver^ged about 16 perce.. ; v?ar betwes?n 1960 to 1969 and ranged between 17 t) 30 percent annually in the n.ext decade. Betweer 1980 and 1983, it averaged around 34 percent a I I I 18 year. The huge investments made during the :L970s were the result of a more interventionist attitude of the government in pursuance of the NEP objectives of poverty eradication and wealth restructuring. Gross savings in Malaysian national accounts are equal to the sum of gross capital formation and the balance of the current account. In the period 1960- 1969, real gross savings increased at an annual rate of 9.4 percent. rising to 19.7 percent a year in the next decade, before declining to a negative rate of 3.0 percent during 1983-i983. This drop in the savings rate during the last four years of the study was due to the fall in prices of the major export comrnodities. The share of real gross savings to real GNP averaged 16.4 percent a year between 1960 and 1969, and 24.7 percent a year in next 14 years to 1983. The average for the period of the study was 20.5 percent a year This high rate of savings provided Malaysia with a strong domestic resource base. When supplemented with external borrowings from both institutional and financial market sources, this resource base has enabled the country to emba-k on a development program. without undue dependence on foreign aid. The share of the real value of total imports in real GNP declined from a high of 46 perrent in 1960 to a low of 33 percent in 1969, and then increased to 48 percent in 1983. The growtth rata of total imports in real terms was only 2.0 percent a year between 1960-1969, rising to 10.9 percent a year in 1970- 1979, and declining to 8.6 percent in 1980-1L983. The sharp rise in total imports in the 1970s was pz,rtly due to the large investments in the cil industry, and to the emergence of an indu-trial and manufacturing base _n the economy. The composition of total imports has also changed, with investment and intermediate goods replacing consumer goods as the dominant component in the import mix during the period of the study. lhis reflects the change in the L . ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~~~ . ~~~~~~~~~~~~~~~~~~~~~~~~~ 19 Malaysian economy from one based solely on agriculture to one where the export m4x is both commodities and manufactured goods. In real terms, total exports grew at: an annual rate of 2.9 percent in the decade of 1960-1969, and then at a rate of 10.9 percent in the decade ending in 1979. From then to 1983, growth in total real exports was 1.3 pe-cent a yea . The share of total real exports in real GNP has rer.'ined consistently around 45 p percent a year for the period of she study with only four exceptions. During the years 1960-1969, commodity prices were on a downward trend. and * the price of rubber was no exception. Since rubber was then the principal agricultural export, this dampened the influence of rising productivity In the agricultural sector from the replanted rubber and the new oil palm acreages. With regard to the export mix, the significant change is the replacement of rubber as the principal export commodity, in terms of the value of axports. Rubber fell frorn 38.0 percent of total exports in 1965 to 16.4 percent in 1980. -hile palm oil exports rose from 3.0 percent to 9.0 percent of total export; during the same period. The sharpest increase was in crude oil and petroleum products and manufactures. Both items went up from 2.0 and 8.0 percent of total exports in 1965 to 23.7 and 21.7 percent in 1960, respectively. Inflation At the end of the Korean War in 1953. there was a long period of price stability in Mdlaysia. Between 1960 and 1972, the inflati3n rate (as measured by the Consumer Price Inder for Peninsular Malaysia) was as high as 2 percent in only t'rree years. In the other years. it was 1 percent or less. - I 20 This inexperience with inflation2l resulted in Malaysia being caught unprepared when domestic prices !uddenly went up by 10.5 percent and 17.4 percent in 1974 and 1975, respectively. Strict fiscal and monetary policies were instituted to bring inflation under control. By 1976 tnd thereafter, the inflation rite remained at about 4 t. 5 percent a year. Even these rates were considered to be high as compared to the rate experienced in the decade of the 1960s and early 1970s. In l9El, inflation went up again to 9.7 percent from the preceding year's rat, of 6.7 percent because of counter-cyclical measures adopted in that year. Another reason for tb'a sharp rise in the price level was t-e upward salary revision for public sector employees in 1980. During the period covered by the study, the Kalaysian economy experienced continuous real growth of GNP ranging from a low rate of 3.1 percent to a high rate of 10.5 percent per annum. Conclusion In summary, it can oe said that the basis for the economic development achieved in Malaysia was the pragmatie corsensus politics practiced by the government. The e_onomic infrastructure instituted by the British colonial administration was not only maintained after independence in 1957 but was expanded or modified to take into consideration changes in economic conditions. While economic nationalism per se was never an issue in Malaysia, the same aspiraticns that often crc te it were present, but in Malaysia these aspirations were colored by ethnicity. This coloration of the issue led to the racial riots in May 1969. After the adoption of the New Economic Policy (NEP) in 1971. the ll The inflation in Malaysia which accompanied the Korean War was the last period of sustained price inzreases. and at that time tne country was st`il under British colonial administration. i E - ~~ ~ ~~~~~~~~~~~~~21 government dropped its laissez faire attitude towards the economy and became relatively more interventionistic in pursuance of the objectives of the NEP. Since then, ethnic nationalism has been subs-imed in the NEP objectives. The I | changes in economic policies have basically reflected only modifications in - i policies in order to take the NEP Gbjec:tives into consideration. * i~~~~~~~~~~~~~~~~~~~~~l I I I 22 TA8Lf 1(A): fLAYSIA - P LAA FM, A fEDLTlOfVJ. LLS. 196D-193 Total RatIo of Edat'oml Perww Erpo In Popu I &- Urb Loew I of Iculte ! Yerw tIon PoDulaticn Labour Adit - to Total ForCe Paoulation Total Sure Of Population (Literacy Labr (oil] TPercitJI [ofIis] R)te [fll] force pwrmt] f([1] [2] [31 [4) t5] [5]-f5j/C31 1960 8.113 25.2 2.312 1. 277 0.552 1961 8.368 1962 8.644 52.8 1963 8.914 1964 9.156 195 9.42' 26.1 2.678 1. 3B8 0.518 19616 9.72b 1967 10.034 i968 10.324 = 1~~~~~~~969 10600 1970 10.d64 2.8 3.682 58.5 1.715 .466 1971 11.135 1972 11.410 1973 1 1685 1974 1 1.~957 1975 12.248 32.0 4.539 1.924 2.424 1976 12.511 1977 12. 8 '978 13 127 199 13.439 195f 133 r,4 35.0 5.38f 60.0 2fi.7 0.384 1981 14 128 1-9-,l 1C4.iO 182. 14580 **Jte. I The data spitfce for WCfma 1 is tfe eoet uff Statistics. Xsa Iysa ITe dati are ravi sea cata r2: Oa:a irn Colum-s 2 arid 4 cfm from the 17jtri Walaysia P ta'i, I9 Kua ia(Lat .r: Hat tora Pr int ig wft, '9%1). table 4 5. D79. (3' Colums 3 a*t 5 are fro ' Oept of Stat istts, i shiassia~~ I.~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ,,, z7 z z -- -... - . I I rWE I(6M: KNINSIARR CNAVS1A Ei114I C CO"PS1| I DIS1R1 X KiW(EI( A M MkRL AREAS THE T3PPIAllm I ( 910, 3975 DNO I STIUTO l)E Ethnic Compositik ol ihe Populatilon thnic Distribution betten Urban nd RUal AreAs -- - -- - -- - -- - -- - -- - -- - -- - -- - . .. ........ ----------- ----------- ----------- ----------- 1970 M15 1900 1910 197' 1960 --------------- ----------------- ----------------- Urban Rurat Urbanl Rual Urban RurFa Ethnic lntal Percent lolal Pcet tal Petcent ------------------ ------------------ ----------------- ;I ap Peicent Percent Percent Pelcent Percent Percenl jail) tsiI) jisll 1 lays 4.622 5S.7 S.531 5.o 4.364 S3.9 71 .3 63A 9S 63. 32.8 65.2 C nest 3.214 35.8 3714 35.4 4.136 34.9 S9.0 24.4 54.4 25.7 53. 7s.7 Indilsu 0.971 10.7 1.10t 10.4 -1.23Q tO.S 3. 98 12.5 9. 2.3 9.5 Others 0.073 0.8 0.083 l 0 0.900 0.7 .1 01.7 1.2 0.4 1.1 0.6 ---~~~~~~~~~~ ---------------- ---- --- -------- .......... ... .. .. ... . . . . ..... .......... . ........ ----------------- total 9.147 I00.0 10.434 100.0 11.049 100.0 3000 100 0 100I0 300.0 I3o00 300.0 Percent 28.0 71.? 32.0 46.0 35.0 65.n -- ----------------------------- ---.. ..... ... -------- ------ ----- -- ------ ------ ---------- ------..---........----- ------...... ... . 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I I I cUAPIERa TWO THE AGRICLTURAL SECOIt IN MALAYSIA A. Importance of Agriculture The importance of the agricultural sector in the Malaysian economy has Geclined in the last 2" years. As measured by agriculture's share of GNP,1 it fell from 31.1 percent of GNP in 1960 to 27.1 percent in 1969 and to 16.6 percent in 1979. By 1983, it was 16.3 percent. (See Table 3A..) This declining trend indicates that the outp'l.t of the econoMy has becoae lesS oriented towards prisary production. The contribution, howver. of agriculture to the national ecoano is expected to remair. important to the e-d of the cenLury.2 Employment in the sector has declined continuously during the same period In 1970, the sector provided employment tco 43.1 percent of the total labor force. A decade later, the proportior. of the labor force employed in agriculture was 34.1 percent. During this decade, the country's labor force increased by 45.6 percent. The average real growth rate of the value of agricultural output in Peninsular Malaysia during i950-1969 was modest at about 2.7 percent a year. This was largely due to the rubber replanting program being implemented. at .hat time which resulted in large acreages of immature t.ees, particularly in the estate sector. In the following decade. che average real growth rate in the value of agricultural output was 5,1 percent a year. During this period, the 1 Agricultural output is limited to crop and livestock production in this study. unless otherwise indicated. However, livestock is not important in Malaysian agriculture, accounting for only' a minor share (estimated to be around 1 to 2 percent) of the GDP of the sector. 2 This i.; evident in the objectives of the recently released Natiorial Agricultural Policy, which seek to increaste the share of agriculture in nominal GNP through higher productivity in the sertor. IL R 26 replanted rubber acreages were becowing productive, and the area planted with oil palms had expanded very substantialiy. Paddy production was also up when the large irrigation projects financed by loans from the World Bank and the Asian Development Bank came on-stream. As 3 result, double cropping became a c'mmon practice awng paddy farmers. Iia addition, iewer high yielding paddy varieties developed locally were being released for pLanting. During the last four years covered by the study (1979-1983). the real growtl. rate of agricultural output declined to about 4.0 percent a year. The fall in rubber prices contributed to this reduction in the growth ratc and eroded the increases in productivity. Paddy production also declined due to outbreaks of pests and diseases. Only the oil palm indtustry enjoyed both increasing output and p .ices. Agricultural Imports and Exports Agricultural imports declined ir real terms by 4.4 percent a year from 1960 to 1969. In the following de-ade. agricultural imports rose by 22.2 percent a year as a result of rising food imports, particularly in rice, wheat, temperaLe fruits and vegetables. meat and live cattie. Tht increase in demand for these food items was a consequence of higher income.. The gross import bill for food in 1971 was M$735.6 million; by 1983 it had increased fourfold to MS2.984.5 million. (Tan, 1987; table ;1, p31.) As a share of the total import bill. agricultural imports dropped from 48.2 percent in 1960 tr' 24.0 percent in 1970. and sinc 1980 the share had ranged from 12 to 16 percent. Agricultural exports grew by 2.2 percent a year in real terms during the decade of 1960-1969, and then further registered an even faster growth rate of 25.0 percent a year. Higher productivity in all expcrt crops and improved commodity prices were the causes for the high growth rate during the decade. 27 The share of agricultural exports in total export earnings, like agricuitural imports, also declined from 52.1 percent in 1960 to 45.8 percent and 26.3 percent in 1970 and 1983 respectively. Food Production In Malaysia, the relative importance of non-food crops to food crops is very obvious as the agricultural sector is dominated by production of export crops. In this definition of export crolps, palm oil is considered as a non-food crop in Malaysia. although it is consumed in other countries as a vegetable oil.3 Malaysia has always been a food deficit country throughout its modern history. depending on imports to satisfy a significant proportion of the food requirements of the populat:on. For this reason, the government, before and after independence in 1957, had been concerned about the availabil.'ty of foreign exchange to pay for food imports. Food self-sufficiency, especially rice self- sufficiency, has been a policy goal for decades. Another point to note is the ratio of food output to non-food production. The ratio has been on the decline, due to the recent fall in rice output. as well as the more rapid growth in non-food crops. By 1983, the ratio of non-food crops to food crops in Malaysia was 1:0.13 compared to 1:3 for the Philippines and 1:16 for Thailand. Food Consumption ood production increased by about 3 percent a year during the period of th( dy, wh;le per capita consumptior. of food grew by about 1.8 percent a year. On the other hand. per capita apparent consumption of rice declined from 3 Kalaysians began to consume a snall quantity of palm oil as cooking oil in the form of refined, deodorized, decolorizcd palm oil only in the last few years. 1 28 a high of 140.8 kg in 1960 to 104.0 kg in 1983.4 This is to be expected. Since rice is a staple cereal food, as real incowme levels rise it will become an inferior good.5 In Malaysia, because of the different r.eligious beliefs of the three ethnic groups, per capita meat consumption has to be qualified. The Malays wvo are Muslims do not eat pork, while the Indians who are Hindus do not consume beef, and the Buddhist Chinese do not touch beef or mutton. The only meat acceptable I to all religions is poultrymeat, and even then -here are strict religious restrictions on the slaughter and preparation of the meat. With these qualifications in mind, the Veterinary Department in Malaysia has estimated that, based on the beef consuming population, per capita consumption of beef in 1980 was 3.2 kg. Similar estimates were made for mutton (3.4 kg), pork (15.9 kg), and poultryneat (10.8 kg). B. Selected Issues in Agriculture (1) Land Use Pattern Estimates of the land area in Malaysia suitable for cultivation range fomr 8.1 to 12.1 million hectares, while the estimate for Peninsular Malaysia is 6.9 million hectares. A total of 4.66 million hectares had already been cleared and plantea by the end of 1983. (Malaysia, 1986; p302). Depending on which estimate is used, there are about 3 to 7 million hecXtares suitable for agr-culture which are still undeveloped. 4Per capita apparent consumption for rice was calculated instead of actual pet capita consumption because data on rice stocks are unavailable. 5 The income elasticity of demand for rice has been variously estimated to range from 0.47 to 0.04 and even negative values. STan, 1987; p43). F | ~~~~~~~~~~~~~~29 * Rubber dominates the agricultural sector in 1983 with a planted area of 1.97 million hectares, followed by oil palm with 1.25 million hectares. Paddy 2 is planted enly on 76%.2u0 hectares. ever iougk it i the staple food crop. of th.e country. Other e--.port crops include cocoa (with a planted area of ZI5,100 t hectares), coconut (324.000 hectares), pepper (11.400 hectares), and pineapple (11,100 hectares). Food crops other than paddy planted are vegetables (7.60 hectares) and local fruits (90,000 hectares). Tobacco is grown on 9,400 hectares in 1983. The oroportion of the total lancl area in Malaysia used for agriculture in 1983 was only 14.2 percent. with only 2.6 percent devoted to food production. (2) Land Tenure Land rights are vested with the state governments under the Malaysian Constitution, which then grant the land to applicants cn a personal or a corporate basis und-r varying conditions as are deemed appropriate. These rights to the land range from temporary occupation and cultivation to full ownership in perpetuity with the right to transfer it as property inheritance to heirs. Between the two excremes is the right to use the land for a limited number of years, usually 60 tc 99 7ea--s, under a leasehold condition. after which the land reverts back to state ownership. The current practice among most state governments is to opt for leasehold when making land grants. Land admin.istration in the country is based on the Torrens Syscerr ir. which each trSCt of land is surve-ed and slearly marked and a title issued in tile name of t!o person or the company to whom the land has been granted. The titie is formally registered with the Land Office in each district of the state. Titles are issued with conditions on its use, whether agricultural, urban, recrestional, or industrial. 1.v Agricultural land may be restricted to the planting of specific crops'. and thte changing of this condition often necessiLates the issue of a new title, which is a time-consuming process. Lard conversion and subdivision are also subject to conditions imposed by the stal:e authorities. The individual pays a single premium for the land at a ra e determined by the state government, the survey fees, and then an annual quit rent for the rights tc the land. There are two other minor levies based on land ownership such as the education tax, and an irrigation rate if the land is provided with such facilities. Fcr urban or residential land, there is also arn assessment tax.6 There is still a remnant of E. customar; land ownership system In several states, particularly in Sabah and Sarawak. These customary land rights accrue to the person, especially someone from an indiger,uus ethnic group, wno first clears and plants the land. Such rights are held in perpetuity, and no payments or rents are paid to the state authoritaes, but the ownership claims must be registered with the nearest land office for purposes of administration. Often such customary land rigats are held in common among several families living together in comnunal long houses. Lar.d tenancy in Malaysia is largely restricted to paddy gruwing area-, although it can be found among other crops where the tenant is considered tc be a share cropper on the land and is ertitled to a proportion of the daiiy outtp_t. Absentee landlords are more frequently found in holdings with tree crops t 'd?, in paddy farms. 8 The quit rent, vhich can be increasei neriodically bv the state governments, is one of the major sources of rcvanue for the state. The ot;.er land-based taxes collected or, a ::ominal basis are the education charge and the irrigatio.l rate. Timber royalties form the other major revenue source for the states. Unfortunately, there is no readily available data on these state revenues. 31 In some paddy growing areas, land tenancy is prevalrnt. Often. the tenar.cy right to operate a paddy holding is unwritten because the contracting parties are related or are known to each other in the village. Prior to 1967, most rents for paddy holdings were paid ir Kind, at a rate amounting to abonit a third of the paddy crop. If the holding could be double cropped, then a higher rent was demanded from the tenant. Whether ar not the landlord shared in the cost of producing the cro2 or in maintaining the holding is subject to negotiation * between the landlord and the Lenant. Since 1967, the rent on paddy farms is often paid in cash and can account for ;!0 to 30 percent of the total cost of ! production eepending on the paddy growing area. (Fadil. 1984; Appendix D2.) Attempts t. regulate tenancy in paddy growing areas led to legislation at the federal level in 1955. Orly one state government gazetted this ordinance and tried to implement its provisions olf written and fixed rental rates. It failed. The ordinance was repealed and replaced by another more comprehensive piece of fec.erai legislation. Written tenancy agreements under this law specify not only a minimum tenu:e period of 3 years, but also a fixed rental rate based on soil fertilit, classes in the paddy growing area. She rental rate is for one paddy crop. If the land can be double cropped, then the owner is entitled to an additional 33 pereent more rent than that Lor a single cropped holdng of similar fertility. The law provides for the registrat:ion of the written tenancy agreements. procedures for resolving ^onflicts between land owners and tenants over the agreemerts, enforcement personnel in each paddy growing area, and penalties for non-compliance of its provisions. 32 Before any federai law can become operative in a state, the law must first be presented, debated and approved in the incdividuai State Legislative Assembly. this federal land law is still on the legislative agenda of several states, although the federal law was passed in 1967. Even ia the states where it had been approved, enforcement has not been strongly emphasized. Miust tenants do not rzport Any rental of paddy land, since tlhey do aot see any need for it; land owners also do not feel an; need to report these transactions. There has been a move recently to have the law repealed for being ineffec.ive. Further research has also shlo-rn that tenancy In paddy growing areas, :hough existing and extensive in some states, has not been as oppressive as was )ace believed. Most tenancy cases in paddy growing areas are between faw.ly relatives. or between persons living in the same village who know each other well. Hence, it was not unusual to find rental rates belcw market prices for the same quality of land with such tenancy cases.7 Furthernore, research results have demonstrated that tenant-operators in paddy growing areas tend to be more productive than even owner-operators themselves. The proportic Iddy farms and paddy land which is tenant operated has declined since 1960. In KADA. the propcrtion of -nant farms fell by 6 percent as reported by two surveys carried out in 1960 and 1979/80. while in M^DA, the decline was 16 percent between 1966 and 1975i176.8 On the other hand, the number of owner operated farms had increAsed. (Sukor. 1987; p219). The most probable reason for the decline !n tenancy in paddy growing areas is farm consolidation. See Goldman and Squire (1982; p756). 8 KADA (Kemubu Agricultu:al Development Authority) manages the large '1 irrigation project in Kelantan on the east coast of Peninsular Malaysia. MADA is the Muda Agricultural Development Authority in charge of the huge irrigation project in Kedah in north east Peninsular Malaysia. -- -- - -------~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 33 With the new high yielding varieties and the new farm technology of tractor ploughing, broadcast sowing and mechanical harvesting, owners have discovered that economies of scale in paddy growing are possible. Furthermore, the higher paddy support price sinze 1974 and the price subsidy since 1981 have improved the profitability of paddy production. * ;3) Malay Reservation Land Land owned by Malays. particularly paddy and agricultura' land, is designated as Malay reserved land under the Malay Reservations Ordinance 1931. and cannot be sold to non-Malays. The objective of tais British colonial legislation was to prevent the transfer ol. Malay land to those Chinese who were keen to acquire land for agriculture. The law has remained on the books ever since, and it now serves to concentrate such Malay reservation land in the hands of a Malay elite. In recent years, this elite increasingly has been comprised of members of the teaching profession, the armed forces, bureaucrats, and other salaried groups living in the urban areas. They have becomie absentee landin-ds by default since they choose to remain in urban areas. The situation is particularly acute in many paddy growing areas where the elite is buying any paddy land coming into the market. The price of such land is depressed since it is Malay reserved land. This Malay elite in general supports UMNO rather than t'.e opposition PAS. (4) Farm Size There is dualism in the agricultural sector in Malaysia. The estate sabsector is organized cn a commercial scale, often depending on hired mana&ement and workers. It dolnstes the productlon of export crops in terms of productivity and innovation. An estate is define-d as any holding under a =-- - -- -- -- - ----_ b J 34 single owner which is not less than 40 hectires (100 acres) in size, regardless of whether or not the holding is contiguous. Most estates are on the west coast of Peninsular Halaysia. About 67 percent of the estates are less than 200 hectares in size, with a few over 2.000 hectares. Because of the economies of scale associated with oil palm cuItivat ion and processing, there are more oil palm estates which are 1,000 hectares or more in size than there are rubbe'r estates. Smallholdings are LMIJLy OLientedL farms, using hired workers only _ occasi-nally. They are more numerous than estates, even though their productivity is low and the technology is traditional, they account for a significant proportion of the total output: of export crops. Only smallholdings .row food crops, with paddy being the pr:ime example. A smallholding is, by I definition, any holding less Than the cut-off size of 40 hectares. There are very few large smallholdings. About 84 percent of smallholdings are less than 2 hectares in size; those which are more than 4 hec.ares account for 2.3 percent ; of the total number of smallholdings.9 ; Smallholdings account for about 7 percent of the total aree. urder r cultivation in Malaysia. Many of the smallholdings are not strictly I monocultural. except for paddy farms where cultivation conditions (water logging) do not permit other crops to be grown. Mixed farming where crop cultivation and livestock rearing are combined to general:e the farm family income is uncormon. Although the fatmer's wife may rear some chickens to supplement the househoia income and diet, this usual.y is not a major undertaking. X 9 Dept of Statistics, Malaysia. U = - B 35 The small site of the uallholdings !Was been identified as one of the primary causes of rural poverty. Subdivisaon of land is co on when land is passed from one generation to another. especially in an Islamic society with strict rules on inheritance and division of property. Legislation is on the books prohibiting any subdivision of land less than 0.5 htctares in size. This prohibition has led to multiple ownership claims to the tuaall plots of land-l) (5) Idle Land The problem of the smatl size of laial holdings is mosc acute in paddy growing areas. In HADA. the proportion of farms which are about 1 hectare in size increased from 38 percent in 1966 to 47 percent in 1975/76. Pe:*sding these marginal farmers to give up their land is difficul.t because of the Malay comnunity's attachment to the land, especially paddy lagnd. This is also the cause for the simultaneous existence oi a:n estimate,' 04.700 hectares of idle land in paddy growing ureas. One reason for the idle land is the lack of family or hired labor tc continue farming the paddly plots when there is a rate of out- migration by the younger and better educated generation. Some land is abandoned because paddy farming in some areas is no longer financially attractive (eg. poor soil fertility; alterr.ative employment; etc).11 Idle land is also found in other areas cultivated with other crops. An estimate quoted by Sukor Kassim (1987; p221) reported that the quantunm of such land had increased from about 40.S50 hectares to 161,900 hec:ares up to 1985. Part of the reason for the increase in idle land is the opfening up of land 10 There are titles to plots of land less then 0.5 hectares which are claimed by as many as 50 or more osners, all of whom are properly certified by the District Land Office. 11 Surprisingly, there is relativel: little idle land in MADA. Even the infertile plots with acidic soils are cultivated for what they can produce. 36 settlement schemes. Farmers selected for participation in these schemes have refused to dispose of their current holdings to the farmers remaining, leading to the land being abandoned. More often. lhd plantetd vith rubber is left idle because the return from maintaining it in production is not financially attractive. (6) Land Reforn Land reform is not considered to be a v'.able policy option in Malaysia for the agricultural sector, especially for tile estate subsector. This is because the estates are considered to be both innovative and productive as well as leaders in the development of new technology and crops.12 The estate system has contributed to the comparative advantage of the country in the production of all Malaysia's export crops. Ttere appear to be no economic er social reasons for wanting to break them up. Most estates are now publicly owned end listed in the stock exchan-e. Consequently. the! estate syster in Malaysia is very different from that of the hacienda systeri found in the Philippines and South America. There is still land available to be developed for cropping and settlement, and the maniland ratio in many parts of t:5e country is low in compatisor. with most other developing countries. Such land development and settlement schemes are a key policy option of the governme..t, and are being undertaken with public sector funding and exterrnal loans. The recent migration of educated youth from the rural areas to the urban areas has reduced the pressure on the land still more. 12 Oil palm and cocoa both underwent strict verification trials in th.e estate subsector for their cotmmercial potential before they were adopted for diversifying the agricultural sector. 37 In the paddy groving areas there has been a move tovards more land consolidation as indicated by zhe decline of tenant farms. With consolidation. there will be increased productivity for the labor remaining in paddy cultivation. The other side of land consolidation is that tenan'; farmers may be displaced. They then become landless laborers in the paddy growing areas where farm and non-fanm employment opportunities are limited. However, land reform or redistribution of paddy land into small. individuall, owned and operated units or imposirg a ceiling on paddy land ownership is not a likely long-term solution to help these landles;s laborers. Such units, although more productive per unit of land, will lead to a retention of margina' labor on the land. To assist the displaced tenant fairmers, a policy to provide alternative gainful employment is a more alternative approach. The temporary migration of labor from these areas into the construction industry in the cities and Singapore has been the alternative most often turned to by the younger generation of L landless laborers when they become unemiployed in the rural areas. (7) Agricultural '.abor and Wages The estimated mantiland ratio is 4 hectares to 1 person for Malaysian agriculture. On this basis, agriculture is labor intensive, with labor cost. accounting for more than 50 percent to total production costs of all mnajor export crops. (LLi:, 1984; p378). Since mechzknization of rubber tapping and oil palm fruit harvesting are not feasible in the near futu3re, a massive substitution of capital for labor is not on the horizon. The availability of agricultural labor will continie to be critical for the expansion of the sector. In the sho-t term, the existing labor shortages in the agricultural sector are a normal part of the development process. over time these shortages will 38 be overcome with increases in real vage raltes. Large wage increases have not been forthcoming because what the estates can afford to pay is tightly linked to labor producti4ity and the international price of rubber and palm oil. Hence. the, supply of laboL has not been forttcomiirg. The Kalaysian labor market for agricultural labor is therefore chare,ct..rized by the existence of pockets of rural labor surplus in parts of the count.7v amidst a general shortage of such labor for the rubber and oil palm estates. The shortrun solution to the labor shortage from the viewpoint of estate i m anagement is to use contract labor from Indonesia and the Philippines, or even to engage illegal immigrants from these two countries. The government is not encouraging this solution since these immigrants often abandon the agrsculturai sector for the urbat& areas as soon as they bezome ramiliar with local conditions.13 (8) Irrigated Land Irrigation is provided only for paddy cultivation so that water is available for at least one crop. D(ouble cropping is introduced where tnere is enougk water for it, Irrigatior. is more vital for the single cropper as dependence on water from rainfall is particularly unreliable in Malaysia. Irrigated paddy lar.d is not used for growing other crops because water is suppliec to the paddy land under an inundation system, where the land is flooded for a certa!n period of time. It is not possible to channel water aw3y from plots so that they can be planted with ot'her crops. Up until 1983. the total area provided with irrigation was 613,000 hectares at a cost of MS2,102.5 13 In recer.t Fvars, immigrant labor from Indonesia ir. particular has displaced local Maeays from employment in the informal labor market and from petty trading in th? urban centers. ~~~-__ __ 39 million. In more recent years, the cost per hectar. of providing irrigation inctezsed substantially. From a Lost of M$100.44 per hectare in 1979. it went up .n nominal terms to MS348.02 per hectare in 1982. bWCrop Chtoice Climate, topography, and soils help determine crop zhoice in Malaysia. 4*ree crop cultivation is a natural choice. because it resembles the jungle whizh it displaces. Cereals and other short-term crops in Malaysia are often not suitable because of the frequency of drought. The soil and the topography also do not favor such agriculture. The typical soils are relatively infertile, r requiring large applications of fert.iizers. There are no extensive flooc plains to enable food crop cultivation to be carried out with economies o- scale. The cost of grawing food crops is consequently high and cannot be privately profitable without some form of subsidy. These same factors ideally suit tree crop cultivation. The products of tree crops are often more remunerative than food crops. and the need to apply fertilizers can be coordinated with the price of the output. More are used if the output price justifies it. Tree crops are usually mcre drought resistant r than food crops. The actual choice of tree crops planted in Malaysia was more by acc- dens than by design. The main crop cultivated ,n the country at the turn of the century was coffee, which was badlv affected by pests and diseases. Coincidentally, rubber was promoted as an alternative crop. The rising demand for rubber due to the development of the pnetmatic tire for the car industry in the U.S.A. prompted an enthusiastic response to rubber growing among the f0'i:gn estate ovners. The rest is history. .L 40 Oil palm came to Malaysia via Sumatr&i, Indonesia and was planted as an ornamental palm in 1870. Its value as a vegetable oil crop was recognized by the private sector estates in the early 1920s. These estates invested jn research and deveilopment in the new crop, conducting genetic experiments during this period. The area under o.l palm increased only marginally until after 1965. In order to diversify from rubber, the pri-ate sector started planting the crop on a large scale. D. The Rubber Industry Structure of the Industry The rubber industry is representativa~ of the dualistic structure of export crop production in Malaysia. The innovative commercially oriented estate subsector exists alongside a traditional smallholder sector groving rtubber as a cash crop.14 Estate ownership has changed from the individual to publicly listed companies, and from foreigners to Malaysians or Malay trustee cerapa-ies. The number of rubber estates has declined since 1950 due to esraro fr.igmentation and conversion to oil palm. In 1960. the total area uncer esL'zes was 782.700 hectarts; by 1970, it had declined to 677,000 hectares, and by 1983, it declined further to only 477,500 hectares. Estate production, however. d±d not decline because of productivity gains trom replanting with high y:e _ng clonal varieties. Output from estates was 419,800 tonnes in 1960; 631,310 ti.n..es in 1970. 'n subsequent years, production fluctuated and since 193C. estate output showed a declining trend. The reduction in estate area planted fin3l'.V overtrook productivity gains from replanting in that year. i4 See ChaFter 12 for a more :etai.e' dis.ussion of th3 s -a'.istc structure of the rubber industry in Malaysla. 41 The area under smaliholdings increased annually with a few exceptions. In 1960, smallheldings accounted for 765,600 hectares snd 299,000 tonnes of rubber. By 1983. both area planted under smallholdings and prodluction had exceeded that of the estate sector, accotnting for 75.8 percent of the total area under rubber and 65.0 percent of total rubber output. The number of Malay rubber snallholders exceeds that of Chinese smallholdecs. However, the larger rubber smallholdings tend to be Chinese owned. X rketing of Rubber Rubber has to undergo a processing before it can be ma keted. Traditionally, rubber is sold in tl.e forvr of smoked sheets,with RSS 1 the best quality and RSS 5 the poorezt.15 Due to better quality control, est3te output is usually RSS , and RSS 3 wnile smalLholders produce RSS 3 and RSS 4. 7n 1965, a new grading system based on technically specified qualities 'gas adopted. and Standara Kalaysiar Rubbers were sold alongside sneet rubber.16 The estates sell about 70 percent. of their production direct to local rubber dealers and shippers. and the baLance is exported directly to cverseas buyers. Smailholders sell their output entirely to local Lealers and to Malaysian Rubber levelopment Corporatico (MARDEC) factories.)l Fromn .e 'ocal' RSS stands tor ribbed smoked sheets. The smoking process stops ,.ga' deterioration during storage and t-ansportation to its final _s- na''e- overseas. 16 ,he highest SMR grade is SMR 5 with 5 percen'. dirt and other fc ^e.£5 matter iiL the rubber; the lowest, SMR 25. 17 The MARDEF factcries have attempte.' to replace the local rub'er _ea.ers at the village level by buyirg ftom smnal:'nolders and selling directly o cverses manufacturers. their success has been limited. Poor staff maS agene? . .a j.f commercial expertisP, an:! hig- operati,-g costs have been -ited as reasons fsr their failure. 9Barlow, 1973; p32-,. 42 dealers. they receive cash, while MARDEC factories pay on a weekly or a fortnightly basis which is not popular with smallholders. _- Rubber Prices Rubber prices are determined in the world market. The FO.3 pr:ce in Malaysia is quoted daily from Monday to Friday for current and forward saLes. Tb- border price for rubber is the;FOB price less atrketing and transport costs. 7. Fu'thermore. the producer price (the price received by the estate and -t sI;ilholders) is the border price less the export tax and the cesses on esearch -A and replantir.g. E. The Oil Palm Industry Structure of the Industry Oil palm cultivation is principally an estate operation because z;. t-.e lapse between harvesting and processing of the fresh fruiL bu;nct.es z or: critical thar. in rubber. The quality oE the resulting palm oil is ad%;k -s-:V affectt f there is a delay in processing of -he frzut bunchts. sec e I the establis>inent of c:.all oil palm estates _s a rece-t and' .--.Ited c;_ z. . being found only _n areas where a large cil pal= estate vtIh an- ta willing to buy their fresh fruit bunches for preccess`ng. The develornent of land sche:es , .lan!e7 thKl y R .r agencies is alsc a re:ent deve: . s .e-ar.e se:t ed :......r possessing no 'an c: _cnecononic m an lho' s. Th.ese setaters a-e gr.: to plots in ,.,e 'ani s_he:.?s. but --e c-i; pa.. . ro ..e s.:e.~ s . e . - . are both under tFe central mana3gem.ent of he ^ic secse. a ez-. ; settlers being e.n.lcyed as workers. As s_., t.es schenes Are n.- smrallholalings as rte4inde earlier. By %.;Z s vih se-il,sIn se:le-.* F .s accoDu-nt for the >3>g:r pr-co>rt; >n >e :1c:>- a.ea3 cer, he - 43 The commerci.l interest in the crcop was sparked off by the general availabilitv in the late 1960's of a new high yielding variety, tenera, which was developed by he research efforts of the estate sector. Since the crop matures within 3 years or field pLanting and its yield of oil per hectare is the highest of any oil crop. planting of oil palms in Malaysia expanded very fast in the last two decades. The area under oil palm.s in 1960 wras 54,600 hectares; by 1970, it had increased to 261,2-0 hectares, and in 1983. the planted area was 1.3.530 hecrtares. Estates account for all the planted area in 1960; but by 1.7 an.- 7 1983, estate hectareage was only 74 ard 54 percent of total pl -nted area respectively. The number cf oil -al.n estates r-se from 62 in 1960 to 360 in 1'97. a-.- then to 2,228 in 183. Srprisingly. rhe average s.ze cf an oil paln es.a-e s aroun, 542 he:aress. ' s size id .c` c-hn.ge betwee-. 970 and 1933, a it de1.v-Led bv a t'-J,d Fro, 1960. in ter:.s of _ield cf fresh frui bnch IFEB). estate output has : varied between 17 anr. 13 on:r,es pe-r h,?Ctare. Palmn oil is extracted Ifro tr.e mesccarp of the fruit'. while nalm kernel oil is obtained after cra-k:.n -o - the paln nut a:d extracting and expressing the kernel. Palm Oil Marketing Pa:. oil Is -ax..rte` in ai . and -s.st be kert at a n te..e.. a-e-. n a:ntain s 5 c_ic:yv - : e-n :erae ce^-,in es. F-o- 192 unr l. M- : Ta,1 :.o was exp:rted togeth.er with 2a.n oil fron .n'onesia. After ^he e.-- Wcrld Wa-, a wh-l-y X3.alaysian alm oci marker;.7g pc.o was created . at:t .- t.e snall .ner cf producers in the eeountry selling mainly tc consz-e-s 44 Britain. The pooi operated to minimizing marketing costs since there were no price differentials to oe exploited. With the increasing number of producers in Malaysia, criticisms of the pool operation led to its disbandment and replacement by a free market system based on FOB prices. Producers compete to obtain the best price for their output. Pals Oil Prices Like rutUer, -he price of palm oil :is determined by demand and supply in the world market. The FOB price is announced daily from Monday to Friday, a function which has been taken over by the Palm Oil Regulatory and Licensing Authority 'PORLA) since its establishment in 198O. The border price of palm oil is the FOB price less marketing and transport costs, while the producer price is the border price less the ex-Lrt tax, the research cess . ' the regulatory cess 'or PORLA. F. The Paddy dustE-ry Structure of the Industry Paddy growing is strictly a smallhchlder occupatior. The paddy farns ate small, rangir.g from 1.2 to 2.C hectares in size. The estimated number cf 7ad4y farm families 's around 15C,O0C of w-hich only about half depends solely or.. aJ_y for their -a.mily irncome. (Selvadurai, 197:?: p13 2. Malays dominate the inJusy. accounti.g for 92 percent of all paddy h3useholds.18 There are very tew non- Malay paddy far.ners. The area ~_.zer caddy plan-ted -u-in. he main season, r.creased tc--.= T-e 196cs and early 1a70s an-. thereafter ex-aerienced a declining trend. ' ' 18 This dom`n3t on was the historical attempt by th- British colo-.ia acurnistratior. to re.erve food production to the Malays, a policy cor.. - o Jsis day by the re;.uc:ar.ce oi the state governmerts - crant paddy .an' Chinese a.A indian farmers. 45 the main season area was 295.500 hectares; by 1970, it had increased to 379.600 hectares and then in 1983, it dropped to 296,200 hectares. On the other hand, do;;ble cropping of the paddy land increased from 1.4 percent in 1960 to 34. 7 and 58.6 pezcent in 1970 and 1983 respectively. The expansion of do.:ble cropping is due to the availability of irrigation in the major paddy areas. Double cropping has bpcome so important that its output now accounts for about 40 of ~~~~19 perceat of total production. Rice Self-sufficiency Domestic production of rice,20 despite the huge in-vestment in physical ir.frastructur ;.r irrigation, siill lags behind demand. Rice self-sufficiency, defined as the propo-tion of domestic froduction to total demand, as a policy goal has yet to be achieved. Referring to Peninsular Malaysia only, the rice self-sufficiency level rose steadily in The decade of the 1960s and approached 90 percent. But during the wor d rice shortage in ":'1-l;75, the trend re''erse2 itself and the self-sufficiency level dropped to 85 percent. Although :h- leve: fluctuated in subsecuent jears, it remained at around this level and izt.et s o rice ranged b,tween 2D and 25 percent annually. If Sabah and Sarawak were to be included in the analysis of rice se:f- sufficiency, the level will be some 6 to 1C percentage points less. 6in,-r production in these two states car, satisfy only about 47 percent of de.-^. The rice import le%-el would increase similarly. 19 In passing, it is interesting to note that the off season paddv cro has always been higher than the maia se3son crop, probably because of lss ce cover. During tht .-ain season, ra infall provides the water fcr . :, resulting in less raunmber of sunny days. 20 The cor.version rate of paddy to rice in Ntalays.a is 65 perce7t. 46 Paddy Research Although funded directly by allocations from the annual budget, the paddy research program in Malaysia has had some notable succes es over the years from 1960 to 1983. Most prominent of these successes were the development of high yielding varieties suited to local conditions and practices. An innovative free seed exchange program led to quick and widespread distribution of the new varieties. t'.e adoption of which was met with minimal resist. -e on the part of the farmers. These two elements of the paddy research program have had a definite salutary impact on paddy output in Malaysia. but this impact had not been measured quantitatively. An anecdotal story will illustrate how paddy farmers view paddy research in Malaysia. In MADA. word spread among the farming community that the '.ocai paddy research station had developed a new high yielding variety which re_Jred less fertilizer and other inputs, and yet produced high yields. Re'qes:s fo- release of the new variety was denied by the researchL officers orn . e grO-.' that testing was incomplete at that point of time. The farmers refused to accept tre explanation and took the matter rnzo their own har.ds. A group of them broke into the research station and st? e s'me bags o' seeds of the new paddy var:e:y. They secretly planted it i.. :hel: fields. Soon the high yields of the variety became widely kncwn -y wo-d ec mouth. and the variety was planted in almost all the major paddy areas i- `e country, to the ssrp. se of the researchers and extension workers. An;a : .:; report ind.icated that ab:ut 67 percen,. o~f :MMnA was pla-ted with th:s .ar ..ar variety withir. two years of the theft.21 To the paddy farmers, tis npddv 21 The essential elements of this story was confirmed by a sen-eir resear_h officer on paddy who was working in YA.DA at that time. 4- variety was known as Padi Candu (or Opiun Paddy); to the officials, it was given X the innocuous name of Seribu GantanR (Thousand Gantangs) as this was the first local paddy var.ety to cross this yield threshold. iX _Paddy Credit Institutional 'credit for paddy farmers was formalized only with the establishment of the Bank Pertaniar. Malaysia (BPM) in 1969, although previously there was some delivery of such credit by rural coo-ratives and farmers' organizations. The management inadequacy of these instititions soon .ed to the [ . suspension of tneir credit program due to the depletion of funds. Since Paddy F farmners are Malays, and they were depenident on Chinese shopkeepers anl dealers for their credit needs, the situation was politically unsatisfactory and sensitive. As double cropping became more common during the decade of the 1970s, the needs of the paddy farmers for credit also expanded. The c-edit policy as -nitially developei by BPM in 1970 carried an interest rate of 1 percent per nenth with repayment to be made after each paddy crop was sold. Paddy farmers were therefore given two loans a year for the two crops c-ey planted. As reported by the Bank, the ratio of the loan repayment to the a-._t of the loan amount granted had remained consistently at about 75 ve-.e v annuaily. Since 1980, paddy loans from BPM had been given out interest free as directed by the government. This was a move to help reduce poverty among oaddy farmers under the NEP. The cost of the funds for the paddy loans beco-e operating expenses of BPM. As experience elsewhere has shown, the effecriveness of ra;:or.e free credit to promote the viability of paddy productio- is highly questiDnab:e a-' L does not allow for the development of viable rural financial institutions. r E I, == IA&i 1() fl.,ALAYSIA IflPORIE Of A~RICULIURE IN I14k (Ct401, 1960-1983 Ytet £onsuaet va luco et GI abi Yie 110601 Real Shave of Value 0o Aglicultural laportv Value ul Ag itcu Itutil tr(pur I lirct Agricu t'Ma¶ u Agnicu [ 6Np 6Np Rea lod . .... . I i - ... Imdci Output tiUFa[Output AgriculItural lapwli value hAme i i s £pol1i v,lue sharet in 5I4jv iiI output to Total 10141 Not I At Real 6Nt Imports fipo,ts Agricultural Im~~8oiooJ )ns ad) Ins ad) ~ilsa) In$ ad)II all) ims oil) Ins eil) In$ oil) If60 51.5 1,823 .W54 5,863 11,384 31.091 2,786 1,344 40.231 3,b33 1,893 Si AI1 lOl 841 1961 51.4 ~~~1,697 3,302 5,889 11,45) 28.811 2,816 I239 44.001 3,238 1 Sil 49 131 91 I's 1962 5i.4 1,68 3,228 6,196 12,054 7.1 3,57)0 25 .181 3,60 l,h "-by 4 L..... 94.31i 1963 53.0 1,732 3:26 6,583 12,414 26.311 3,193 831 26.041 3,330 l, ,Ui 40 1A 1 196$ 5281,2 ,40 1411 14,036 24651 3,356 1/' ?3.20 3,183 I,i6t, 44.011 It.t16 1966 J3.6 1,8)4 3,1496 7,780 14,515 24.091 3,3B0 840 ?4.861 3,846 1,1694 44 .G'., '7 401 116? W5, 1,755 3,151 8,1146 14,625 21.541 31,325 130 21.951 3,724 I .54 4(1.401 j.1 11 1968 55.6 1,IS 3,1M 8,424 is ,15"I 0137 3,55 W5~ ,I.2"1 4,17 I.,&268 39.491 9 1221 1969 55.4 2,501 4,514, 918 l6,6i 27,131 3,605 7$ 0.81" 5,055 297 11S.4411 91 031 1970 56.4 2,514 41,451 ?9,17 I7,32 25.~721 4,288 1,028 23.9/1 1,63 2,36 6~.81 91WM 71 197 51.3 2,845 4,165`0 9 71,9 21.','Y 4,16 92 2! .00! 5,017 71AW 41.8/1 fl8041 1972 59.2 3,115 5,363 13,842 723,382 22.941 4,543 962 21.161 4,854 1,600 32.9611 50,391 1973 65.4 3,849 5,885 i7,963 21,466 21,431 5,934 1,31 22.161 7,3)2, 3.327 46,.,81 a88."/1 1974 76.8 4,992, 6,500 ?1,861 28,465 '22.841 9,891 I,77S 17.941 10I 0,l 4 41.8 43.731 09 :41 1975 80.2 5,122 6,387 21,606 24,940 213. 71 8,530 1,7/0 20-161 0:,23I 4:371 46.,8lS 84 3'.1 19/6 82.3 5 671 6,891 26,988 32,792 21.01 9,713 1,/36 17.871 13,442 5,076 P1.761 89 531 19177 8. 6,022 6,986 31,064 36,037 19.391 11,165 1,910 11.111 14,959 5 ,827 38.951 96.761 197 90.5 6 Ž40 4,895 36,120 39,967 1.251 13,646b 2,970 21.761 17,0/14 61I1' L1.891 ?o. Al1 1979 YY3. 1,132 1,60) 43,09Ž 45,960 16.55 11,161 3,258.3 42: 8,9 34 1ll73 198 100.0 8,032 8,032 50,018 50,018 16.061 23,451 3,859 16.451 28,172 ,879 27.971 98 101 (901 109.1 9,171 8,360 54,22 4,433 l6.9'11 26,604 3,211 12.071 27,109 7,805 .1. )9 1 es.lot 198? 116.1 t0,614 9,142 58,956 50,780 18.001 29,023 4,079 14.051 lo,t08 6,63? 24.331 64,4 1 1983 120.4 l0,469 8,695 64,272 53,382 16.291 30,72! 4,107 13.371 '32,7PI 8,612 216.281 922171 Average" 1960 1983 4,344 5,444 22,28/ 26,641 22.401 9,640 1,/37 249 1044 3.0.1 40-461 eu.961 Notes It) 0a a lot 19~0 19/0 ini cojumi$6 I to 6 efere to Wininhu1ar fl4laYSi ohIy, or lhb Ptrlud 1971 (983, thie oitl 4to tht~e w~itiot 121 e to fi14Ii95ii. ,., columns 7ito 13, the entire datia seric reler to flalays I a. D2 ata in couiap 2 lit floe the Dept of ~tatijlizs, flu lasia. No data are availib atle1o~ S,iliat ond Sol,witi tot MD601910. lois oata stimC on agricultural output wt[d ontly to (lop product ion and livestu6k, foretWy 'rIfl li1i,elies being enii udet , mjtsadepr5ll8 rdI).ero thlAIrnTatiu,vtinU 13 he data un artncu tutu iplsddepti(l8 ld1 l (f(i AO16,loltik ilu ~4 Dita on total value of e.p1uraent dre unaivailable. pp}IIII,IPI , .~ I .--- - . _v -.___ __ -. .----------.-----_ lbSLt 3(0): RALAYS)A - OUTPJ1iNOILE llt 08 IRAOfO AII lI0*-TRAO(0 AGRICiTUAAL P800ICIS, 1960-1983 Year Agricultural Products aported Agricuitural Product biported ndeol of Indel of Index of ondei of ladel ldexOf Indel Indel Of mndc, uf Indel yl IndeL ot Index vu Iheti Rice flaize Oranges ol Ru er Palo Oil Coconu Copra P IN Peppet Cinned ; ~~~~~~~~ ~ ~~~~~~ ~~CocoaQ tn lepi W ~ ~~~~~~~~~~ ~ ~~~~~~~~~~~~~~~~~~~~~~~ . i5Juicee - - - - - - -- - - - - - - - - - - --- --------- ----- --------------------- -- -u --- ---- --- -- ---il9 io lz l 1960 4 383 8 28 neg SO 4 )I5 174 4 0 1961 3 253 1? 42 ,ng52 4 139 179 4 1942 3 234 12 43 neg 52 4 145 179 ' 3 1943 3 285 2 44 neg S4 5 114 6 2 1904 4 303 1 52 neg 5? S 98 15b 6 I 1965 12 732 14 53 neg 60 6 W10 163 6 1966 39 201 19 60 Reg 64 7 133 117 2 1941 52 235 20 48 neg 65 9 136 14? IS 19S6 75 189 25 56 neg 7? 11 144 153 Is 3 I9?9 64 189 90 63 n60 b3 14 133 1 iiiO 67 2;9 30 GKA Jqa3 IJ !6 . 52 1' 1971 64 ISO S2 62 41 37 23 186 126 66 3 ISO t ~~~~ ~~1972 sO 137 90 10 IJ "I 'S 4S 171 ', DI 11 1973 e0 1435 37 56 14 102 381 124 1i '3 17 10., 1978 86 100 s1 10 '7 10t 40 106 100 39 V0 1L00 1975 62 189 65 96 35 97 J1 120 74 42 143 91 1976 90 116 61 61 18 907 54 117 116 S4 16 100 197? 104 i6t ea SS 46 0S 63 10G lit 60 9+ 107 i ill ili 214 125 S? a9 103 69 06 95 66 l03 10u t1179 103 143 lto as 73 103 es 98 IoS es 103 90 1980 100 100 1030 100 100 100 100 too too 100 too 100 1981 101 189 Ill 96 122 99 Ito 106 IDS 106 91 83 1982 lit 241 121 too 170 99 116 106 100 164 01 V 1903 121 211 1t0 160 186 102 117 106 loO ISO 35 81 Notes: 11)1 Oaa Vourct ire AO1 Producti, tsearbook ivar ris issues); the '5tatltlSlca Handtook for 4911cultuiet Milays1a 198i3' ilon (i:l nIIini4tr I Agricu1;uft "tAl4ysif; 'Bs4ic Sta;lstics Of PrilarY C91sodities' ltru the flinjsty VIt PrisayI ndustiIes , fa I,$is; and ilie 'Ouartenly konosic otillelin f ros Qarm Nygara flaIaydr 121 e base year lur tle CtoCU at on of tlhe mid ices ix 1980, uliich is the representative tear or the study. F'. - . -- . - 1A11E 3C); rALAYSIA - ASA PtArE0 Of MAJOR CROPS, 1960 1983 leaf Rubber Oil Pail paddy Cocunui LoCO& Pineaipples Peppel q.getiJi fti, I'low ha) 11'000 ha]i 'OdO hAi j'OO0 btl j'DO0 Ia] t'000 hi) I'm bia'Ol j'Q4C ,*j j'Wo rwl 1?60 1,574 55 295 210 15 1 8 55 1961 t,607 57 30 237 2 14 1 a S' 1962 3,679 62 372 240 3 15 I 8 St 1963 1,J20 75 379 265 3 16 1 8 St 1964 1,742 83 38(t 22 3 11 I a 57 196S I,7JJ 97 397) 218 3 11 1 9 0 1966 1,?74 323 2J 3 S I 8 Id 1967 1,740 162 419 263 4 19 1 8 66 1968 1,/23 201 458 295 4 I B 0 1969 1,130 231 419 305 4 18 I 0 03 1910 2,020 301 512 311 J 21 1 L 0 19?1 2,016 340 532 313 1 20 1 9 J5 1972 2,000 402 166 311 14 2 I e o7 1973 3,91 0i I,,". 3! 18 23 I 6 67 1971 1 ,9B9 566 766 3'0 221 72 I 1975 1,997 619 82 363 21 19 1 13 197t 1,981 7IS 15S 235 33 20 1 ~ i~~83 1937 1,981 ,2 1 31 44 39 1 3 9 1?76 t,,999 853 630 340 49 104 elB 1179 2,007 Ito 7S2 2SI 7/ IV9 86 1980 7.005 1.024 III 354 iO9 13 b li 4 1921 2,006 1,119 711 360 144 10 o 14 It, 1982 2.o00 I,IB4 b92 363 IBI 12 7 13 I'i 1983 1,971 1,253 W7o 3J7 21B 12 1 1 i otfee: () the dati souttea ete the Oept. of Stat:istics and the nini6tly of Agriculture, M2 rot tubbet, oil pail atnd coconluts, tlhe data felm to hai486ia. 13) for paddy and cocQi, da6 lot 109bO 1971 rEfets only to Peninsula; nalaysia, vlhile five 1912 oniodrds, the Jdt :elers to hjayldrsl (4) Ihe dala for pineapples, veyetdbles, and lrur(s retet only to Penitsular Mflaawa. ( f) for pepper, the ddtd tor 1?6O W9/e dre tot PeiitlsuliT n4ldis0d wlille the dtaW hfu 19/9 tefteto Nl md. TA8LE 4: w"(SIA - FOCO Pu&TI0U AC CNAU TItA, ;:?W-Lf*3 Year Inceez £'io,ted Index o; Total R:c Aparent of FOG; Fgod Pet capit i iuppi Pet cpita Proqhcttion Orodiction r0od tLOCs CoA 9oft ion Co,suptioil ProActio of Rice & iWOTtt31 [II ;0=. Itonnes) t 80:1001 [Iii tonnes] [kt9 I [i, [ZJ [3: ta) ~ 5 1960 N.A. N.A. N.A. L.142 140.8 9ic ,:85,36 ?I) 1305.7 I !62 c: 3H,;:30 L . iO 130,.7 1?63 cil 3,M51,62 71149 140.1 1964 61 2,^ 9.S, o 1.224 !33.7 1?65 67 3 695,i75 ? 1.;20 127.9 1968 69 ,,;S 7 'L .138 ;!? 0 1947 o 76'ze5t,175 bX9 i.l70 116.o : ;?68 7c 4,270,832 77 1.249 120.8 r -1,'~~~~~~~~~46,9 9b 4.70et 4"9 8 1.354 127. '°70 al 4,71,5,131 aJ 1.457:3, I~~~~~~~~GI F ~~~ ~ ~~~~~~~~~1971 56 5,218,087 ah:12. 1f7Z 69 3 , 60 ,9a as '.40c, :., 1 I $,?~~~~~~~~~~~173 74 * 035,0^"7 99 I.SP7 115.° t ~~~ ~ ~~~~~~~~~1?74 ao 4,396, 9' 94 1.108 .42.9 1S75 32) 4,484,648 c3 1 491, ; 1.8 ; 1976 aI6 4 a7!e, i9 o 1.49 li. W 19~~~~~~~~~~~~I77 83 4,846,490; ?S 1.593 ,Ic 4 l 8 a n :a, ,.0 cs 1..3e 2 oo5.3 197? 998 453° M101. 1. 198 c 100 SC Iate , !00 !.$,'9 1s4.7 ,o1981 109 e 531 35i 101 .7 2 1v1. I 19& ;' 13 ,. i, ? 109 :.59t 10Q.9 : 1?83 llO b'G5C_8 103 k..5SC 1U.0 _ _ _ _ _ _ _ _ _~~~~~~~-- - -- -- - -- - - - - - - - - - - - -- - - - - - - - - - -- - hotes:J11 t^Ol4lns anc 3 ar! .-O tfne FAO P.=ction ead!001 ,2 the Ca:4 series ,r '?3. ! s estiva:.-, cn tat bis15 or ?i, atitput O' 6.20 11,iOan t:nles of oonc nq '1ic. lis estillate was obtii7ec 'r: :,e foo , tx~~~~~~~a:amcE snee: I^r tUat year as renrtec in : Jpapr, icooG ;an,sra;:.io and Proiec:^c' (UnputC;Isled Paper, 1Ini1str7 of 9grIC411ure:. i3j ThV ap?; ent Per capita consuaplion of ;ice : ; ~ ~ ~ ~ ~ ~ ~ ~ ~~~UCalcvited Di.civ;a;ng the total availgale supply t ~~~~~~~~~~~~of Pce ;','Ocii PrJc4z-ton ano iaPvCr; wit1 "ne | oL a a CHAPTE THiLEE GOVERNDIET IUTKIVENTIONRiN 1W TItRDMoS4Y A. Overviev and Types ..f Interventions I.I Government interventions in the Halaysian econouy have b,een minimal by developing country standards. The policies of the E;itish colonial government with regard to an open economy were continued substantively unchanged following independence in 1957. New policies introduced after 1957 were, more often than not, extensions of existing policies. The principal exception was the policy | on industrial development. the promotion of which was maCe a corner stone of nationsl development. Further adjustments to this industrial development pclicy were made aith the advent of the New Economric Policy (NEP) in 1971. In this chapter, selected areas of the economy are examined with regard to the types of interventions made by the governmeat. These areas include trade, industrial development, capital market. foreign exchange, labor mzrket, and public enterprises. B. Trade Policy Interventions Although from time to time there have been quantitative restrictions on the import of manufactured and industrial goods, these have been few and infrequent. Licenses are needed to import goods. bat their principal use is for statistical purposes. Malays are given preference when import licenses are I~~~ ~~~ ~~~ ~~~ ~~~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ issued inr accordance with the .SEP.1 In agriculture, the main quantitative r 1 Resale of these licenses to non-Malavs is p,ssible. Rent see'ing activities among the MaIays in this area are ro.t unk:own. However, there is no information available on such resale and similar activities. =. L K =~ 53 restrictions on imports have been on ice and cabbages. with very few other impediments to trade. Import tariffs have been the main instrument of intervention for consumer goods. The tariff rates have been comparELtlvely low at a minimum of 5 percent ad valorem for most goods. Food items in general have been exempted from import tariffs, with some notable exceptions such as temperate and tropicallfruits. There is no requirement for guaranteed deposits with Bank Negara Malaysia, the central bank, before any imports are permitted. Letters of credit for imports could be obtained from any commercial bank by any importer with the necessary import licenses and the finances to do business. Exemptions from import tariffs are readily given on applicatton for imports of machinery and intermediate capital goods. For both imports and exports, the.-e are no direct subsidies from the government. Transactions are strictly coi%mercial. C. Industrial Policy Interventions Malaysia has had a policy of pornot.ing industrial development since 1958, in which the policy instruments of tariff protection, direct tax concessions, development banking, and subsidized factory sites were used to attract foreign investors The mdoufacturing concerns established under the provisions of the Pioneer Industries Act (1958) were directed towards import substitution of consumer guods. They were given exemptions from tihe 40 percent tax on company profits for periods varying from 2 to 5 years depending on the quantum of initial investment: guarantees against expropriation; and freedom to repatriate capital and remit profits abroad. Bilateral arrangements were made to avoid double taxation with several countries. In many cases, the guarantees and tax exemptions were the principal reasons for the establishment of the industries 54 d,:ring the period 1958-.i968. rather than any tariff protection. Protective teriffs were still low ard were used more for revenue purposes rather than to promote ind-ustrialization. In 1968, the Pioneer Industries Act was replaced withA the In-estmentl I Incentives Act, which provided for the estabiishment of industries which did not qualify for benefits under the original legislation. Additionel incentives were included to promote export oriented industries. A company investing under 1 the new legislation czn have tax incentives for as long as 10 to 15 years if it meets the requireme.its of higher local content, location in a development area, creates employment, and is export orientel. There are no output subsidies for companies investing in Malaysia. The government and its agencies will consider buying the output of local fir-ms on two conditions. The local product is similar in quality to the imported good. and its price is not more than 10 percent higher. Since 1968. there has beee more use of tariffs to protect the new manufacturing concerns, the sc-za..e infant industries. In accordance with the NEP. the government has introduced steps tc encourage more Malay participation in manufacturing. An Industrial Coordinacian Act was enacted in 1975 under which all manufacturing concerns were required to apply for operating licenses. Conditions of the licenses require the c^mpan-es to be 'consistent with national and social cbjectives of the country'. (Mirnistry of Finance, :9b': p235). these conditions include equity participation by Malay inivestors, emploment of Malay workers, and providing information on industria3 activ-,ltes. The objections and protests from chambers of comnerce and Chi.nese trade assosiations prompted the government to amend the licence condition- o exclude small companies with investment of less than MS250,000 and certal-. L bL F 55 industries (eg. paLm oil mills). u-id to suspend the requirement to report or. industrial activities.2 This Act has proven to be an impediment to botl' foreign S and local investment. D. Capital Market Interv'ntions While in general, credit rationing, is not widespread in Malaysia. the L central bank has issued a directive to comercial banks to make more funds - , available for agricultural development anc. for increasing food productior. Such funds are t. be lent out at preferential inte:est rates tm small farmers, in particular Malay farmers. H1ost conmeercial banks managed to fulfil their obligations under this directivc by lending to the estate sector. In recent years. commercial bank loans to agricultare had slackened be-ause L: r.E: activiciec of Bank Pectanian Malaysia. rthe agricultural ~'ank. For urban industrial borrowers, Bank Negara Malaysia has also encourag'-: the cc.nercial banks and financial insT it"- odis to give preferenrie to Xalav ' applicants both in terms of lower interest rates and faster loan approvals. is hoped that Malay entrepreneurs would be able to invest in manufacturin a.- indjustrial projects and thus promote the NEP. A Credit Guarantee Corporation (CGC) established in 1973, fully f_n4e_ b the government, guarantees the commeTcial tLank loans not exceed-r.>g .S 2.^ small scale entrepreneurs regardless of ethnic origin. The orly Cndi , that the capitalization and fixed assets of the applyirg fi.ms dq .oC ex:ee_ MS4O0C,CD. The fur.ction of the C(' is to pro.cte small scale irdust'rializs3.'z:-. 2 For all ir.tent and purposes, the requirement still exists an, ca e implemented if it is deemeed necessary. - The governme:t is conicious ot thi.s impediment, but for poliricai ;_r:'-es it could not repeal the Act. It co:ld only give exemptions to investors osn a _ase by case basis, esneca.a3Ly to foreign investors. 56 and in this respect, it had guaranteed a total cf 124, .4 loans valued at HS2,204.0 million by the end of 1983. Interest on loans and deposits received and paid by commercial banks and fitnancial institutions were strictly regulated by the central bank. In 1978. this was liberalized and banks were permitted to set their own rates for prefer-ed customers. Further relaxation to allow the interplay of market forces of demand and supply 'o determine irterest ra*es on loans and deposits took place recently. Rut the ba-ks end other financial in,sti:-utions have shown exceptional caution in venturing into the free market, and there were few changes in intrest iates after derngulation. Funds can be freely transferred into ar.d o~ut of the zountry with n.. control by the cer-,,l bank. The only requiremenc on such transfers Is the comme"rcial banks must report to the cenltral bank if any siag-. _ .>:er exceeds MS1.0 million and if the transfer is not for business or -rade. E. Foreign Exchange Interventions This is best understood through a. histc.i-a3 account of :ne exhag- g-3 Prior to 1972 when the (Brit sh; SterIng Excharie area S s dismantled by the Uni'ted Kingdom overnment. the Xalaysian rinz --,. known as the Malaysian dollar) was quoted at a fixed rate to the z s currency. In 19.3 and 1974, after allowirn it to iloat, the exch3ner the terms of a new interventcn c'; rte' :.'. Lo!'3r. agai-. at a fixed rate. By :975, the necessity to realig.n t.e v:'3'e of tne rin.2a.t This time .;t wpS tc ptevent a spe;'lative run or the rgXj be: over-valuatior in relation to other urrenles t' s realignfne.t--'; the ringgit floating in re'at.on te, a vsket ct corren-ces e r 57 Malaysia's trading partners. Effectively, the ringgit was devalued, wh4ch had the salutary effect of helping to promote Malaysian commodity exports. I- 7-.ble 6. column 1 shows the current account deficits for the period 196. to 1983. Ti-ough to 1980, Malavsia experierced lonly two to three years of mild deficits, folloced by a similar period of surpluses. The longest susta ned period of current account surplus was between 1976 and 1979, a boom per-c' for i Malaysia's major commcdity exports. From 1981 through 1983, Malaysia experienceZ its largest current accu^nt deficits, which by 1983 amou-.ted to accrox raze 10 perct.ntt oi GNP. . h-o_.ugu t:-.e 960s, the nominal exchange rate of the Malaysca. : n2.i- to the U.S. do-_ar remained fairly stavle in the range of MS3 '4 to MS3K7 er U.S. dollar. 7rono l) tc !-7. tFhere was an appreciation in the v- ue .- --e rinzgi: in :.ominal ter-s fc_nm MS3.07 to MS2.'9 per ".S. dollar. 7-en as Ma1a..._ incurre4 current acco' r.t deficits, the non-:a exchange tate de_re ac?c MS2,34 in - ,e avera2e nxchange rate of th.e rcr-27 t '-.. dolla. between 19f I and J 53 was ~'SI-I ^er -.S dollar s-.e e_a. exoac e en - e - :. +he x.aa' x -.e -a-e. .s s'le . t e_ - . ~~~n-iale('. ^ .;?-g ae 4 ¢e 'er*>ch e -a.e -t ra`n t.e eq .m. r-eal exchange rteg . est-mat: th >'+e ezulihriu ex. ange rate Jahle 6, lur.n- 6\ is5 :a<- ass rar.s thWati h-.e elast i.ztv of sarplv :f exnmt s :s 1.C anr sne elis- aemano :r ',i 'rt s -'.s . nrc .u.<- 2 it S calculated again_s.n - . - an -. nt s .ace t the Ma_ vs a. cv se '^a' :t s -t.a ~. *. e ' .zde ditr:f.on inS >th'~. e ecoo.v<.>................. - --: Is :e: as t_ _.i: 2P:t = a E- x a is t _a, 8 ~~~~where a : s -.m~ -e~ ev..e .. r~.sum e- ::mie r.iex th.at cs rh.a_> tradeabl e gc_s; ?. Is tfe cr nce -£.ex to- the tra 4eable ' m^n-rj - ' an- .s mh: ^ri e -h.x *. the n-trmpadea>le cononent 60 assumptions that the elasticity of supply of exports is 0.5 and the elasticity of demand for imports is -1.5. The differences in the estimates using these two assumptions have very little impact on :he equilibrium real exchange rate for Malaysia. In the secord case where both elasticities are smaller, the equilibrium real exchange rate is about tso percentage points ]arger. The movement in this equilibrium real exchange rate is more variable :h3n the trade weighted real exchange rate. As shown in column 7, it ranges froc. a high of MS2.32 per U.S. dollar in 1982 to a low of MS1.83 in 1960. The divergence between the trade weighted real exchange rate and the two equilibr'um real exchange rates are shown in columns 8 and 9 of Table 6. these divergences are very small throughout the pe-iod from 1960 to 1981. Only in the years 19?2, 1974, and 1976 did these two nmeasures of the real exchange rate differ by as much as 3 percentage pi?nts. l[ recent years, the divergence h^ad become larger. Due to the deficit in the current account, the diverge. e h-ac increased to more than 6 percentage points in 1981 and to 7.5 percer.tage -o_nts in 198k. F Labor Market interventions 3c-.erment interventicns in the labor market are minimal'. There a3: -e min-imm wage regla-tions, wage inJexation or unemplovmen: ins-urane - sector em;>:oyees. including those employed 'n pu'ic cr state erter-risessce r.ot said any incentives or given any p.-eferences. The salary leve's cf '.e 41 p-ublic sector t-en' to be lower than those in the private sector fc omparable work. .^s R. ~e . ~: . .rate fcc ;age and o>'^erbe.^efits dvr-e. - - emccvers. and an em..over -an be refee-err arbitration on a c .... d:is-r_eive frm-.. t e M iniste r of ab;or, if te M^r-e believes that such a directive is esseatial to the good of the country. Very few directives of this nature have been issued in the last 24 years. C:.rrenrLy. F unions are on an industry-wide basis al.though there are moves to encourage in- house unions. Local labor leaders are against this concept, fearing that such unions will be under the control of the firms' management and make the national unions ineffective. Unions can strike for better pay and working conditions but only after the membership has approved the strike by a secret ballot. Picketing of the affected firms is permitted. Cross picketing or intimidatir.g of nor.- F $ striking workers is illeg:i. In the agricultural sector, the most active and powerful union is the National Union of Plantation Workers (NUPW). The union has been successful in negotiating regular wage increases for its membership and had persuaded estate manages- t to pay bonuses for productivity a-d to link these bonuses to te prize o' rubber and palm oil. The union was successful in obtaining bene"its like s-.ck cay. maternity leave, overtime pay, paid holiday:, weekly day o rest, and housing allowances. The government also acted or, b'half of the es-3te wc-rkers, ens-uring that contributions to provident funds and compensaz:o-. 'ns.srance `r.ds ar-e paid on their behalf. Estates are required to provide ca-e 2acilites. sc'-ools, ch.ild care creches, and approved housinK f;- v wcrNers. The role of mh, WJPW can be described as influenLial in thi- - e ._ndstry. -re_nr.t years, this influence has been exter.ed be;.-: --e agricult2ral sector. The union has been active in sponsoring the 'S. . estate w-rkers to continue their education evern to the university leve.. Scnoa3-ShipS and los from union funds. 62 G. Public Enterprises ,he government has become involved directly in the modern sectors of the economy in order to realize the objectivet of the New Economic Policy (N'P)* particularly to ensure more Malay participation. The involvement .s direct, in the form of public enterprises and joint ventures with foreign firris.5 Malay bureaucrats are seconded from the civil service to manage them. They are expected to develop entreprer.eurial expertise and absorb the competitive spirit of the private sector in these enterprises and joint ventures which span !-e entire spectrum of the tertiary sector of the economy, covering serv -es (insurance. banking, consultancy, hotels, cestaurants, etc), trading, trans 'rt services, trucking, manufacturing, mining, and processing. The agricultural sector Ls not excludled. The major plantation groups K-nve been bought over by public enterprises in the sector with publiz I funr managerent has been restruct4red in arcorda-..e with -the NEP. :n recent years. many of these pub :. enterprises, par:icularT; involved in trading and matr-facturing, have beenr closed and liquidated . govermr.ent for incurring substantial financial losses. As expected. these s ves have been met by protests and appeals fro:r. the interested varties. 5 Foreign firmns are preferred as joint ventu,re partners over oc_:: - firms for political reasons and the belief that foreigners would be mor I ex end their te.c.nical and management expertise to their Malay CO.n 4 .-ry recently are :hinese flrms acc(pted as ioint venture r MS. I Cutrefit Budget Oeveipsierst Budget 101.4 St,irte of eud4et 0eUicit uit ---- ---- .. ... -- - - - - Budget Revenue iipendilure Surplus {tl) Direct Net loital Surplus (t) woo inral I otal Nosinal [Pt fit Ifun Ylet Of Development Governatnt Budget of G14P Oudpet GNP Rate Deficit (- j xpendilUic Leoding . Dtficit (-I Ins mil tns mil 1198 IllN$ ml (19I Bifll I m In n il Ins fill WI 121 13):jlj) 121 141 1S) lt:j~ 171:11)-16) 18) 19);)711)6J 110.1 :j1)/j1 III) 1960 11069 833 236 II9 21 9.3 6 6,096 ?.611 1.571 pJA91 196 1,081 641 234 208 56 1.111 -30 6,524 2.701 -0,46 0.191 196? 1,09? 903 194 332 81I 1,316 21 9 6,916 -16.641 3.1'S 0002 1963 1,150 1,032 118 360 93 1,485 335 7,354 212.561 4. 56 3.121 1964 1,458 1,387 1 1 413 82 1,8 -424 78? v72.531 5.a0.3813 1965 1,580 1,5S40 40 509 68 2,111 -53/ 0,593 ,.5.3i1 0.12A. (W6 1,661 1,61? 46 54? 96 2." -0 )J, 1 -216. 3/1 -.i ~ 1~52 1967 1,e4D 1,784 56 S1-9 99 2,402 -562 9,6.51 2341-5.821 3i231 ITh 1,81 !,?96 95 496 114 2,406 55 10,068 21.401 5,1211 -0.181 196 2,093 0,30 163 504 9/ I 3 -436 i0,7 "I.311 3.9.04 1910 2,400 2,163 231 565 141 2,81S -475 11,6 11 1 6 541 4 .091 I.8 i1 1911 2,418 2,396 ?0 754 316 3,468 1050 12,592 30218.341 hOt0 1912 2,VO0 3,068 148 001 *22 4,2'91 1311 13,842 -31.951 9,?01 3.321 1913 3 399 3,342 57 752 354 4,448 1049 1l,9b3 23.58 -5.841 10.011 1914 4,191 4,318 413 1,109 745 6,172 1381 211,861 -212.381 - 6.3211 17.431 197$ 5,117 4,M0 217 1,266 a852 1,018 -1901 2L I1,60 -27.091 8.801 4.431 191 6,151 S,b28 32'9 1,585 749 8,162 2005 26,974 24,5"1 ?.431 21.6211 1977 7,160 /,398 362 2,014 1,1124 10,536 -2176 31,064 -i26131 .8941 4/741 1918 8,841 8,041 800 7,i98 1,301 11,740 -2899 36,170 N *691 8.011 4.9"1 1979 10,50S 10,040 465 2,8?? 1,23 14,190 -3685 43,092 2S97 8.551J 4A 1980 139126 13,692 234 5,219 2,05 21,030 -7104 50,018 33.761 1L 2101 6,611 1981 I5,806 15,686 120 8,864 2,2711 26,821 -11015 54,228 -41.071 ?0.311 9.701 1982 it6,69 16,672 18 7,079 4,110 21,861 17 58,956 -40.101 18.951 5.8 31 1983 18,608 18,374 234 5,792 3,62S1 27,791 -9183 64,27? -33.041 4 ..",I 3.701 Aveage 3.1'.1367 Notes: IIl bata sources are Ihe B ak Negara hiplaysid 'Quarterl [ cormic B Iet in,' various io uet; Utlwey adv 8anking In flaaystil, (kuala tuepue: Bank megara fal,sipa, 1M 92. and the 1nlteui(st,ona horoetay fund pb1, 10lon Iternalionll Tinancial Statist IC$ v4riots j ssuffs. 12) Mh In'f1;t"1o'n rate in column It is based on the M of Nar inso ifa Malaysia, which is being ust4 45 a toiyIO tht whole of ft411 ~Ida 131 Thetdlata i columns I to 5 tdere to actual reverwue and erpenditufes. j4 1 Th def icit or surplus (fr boltt itie iurrtfil md (tie to1dl budytt i~ Misit ,he ievre'lut Its, J1ABLE 6: NMAYSIA - CURRNT ACCOUNT AND EXC1HNaEi RAIES, 1960-1983 Teat Balance of Moujnit Rcal Esch Rte ljid quIibrliius Real Degree of 0iver'geoce In nlit ion Paynent s (i1aret) lAdjusted tot weight'ed Eac anye Rate be(twen Trade Uetighted Rate Oteficts (schange US WRI in Real ------------- Real (ichange ftate and 11980-1001 Cullen, Rate Illalysiani (Pl fichan e tesl --------------- Account Rate IES:l;N:21 fee;0.5;jez1.5 (uiibju Equilb I'briue Rca h 1tr11 at ll Im In a I$sus isusi suu~Rite tell Rate Iewz 1 1 to N.A. 3.0610 2.0981 1.8095 IV832 1.8303 -0.0075 -0.0113 0.191 1941 16 3.0418 2.0831 1.8451 1.8655 1.8752 -0,0110 -0.0161 0.191 1962 167 3.0476 2.0930 1.8757 1.9057 1.9176 -0.0W5 -0,0218 0.001 1963 219 3.0593 2.0308 1.8716 1.9120 1.9240 -0.0180 -0.0241 3121 1964 128l 3.0710 2.0473 l.9667 1.9954 2.006t 0.0144 0.0196 ~ 0-381 0965 -I?22 3MM9 ?,08L1 1.9795 2.0036 2.0119 0.0121 -0.0161 0.001 1966 -40 3.0710 2.1256 2.0802 2.1092, 211701 -0.0137 0.0183 Ill21 1967 l8 3.0563 2.04!? 2.0651 2.0716 42.0763 0.0032 0.0149 3. ?'3 1968 94 3.0650 2, 21003 211197 2.1169 ?.139? 0.0013 -0.0091 0.18l 1969 -731 3.0750 2,1980 2.1930 2,1463 2.1479 0.0218 0.02tJ 0.361 1970 -25 3.0775 2.2426 2 273 2.?222 2.?45i 0.0011 -0.00H 11 M9I 3219 2.9865 2.1359 2.0895 2.108I 2.l3/6 0.0091 0.0225 J140 197 698 2.8110 2.1080 2.0,324 2.0138 2.1019 -0.0Ž00 ~ 0.0358 .; 1973 -246 2.4545 1.8803 1.8577 1.8638 I.8?56 -0.0033 0.0096 10'.4)1 1914 1307 2.3095 1.19213 1.8/89 1.9238 1.943? -0.033 .0.0331 ~ 17.01 1975 1187 2.5878 2.1006 2.1414 2.193) 2,2177 0.0238 -0.0344 4.431 97 1014 24.36j40o 1.9828 2.0865 2.0778 2.0781 0.0042 0.0040 4.741 1918 -2419 2.2071 1,9003 1.9026 1.9130 1.7215 -0,0059 -0,0099 4.9T1 1979 -2384 2.1887 2.04/2 2.0057 1.9895 1,98217 0.0082, 0.0111 3.651 1980 268 2.2175 2.2115. i. 20) i5 2.2735 -0.0167 -0.0246 6,611 1981 5433 2.2433 2.2331 2.1481 2.2494 2.2960 -0.045 -0.0644 9.701 1982 7554 2.3185 2.2246 2.1504 2.2707 2.3246 -0.0530 -0.0750 'I ft31 1983 6560 2.3383 2.1907 2.1744 2 .21721 2.3191 0.0430 -0.0627 3.701 Notes; (I) Data in co1uanq 1, 2 and IQ afe from *nfloey and Banikinig ino talaysi A (kuala tumpur; Bali mtjaia a hi av91, 1984) It ble A.374 tP471-481; tabitt 039, P46~; afi Itlel A .40, P484; and flom various issues of Bank Negara ial aysi ra' ~Quirtej I f c nomic auIle n 121 A nq#1tivye sivn in the 941jnce of Paymenits data [Column I1 indicates surplus and a osti sign indicates def icit in t he current account. 131 The"Intl atiop rate icolumn 10I r6 based on tht (P1 for fk'nimi~ual flAIar d. 14 le rcai ti c an e rate in tolumn 3 is the nominat erchange late multip[lied by the rattq of the U1.S. wtiluIesale rliLt iridtr dand ilie Mlly dYidi 0uibulke' PriLt inidex. 151 Th~ If dte weighted rear Irchanqe late in CoIun11is the f'omrn excl,anige rate muitipl itd by tire ra tiu of titer trade weigtdP of us, %, duld Jjnto Itie PIllaypr.1r (P1. The UPI weighits Are the ratio of the total 1 iports arid exports from j cfuntlr tvqj UV) divie bthe $1um of eiorit& and lspoil~ fros US, U~, anid Japani. ihe data Series are from column d3D0, ppendix lable 6. 151 h equ II Ulb I Ed real eCIJlYugI dat tIe L JIUI5it L arid 2 are hufIm Al-Ris Ii I ab It, c, co umos 31 and 22? itwp,ctively 1AkU 1tA): AtLAYSIA AGRICUtIURAL OUIPutI P1CS \8R SiICIEO COIVIOUIIItS, 1960-1983 --- - - - - - - - . . . .. . . . .. ... . - - - - - - - - - - --- - - -- .-. . . . . . . . . . .... Rubber Palo oil Cif ProduLer Pepper f arket PriLe Cocortul ---------I------- ---- - FOB Import Pi ce ot - ----- llartet Price (xp4rt Price of Unoilled a1;;k Ulite if ---- ............ --.- PViLe Rice Rice it Pepper Pep el Year j1port RSS I RSS 3 Farm Level Prict PMIce Mllket Price Grade Giade IfAlTP/upp?rt Price PTliCe 0D Loci Piddyr lII/tonnel Int/tonnel lilS/lonnel IIIII/tonnel In oflh ne) INS/tonnel Ine /tonnel lititonne -- - - - - - - - - - - - - - - - - - - - - - - - - - - - - -I- - - - - - - - ... .. . . .. . ...... . .. . .. .... III 121 131 141 15) 161 17) 19e 191 1960 2,345 2,383 2,313 621 419 265 2,070 3,821 947 1I9 1,91 1,041 1,804 646 439 265 1,002 2,502 835 1962 1,696 1,l24 1,672 601 472 265 1,563 2,203 685 1963 1, 0 1,597 I,556 593 464 265 1,38? 2,083 M 1964 1,504 1,502 1,481 643 437 265 1,533 2,09? 889 1965 1,513 1,544 1,512 749 432 265 1,91 2,476 I,00S 1966 1,458 1,441 1,408 450 474 265 1,928 2,643 179 1967 1,222 1,192 1,134 614 563 265 1,319 2,0:3 952. 1168 1,155 1.11 1,129 435 613 265 1,236 1,1709 865 1969 1 ,499 1,540 1,50 4?9 597 265 1,467 ',090 Sol '20! {ii2?44 1;194 658 S10 265 1,862 2,483 q78 1911 1 ,050 1,016 921 664 447 265 I,994 2,64 905 iit 9s1 940 970 520 461 265 1,811 2,706 640 19)3 1,530 1,652 1,567 58S 741 381 1,977 3,1B6 1,142 1974 1,839 1,194 1,599 1,205 1,011 464 2,478 3,651 2,406 1975 1,399 1 347 1,300 1,137 1,027 464 2,514 3,372 1,142 19)4 3,912 1;991 1,898 915 583 464 2,033 3,691 1,139' 1917 2,044 2,029 1,944 1, 93 566 464 3,533 4,841 1 , V% 1978 2,231 2,299 2,225 1,253 714 464 3,011 4,682 1,6Y 1979 2,719 2,794 2,73B 1,300 823 S30 2,739 4,296 10 l98o 3,0? 3,124 3019 1,153 938 530 2,614 3,846 2,24L 1981 2 489 2,578 2,394 1,131 1,029 698 3,465 5,677 ?,231 1982 1,921 2,011 1,999 973 da2 698 2,256 3,037 1,0iJ 1983 2,344 2,472 2,416 1,016 659 698 2,570 3,19 13,466 Avtrage 1,7J1 1,802 I,730 924 635 2,156 3,144 1,214 Notes: 111 lhb sovrce for the Oita in thib totI e is BarIr Negard naliys ia'6 '?uitserlr FcortUmic Bulletin' eicepi coluan S and 6, thich caae from the Depl ot Statlstics, laIaysia. 121 The f08 price for rubber -Mmitrn 1 is A average price (ifr he difltrefd a oi rubber exported. frl4tes produce most of the I rst gra c rubber (RSS I whiie sma touduers tle4d to produ"e only RSS 3 grad tu b(br. (3) Ihe (IF import price for rice Icolumn SI is fot first gidde quJlity rict ispurted frlo Ihai land. 141 f colust 6, ttle pruduLer pric ul u1ruailed r tile of pdddl Is tiIhe tu4dr htTol stinimum pIt e fI"P) ol Ihe suPpprt Pritr IOI rite, It is P f," fo first gdIe or ypaddy dciveled t¢. rU mill. IIIIS qUal 01, o pddd whekt milled will ptrduce riLe Ompdrdble tot Itm lld IICC 66 TALE 8(A.1): MALAYIA - RELATI VE NEiS IW OF OCT IWES REIATiNG TO THE PO ICY 0i Tf RAW ,ISTRY Object Iva First Yeer Ynrs of lqorta,t Last Year of Study 1i in Ibigits Of Study 1980 19Th 1981 1983 Cacr weiI fare Farnwr Ir 0 0.12 0.20 * Govenrrt revem 0.40 0.40 0.32 0.20 Fore lg 0.60 0.40 0.32 0.30 Self-sufficiecy Price statllIty Regl aIl eoity Surt of astic Industry rSwxort of DrOC,s rI Ir nistry 0.20 0.21) 0.30 TOTAL 1.00 1.00 1.G) 1 00 ._ TABLE 8(A.2) WLAYSIA - RELATIVE KIGITS Of &ECTIVES RELArING TO T} POLICY ON T)F OIl PALM iO.ZTRY 1jectlves First Year Years of lxrtant Last Year of Stuy Ccvvgs8 in *tIgts of Stuay 1960 '976 1982 1983 Cainr ulfare Farur ;rcm Goverr.nt reve ^ 40 3.40 C 30 0 30 Foreig ex:Parg 60 40 :30 0 30 Self-suffIciercy Price stabiIity Rional amity Mdition Sort of OmstIc irn1try S&=ort of proessing liatry "In, 0 40 ^4C TOTAL I i 67 ,QeLE 8(A.3): iAS!SA. - RELATiiE iE'i!XS Of c'JECTrVES RELA,I A TO THE PRODUJCERP R'E ~ ~FOP E:CE ObJectives r,rs: 'ear lears oD' !portj:,,n LaSt Year sr .: Change in Wejghts ot tu3y 1i,11 i45 9vao 1983 Consumer ueifre ^.10 3.15 a. i Q0 Firuer o J .o O.R J., 0.50 &Qveraenz . evenue Foreign exchange Self-suff*.iene; *.40 0.3u 0.30 ^.5 0, Pr.ce stabilkty 3^ 1 .30 4;' 1.2 0.10 Regional euItY u.'C 0.10 hktr ;t i n c5;pvort of doaes:.: . nustr7 ;upport of process.rn; intstir CtTAL :.30 -.w3 ;.NC ;.00 1.00 ----------- ---------------------- ----------------------------------------------~~ ~~ ~~ ~~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ CHAPUE FOUR AGRICULTURAL PRICfNG'K POLICIES A. Overview of Pricing Policies Int roduc t ion There are relatively few trade and pr:icir.g ?olicies in the agricult-ral sector in Malaysia. The basic policy framework for these interventions was put in place by the British colonial government in the 1950's and has been modified by the Malaysian government from time to time in order to maintain 2.ts effectiveness and to take into consideration changes in policy objectives. rne such modification is the incorporation of the objectives of the New Ecmon. Policy (NEP) in 14~71 whereby rubber smal'holders (who are mainly Malay) a.d pad^y farmers (who are almost all Malay) are financially assisted under the ob :c*.'e of pc:.erty e-adication. Public Policy on Rice the case of r:ce, the staple fooc crop, the primary obje :_ive was initially food security for the country, ensuring stable rice supplies t. _-'a,c consumers a, .. reasonable nrice. while providing a minimum income to the MaI'av -addy farmers. .his cbiect:ve was to be achieved by means of a g_'_- -'-.im..... r 'a 4 . the cruciS'.n of subsidized fert_iizers, anri :nves:~. * i^.ri-r -: >r.uras:- ,--_-e. zv guarant.eeing Malay ir-f .acme. n ^coe, the govermnmenr noped that output would be :< -reaq-:4 an, Malaysia would thf.n achieve self-sufI ''.ency irn rice. S.i.;e the 195Os. self-su_fficiency in rice has rermai.ned a or'e eIe. & .e cate er o J, t'.e irnerpretaton. and ~.;. e. t . | -~~he .o:i: cc.. -.c -:U as tee ....... ad'stec -s eccor.can c.l~c al . o'.s, the concept of agrictKt ra! marketing boards as a means of stabilizing primary com-modity prices .;as ':ery po'par. I ana British colonies, espe.a,'.'Iy in Af'ca, estatilis'.hed such tcaros fer a 'e rasge ef p rMary prod-ts. > 's :nteres:._ng tr rev.ew so.e -e tne I rease.ns --v suc" a iark,-:ting board was .-ver set -p for rubber .^n Malavs a. I Acce.:i:nS -o d-war_s : .0: p5P. there hr;e .ee seve.al per:inent reasc..-e th-e abser:e - .a-ke'i 'n . In :.- r_::-- i Ma'a;;m2. ~-.e cess paym-en* on. resoaz-n a::u re:'-anr ,ng ate n,ot intended for rven_.ue rais ing to--.oses ' - as !lrm>ot mons the i.dustry for the ind:sry 'e s2ent i ft~ :emd.s V. -.ersoana n:wr'3 tax i s : 3_.- . ab.'' nercent of the pcp.'arion ;n - -e w c E K I~~~~~~~ The huge British investment in thu .Tbber industry at triat time was pivotal in dissuading the government from intervening to stabilize rubber prices, since the indcustry had prispered significantly in tne previcus decade. This was line wi.h the goverrnment's preference to avoid interfering with :b.e .arke. mechanism for rubber. especially since it affected a large segment of rh.e economy. Malaysia's long experience with Export taxation since the middle e the nineteenth century, and the acceptance of the export tax as part of the local fiscal system, was a key factor. Through such experience, an exnor,. 3x adjusted on a sliding scale to price movements was developed so tia'. th. -x burden fell when rrices fell an- vice versa. Relief was prevKi J' preod ers in times of depressed exportrs. Finally, 1ocal c on sump.= ' >:n' has been negligible compared to the quantity prcduced, and hence ther' ha - no Jezmand by 'alavsi3n .cons-.ers for dcmesr:c price stabfl:zation. Public Policy on Research and Replanting S,,-n 3:,3er :-..:t-r bca:ne 3 :na>3r _' n. ; 3 Ma:lysia at . - 5ent'c: v, te ;:'_, :ea-e-s :..e estate sector were -.>:- e .-e^ncerted resea:-r- esffrt was n.ecessa-v to sustain tk.e indus :v- . Rubi e- .wers A> ,e ta: -ion of M3 ays ;a. t':e indu.stry - ry sed ' 'h .': tu,T- a ~ese ?.in:& c:e fi aber be estab'si:;shed. After sOne eba3t-a. tr.e ? - ea - >r ^ a:.: R!'_sst- ....................... - - ... -- . ;;v z - . " .: a* eh.-,r, Ktn ex t t:'e ; ~ . v -L.; - v .e .:-Pc-e . a. '.eved in. tbe rI.e :.a ^ . T- . eT * . .-_ 'h~- E:am .:~es ;'r '.r.es:a' wt>. -.:< - . ^ - . .- -9 a . an.a g~ h_ . ea k ~. ::. an. ' :s.. . : - . .:-: e'. r-: - . .ff;'ee .: . ;< r :: ->: 71 rese:c: :-!-egra. of the Trstitute was on pests, diseases and plant bree_:n. ~e.t~ *:~e :h'es. .s 2rigi.al resear-c .-..g-_ has bee-. externded o t ov2_ as e - s t .-e --2:ra3 r in-e' Stv. .-:r:-,. .- .a .ery great er ooo.: -e-_r: 1. ~s l: -- e ro_er :s _::e e'- -^ ea sgr ~ant -r r > :: ~ - .-e S -. ^?t.ec e . ay H ., -, * c .-: a 72 I replanting,4 but in both cases the incustry played a major Lole in deter-S:r.-.2 what would be done. In this way, the i-dustry bcre thle costs of t.ese az:i;i : while at the same time ensuring that a reasornable leve! cf efficie..y was -n~ maintained in their i.mplementation. B. R-tber Export Tax Introduction rhe ex-xort tax on rubber -. M.aavsia was first .-trod ed - Er s~-- -o : -n 5-7-'2s-sratin, althugl- sonc m orm,s of suth :--- t r _ s 7- B. ' 5 * The t ax :s o tos t o a rs v r . I ~~~~exr.enz:tu-e o2.. neo.- s of -hc _ .- -a: _,. :cr _u re-. o : :>-- Changes in the Export Tax Rate .::a~ -.* , - . e e x 7 : r t t a x +s a :a- r -ax. n va - ' - e .3 - -a- _ - IL I .- . . . .., t ..--. . E . I ~ ~ ~ . ,X.... I ~ ~ .. ,_-. -~~~~- -- 73 export tax was converted to a flat rate of 5 percent of export value z.s an emergency war measure. Immediately after World War I1, the tax rate w3s revised several times to collect additior.al revenue for rehabilitation purposes. -he stabi'ity ct the rubber price ond the rapid expansion in output between 1945 and 1949 mar d'^ rubber industry a _ependable source of government revenue.5 The Korean ;ar i.^n 195C pushed r-hber prices to an unprecedented leve, rising from 54 sen per '; in March 1950 to 8C sen ,n May '950 and then - o 20^ ser. lrn Dece:nber 1 -5^. The government di not rmove fast eno.gh. to s:ncn ' tne exces S C' .e - s enro gh higer .Income -ax r3:-*s ar.d at rc-- are ;'^am :n-- exSo- +2: zax r2'*er. .:e res_- .ea^- = - . .: te .e-X' . x ax ^ 53 s, the ex s- an2 a valore.n a - r of ;.e ex.. -r va' _e r' r -.-- ~ :es .ess th a n :s- . A r:s cf M.:. -: rI :, ' ..e Cr t. -ax was.r e -e~ >.--e ~r'_: ~ A '. _ 'e ^- e~ e - ~.- a H ^ - e ' :'.-. a--e~-er ; -r . ;; -ax -ate a. -:- --- : -. :-.as -_a tn^r ~.:e s-. _a. reS~a -' - :e. an ~ t~ ~iss.- .: . -: --.- .- ..i -x--^ :- -_ 4~~~~~~~ . _ : _~~~~~~~~~~~~-. . :-.-- -:,.e+-- t-- r 74 of the industry. as the Mudie MissIon after its chairman, the romr..ssion reported that replanting in the smaller estates and smallholdings needed ccncerted attention, while it was adequate in the larger estates. On the issu_e of export taxation, the commission reco=nended the abolition of of the export tax at prices of 60 sen or less per lb; lower rates at prices tetween. 6C an.4 78 sen per lb; and h gher rates at prices above 78 sen per lb. K- ITn 1954, a Wo.-ld Bank Mission criticised the Mudie Missicn recoer.a rs for taxation on the grounds that Malaysia could not afford to lose the .eer._e as a consequence of the reduced tax rates. On th.e advite cf th-e Wr-J 8a-.k, the government c^nd_cte' a major rev.isI cr - e-t : 'ax zares - . 1955. At prices of 65 sen cr less p.er '.a:-te was set a: per -en' I :a'-o-e-. 'he cs was made ,s'ess :.e' -wa ,r, r' '- : .r f'Ca::onarzv cess w as n r .oce :e J ','' the cn _ _ e: 't >- - S :rom the estate secto. were reto-red c -en . *e ^rice of --':e- feA se^ -ec 'fCr e o. c e^sec_ se w--: .s T.e sma .. . ...:- rs :-ar- - sz-r. Lbn3-r-r. :. S a.e e s r :' e t'e x 'ax rata s . " -a.* _.e:-. I s--a. ' . -. . _ e - s :r.: . ~ '.: . ' - ' e .>. .'. ' .. -. a- . - - . _-: 6 - s _ x - _ at Fo t^. - A_,, e's5.*e s e,L- ~..e 75 exhausted in January 1970, the replanting cess was raised to its old rate of 4.5 sen per lb. In February 1970. the anti-inflatior.ary cess was re-introduLed as a surcharge which became operative when the price exceeded 60 sen a It.? Ano. aer export tax revision was carried out in October 1977 in wh;ic' the -ax rates were reu_ced by an average of 8 percer.t. The surcharge w3s incorporated intc the tax structure at prices above 71 sen a lb. Until 93, this was the last rasor revision of the rubber export tax. Only mincr Eine tuning of the tax rates took place through to 1983. in In80. a decis'on was taken to inpose the export tax only if the -r.- exceeded 6C sen a '', th's pri_e bein the ave-age production cos- e-.te smallholder setr. ''.h tax rates f_r Prices above 65 ser. were . -2. Recognizing that t-e tax -denn the sal''hod'ers was cnero-_s. an-. -e th e improved fi r.-. a' posit ot t ^e co-untry from ear -ings on c _ue o ,- government deci ded th3at the r.uber exPort tax would be payable n.ly .Wher. ^. rubber price ex-eed'i the _cost o-ef rc c. ' fthe average s,a-. _e. acc;roaro r- ot t.e = :st-t.s r 0:.e 7 a n ta .e t;oont a - t t?.X :5 le. e' s>-e u~ s :rodo.t>c^ .os t ,j:a ate. A23ini . . the L overt-.men -ae se.-e an. e-.ae e^ns to -. - the e --e exp -rt ax. Xre.':ous lv, :ava :e v-x: was estimated solely on t-e ;rice CRSS ' _''er. b aHowtve .r.. .. onl'y rubbtr RR^ > ::..t._et:sY~e.^st.rt ;~ '- .'1 - e W A;or tne S - 'A l. c. e - . .t: t ec ce v- ' aro 'c -._ . . <<.er''a.--:-- excorters an the boc5c =. ec_we* art-r-t- :cs 0e ; --a. ? Tb.e :r ei-ercr.:e Ator t.e s--r- a - A . .e...e *.e3- . - .- ~25sen a 2 in c2e 7 tax was finally agreed to be a weighted average of che price of RSS 2, RSS 3. and SHR 20 rubber. Administration of the Export Tax The export tax is collected by the Customs Department at the point of export and is paid by the rubber exporters. The price offered by the exporter for the rubber he purchases is net of the export tax and the other cess payments for research and replanting. an' his own marketing margin. This net of tax price is reflected all the way down the rarkering chain to the producer of the rcbber. with each link inA the chain ded,-ting its own marketing margin from the rice it receives. The export tax payabl' by the rubber exporter is calculated on the basis of the gazetted price of rubber. Before O)ctober 1907, the gazetted pr4ce -f rubber for tax pureoses was a two-week moving average of the F"3 prrce RSS I grade rubber quoted up to the previo_s week. The gazetted price is p_ ::s on a weekly basis. Since the export duty was based or, tb.is gazetted price, t-, duty fluctuated with the world price, but with a time lag. 7is time a wa used by the exporte-s tar speculative po.poses. Whey sold 'paper' r'ub-er at t- FCB prices which went, towards forming the gazetted price and held physical r_bbe- for extort at a later ate The exporter gains iF, at the time O'- S. the ru_bher. the price is hi.gher and he has already paid! a lower exp-.- -,ax. Consequently, many forward contracts for ru,ber contain price .l_ses shipping dates. This sceculatian has an cczasion led to zoa.c.est jar. *r, MIa4> also in Singapore) as expc-ters rush o shi rubber ta t_ke 3'vac.:i . price d_iferefe- .t_aS. K~~~~~~~~~~~~~~ - U 7 7 To discourage this speculative ac:tivity on the part of the exporter., the government in October 1977 changed the basis of calculating the gazetted prle of rubber. Instead of a two-week moving average, the gazetted price w4s amended toIcortespond to a four-week moving average. This reduced the week-to-week price di ferentials between the gazetted price and the actual export price, which the exporters were exploiting to reduce their tax payments. Incidence of the Export Tax Because Malaysia is only one of severa:L sup.2>ers of riatural rubber i.r. t-e wocrl,d market. the incidence of the export tax can only be shifted backwar's to the producer of the natural rubber exported by Malaysia.8 Furtherm. re r.atura. r.bber Is tradeld in an open, competitive ma.cket in which the various synt.eti_c rubbers are imoottat.t substitutes. TIn such circumstances, the wor1d d4ema-..: MaXaysian natural ru?bber is highly elastic. Fr= the rr"hucer, the incidecC of th-,e ex-ort tax is eventualy sh-. te' to the relati'velvy .`.obile factors of produictin, land an' labor. Ir. the ase of labor, it is reduced to the extent that the estate workers have alternatl.ve e-.!meyn.e-. onooe-tunities. n redu_ed impact of the incidence -n *ein.fcced by the strength of th-e rub b. 'er workers' union, the Nat i-n3 -.: .- antation V-. rkers s ' . As a sr', . ever. the estate vr: - re a tvely i--I hile 3 U-. the r as. they h3ce prebably borne a large of the export tax, but the situation is -tow c.hanging. Ir, recent vears t-ere -as been 3 steady ou.tflow '. labor -r.. te rota. areas to !:-e r- . 16. 2,. . Maays:a s_-':ie' 2. cc- -. Dr t-.e wor.' cut_--. :::- .ootn :.atura' ano sy-.teo_, -. ::.n; ano 1n .3, e 8 Estate -orkers are main'> - an- h3ve been relati;e: due to their Iona ass; iatier.n a. attachme-t to the estates andi 2 ezucat .cna opcr tcn-. 'es. i --. 78 particularly among the young in search of better emnployme.nft opportunities in i ine with their educational qualifications. This migration o,' labor out of the rural areas has created a labor shortage in the estate sector, and put pressure on the sect r to increase wages and improve working and Living conditions to attra t labor. For the smallholder, -he ability tc shift part of the export tax bu_cden to hired labor is limited simply because many smallholders do nt.t employ wage a. * ,abor outside of the household, If they dc. wage payments are us.ial.ly s, : the alternative employment opportunities outsi : the rubber sector. Hence, the burden of the tax can be expected to fall entirely on the smallholder in er.; of the income he receives for his on-farr labor and as the owner of ±a In the short run. increases in the export tax can result in a .hf.K:.: shifting of the tax on to the o_.ners of land and labor. The nature industry does not permit an easy shifting of resources in and o:t of prod'uction. i the longer run, part of the tax would very likely be re;' - *n, the price of land particularly suitable for producing rubber. Th.e : e-.. ease or planting oil Palm' on rubber 'an' wil pt a floor on the p:ie suita'ee rfr p1 a' ~ ru.ber. Hence, the export tax on rubber w l: stl*s::- the conversion of rubber estates ^. o oi' a3lm estates. The imoact f -the rubber extort tax on Malaysian ruo'be rroc .:- t:.c s .ne fcr es-ates anr smallho'ders. Al,though rubber produ .- s-mallhoider sector is no.t :erv res--ons.sve shcrt-term rice movee^.s.:- still m.-ore reso-nso:e ta-. in t-e etate sector. T'ehe rua'er s..:-. - varv his -roct' ion of r-c r "' h3r$. g -requen_oy of the ta *ng - - u;e to the traditi. - ' si-oenent lghe family 'nco-- t - hgh'f. +-`-- w I =_ 79 I by members of the family. the smallholder has greater f;exibli;ty than the estates in the application of labor to his rubber activity. Th.s re2ationship is illustrated in Figure 1. The foreign denand _-'ve for Malaysian natural rubber (expressed in Malaysian ringgit) befGre the ex.or: tax is levied ils P-D. This curve is a horizontal line because the excess deman_ I curve for rhbter facing Malaysia is highly elastic in the relevant price range. The supply curve for the estate sector is SE. and that of the nallhol'der secto: is SS. Since smallholder rubber production is more price responsive than e production. SS is more elastic than Sr. In tne absen.ce of the export. tax,:*r two sectors produce Q 0 and QE0 of output respectively, and sell it for Pr, pe! unit. An export tax is imposed as shown by a downward shift -r. tt- r received bv producers to P2, Smallholder production is now In a- I pro!d_ction, Q T* In the case of the es;tate sector, part of the ex-:a:- . s 'ifted back to labor as a factor cf ~roc-tion. 'ence, its s;::- rubber moves to the right and producticn will i:ncrease to Q : . :.. i-nelast-c supply curve of the smallheolders sector lndicatbz a di:--i_.y I sh fting the incidence of the export tax back to the factors of prodic- . I con.secuen.ce wll be a relatively greater IndU_cti^ i n p o:a.'t .-.I r sna.''.o_ers tha:. by astates. ...Rber Research Cess T he co;:ecoion of a cess to pay for research on r_.'er was | .:cscty ::tse:f and enacted into law by the British ;o:c.-a' a4., : he cess is based on. the quantity cf rubber expcrted. Over . I :he ea:e ;f the c-ess has been a-en `ed! e7mn.V _ times fron an m. :a ra-- 8 vr-. :e " 'O th-e present Ja' rate c .75 sen nr' . -.. t:.e as - .a a '.C.n to-n n, s ie a YiB : ~ c na .. v I 80 million for research on rubber in Malaysia. The cess has ensured that rubber research in Malaysia is well funded, without having to depend on the public sector for allocations from the budget. The cess is admin stered by the Malaysian Rubber Research and Development Board (MRRDB) which coordinates and allocates funds for the work of the Rubber Research Institute of Maiaysia (RRIM! and the c' isumer oriented research unit Lv in England The efforts of the RRIM are compiemented by the existence Of research units operated and funded bv the major plantation agency groups Jn, Malaysia. The research findings of these private research units are dissemir.ated at the discretion of the plantation agencies themselves, whereas the work of the RRIM is freely available to the entire industry. The research undertaken on rubber production has proven tc be a very worthwnile investment. Even though the relative price of the conmo.Aitv has fallen over the last 24 years. the technological advances from -hese efforts have continued to make the natural rubber industry in Malaysia attrat.ive fer L further investment. D. Rubber Replanting Cess | Introduction The policy on rubber rep-.. -g was initiated by the rubber industry, a suggest.on which the British colonial admi:nistration espoused. (Lin, 156C; 711,, The existing condition of the crop in both the estate and the smallholder sectors was diagnosed as poor, since the trees were agingio and suffering from neg.-c: * and war da-age. Ir. the smallholder sector, the annual replanting rate was a mere 10 Rep'anting in the estate sector during the 1930's had bee.. >csr:x e' due to the Great Depressior. and poor rubber prices. The Second Wor: War and the japanese Occupation furtr, d-elayed the replanting progran. By n. for any refund of the replanting cess to an estate. The protests o- e - sector were overruled on equity grounds, sc:re the smal'h o'ders were g:ven full replarLting grants only on proof of successful rep'antir.g o*e f.. I:.zS To qualify fo. the rubber replantri.g grants, the r2b5er . to fulfill certain conditions. He must hdve clear ti te to the eol-i;. t '' with RISDA: and agreed to maintain the replanted ho'4lding a- a sat" - The grant, which has been increased several tines since 1952, is re:.-aase smallholder in stages as the replanting is carried out. The stri ,_ 'p i.osed by RIS A a nd its predecessor have b arre h whose r "be: : on of the agrieultural Stxrr -r. _r;. 3-._ '.. - . Wet z- eat.t r :e. on or r ce the ,-> .c . it an Z?e sa_` thao the ruhr rerlanring .c55 was resoonsitle ft- ':zr- , tda nn, -tr. ra.-.s in Malaysia its initial b.oost. .?aln O~il 'x'ot Tax 3i. Dil ha.a3 br.n exr.trt-.i ^rern Malaysia since the '92Cs ws raX e _ 3> o t . e r 30:> »tuo. ex:s. *a3:, ot_v _rn the 195 -s _h.a .- w3. S X a- Or- 3f : : r~er- a" vaeort. hnrcn was :no* -^ .: -x was : eve: e_ to a gra 4uate tax ;.n -IU 'ase. -~~~~~~~~~~~aWOMdOM 84 rate of 2.5 percent for every M$50 per ton13 increase in tthe FOB price of palm oil above the threshold price of MS350 per ton up to a price of K5700 per ton. when the tax was levied at 30 percent ad valorem. The progressive nature export tax .w. intended to act as a tax on excess pro9its of the oil palm industty. It should be noted here that unlike rubber the export tax is base' on the vdlume of palm oil produced, not on. the volume exporced. An anti-inflationary surcharge was levied in addition to the expcrt :ax on palm cil from 1974 to 1978 -.her. it was discovered that the export tax was no:t able to absorb the huge profits from the very high prices for .he on's -..g thQse years. This surcharge was incorporated into the ex7arr-; '3X n..X- in _9'S, a3nd the star-tig point in the export tax was raised to 3^ er e'2 .' %.n.1e-em e-, - es hig her than the threshold price of MS4CC per ton. he .next change rn the tax structure was made in 98C when tehe ---s.: .'' s: -, . S;..s _sel in determining the export tax payable fre-. -, -h , -: e if MX- .e- t. g sh principle, the average .os- eom the price befare h ex.. ..x ~-., -x t:- vax -.n na'.-.:e:' s sed an. a monthlV :>blished t:- . 3i a.-.-.: g re-a.e .n' zhe:ng th^ :e r g "ie past ar -eeks . s: - s~~~~~. ::.-x a- .........:............... an.! deae'.es e --- k rx . X .I5 : . r es a ti:7e lag t-e.. . ' 6 ., - ,'w.here .- te:ms t ^ -: -.:--. .r :-nn X: P*- . .:>e- ;. : . -: -k - h . ' _ t a -.. e...,. v x . hert~5Se' a'i t 9 . ~.:- rr _,, . ,,, - I ,, - s ~ L ~FF 01 0 r r r r. r1 S r. r rrrrr7 i - WI I! ~~~~~~~~~~~~~~85 The export tax is collected for revenue purposes. Like the rubber tax, i the incidence of the tax on palm ioil exports is shifted backwards to the producers, the oil palm estates. Though Malaysia is the major producer and exporter of the product, there are many substitutes for palm oil. a'd the comodity is traded in a highly competitive market. Except in the case of land particularly suited for planting of the crop, there is unlikely to be suczh backward shifting of the tax burden- to the other factors of production. in particular, the workers in the oil palm estates. Palm oil production is less labor ir.tensive than rubber, and most workers have alternative employment opportunities in the urbarn areas, or i. other agricultural sectoral activities. OaF t2'- 16 a rh Cess Research was the key in the idertification of oil palm as ar. al-er-ative crop to rubber in Malaysia. This interest in and" support for scientific croc :t research by th-.e private sector is somewhat unique :: a developing country. or:e so when th.e industry itself provides the necess ry fundinlg for the research activitv.- Mrch vf the research effort ir. o.l palm, prior to 1969. were carried o-: by the ma,or plantation agencies in tneir own rese rch stations. The output or these research stations was proprietary and v-as disseminated 051y at the discretion of the plantation agencies themselves.14 Research efforts in t-e public sec.or were conducted by the Departmeent of lgriculture. mainly in ge-.etic and varietal trials. 1W9hen tFe Malaysian Agricultural Research and Developent- Tnst.tute (MARDI) was established in 1969., the Depar tment of Agrir::lture handed 14 Most of the research results were eventually zeleased as scientific papers in a number of conferences on oil palm held in Malaysia during the 1960s. I, ~ , A 86 over to the Irstitute the responsibility for oil palm research in the public sector. The research activities of HARDI on oil palm are funded by a research cess on the industry. Because oil palm was only on.e of the manv crops investigated by MARL!. the oil palm industry felt that an agency specializing in oil palm research. modelled along the lines of the Rubber Resear-h Institute of Yalays-a CRR MJ). would serve the needs of the industry better. Since such an agency would be a public sector agency, its results would not be proprietary and would be _,sseai..a L_ _V .Le en_e ,ZI..asL ry The industry lobbief 1,ard for such an ag,ency. The gove 7 net agreed. and :?, 1959 tne Paim GX Research insLitute C- Maiaysia (PO&1F) was set up w:tn tne functions of conducting research in oil palm orn its own behalf and cocdz-a -ng research on the crop in lalaysia thzough allocation of funds from the research -ess. MARDI handed over to PORIM. its research program on oil pal=. The var:'o-s Drivate research stations also undertake projects on bchalf of PORIM in ad-i'tior to working on thes: orn experinents. T:e researc- prog-am for PORIM is drawns up by a1 joint conr.:--ee representing thr.e industry and the government. The program is designed o- an 4ntegrated basis. 4nvClving production researchn, processing, storage, delivery systems. marketing. as well as consumption and erd-uses in bot h the fooc a,n non-food industries. Th-ere Is one area of research, which has been neglected in the 2ast. -n5s is the treatment of palm oil -ill effluent, wrhich has now become a ser'^_s environmental problem. polluting the nation's water resources. The effluer.n is very difficult to treat prior to discharge, and improving or finding the - .. .: ' ,~- - .: -. -~ -- . ._ :____ -t ~ -~-- ._ j __ 87 appropriate technology to treat it is becoming cri-tical if the environment i.s to be kept clean. T1he oil palm research cess is basedI on the volz=e of cruzze palm o:.- produced i-n the country. This cess of MS1.00 per ton-ne. (which was increased to MIS4.C0 in 1.980) regardless of the price of the commdi-ty. has enabled ?ORIIM to have access to a research fund of more- than MS2.2 million an"nuallv. nr thi-;s way, TC0RI! is financially independent of the public sector fo-r its research prcgra=.s. Horwever, the recurren-t an-d operating costs, including the salaries C-' Z:7E a: Staff, ar.U' cheV iLlresearch Eaciliz.1es are p-a-c by tne public sector fron a budget-ary allocation. The researcn cess nas served :-ts. intended pu;rpose ~n -romcting anc i-mprovi4ng th-e investment potential in the o:.l pn cnnustry by raidin-g its ~,rofi =.argins . 7ncreased prod-ctivity f-om new techniques have ra:-secd K ~c: raI O__.i New =arket outlets i-n t!ie developz=g contes -O t--e 4zcu:t:;-a. been deve :or-ed, and new uses promoted :-n t1'e t rad :t ional -arket s i-I th.e -4e-.e'.c:ned countr:es. Tt -as al~so been found th-at -.ten tbhe valm o: i. I :~~~~~~s rzcn in proteins and fats, is mixed with;: otn-er :eed inrgredients i,t c an be used for reeding cattle. C.Palmz 0il Re-'atory Policy -hePalm ilRevistratior: and Licensing~ Author.ity (FORLA) wy; estaz!llSnhe~ zin 1980. and given the functions of regU-ating, coordinating and pronoti4ng -a"n LI~ ~ ~~~~; oi ro,;,CtinO-,, suapply. purchase. sales, storage, --Ii Ili n, refin-ing. F t~~~ransporting. marketing. and shipping. To finance these activities, a cess or -~A recent technique was the introduction of the oil -a-'- weevil We s Afiat-elp in pollinating the fruit bunches. This eliminated the need fOr artifici-al Pollination, hence, i-t reduced produ;ction costs. 88 H$1.75 per tonne of pals oil based on production is collected from the industry. Representatives from the oil palm industry sit on the board of directors of PORL.A together with representatives from the public sector agencies. Those involved it the industry are required to obtain the appropriate licence from PORLA before coamencing with their business. The licenses are intended for statistical purposes principally. The license holder is required to subit regular statistical reports on the volume of palm oil handled in a given period. One of the major functions of PORLA i; to maintain the quality of palm oil exported from Malaysia. To do this. the Authority has the power to entorce strict measures against any participant in the industry wvhose practices dn nrot meet contract specifications or the established standards and grades °i -:he Authority Another function of PORLA is the development of new _.aztkE-- an-d market outlets for palm oil and the promotion of the commodity in OrdOr tC maintain Malarsia's share of the world market for vegetable oils. In cases of contractual disputes between the shipper and the conisigle _- the consumer counntry. PORLA will act as the mediator. The exact procedure fur resolving ccntract disputes has yet to be determined. H. Paddy Price Support Policy theras d'atre f'r the ;addy price su;pcrt pclicy - Mala,s:a n he traced to the impact of rice shortages during the Japanese Occupation (19C4I- 1945) and immediately after the war to the political and administrative iead rs of the country, both British and Malaysian. These shortages were due to disruption in imports because of the war and to a supply shortfall in B_rr.a in 1947. As a rice deficit country, imports of rice into Malaysia were a necessity. The psychological effect of the rice shortages was translated into policy when -~~ -~-~--- - ~ .~~ -~-~-~- -i_- - *1 89 the British colonial government declared rice to be a strategic goed and 'mide the ittainment of rice self-sufficiency a policy gra1. The ration-ale for the policy was food security: to raise the incomes of the Malay paddy farmers; and to ensure stable rice supplies at reaso3nable prices to consumers. As an instrument of the policy, a guaranteed minimxum price (GME?) was introduced in 1949 to promote increased domestic production of rice. The GM? was linked to the world market price of ri-ce, being fixed one season at a time and fluctuating with the prevailing world p-ri-ce of rice. This minimized the 4-i4e-ec tet-cer the C-Lsv =d th ~ Z price for padidy, hence, rhe government would not -iave to buy all the paddy produced in the country. -6 Te %;x was set at HS7265 per tonne of paddy in .i49 and remained all that level, unti 1973. I-n 1973. the G:ZP was increased to MS38I per tonne because the wor-;.c pri ce of rice was very high~ as a resuilt o-f a short-iall in world proCduction. Th'e ri4ce Support Scheme of the LembaRa Padi dan 3ecas Negara CLPN or the Naticnal Pac" and Rice Board) became operational that year to complement the ;M?P and effectivel; increase ics level..17 There have been. several in-cr'-ases in thne support price since then, with the =ost re-cent being the cash subsid.v of M- per tonne of paddv i mid 1980. raising the support price to MS698 per tonne.-8 i6 Under the GM%9' rulies. h ;overnment guarantees tlo buy all panc,y c:f`:erei to it at the prevailing GM?. This is because the GM?P is t'he fl'oor price of4 paddy in Malaysia. '17 Legallv, the GMP i-s still MS265 per tonne ofl paddy even, now as there has been no administrative actioni to gazette any amendment to change It. 7h e LPNJ support element in. the price of paddy coulId be amended through the regulatory powers of the Board without any gazette notification. 18 Initially, the cash subsi-dy offered to the paddy farmners was only 1S33 per tonne of paddy sold. Demonstrations by the farm-ers against the ma=er ofl payment of the subsidy, in the form of savrings coupons encashah-ie only at post offices and at the national savinr,t bank for the sole purpose 'z ccening savings 90 The government buys paddy from the farmers at the support price and mills it into rice. It also buys rice from private rice millers. provided the millers are able to certify that they have paid the support price for the paddy. This rice is stored in the Government Rice Stockpile. which was origina7ly int:e..ded to be a strategic supply source so that there would not be any rice shortages during emergency periods. Over the years. the Stockpile has furctioned more as a buffer stock, acting zs a price stabilizer in conjunction with t-e GMP.. Until 1974 thc price support policy 'or ?addy was nc: fina dire-:' by tle government budget. The financing mechanism of the ZaP consiszed of an =inport mixing regulation and import licensing in which :e ri-ce importer '-as been required to DUrchase a certain proportion of rice from the Govern_-ent Rice Stockpile for e-:ery unit of rice imported. 71.is retuire=mert has e-,h- i:e S:ocl-pe riee i o :urm over cuickly.19 a-d to a' c-- the go-erruen- :C e_o-.-e the cost ci maintaining the Stock: le. The price c- the `-=estic rice so.d to _i.orters ic es a. e_e.nen.: sztraze v and is:re:ie -^sts. The cost of ihe locally gr-o--n r-^e -as he us.:ally =u-ch hi-her to the imDorter than the price of imnorted rice. e:-er- the quality of the Stocknile rice is lower than that of the _imorted rice. T:e average cost of the do=e. -ic -rce to the imPorter has been tyDicalvy higher t-a- importer is ab'e to recoup the lczses on. locally grown rice from, the pr_flts he makes on the sale of the high quality in.polted rice. The iumorted rice cot.:an:s accounts, led to th.e -4ithdrawal of the subsidy after only one paddy season i. 1980. Re-introduced in the next se3son, the new cassh subsidy scbe.e offered a generous MS168 for each tonne of paddy sold. 19 Rice cannot be stozed for a lengthy period of time. T s qUality deteriorates after 6 months of storage. . . . s . . .~-. '- - . . . . . '7 a premit= price in the domestic market since there is a consumer preference for imported rice in Malaysia. Th2 relati.ship between the world, producer and consumer price cf rice in Malaysia20 is shown diagramiatically in Figure 2. The domestic supply of rice is given by SdSd, -while the total demand for rice is represernted by DtDt, and the supply curve for rice -nder free trade is the line PwR. Under this condi.ion of free trade, the cuantity of rice from domestic sources is equal to GA and the r ___ amount of rice imports i; AB. However, uncer the licensing cor.diticn. the a_o4unt.. the i--orter has to purchase fin- ,he StockDile is eaual to OA' a-- tne ratio of local purchase to - orts is givent hy OA'!A'B -where 3' is the equ- _"'r__. quantity deuanded dhen there are price i:atervent` ,s. This equilibri q cuant tty is dete =ied by t:e -cns--er price fcr the -arious grades of rice available i- Malaysia, which can be anytwhere betw-ee- ? G (the world price of rice, and? 't-e Droducer or guaranteed m_nimum price for rice in Malaysia), say at a" average of OC. In effect, a tariff revenue ecua:L tC TJ3L is collected from the .po-ers tc 2S GM? at 5 ?. tC e cost f -which is ecual to C-1Q. This i--r: =-xiz sche=e essentially shifts the cost of supporting the GYM to the consu--ers of -he gover-ment through L-N first started to import rice on a government- -g ...: asis f_-n , 2fe974 .e-^y w3s - The e'ty nie the 2onopoly to do so. Since ther, rice dealers are required to buy the im_--red rice from LPN instead of di.ectly importirg it themse'ves. T-his move has 20 This account is based on Tamin (1986:p6). 21 In 1974, there was a breakdown in the system cf rice import a:ixing because of the very high world price of rice then and private sector importers could not finance their activities since cash deposits were demanded by the rice exporters in Thailand and other countries. _b 92 resulted in a transfer of the financing of the producer price support to the government, with any trading losses made up by budgetary allocations fro general revence. As the major irrigation schemes of ).hda and Kemubu in Kedah and Kelantan came onstream after 1975 and 1977, local output of rice increased as the off-season crop acredge erpanded in size. imports were reduced, and the budgetary cost of maintaining the producer pr-ice rose in proportion to the degree of self-sufficiency achieved. The SM scheme operates as a singie guaranteed price for gLod. cl-ean, dry paddy deiivered tJ the mill. Deductions are made for -oisture content (jf it is high-er then the regulatory :4 percent). presence of dirt. fcreign matter. and i=-a-t-re grains. This sin7le DricL has encouraeed the "r: ¢^ f _ quality varieties of rice, w4hich are often not w'cat the market _n Malaysia wants.22 The policy e=ohasis behind the GM? has been on cantity ra;:er than on quality. Because the GMP is a floor price, the government ends _np wit: t;ne lowest quality part of the crop. as farmers sell the best quality zar- tc -rtivate sector millers for premium prices. In 1974, LPN introduced a gra(i:ig syster fcr rice based on grain length to encourage more local production of high cuality rice. Long grained rice was paid a premium price of MS33 per to: ne of paddy =ore than the medi=s gra_ned rice, and M$66 more th.an the short grained varieties. Thiis differential in the price of local rice has been maintained without change since then. Although _he market preference is for long grained rice, there is a demard f^,r lower qua.ity r_ 22 There was one attempt to introduce a price differential into the GMP between 1964 and 1974. To persuade farmers to double crop their paddy land and to pI- only the recormended varieties. the C-GP for the off season crop was incr- by 12.5 percent. The attempt was terminated in 1974 when double croF, _ecame a commin praetice in the irrigated areas. _~~~~~ 93 rice which is satisfied by domestic product:ion. The highx end of the mmarket is then satisfied by more rice. and the profit frw selling this rice a-, a pre=i-= generates = artial finarcial contri-bution for the paddy price s--pport policv. I.ne padIdy price, support policy has succeeded in its aim of reducing somme of the risks of paddy growing in Malaysia by guaranteeing a minimum price. hence. reducing the variability of incomes. The inclusion of a cash subsidy in July 1980 did raise vaddy farmers' incomes but created two unintended ef"fects. r: rst. t'-e cash subsidy has m-ade paddy farm-ing operations more profitable- This has stimualated a tendency towards farrm consolidation as the larger fal=ers begin buyin.g u-p th,-e sma.ll farms, displacing both owper-operators and tenan:s and .nceasngth-e nurber of landless labourers. (Tamin, 1-986; p22). Second, as the cash subsidy is paid for paddy sold, an, unexDected side effect h-as been the substantial increase in. the marketable sur~_lus of 7Dad&; in- the country. Tn: -s unintended si-de e-Ffect became obvious in 1982, about two paddv seasonis after the introduction ofI thE' cash subsidy. TIhe rational paddy farmer shoul-d ncw sell all his paddy to gain from the cash subsidy and then buy his _rice requirements flrom the market. Previouslyv. they retained up to 60 percenit of their output for owr consumDtion (?.u,dner, 1971: p86). w.h. ch they woul-d process into rice at the small village rice =ill as an-d when rice was re:uired. With farmers selling all, thei-r output for the cash subsidy, many of these small rice mills (which are usually Malay owned) had to close for lack of business. On the other nand, LPN has hnad to exnand itIs paddy drying and proce~;sing facilities to handle the larger volumte of paddy marketed by farmers. 94 By 1980. LPN cwned anc operated 28 Integrated rice milling _c=p:exes and handled 33 percent of the paddv produced locally, while priva-te cite =_'_s processed the balarce of the output. - Paddy Input Subsidy Policy Origins of the Policy The policy on paddy input subbsidy had its beginning in the ear:y '950s --hen t:Ie Denartment of Agriculturta ccnduct:ed fertii`ze_ iemonstra:ins O? -'s ex-erinental stations cr the benefit of groups of visiting paddy fa.e:s- 7:e objectives were to dhz rates or :ert-:-zer _se fr ra_'y. and to demonstrat:e to taddv dfarmers the bene_its o. urea and Other che.ni-. fer~t-1i-7-t Ea~--eJ r- ' e_ez Wnse D. tne oaddy far.-ars tc -he cenons h-e Denart=.en: of Agr4cu. ture ;: 355 -.p e-e;ed a fertii'ze: s_s__y s-he-e a 4ew selected states in whi-~'.c he cost c,f t:-e :erti:_zers was e' s_ ^- t:e -ederal govern=ent. The sche=e was t-.en exoanded zo cover the : s.ames o =eninsu.sIar Malaysia _--. 15.23 Th.e sus - -id rate for t-he fert-lizer sc--.2e n n s: tt a ct:e cost _r re -fear. a-. the- -y-.ed ua. Iy ^.-'; ':-was oniy _3 percen.t ;n .965. A>though th-e -ate c f declined, the quan-tities of fertillzers bo.ught by the pa'dv a.ers _ scheme increased, as th.ey ca-.e to recoznize t:e :)ff fs e f: :. 1 fertil izers. 3 9,88 the :ar-.es _gh t: 3 , .2. e s3,88eoresthe. e : y 1965, they were baying i2.682 t-onnes. 23 Yelantan was excluded from the schemre because the state gover.nenr: was under the conLrol of the opposition Malay party. Parti Islam since :-e ze..era: election of 1959. 1 U 95 1:1 1966. the fertilizer scheme was reviewed and revised to =ro:-Je a unifom -subsidy rate of 30 percent and exterded until '97C. A ud ge:arv al'locat_on of MSIO miLlion was prcv4ded for the scheme to bene4fi an ex^ec-ed 89.033 ha of paddy land. In. practice. however. on-.y about a thir± :-.e :add area was provided with :ubsidized fertilizers in. anvy rne yeaz. and eac-- farmer was limited to a -axi' of 2 ha in terms of ei4g4biiity. The res_r_c-.crs ere necessary because of the great increase in demand that was create- fcr --e subsidized ferti_izers. esti=ated to be 25.4c0 tor.es ter -ear. -.e -e-- sursidv sc:e=e w4s -w;:L ra-w-.n an i.9._ :ecause t:e oz^e_-::es - .e s '-.e :ac been achieved. ?addy -ar-.ers had bercone fa-':iar wit-h -he use *_rea` -:,e cf.e=ial fertilizers. Fertilizer Credit Scheme for Paddy Farmers -.ace of t'.e fertilizer subsidy. a crec'' :zrawas s-s'__z _ar=.ers --. te _-rrgated paddy areas. Fo. far.ers in non-rrga:e_ _--as, :-e fertilizer s-ubsidy* as conL.inued. T-.e os- signi - di-zaz_ :- s-fe.e-s success was the wil lingn-ess of Daddv far.ers to our^ hase te-eir af-er the subsidy was ter_'a-ated. ;_ee, 1978: p25G5. A -are:- for - a a-_ ->e:e- cnem:cal fertilizers was established in all th:e paddy areas. ;,ith t:e ^ea:ers and agents of the fertilizer firms s-uppleienting and co-p:e-enting -'e wc.kf t-.e exe-.sier. ap0ns of *S Dn_-o-~ ^ - - -,'~*- re- -~ep- -- resconse to the world sho tag e o - urea aond -:e s'arp `n.rease :- `ts prace sance _973.Z the governzent d ed to i-pie-.ent a price e.e Thie nrce of uz-a in the world narket rose by 50 percen . -73 ard 233 per-ent in :974 iron the previoas year's price In -onina: :er.s. I- Malaysia. the price of urea increased by 278 percent between 1972 and 1,1,4. E I Tnhere was pressure on the government t3 prove assistance o, scow kind :c :he Oaddy farmers, ur.o were mainly Halays and supporters of U-MiZC. t ahe Maay par-- dominant in the coalition government. 96 for urea. the principal nitrcgenous ferti}izer used in paddy growing. The objective of the sche-e was to ensure that paddy farmers would be able to continue using urea regardless of its price in the market. If -fa...ers were to stop -sing urea because its pr_ce was too high, domestic paddy output would possibly decline. The result being th-at the country would need to import -.ore rice while farmers' n'-cc=es wou:c _e recucecd. Under the condi:ions of the sc.e_.e, :the farmer paid a norinal oipce o- MS..- f-r a 2" kg bag -_--a. A-.y diffe-ren-e between this threshold prIce ad ..e market price was the subsidy for the urea.25 The scheme was to . 'erm... ated ihen. the price or urea :e_ :elow tne t:res:old price. This 'eature cf the schem-e provided an automatic suspen-s'o-n of the scheme w-ich occurred in 19 7. Although the _rea -rice suppnor: sc:-ee _as i-. l iace, the a^_ a- c-- u _rea for --he first (main. a'- season) cror i_ !975 dec'-ned by 8 percen- as to a y,ar earlier. an.d- the yield of p2ddy was 5 percent iower. The yie'ld cf t-e second !off-season-. crop In 1975 was 3 ^erce.; less tha- that of 197'. '-e I e Id of^ the f-rst crop of 1976 was 5 perce-t Iess -han t:-e sa-e cropI -974 t--e re-erence year fcr the analysis' wi-_' -urea -,se down by -5 percent ctooarec to the rate applied in 1974 a_. :5_3, The total Qu,antity of urea purchased under the scheme betwee:- 1?Z and 1:975 was 59.3e5 tonnes at a c^st of M$61.Z94 m.i;lon. At the same time, -'-e es -ia-ted crop loss at the farm 'evel was MS48.534 million . To make up for tbe :rc -oss, additional r.ce .alorus calued at MS.6>9.9 :':'::on were -ecuired. A: cu-: is not knowh what the Level of rroduct:cf -r 'cave been 25 The subsidy on the urea sold to paddy faru,ers under the sc-heme ar_ef fromr M$10.58 to M$14.58 per bag depending on the price the governm.ent pa`d for the fertilizer. 97r scheme, it appears that the fertilizer subsidv scheme was rathLer ineffective i-n stopping the fall i-n rice production. Ia 1980. a different fertilizer subsidy scheme was introduced with the objective cf increasi-ng the income for tnhe paddy farmers. The scheme provides 1-00 percent subsidy fo-. the fertilizers; required by farms whiose size di-d not exceed 2.4 hectares, the average size of a paddy farm inr. Malaysia. The pur:ose of the limit on frarm size was to ensure that only small paddy farmers would be the intended beneficiaries. in spite of the policy objectives, subdivision of large paddy far,ms -into units well within the t1ir--1'1 si-_ '_ 2 4t or-der to benefit from the fertilizer subsIdy scheme is easily accom:i;Shed. (Tamit. 3.986~ - ,22. Fanw are cf-"t. …..'..-t iA for a paddy farm to have mmultiple rw-ners becau.se of the ':s'amic laiwc- 4-neritance. The distributior of the subsidised fertil;izers to th..e Paddy farmers thro-agh, a network of r-ural organizations in the paddy areas. Eac;h distribu:tO r is paid a commission based on the quant;ity of fe'-t' izers hanided. an' rcs'-:ct tn-ese organizations (kfor i-nstance, many of the Farmers' Associations in the X-u;da r :~~~rrigation Scheme inr Kedah.) have become financia-ly endowed in th-e !:rocess. n-e system has proven to be successful- Ln moving the fertflizers to the farmers in t1ne for use duri.ng the planting4 time.Z Tlhere are two aspects of the 1:980 version of the fertilizer ssiyS-cheme wchwarrant examination- First, the ob4ective of enhancing farm~ers inc ome s 265 Thfe network of commercial1 fertilizer agents inm the ;addy areas disappeared with the introduction of t-he! new subsidy scheme, since farmers were no longer buying fertilizers. r-heir exit from the paddy areas was keenl-y felt !,-! t1he extensi-on workers of the Department of Agrlicultu'e. Farmers now have to depend solely on these workers for advice. { t 98 could have been achieved either through a higher OMP for output or through financial assists-ace for other cost items in the paddy farm budget, such as a subsidy for land preparation to the pooI: farmers who tko nct own any t=actors. Using a generalized fertilizer .,absidy to transfer income to poor p-ddy farmers is likely to be an ineff.cient veh-cle to realize tFis objective- _.econd. on the assumption that its recon;ended fertilizer rates are irnviolate for a given area and soil type, the Department of Agriculture has been primarily concerned about the technical aspects of the scheme. In the face of -Cencat ' a a=s _.ra se;; - rg ti=._e -aer-i±zers to ruDoer esta:es and smaliholders, the Department of Agriculture has set recommen .ded rates of ler-iliizer us. without consideration of tie economics of fertilizer uSe for alternative relative prices of fertilizer and paddy. Farmers are rational. and they wl only th - ne amou^. of fertilizers which will optimize their income at the given price of t:heir output. T^e Department of Agriculture has not changed the recommended quant=m of subs-.dized fertilizers as the price of paddy has charnged. It should have integrated t:e ecornomic ai.pects of fertilizer usage into its reco=meaded application rates. J 1Infrastructi:re to support Paddy Production The introcuction of the new hig.h yielding varieties of pady g:ea:y erarhced the prospects of attai-ning the 2o0a of rice self-sufficiency se- -v the government. These varieties, however, a'SO need regular water spp-::es. As a result, the decision was made in the early 1960's to greatly increase expenditures on drainage and irrigation for paddy production. In the First Malaya Year P an f1956-1960). i:nvestments irn drainage and irrigation amo"nted to about 17 percent of the total public sectcr f=ds allocated to agricultural development. (Tan, 1987; p7,. Tnis was increased -c 99 * . -----I- --~~~~-. ~ a*".'. UA. "cdcL 2.L percent i zhe follorwing First Malaysia Plan (11966-31970). In the subsequent three five- yeer deve1L,pment plans for 1971-1975, 1976-1980. anLd 1981-1985, the proportion 4 ~~of agricultural developm-nt expenditures spent on drainage and irrigation was reduced to 16. 12 and 18 percent. respectively. There was again a dramatic adjustment in the allocation of public expenditures for the agricultural sector ina tlhe recent Fifth Malaysia Plan (1986- 199C). The proporti-n of agricultural dlevelopment cxpenditures allocated to investments in drainage and irrigation fell to about 3 percent of the total. This was due to the shortage of suitable lard fcr further irrigation schemes, the decision to concentr3te ;roduction inl the existing ma;or paddy growing areas (Tan, 1987: p33), and to the relaxation of the efforts towards the g.aI- of rice self Sufficiency. K. Concluding Remarks In this chapter. the focus hias been on the vari-ous interventions affecting the principal cr-ops in th-e agricuiltural sector in Malaysi-a. T-he discussion h'as I-en -nthe cz:igIns, tn-e ozusoer-andi" of *t;,e diff'erent policies. and the imvlcat-rons of p1ces =n the crops and the produ-cers. The cpLer which follow will exmmine the !-=mlicatio-ns of these policies on prices, outp-ut. cosDtion. foreign exchange, and th.e biudget. *1 100 wrtw I -_-_ -) -*c 3 --Mk DUDU;?W1 iSTAT AND IATT H UDDG Price. PZ Quatity, of Rubber ____ _Produced PI. .4 - prico of rubber before and after iqosition of export tax Ss- supply curve of suallboldinC7 E- supply curve of estates - supply curve of *scates after ipos..tlon of export tAs and shift of tax incidwe to factors of production Q- output of rubber befor* exprt tax is iposed - output of rubber after export tam is; imposed | ' 1Q2 - output of rbber after fall in price of labour Inputs - - FICM3E 2: FINANCIS THE RICE IUICE SJP?n paCg IN j Ay ftic.~ ~ ~ ~ ~ ~ ~ ~ ~~~~~~~~~~~~~fac CHAPTER FM;i &ASTJRES OF IDrERZVITIONS A. An-al-sis of Prevailing Relative Prices To measure the incentive for the movement of resources between sectors, V F it is the relative p_-ices of the various goods that are important, not the absol- ute Drices. In Table 9, a series of relative prices are calculated, based on f . the actual observed experience of the various agricultural policies, and the price index for :on-agr i celt g^ ^ds ard S'_S. . r . . - price series are presented for the non-agricultural price index, the producer trice v',S pez to--_ X _ a. astate ruvSer at Lhe factory ,evel, the producer price (MS per tonne) of palm oil at the factory level, and the prod':cer price (MS per tonne) of paddy at the farm level (guaranteed minimum price). The non- agricultural price index was constructed from a set of the sub-components of the consumer price index.1 T-he relative prices of the estate rubber at factory level to the producer price of paddy are presented for the period in Table 9, Column 6. This relative price series indicates that the producer price of rubber has fallen almost continuously from 1960 to 1983. By the 1980s, the relative price of estate rubbe: was approximately one-half of what it was in the early 1960s. This fall in t:he relative price of rubber took place largely during the decade from !56C to 1972. Although there is a considerable amount of fluctuation in this re:a;ve price, -t never returned tc the heights of the early and mid-sixties during the 1 The component price indices that were used to construct this basic overall price indes for non-agricultural goods are presented in Appendix .ables ;2 and 13. these series were first aggregated to construct an index for the tradeable component of non-agriculture, and the traded component of non-agricultural good and services. These two aggregate indices are further weighted to caicuiate the overall non-agricultura. price index. A 103 period 1972 to 1983. This change in the relatike prices of rubber as compared to food production mtLst have -had a dampening effect on the expansion of rubber production. This same relationship is seen in the r-elative producer price of rubber to the non-agricultur3 price index. The relative price for rubber fell almost W'hen the price of palm oil is compared toi the price index for non-agricul- tural goods in Column 1.1. a systematic pattern is not observable. During t-he the range of 9.5 to 12.0. In the intervening years, from 1967 through 1973, tho 2ea:atle price OE palm oi'i was siightiy lower, in the range- from 9.8 to 6.3. Th-e relative price of paddy to the non-agricultural index i-s showr in Colt=u 12. Over time there appears to be a very slight upward trend in :ne producer price of paddy as compared tlo the jprice index fo: non-agricultural goods. During the 1960s, thi-s relative price has been i-n the range of 4.4 to ii ~4.8. Sirnce 1973, this relati-ve ori-ce has Increased and is in the range of 5.4 tlo 6.4. Overall, the policy to provi-de a guaranteed m-i-inimum price for paddy j ~~has provided a slight increase in the relative price of paddy over timie, as compared to the prices of non-agricultural goods. If ~~~These same relative price relationships are also derived in Tabl-e 9 fo- the s'nallholder Price of rubber. Due to the differences in taxatio,n ind transportation costs, the producer price cf small-holder rubber tends t'. be sli-ghtly lower than the producer price of estate rubber. Tihese di-fferences, however, are ve:y slight and do not change the pattern of relative prices over time. 104 From tbhis analysis of the relative producer prices it is zilear that their wovemat has reduced th~e attractiveness of rtubber production through time. This is due to the competition of synthetic rubber with natural rubber and to the govermment policy of maintaining. and perhaps slightly increasing, the real price of paddy. Such a policy is in line wiLlh the objectives of the New Economic Policy. Since paddy production is almost an exclusive Malay occupation, the government is intent on raising the income of this group of farmers. Although the relative price of ruabber has fallen, this sector has enjoyed dramatic i.ncreases in productivity from research and replanting. As a consequence, the incomes of those in the rubber sector have not been depressed to nearly the degree that the relative price changes would suggest. B. Direct Effects of Pricing Policies on Relative Prices In order to determine the impact of taxition, subsidy and prici-ng policies on thLe incentives to invest in various agricultural activities, it is necessary to estimate the prices that would have existed if there had been no direct price intervention. In Table 10(1). these adlusted vrices of estate r--:bter are presented in Colurm 1. This series is calcuilated from the average FOB Drnce of rubber m-inus the transportation costs associated with the movement of this product from the estate to the port.2 Likewise in Table 10(1) Column 2, estiz-tes are preserted fcr tr.e piic of rlca ~ints p4addy atJ~~ cr.& 2The marketing ;End transport costs for estate rubber are based on a survey of 70 estates conducted by the Ruabber Reseairch Institute of Malaysia (RRIM) in 1973. Based on this survey, the costs for each year of the study are then estimated by adjusting them for changes the CPI. Th e details of this calculation are pr-esented in Appendix 'sable 1. ~~~~~~~~~~~~~~~~~~- - - 3 the farm level) that would have existed had there been a duty free import of rice into the country and no domestic support prices.3 The border and producer Prices of the estate rubber producer level to the farm gate price of imported rice, are presented in Table 10(l) Columns 3 and 4 respectively. The difference between these two sets of relative prices are presented in Colimm 5. The difference between the undistorted and the distorted relative prices divided by the undistorted relative price is a measure of the nominal protection of estate rubber production relative to local paddy production. Except for 1968, 1969, 1974 and 1975. the effect of the direct pricing policies has been to provide a negative nominal rate of protectior to estate rixbber praduction- In the early 1960s, this rate of protection was in the range e; -0.17 to -0.31 of the undistorted price ratio. From 1967 to 1975, the rate of nominal protection was lower, ranging from 0.15 to -0.24. After 1976, the picture changed dramatically. During this interval, the nominal rate of pictect"on of 'sate rubber ranged from -0.41 to -0.67 in 1983. In Table 10(1) Col-a.z 7, 8, and 9, this compariscn is made between the price of estate rubber and non-agricultural prices. The results again show that the direct pricing policies have created ia negative nominal rate of protection rot estate rubber production in every year from 1960 to 1983. The rate of prote^ticn a-.as beer highly variable, ranging from a low of -0.06 to a high of -*036. 3This price of imported rice in paddy equivalent is obtained by deducting the estimated miller's overhead costs and profits from the CIF price of imported rice sid converting it to paddy equivalent using the conversion factor of 0.65 for paddylrice in Malaysia. The costs of milling and drying the paddy and transporting the wet paddy to the drying centre are then deducted. I 106 1 :-is analysis Is carried out for the rela:ive prices of rice and non- agricultural prices 5n Colwumis 10. 11, and 12 of Table 10(l). In this case, the direct price ir- uz- -ions have had a positive nominal rate of pretection for local paddv -rod . fc_ all years except for 1967 through 1969 and 1973 t"'rough 1975. In tr:-. ve-. since 1976, the nominal rate of protection of local paddy productior. ha- tended to be higher than in the early years. Wit;, abnormally low prices for imported rice, the nominal rate of protection rose to 1.61 in 1983. This means that the domestic producer price of rice was 1.60 times what it wouid have been haa there been a free import of rice without tariffs. In Table 10(2), the results are presenited for the estimation of the impact of direct price interventions on the relative price of smallholder rubber and paddy. Ihe results are quite similar to thosa derived earlier for the case of estate ruzber. An analysis of the effect of direct price interventions Is carried out a-so on the relative prices of palm oil and pauidy To estimbate what the price of palm oil wjuld be at the Droducer level i.f t:ere --ad teen .c taxes t-._s product, the domestic marKeting and transportaticn costc are deduc:ed - FOB price of palm oil. Th-s price series is pres-:ited in Column of Table 10(3). Thic price series is then expressed relat;ve torthe CIF price of imported rice -n padtv eqUavale^tt 7 =e 'a__- l ZV2 lv0-c. 3). in oiur; 4, the pr:ce of palm oil at factory level relative to the local price of paddy not corrected for trade dist*rtion is reported. The difference tezween these series expressed as a ratio of the price ratio before adjustmert is show-. in column 5. This noominal protection of palm cil to local paddy production h.as been a significant negative number for all but the years 1967 through 1969 and :974. In the 1960s. the rate of rominal protection ranged from 0.13 to -0.29. In the .~~~~ ~ .- .. I 07 '1970s. the rate of nominal protection of palm oil ranged from -0.00 to - 0.57. In the 1980's this protection hzt~ ranged from -0.28 in 1980 to -0.52 in 1983. The trend over time has b>eenL towards an increasingly negative level of nominal protection of palm oil.. These negative rates of nominal protection indicate that the direct pricing polici,es in Malaysia have been prctecti.-g the paddy-producing sector. whose output is consumed domestically, as compared L.o the palm oil sector whose product is exported. The nomi'nal rate of protection of-6 oil palm production is also calculat(ec relative to non-agriculture activities. These rates of nominal- protectioa ace presented in Tdble 10(3X, Column 9. As can be seen, palm oil has had a negatlive nominal rate o pzotectioa in all1 years with an average rate of orotcct4ron Of 10 percent over the period. The oil! palm sector is discriminated against as compared to thj~ non-agricultural sector as a who'le. 0.indirect Effects of Pricing Policiles on Relative Prices Pricing policies have Ich a direct effect on the prices of cormmcdities and also an in i-rect effect -,rough th~eir imports on other markets. ln this section, the relative prices of agr-icultural pwoducts are conpared af:er adjustment has ~een made for only the indirect effects of pricing policies on the relative prices of the agricultural commodities in question. These indir-ect effects consist of two elements. First. the change of exchange rate that be necessary in order to eli-miniate any current account imbalance and any _:mnact on the exchanige rate of trade policies. Second. the change in the prices of agricultural goods and services caused by tariffs on iL,ported goods com'pe:tiive with the t n-on-agricultural' products. The r3tio of the equilibrium, exchange rate to the nominal exchange rate L ~~~~is presented in Column 2 of Table IOAl). In mo-st years. this ratio is greater 108 t` aLec.. Lecause tne equilibrium exchanget rate measured as MS per US$ would have been larger than the market exchange rat.e. If trade distortions were remioved, and the exchange rate adjusted, then the dcomestic prices received by the riroducer for rubber, oil palm. and paddy would have been higher because of the higher exchange rate. TheQe indirect effects of pricing policies are obtained by using the following espression: [(PNAAIPNA) - (E"oIE:)] - 1 where PNAA is the non-agriculture price index adjusted for the direct and indirect effects of policies: PH sthe un4ljuasced non-agriculture price index; E0 i-s the niominal exchange rate for Malaysian ringgit and the U.S. dollar; E is the equilibriu-m exch..nge rate for Malaysian rir.ggit and the U.S. dollar. The ex,)ression is used to~~adjust the actual- prices experienced in Miala5siia from 1960 to 1983 f-Lor rubber and paddy. The adjusted price series are presented in Columns 4 and 5 respectively. -he adjusted re1&Rtive prices are presented in Column 7 and compared vitl¶ the unadiusted relative prices in ?c~z . The indirect effects¶ do not alter thie relative producer's price series of estate rubber, smaliLholder rubber. aad palm oil to paddy, as they are all internatiorally traded goods. It follows that there is no change in the nomninall protection rate created byi the Indirect effects of thasa Pr_cin& policies. This same relationship. however, does not hold when. the rubber prIces. adjusted for the indirect effects are compared to the adjusted non-agriculture price index. 'When the non-a-riculture price index is corrected for the effects of exchange rates and trade policies, the traded portion of the non-agriculture price index is adjusted for the difference between the equilibrium and market 109 °-zh-:n=a Zat~; zi wei2. as the ertect of tariffs on these commodities. The resulting estimations of the ncminal protection rate created by the indirect effects of trade policies on estate rubber are shown in Column 12. For every year from 1970 to 1983. the indirect effects of trade policies have been detrimental to the relative price of the three agricultural commodities. This has arisen for two reasons. First, the impact of the existing appreciated exchange rate in Malaysia has a greater impact on the agricultsral sector which is entirely traded than it has on the non-agriculture sector wnich is only partially traded. Second, the taLriffs on the non-agricultural sector have served to make the investments in non-agriculture relatively more attractive than they would have been otherwilse. Exactly the same relationship holds when we examir,e the indirect effects of trade and pricing policies o0n 11relative paddy prices. The indirect effects reduce the rate of protection given to the paddy production sector relative to the r- -agricultural sector. The indirect effects of trade and exchange rate policies alter the relative price1 of smaliholder rubber and palm oil (because they are tradeable conmodities) in the same way as they do estate rubber. Hence, th-e incre=ental rates of protection provided by the indirect ef-fects of trade policies are identical to the case of estaite rubber. D. Total Effects of Pricing Policies on Relative Prices In this section the relative|prices of the three agriculture commodities and the non-agriculture price index are adjusted for the total effects cf pricing policies, that is, for both the di?ect and indirect effects. Starting wit* the cases of estate rubber and rice. their prices in the absence of the direct effects of pricing policies are presented in Table 11(l). Columns 3 and 5. The price series for estate rubber is simply the FOB price for rubber exported from _ ~~~~~~~~~~~~~~m l ,. QSt! ,1 ; ,t' .1' i' ' 0!/: ," 1 'y' i i' $t1 i ''D', j:? 'i ! - 0 tv , 004 ' Xi Malaysia less the marketing and transportation costs that would be required to move che pDroduct from the rubber estat,s -to the port. The prices for paddy are derived from the CIF price of rL,e imported into Malaysia, with the transportation. costs and milling and drying costs deducted to derive the price of a tonne of paddy equivalent at the farm for the duration of the study b-1etween 1960 to 1983. The next step i-s to adjust these price series for? the change in the exchange rate tnat would occur if trade policies were eliminated along w~ith the 5'T'al~~e i th-- ...e WLCC, seL±cs for ruboer ar-ter _ad!-us: ng for both the export taxes anid the ratio of the equilibriur exchange rate to tne ~ axzh..6c az.c: o~ prtsenced in Table 11(1) Column 4. In the same way, the prices of paddy1 based on the CIF onrce ecuiLvalent :fCc rice are rdiusted by the ratio of the ecu,il ibrium exchange rate etotnenonnal erchange rate. The adk;-.s:ed prices are 5resented ir. Coluz=n 6. Th-e ratios c the adjusted price of rice to the adjusted paddy pri-ce 1for each year are o-resented in Collrn 7. The price ratios ~for estate rubber to local padd'v f presented in Colur.s 8 and the differences., between these two series di'-e U th-e adju-sted price ot estate rubber are :ztesented in- Column 9. -ro= 1-963 to 1-983, the series in o~n 9 have been negative for -all:u five years. th:2.me 196$s. th-e protew Zi:-- rate ie to esta:or ! Compared to loca7 pad_dy ranged from a l-ow of-7 -0 .31 in 1 9 60 t o a h i gh of3.52 1968. In the 1-973s. the range of protecticn raltes went :rom 3-.09 in .97- to- 0.58 in 1977. while in th-e Period 1993-1983. the p'rotection rate gi.er. tc esta=te rubber relative to paddy produiction hias ranged from -0.41 i-n 1.980 to -:.67 in 1983. From this ar-alysis, it would appear that estate rubber has been: heav;1Y discrimiInated. against as compared to padidy. Th,e r-atios of the estate prices of rubber adjusted for trade and exch~ar.te rate -clicies are now divided by the non.-agriculture price index corrected o the total- effects of pricing policies whiich is f row Co'lrmi 1- of ITable ~2 Th.e results are shown in Colt-m 1~. he relative prices of the ;-an-r t'o :-tems not ad~usted for trade policies are presented in. Col',,-. .11. The ::r:e '_etween t-ese two series, expressed as a fraction of the correctedc price are sn-own in Calua= 12. TLhey are continuously negative for the ~": -z indicating aeaie protection rate as a_ result of the total effects of r:ca:ng po:icies affecting this sector. ThLe trend has been to increase the negat ite ratte ~c protection provided to rubber thurouglh" time. During th-e t6-.c.e rang-e in tne rate of protection was between -0.12 to -0.37. Dauring tHe IS7Cstas.. increased from -0?.:5 to -0.31. For thE, first i;ou.r years of the d_4caa_-7: :;es; the rate of protection remai-ned n.egativ.e and fairly signff;ica-i.. frm-0.22 to -0.33. 1 I~~~~~'t is quite cl-ear from the,results showni here th..at Mal..;sian tradean taxaticri policies discrim-inated against the aJo r agricu_Itu:ral export a -' favor of tood production and non-agricuI.tural produ,cts do_rInF- tn-e Comnpared to non-agri-cu__t-.re, paddy productioIn has been et-.v:- b-y the trade and exc-hange rate PcIlcies- "The protection r-ates of tratcza- on ioca7 ;addy as compared to non-agricuxI.ure are presented inm abi-e IIIt:: cu * :5. ~~As can be seen inthe series, the rate of protection on; Icza_; p~;:a-_: -w no siatve and usuall1y quite large in every year or the study' except tfor Soht r years w.hen. the world' price of rice was h, igh. The? degree of Prozecr -, c- * ~~~paddy has al-so Increased over time. I-n recent years. the aniourlt of r:eIta 112 ratas lu excess or the ratio of the CIF price of imported rice to the adjusted non-agriculture price index. In Tables 11(2) and 11(3), the sam aralysis is carried out for the case of the relative prices of sma2lholder rubber and palm oil. The pattern of the rates of protection caused by the direct aad indirect effects of exchange rate policies are very similar to the case of snallholder rubber as it was in the case of estate rubbe:. The negative rates of protection in this case are st:gh.tly larger than those for the estate rubber. Although the investment and production in palm oil rose dramatically over tne period of this study, the fiscal and trade policies were such as to discri-inate against it as compared to paddy productlon. When the tr-al effects of pricing policies are combi-ned, the negative rates of protection (reported i-n Co'u-.9 of Table 1li3)' are greater than -20 percent for 15 of t-e 24 years of the st dy and has averaged more than -40 percent since 1976. When evaluatirg the relative impact of trade policies on Pai- oil as compared to the non-agriculture sector. it as clear from the series In Colunm z2 that the ci. p^lm sector was continuously disfavored throughout the period. Powever, there was no roticeable trend in the negative rate of protection. For m^s years it was in the range of about -15 percent. it is interesting to note that for most of the years during the period of the study. Malaysian t:ade. taxation, 4nd exchange rate policies were fairly consistznt and constant over time. They were designed to protect local agriculture engaged in food protecrion and at the same time to give protection to nor-agricultural actsvities. These policies to promote paddy production and manufacturing raised the relative attractiveness of investing in these sectors as compared to investing in ci; Palm and rubber. _~~~ ~~- a--_ *~\-; I_* 113 E. Indirect Effects of Pricing Policies om Relative Value Added The analysis up to this point has been entirelv carried out in terms of relative prices. The measurement of the incentives created by trade and exchange rate policies on the value added of the var:LOUS Cao~dities will now be examined. in order to-adjust the value added figures for the effects of trade and exchange rate policies, the domesti- value added flor each year of the period are first derived for the crops. To do this, the ratios of values added in the various sectors to the values of output are used from the 1971 Input-Output Table for Malaysia constructed by the Economic Plannting Unit. The 1971 values for the ratio of value added to total output in a sector are mnultipliedi by the various prices to dLevelco a series for the value added per unit that is used as a basis on vhich to make further adjustments for the indirect effecits of pricing policies on value adde4. The estimates of value added by commodity arnalyses are presented in Append ix Ta eo 15(1). 15(2), and 13(3). in order ct calculate the indirect effects of pricing policies on. relative value added, the ratio of the equilibrium exchange rate to the nominal exchange rate is first estimated. Comparing the adiusted and unadjusted relative values added of rubber to that of paddy.,it is clear that because both are traded goods, the indl.zect effects cancel out and do not change the ratios of value added. For the same reason, there is no indirect effect on the relative value added of cil. palm to paddy. But there is an indirect effect whien comparing the ratio of the value added of the agricultural commdities to thxe value added of the non-agriculture sector. Here the indirect effects occur thirough the Edjust-3ent ini the exchange rate and adjiustment of non-agriculture. 114 Ce fno-giutrerfetn The estimation of the adju-stedvaua(edonnag-clreefctg the direct trade and exchange rate effects is outlined in detail i-n Appen.dix Table 16. The key variable in the estimation of that series is the effecti-ve rate of protection of the traded componenLts of non-agriculture. To determine the effective rate of protection as a percentage of value added based on world vrices, the results from a series of studies on the effective rate of protectioL for Malaysia uw'dertaken during the past 20 years are utilized. From these studies, it was possible to obtain dn aggregated effective rate cf Drotectio~n on a consi!ten,, ltai $~- hre Year.- 196!.:; and 1982. There was also a substantial amount of evidence indicating that the effective wag s SJFiz.-J'Arty lower than ;Wnat. it was by 1965. Based on this evi~.4.nce, it was assumed that the effecti-ve rate o-f protection in 196fl was c~ly two-thirds cf whLat it was by 1965 after the trade policy had caanged to a m:uch more -j-1otectionist stance. The protectionrat created by the indirectI effects of trade poli4cies in exchange rates on value al ded are the same for all the relative va'lues added of the agricultural commoditi.es to the values added of non-agricultu.rce. Th,is series i-s presented in Column 12 ~of Table 12(l). for estate rubber, and Colu=u 1.. 7able 12(l) for local paddy. TLhese estimates are qual -atively the same as those derived from; the rat ios of output prices only. Over the entire perioad, the indirect effects tended to provide a negative protection rate to the agricultural sector of. approximateiv 10 percent with a range of from -0.04 to -0.15. In recent years, the negative protection provided by the indirect effects itended to be higher than it was in the earlier years of the s tudy. F. Total Effects of Pricing Policies on Relative Value- A-.led In Tables 12AMl) 12-A(2) and; 12A(3) the resultz.. of the analysis of relative va'ues added of the agricultural commaodities as well as the relative values added of the agricultural coemmoditzies to the values added of non- agriculture are shown. This analysis is carried out after adjusting the ~.ralues added for the total effects of pricing policies. W~hile the qualitative results are the same as in the case of the comparison with relative prices, the percentage of the negative protection provided to the rubber and oil palm sc,,~ors are larger t1a&a wa& tbha case zripcztz Tzbl for relative prices. 'Whien comparing the adzjust~ed andI unacji,sted rat: 3s of value added o-: ruzobeZ to non-ae'riculture, th-e negative effective! rate of protection In the case of estate rubber was found to be greater tbani -15 percent for thirteen of the 24 years of the stud- and averaged -32 percent for the period since 1976. The negative effective rates of ptctection were slightly larger for smallholde;: rubber. These results are sho~i in Coluzn 12 of Table 12A(l) and 12A(2).- The negative effectivLle rate of protecti-on provi-ded for oil palm, as seen in Co!um.- 12 of Table 12A(3). was somewhat lower with most observations, faiLling izn the range of -15 to -20 percent. While the ratle of protlection of value added expressed ini termrs of world values was negative fur rubber and oilI palm, it was in turn positivo? for local paddy. In more recent years, the rate of protection grew ve-ry high. as reported in Table 12A(1). Colun= 15. Due to the large fluctuations in the world -rice of rice, thle measured ef-fective rate of protection also fluctuates widely In sixteen. of the 24 years from 1960 to 1983. the effective rate of protection was positive. After 1976. the effective rate of protection averaged about 60 1 11 percent. vith rates of 71 and 175 percent in 1982 and 1983 respectively, primarily due to the fact that the price of rice in the vorld was severely depressed. L G. Concluding Remarks To sumnarize, the Malaysian agricultu-al and t-ade policies were remarkably cons,stent through time. There was a strong emphasis on protecting food production and on developing the non--agricultural sector. At the same time the two very successful export crops, rubber and oil palm. were systematically d scrLniaaLet agaix.st oy both trade anad taxation poiicles. ,r I~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ F~~~~~~~~~~~~~~~~~ ........... A.. . 1~~ ,d., l,.... p.S.. C*~~ ,~. .I. r~~l~r*l ~ Pr.c. of Price of P'.ce , P,C.,, " ........ P.r.* fO.t.tR.Al*,,b 54elthold.r psi. fit Unin.lIed I.mtot. lt.bbe, Itette AvIbOs spot I h..1ldor !.'Iod, IWs14 psi. 0.1 p.ol. 0.1 nJ.le ice 1..d., et Foc%ory Rubber et It Ve,t,,," Ilit at *.th 'emp.eS .,*tI aspept ft.,,bb.r Rl.bbe .,.kh 1#60ott 9.tlt "'Cepe,t -,.h eet Le.aI (FO8 re'. t.e.9I tv.t, (#033 Fe.r, te.et 1, U-.,l.d to Non0 S.,th ps'.pect .11, 0" LgeI P.o l.-ll. to No.. tO N (1960.100) ,',. I.*. (Foe Orice tos. *r... lae. (04W/l.pport lbHC. Agricittureo ta OAe led4 to lOt. R,C4 Aqripult.rel Aer culttural *.rteto* 3 e4rhelntig end marlutir.g A Pr,.C for Pric* lad., Rlice Ager.clku,oI Price lWds Pr11 * Ine.0 tro".por% trelteport coot. tr,aW%o't L.Ofel P84d1~ Pr,.( Inds$ 0.1. sad *r.40 %....l P0,3.5 end 1940 a4 94 2.040 3.64S"134 266 7 73 34 03 71 3 It 2 30 9.V7 4.so 1941 S? 33 1,893 1.425 all 6 00 27.6 5.36 24 67 2.36 10.13 4.86 1641 58.33 1.822 1,387 142 261 1.74 27 I1 7.12 2a.1 2.06 6.61 4.79 346 83.0" 1,443 1.27 126 261 1.44 25 91 4 61 22 92 1.96 91,44 4J76 3661114 6,313 3,384" 1,369 116 lob1 5132 24 33 4,41 21 34 2 7 10,34 4.16 IO8 U4. 4 1 3,38 1.191 674 268 1.-12 23.97 4 49 21.03 2.14 1190 4,641 It" 11.46 1.316 1, 149 142 265 4 96 22.9 4 33 W9ill 2.29 10.13 4.61 1067 8i460 1.306 43? S" 21 14 1o 90 3 34 315.99 2.01 9.84.82 1164 5630 1.042 S"2 363 26 393 I?7so 329 t4.71 1.44 .E4.47 169 89949 1,348 I'31 St?656072 6o 2 4 43 39 76 1.42 6.34 4.44 1910 60 30 3,081 6412 866 245 3 91 S? A7 3 33 14 63 2.27 9.76 4.40 3971 63 2v 1143 .. 10 ----13 -4168 3 63-~--- UV-T541 29 269 2.24 9.614 4.363 13971 6I. *9 621o4n 261 3 12 33 34 2 46 30 34 I ?I 7.20 4.22 3973 66 so3,3 1,3129I' 46 "A 3 44 19 72 2.94 1W.9? 1.31 7,46 .1 3974 F2 61 3.37 1,306 024 464 3 23 20 74 2602 36.02 1.99 12.71 6.391 is1 7 is 3.136 1 .038 646 464 2 41 4 90 .23 13.63 3.64 33.3,1 6.13 MI7 79 43 3.444 1,36311 464 31 36s3 47 2.93 37.14 3.63 9.60 5.64 197? 62.7? 3,638 1,426 991 464 3 31 is.84 3.07 17.23 2.14 12.03 .6.4 1976l Of6 44 3.1fi2 1.466 3.066 464 3 41 Is 2 3.16 36.98 2.30 32.32 8.37 1919 1.40 3.6.42 1.722 33142 33ii3.47 20.36 3.26 36.64 2.1$ 19.49 6.60 1960 100.00 2.104 3,976 3,036 1tx 3.97 21 04 3.73 349.76 1.961 10.34 8.30 1961 106.6 1.690 3,130 1,02? S"6 3.73 ? 42 7.61 36.12 1.47 9.47 6.43 1966 113.20 1.613 3,464 900 69 2 31 id 21 7.30 12.93 3 .2 7.91 .1 1963 3364.20 1.933 3,777 913 94% 2 77 I6 34 2.6 11.04 1.36 6.04 8.90 Aeopee 3~~~~ ~ ~~~~,434 1. 311 Y34 4.09 20.16 1.63 3629 1.63 9.76 6,14 Not..:! (33 Tb. coiltollieti of ths "on .gritultur.ik *rl.. ilad. In coluv., I Is ;n hepeeidh. IWOi IC column 37. (II The, ptsdameor tolc. ?e eatse. ruberp (coluemn 2) pri4 for smeltholld., rubber (column 3) are from Aopeondg Table 1, column.m 6 smd 7 (83 fto pP#dwee. pele. to, pale oil (coli.a. 4) io from A#soadi. Table 2, column 7. (43 fth prod.... #Pec. too, UR0111ed tIc, of peddy le tl%e odmeAt4eol *inlm4e 0'Ic. (06') or support p-Ic. for poddy. It If geld for first grad.G 4., poddY delleered to tAq mill . Thl. ,...lty of pedjy then, je1jwlld.3 prieduce rl.2. compitoble to the auflity of 1A811 10( 0: RMALASIA - ff(Ci Of DlRMC PRICf INIIRLNIIOWS ON WbAI( 11l060R ANO PADDY oI~Sf0 ON RIIATIIV MIMIC, 1960 1983 flat Oordet Ii Pfict RI jo ol Rat'o ol 11000ji Mon Agir- Jla io of fi~t of Nugjgijl hliptw of I4Ieiu of Nuaiuijl Pr ice ci prce or ardei Pt idiuctl Prt L Lt I il cultural ~ofeti Produer Pr VteLtnio Cli Pr I(t Ploduier ji It C I t io Esit1 Ort td Ptc 01o Pt it! o o [state Price Price ci Price of or fs te ol 1IIIJLHiL Pri Ce u ut i ol;41 p. Ic IIen P ddi Rubelto Rubben to Piroduct Ir Bo Rbbei to Bubbr i o Productiuni Nuo g Poddy tu Pv(ductloll ma oIng I (quivaleua CI Pri c r der to t oc4 Non Agr 1 Nor. Ag I - .ultur1 lion AwlI trauspor at Fart ,dco Price @1 P c of PtIdy clturfl cuIlMal MfCIc cultural Cal ~L"eve Is Ot ed luca Prnut nPice I rcc' u.de I IPr i Lt 8 ~e ~m Paddy loden mndei mica 1940 2,30? 204 11.28 1.13 -0.31 56.91 40.43 31, 0I Oil1 3.58 4.60, 0.30 1941 1.4 217 8.05 6.00 -0.25 51.13 30.60 21.65 *0.09 3.60 4.644 0.22 1942 tb3 239 6.93 5.14 0.17 55.33 29.68 21.51 0,08 4.31 4.79 0.11 3194 34.103 SM--92 Ii-.4.15 4.14 1 M4 60 M 6.02 5.12 -0.2S 226, .10, ~ ~~~~~~24.3 *0,0? 3.04 4.1401 1MI t-02 ~ 6 25.93 23.97 .0.0113? k6 It94 o 3) 11469 , 0.26 5 4 24.54 2M9 61 0.I :A11 1967 1 76 4 02 4 ~~~~~~0.04 204 0 Q4 18.90 *0.06 4.99 4 5, -0.09 9a1:14BE34634 0.15 49.30 lo:10 11.58 -0.04 5.4? 4.4) -0.18 Mot 1 4 314 40:1.010 59.49 24114 2' i-.7 .6. I 130 2 7 *0 0 60.30 l.4 04-.l4644 A-iAI l A,4 IA 1 L A AAi*O i....I.7 0,.3~ 4.3 11 44 21,343 .09 3.126N 6M U J4 -0.063s 4 .4 2194 .84MI t 3 is 9 74 3.44 -0 ol 66 S? R.19 102~~~6 -0.235.9 3.036 0.8 .97 i5 .ss :4.31 -0.56 82.10 ?"P 1.5 -0.23 3.03 r.5 0.2? I'M S6 66 ~~~5.89 31.41 -0.42 84.48 i4. 3 ''9__ 0_ 0 4493 503 2 I~~U 2,156 ~ 41 4) 214 0.Q 22.0 1141S 64 0.8? 97 $23 5 ?~~~.?I -0.41 109.55 ~ O 7.. I,i~~ ,e~3 384 4:1 .31 -0? 113'.20 14.1 14:25 -0:133 0.33 1902 2244 240 8.34 2.7? -0.? 118.~0 18.98 16.34 -0.14 ?.'?1 5.40 1.60, Avemae 1,709 317 -0,2$ -0.13 0,26 wotes: II) I4 No ste hildef price PI ruot..ne is the rap Prlitt Oeu ili Inc aretig dfld tran.s'Urt Lo0tk. lilt 'IetmdnO ul ItiL 110'.i pr aice2 etmated are shtgvn 19 Appendis to ble Ico lu n 8 [?i olum? shusI I w CiI pr t1e Dr imported rice inn p#ddy eq I vdlent at the fall ltv1ei IIniI's 11 I~ (i.IuIa1ti(i Ivy Heuctin the, mil ing drying and t rasp:rt,costs bLu1,rred b? l,nilg,o tine lii,ddy to (t,1,11 tensleve I -Imn'urtel (ItLt IS converted to isPa fdv erunvaleult usrigl a 61 converh II Il ac Tr . I he ,c C di lb oi.lo tine FiI ,1u .A' m-ii nod ci nt AWhOi bIn I 3J dm13 incolusnis 4, 0 d ini ile fmlbI8u 6.? 41d ebIJetli yel n on agniculo il Pu I p Ic ode. na uif, 6 lroa Appeon i fibI c 10 col I.. I TABLE 10(2): KAYSIA - lffECIi CIRECI PRICE INTERVENTIONS 0N SfLAl4lOL(aR RUBBER PASE0 ON Al IIVE PRICI St 1960 1983 Vili ?ordee Clf Ra le of ptio of Nainal Non Agrl- Ret o of Ratio of Nooinal c pi Ic bidet Pf ducer Piotect on it Wullural Bordel Sroducet Plote loi oif . $01XO lortd l ce or l ce of SUoI hoedlr Price S ItCodof PflcT of SIdIehoIde b j Foll WIci to So l HO der SAl I 4ldur huPliel lo lode Sal ho dir Rut,b e bb cu Ctl P r RQ to hbber to Local Paddy Rubber to RM1bbA o air etng i qlvatmm! CM lorI pu todu NOR Agi V No" Ar cooIIIPrI at Fart of I,ore Pr- c o cultuJI rieIlutaIl - coelel~~~~~~141 Lewl wetn a Cc I IlilCPIC PtdiV P dX 41 Indei Index f.qulvalenx faill Lsev 1l1l/tonael INS/tonnel 1980:100 1,4'*1 1:y S,6 4.4 *0°.32 5.4 13 ,S 21 1: ;8 15 It*2 19 51 239 s.* :.12 0.23 55.34 22 50.14 Z 1tH3 1 481 23 1 .13 1:4. -0.2S SS.68 26.2 22.97 40.19 1s65 1 40I 211 6.64 11.49 0.3? 56.64 OilZ il.03 -0.1$ 1t* ~~~1031 237 5.67 4.13 -0.2J S7.46 23.35 19.99 O.Il4 196 I' 292 3.86 3.2 -0.06 8.0 10.04 1$.99 I.h0, v 1 3°13 325 432.28 -2.29 883 0930 1493 2 14.71 8b1 1:¢ :,O.g 25 ;.;2 4.43 0.;9 60.3u 23.25 19.73 O0.ii 171 941 215 "'l 2.9 0.33 6I' *129, IS.46 12.89 -0.17 71t 608 2136 46 -0.33 2.912.@ es.3 i 0.19 t 19I7 i 36726 359TVS ?2 2ST3, 928~~ ~ ~~62 °03 0ll10 029S4 2f9303 136°3? -0°19 1t7* 1 750 270 6 49 ?.93 -0.5S 19.41 22.04 17.14 171 1 807 2S13 7.4S 3.07 -0.59 32.10 22.01 1).23 -0.24 !9Z!~ ~ 44 Me 366O s.s .31 41 06.40 ?3.59 It.9S 0 589 1X1M { S21 210 C.IS _0_4 _ 91.40 2.58 184 0.I2 .4 0~ l. 1?3.84 3.73 .0.46 100.00 2.1t 19.16 -0.0 M 2 2 4.31 2.SI -0.42 103 5S 20.)@ Will-.5 . £ .Z 1 ~~ ~ ~~~~ ~~~~364 .03 5.o o 113. 0 H-8 11) 93 0- o. 3 ~~~~~~~20 ) U7. 7 2 . S 0-61 _ 118. 2 9 I}-4 i15;4 0 .1 Av-erag 1 e11 311 -0.30 *0.19 Notis: (11 Ihe suallholder borde price of rubber in colon I is obained by deducting he *atrltin'i 4nd trinaDrit coatsalc IhFUpI. dta 1L a iji fud in Ai*;d akIcl (21 In COIySA? t : e¶ lFpi of Ce ln ya34 equ Ia &ent at t fai evi ?sub tired by dedu I g 1e r yns, *. an i nd liinh por Icos I ngvo ved. lpolled rtie 1v Coivetled to its paddy Iq4vai,n uI 4ng a a c tIhe le a 1 a oun In Append i fablt Coluen7. I131 Ie dat "n coluns 4 and I Im f abIl 8 oluhs 1 arid 9 rtspe cively. Colu o f Appe ndis fablt 10cul 12. -~~~~~~~~~~~~~~~~~0' lii a at JtAE 10(3): NAVSIA - EFFECI of OIRECI PRICE INIERVENJIONS ON PALn OIL BASED ON RELAIIYE PWitCS, 1960 1903 Toot lortCIF l a iR 1 of Rubl of Doel i Non AIri- R lo of Ratio of Nobinaa V Pr ice Price of olde PrI uce Prot c lon cullur4i prde, Pr duc Prot itn -af m Oil Imced Pre @1 Pic of Pm o itl Priide Pi ot Prc oI Iof ulir 9I P Ice P P loCl ol lo lo c^t Ide PalPl Pam lo Crto t marketi ns A lilvg!en tc of PloIt ecV 49. icullus^1 N 9o I- tlaRtpor at fare IPI d PrNc O Praducltmn Pr ce turdl cos level Ice Lo Indei Pr ice Paddy Pidy Index Equiva lent . M/to°nne) (l/tof2ne1 11990 1001 19,0 603 204 2.95 2. I, -0.29 56.94 10.59 9.17 .008 1961 27 1t? 2. 2 51 I 10.98 10.13 0.06 IM2 508 239 .04 2.O 091 55.3 10.64 9.01 0.09 5X S7t t l .41 .99 -0.20 Ss.IH 10 .It 9.48 0.08 16i ~625 2.2 .17 -0.25 'SS7 II.71 10.34 0.08 * 165 730 ti.6 2.S0.21 166 2.3 II .20 0.08 631 237 ?2.66 2.20 -0.18 5.4'6 10190 10.13 .1 . 1967 S91 M92 ?.03 2.07 u .02 58.60 10.14 9.35 0.08 X !X~~ ~~~~611 41s 325 IN2 1.44 0.13 SY.30 7.01 6.i6 -0.06 > It* 409 il 1.30 1.~~942 0.09 511.0 6 8U 6.A 0.06 li 1970030 251 2. -0.11 60.30 10.S 9.16 -0.06 [ 1[71 443 IIS 3.0Q 2.21 0.25 61.2'? 10.49 9.68 0.08 I 197i' 499 221 2.26 H1.10.25 126H9 7.91 7.20 0.09 IM 39S I-Ij~~~~ : 66:50 8:44 1901 0 r 1 7~~~~ ~~4 1,7 5'95 1.4 1 9 8 t°0 67.625 Q16." Ill I9° .. 1,09 1.90 1.8t -O6 is 594 11 11.39 O.., -20 320.50 7941 9.03 0.1 r ~~~~~~~tt71 I, 5 3 1.90 . 10.57 12.70 IS. 12.03 o2 I M 1z77i 1, O 1 3.29 .1, O0.30 86.48 13. II- I 2167 42 MI HI .0. 8 19000° O 13: 10.3 .0 8 ' ~~-.: 1t886 ~~~~~1,0993 303 22 9 41 ..O 8 29 I0X@ 52 li° 0 9 4,7, 0.86 . 1983 973 268 3.62 1.36 -0.62 118.20 8.23 8.04 0.02 v ~~~~~~~~~~~~. . . . ... .. .. . . .. .... . .. ... . .. . .. . . ..... *... ... .. .. Avejage 198 317 -0.23 0.10 f. ~ ~ ~ ~ ............ ............. . ..... . ....... .. .. .. .... Notes: (1) the torder piceh f pa ol I the tO`3 price less Iihe markiin rid tranpoit costu. 1t1, d-- dei1 on-n o t s l t ined can Iwn A Append db te u (lui8 [21 In colul n 2 t eCIf pric9 olsporl t Ce In paddy equ Ialent it the far level js Galcu cied CY uL glot dryin e, jrce anid trdnyeorl crisib iiyOVIvd. lu ilhtdulbs e.il 1Ie round in Apend l 3 colunn n t i 131 Thef da n n (olumne 4, l, rid It i lo r14m ldblt 11 Ltu H, 9 alid 10 le6pteLiivel. C¢lusn 6 Is froe flppend i tab e to column 12. 1101 1Al.1 1 1: 10ElI CFIEt [fill IS 1R ICIYII Mt( Ill IIII 11 JIM 1l hW WAII *S tKil l I .l 11111 1 11,t0 Z -.1.......... .......... ... ..... .... I ...................... .I............... ... . .... .. .. .... .1 . .... ........ . ... ..... . . t*"t 1W, l l&1~~~~~~~~~1 t t*th,t ts sie o1 t11** 'hXeel *oOe ell b 1f 'htl t8 * ^I 1'1z,.^ itiel isell litwitwittit n,t nice *1.st X tetil lulits¢e itise tt ^st t)lt tSlltsl Pfs*sel ts st *1 *Sst1 zlult t,t '>XsUc w ls 1 PI"s t ploolyci t*1,' e, I iM1 t., ,:p i It pu at 45 iR i jXi1 if t it ttt hX it,* 4ali | {2e ftf tl^tlI,^sjt t , f t tZ | [1,1tz |I, 1i * 11 4 * I ¼1 9-6. 0.18 1912 3. I. 15 9 499 516 N2 SI) 2.26 DI aT 9.07 '02 IM .9 1.0545 50 597 i, II~~~~39 416 1.ll I.31 0 09 H) ,'V0. 19WV ai10 1,1)1 I1I94 59 6541 1.98 1.99 0.0) l>2"1 121.i 10 19/5 16.6 1.1091 1,109 1,o230V I? 18 -0.0 1~ 1,1.31 0.29? 1976 U6.? 0.9831 88s 810 2;0 2165 3.29 1.63 O.( II 4.2 so0 1 191? 19.9 1.01 Mil I6 1.263 23294 II 21 0 O; LiI 01-04 19)9 88.1 .0.911 1,26) 1-238 410 401 3.09 2.10 0. v) 14. 0i 1.4 '1 Li. 1980 98.9 1.0487 1,11? 1,11)2 $12 4 32.1 .1.1 0. :11 11 04 13.38 01.2 1981 111. I1.1433 1,092 1,24? 52t3 59 21.09 IA1 02 11 'I 94/ 0.1.' 198? 11 .4 1.1)39 M3 1 1)94 384 451 2.43 1.29 0.4' 1.j ~ 95 i. 15 19163 12t.3 1 .141 913 I,r16 26$ 308 3.62 I1.3 0.6. i.-0 S.O1 o.u Motes; It) Coluen I is frog Apeadji lable 10 cy lusi I 1LI Column 2 nistWilliild usin'g gii Oils a tlci7 u s uq'ij of 0.5, Lifd dii v1ldI tily ol 46Sfid 04 I .5. 1]IN (06lai) Od, iIiW I hi g is obaie can bPe i nd in 1 pplAJg be6,e 3 131 Co¶usni 3 iid S"iree cran bpelondi lad A2 A.ulun 8 4abrl.l 1uul ' d'1ie 41Column Sand 1I 4fe au N Itl tolutior 10 arid Li iewn t lveIy . Ft I~~~~~~~~ - _ _ ,c _ - s.0C0~.'4 F~~~~~~~~~~~~~.. .. h~~~~~~~~~. w - r _ e.. ____ o-- *r.4.%.Ier 0-C - . so.Ocl . . _ .fo_ l t . _ _ _0 o_ _. r_ ._o70_ __. _ ._o__ --_ CS C -- - a ~ -7~=~'-Sgt 4'~~~~~~~~~ a=.~,,,- _.- ao^-o_OOO_O v ~~~~~~~~~.. D-0 t . ............- - - .. i - rZ ~ ° O _ ' ! °-:S-°--,C;;S C - .0 __ p~~~~~ ~~~~ :2 0 - --......... . =. - - _ -WX^-r-° ----°-g--~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~°^°r t~~~~~~~~~ - .--C.- -:v-- t _X~~~~~~~___ -@ _ - _, -._ -_.-rn_ ___ .__ [~~~ ~~~ g iP io ~ ~ ~ ~ ~ I ~ ~ ~ ~~- _ 00 __ . ~ . ~ - a----t -- _ . _ 8:_ os -eo [~~~~~~~~~~~~~~~~~~~~ . :~~~~~~ . _ __,. __ * i . -i';.i' . '' - - -.-- a .'.-. c-, ,! -: IAOt 1Ž4 ): WIIAASIA - WOIRICI liILCIS Of POWCN6 Pi'll CUi( ON SMAILMIHOO RUB&CP OAS(0 ON RAtLAIIVI YAMU ADOIL PRICIS, 11OC 1983 r~~df Valit fl ot G~~onesi AI C Octic Valut Adde4 Ratio of Ratio III Pr o1 ~-c Ion R.l0 of Ratici of PrI tt Ion A4dd q II HI 4101v Afdtf Uuf Ya)u'V Adde'0 of tol V I Uvitii Pitt ut VdIu(v vdtul R4d ut cultuAl, Incan Saf1 Seal Gada Ad oofSalVclde Pm otdi 0 ei di:eci i ol Aldcl o tn.1Ie Putui ice clan hbbmerio' Ith' Ii" ili )1ed Rubbue, oiei AubtI di i i ccl. ul 'adI Ii~l del Sial tioudel tiIecib o; '1110' nub fY' 1' c ube oV ub PIrf icr RuttIjer f)d' Rubbcf to PrI it. ll I~de Nosina ln~rec Subs(dIe fec1s.of Valtu Addt Vlul Add:, Polt ic on fot 1j I 'Jel:u a Added l,ultici on 1A41j.~ste iI. hket Iii I 11cing 0l Ic o log SAl hotdel i tfells o o una4i Ssit ltjdel (IIe~~~~L ) jILitkg Poicits Paddy 1o1 Pi dly Rutb:r Ptc ng on Agri u el to I la e Policies 4 fo Production Po i:ceb to -ttura(1l alut: Adkftd PoiicI~ , IS Pa4dy of won Agrii Imdi cultural PrI!I ing Pcdito utturel Puitt Policies Ptictt luijes iik INS miIll In$ siti ll ~ el I NSsli h fill] fl60 300 1o .osse 1593 168? 239 2153 6.66 6. i6 0.00 '16.08 '~.20 Al 1961 30.11 1.06t 1,205 1,303 ?39 2$9 5.4 S.1.14 0.00 43,21 40 .11 0.0? 211.05 1.A05 1.14? 1.260 239 264 A BO0 4. bo 0.00 4 3. ib 39.41 0.10 29.12 1.10?, l,fl).08 1 19, 2139 265 4.51 4.'l 0.00 41.08 36.81 0.10 !!~~~~ ~~ I.~~~~O96 .51:95 239 21I 4)0 4. 0 0.00 3~4 34.I'.0.09 IFUJ ~ 1,(J IIV'~I itC I ii 'I A AA A A¶ I (if U~¶. IV 'O J.TU.1,1 919 29.U1 1,0741 9)1 1042 239 219 4.06 4(46 0.00 3H-. j2 321 .C0 196 30.31 1.1043 M ~ 8/5 2139 "64 3.31 3.31 0.03 26.Sl 25.6V 0.It l?6 3O.45 1.0890 )37 AO? 239 M4 3.08 3 0.00 2.(. 3b 5 3.L1 (.10 In?i 29.04 1.0054 993 999 23 2140 4.15 4.1s 0.00 33.1? ?i' 0 .01 197 30.61 1.0840 745 809 23? 2(59. 3 12 3 r oo 04.34 ;.00.11 1971 31.311 1.1213 668 149 239 .60 2.)9 19 0.00 23.01 M0)1 0.13 1972 32.29 .1 23 ~ 551 635 239 276 .30 1A 0.00 196 1 4. f 0.15 tY)3 33.00 1.@4 5 954 1.006 344 W ~ 2.)) ~ ii 0.00 30.40 212-6' 0.10 1V 340 1.1004 1.106 l,Zl? 416 460 4.64 M4 0.00 33.44 218.96 0.13 1973 )l iIto?) 85 971 416 464 Z.09 2-09 0.00 215 42 21.9 0 .11 4011 1 0,1t:50 :l1348 110.00 219.11 2?:54 0.051 Mif 431 103SS 1239 1,283 4)8 413 2.9L 000 L.:~ If?9 45:A 0:9M? 145s 1,422 4)0 56 4 3 014 0.00 3: .1: )040 1900 Si.0& 1.048? 1,60 1,151 4)0 1O .49 a.'9 0.00 1; jo A 7S 0.3. 1981 56.94 1 143) 1,49 I,L91 y.' i. )PJ 0.~'001 198? 5J9.80 I ?3)9 I ,2 ) ) L4'j, 1. I .,. -....- 0.00 .4 2'. .014 (olst is lbuS A ,iLh, I4~ Ii I. I,. i I)C'olu n Ii (,oe Appfu'ln: r,Ole iltl b tisrii 1 ML1. 21) WAAYIA IN IlRE C (I ffCIS OF PR ICING Pot KMII ON pMA il DIIASIO 0ON RIIAI IV( PRI Cf , 194~ I9'M teat yatwe ddqd tat c o l eest ic Vle Added Ooel, 4VAIUI Ratio of 0RjIotiu f Piutedtion RatiUo of Value A.dtao ol Proituctlon 1.M1w1 Alrit (qjlibriug VYlu Qfi Aae I UI o Vilue Aldej VIuti R teo, Ad4d~of Mill V4iUe Ita or cultural l.aoi Adle ofAdJ Ne 0 Aded3 ol I~ Ca Pa'dy of Palm QI Ad LUd ti Ell II ec VI Adpil ted Added 9! 1 difec Price Ind Et c eng Pa Oil liec loci Adjuitlilt to IV I u Palu (ii (I c.I ('I ( W it ie am~1 C cr Adjusted Rati ? aflftl of Paddi mIo reet A4dsdo t q VIU Ptjcnp) (I ec t c to 414qP iil (of totl moelmu Plcin vith AlW nvt fea l oci IPa y Adde o Pol e It Pr IC cifl Adlded of Pul ititi or. ,t;Mi.:1 ifj~t I POlcics Subsidto Pr icing bothA~ ofr ocvi on p usIi Pu icies to linidjys1 tj 41il'rc Adje1 PolirJ, is E (1 e 01 to ljoi;l of lion A~ i rle o au Us Pr l~~~~~~~~~~~~~~~~tni ~~~~~~~paddy culIturol aI hi'd'er Addetd o wMol II:sI Poilcies Production Price Infer A~r1cIua l01t ~ tteks flit mliii INS .ilii INS mli ill) Pmdiiies I3J~~~1~~I I5li~ ~~ ~11 I4dIItll 1960 30.0 1.0588 469 496 239 25 .96 1. J6 ,00 16.50 15.65 196 301 10114 488 528 239 25 2'.041 2.04 '3.00 17.50 16.24 0.0y 1942' 29.05 1.110st 458 SOL 739 244 I 91 I.9 '1.000 Ii A I5. A.1 1943 29.12 1.109? 445 494 219 265 1.86 1.8 (1.00 16.Y5 5.19" 0. I0 1944 28.9 1.0894 486 529 '139 261 2.03 2.03 cOO0 18.28 16.'18 -0.09 1965 79.23 1.0444 568 605 ~~~~~~~~~39 255, 2.38 2,38 01.00 O.,6 19.01 00 Otis 30t4 1.0890 .23 605? 239 26 .5 I3C001.51.50. It7 30.1 1.0404 491 538 ?39 ?251 2.01 2.0) ('.00 11.53 15.', 0.11 1971 3.31 1.11213 500 M6 i 264 1.0? 1.0 (.0Q 11.80 15.52 0.13 it? 32.79 1.0539 381 440 23 260 1.3O 1.631 (.00 13.553 10.53! 0.10 197 33,06 100545 410 432 2349 320 1.3 1, J0.00 10.301 10.10 0.10 M91 306.4 1.1080 76 851 419 460 11.86 2,06 ('.00 1?.'3 05.3' .0.13 1975 3I.1 1.1913 Soo W 0 9 41 64 1,04 1.01 0.00 1.810 t8.21, 0. 4 1976 38.04 0.9131 636 625 416 411 142Ib 00 610 15-13 .1 197 40.02 1.0011 83? 840 . 418 419 oo 00,001 0.00 210.56 19.210 0.06 It?* 43.1) 1.0355 109 930 419 433 2.15 2.15) 0 00 "I.51! 19,75 0.08 lIlt 45,7 0.9772 96 941 418 46/ ".0 2.01 0.00 20./8 20.0. 0.04 I9 51.06 1.0481 815 918 48 So0, 1.03 1 . 6 0.00 11S1 16.4 CC?7 1901 5.94 1 1433 84 ?99 615 /11 1.28 tI .2 0.00 I/ 3? I131 0.13 902i Wet8 1.1739 /5 890 6/5 9?.1 I'tO14.81 12.74 0.14j 193 2.32 1.147? 80] 91? 6/ 114 1.19 L.1V 0.00 11.15 12.8 0.13 Motes: I Column Iis 11 r Appendrs lablec I? column I) I.-~ (O Coumn2is lrumA aTn l lJ.6 ulmrof Couons 3 and 5 -eci'oa Ape ndiij~d 11(1 .lm: o . s'. v 4 (O uii 0i liosAli.-endit Idt'l I lv Ivl I 1 'f . ! ousre 1I i~ lIom Appendr fit) Ic l~I, OIual 4 I I P01AI 17A(21 K PAY% I A TPflAPtP 1110 Of PNP ".20SAR PI4 1. It? I% I .P 41l *116119Pl ANIPAM' 0105 At INP III IA AI VI P 1 4 AW14' IIt":Pr 4 *0t *s .1.,o Vv).- VaP.-- Val..* ValVO- .'it- ,, PP.4*P*0P)*,. ..'. lp Its 4t11W. . Vpl .. added Rpp.. tt'k..t 64464 of I.,.'.o 4444 .4 Atdod of A.)464 o1 044.4 M. ., A44.4 .IVa-- API.Ad..' PP Pt.t. V A.',, P.44 ..l opt... 0d.14 RAPo .0 ,.P 4-,. p P.44p V... A44p4 *.10. of Pho- A*e . mos-...I foIt.t 6.6..?.. Lppp* I..pol pI to. P'46..b .7 P.t.). ItA) rlf.et. I 'PAtt PI,,bt*' ~ - fpP.%#i F-6)AI*P.. at )t1 I".74 14 ,)P 0 Itpl 2s.*t.oe P t..Ip-e. I. .0, * R.bb.. R..bk, Pp.447 .t l',44, pp. P.. Val--- Added INb6., 4. ..t PI.-Q. to Wol. Added RP.7a.0. %O o( (*.%L. t.o-8P0..t at P sea7 tO 0' Local 0,.#0 lodo. Rot. t. A4-.6t.A Adpoop..4 CII p-,, L& I'',. ,, P,.- P,dcl, V*.P.. A4d.J P',,).)00 O- 't hb6 A6),. Vtl.. hd44.4 Il*-. .e 1,0ool to PpIp* 044.4 1`644 Atipvotod toe Mono f.' 0...e. I., lops.f F1-...I-., to,,lop C?- !,Co of ..oIo aiet.t C. t..rpP I'e..e I Plo AO,, I'eod..,t. VaI... 0144. of lee. AO-.-- .IO to, 70p.6 ..14tol) 16,poof ff:aet.p .4 1,0Vp. ptp a' I*p. -P.. ..te It raid, I.,th 1ko.bb* 1.,4.. Ad, t., 10WP,,ep al Pi-o A4,. .. .P~ (ff.,t. .e t.th.~~Raeg. P,.6 f,o pool p .*.. I.#. Ad, I .. 164..p0 6,o..Po Totl,,Ttl 4o" . tt lP--.p 6'e.t. lo..4 1..Ptp both both 604.. FP,. (t-0 'p* Ifft..1. of 6 tractp of ftp.p.t. of t).,.P read, ?ol1.. to. o.L.1 A41.~.6k4 to, 6., 7.A.i ~~44.I 1) Pe,t,e,g l',.p.ng F..c.eO P',o4.,et.Po.."t'. tff.pp-p o Ino,e Mar.ts fff.ota of Poise... Pot.e,.. F~~~~~ofPo..." (He *tail INOI * Ill (066 pill) (No6 ..Ill 131.121 (7.)o(21 I4(1(6( MM?I(7 14)/ill NI0)/IO) (43 '(II (13))/(131 I440 so 04 1 01M 1,64 2, 21 174 149 PI Id 7 24 -0 691 6) 51 as .0 I? 4 it 7 44 Olt? 1941 so V? I064 I803 14324 104 307 P 66 162 -O 23 13 62 44.? la 0 I? 4 63 7 23 0.16 111642 to 04 I 1009 1.41? 1,23? 263 WU) 66 is S3A .0 Is 1.2S6 .44 70 Is 504 S."1 0.06 16"3 212 IP0061 1,332 P,476 205 223 67. SOSo 10 .2 $07if 41 63 *QjIs ?6 IIIa7 0.04 1,1461 23 44 0066 I.3o 1,342 IS 201 6 4 4r 71 o 26 47 03 39 04l .0 I? ? Of 6 it 0.15 2044 34 3 1 11114 2,236 6.7.40 lea9 197 1102 4 6 .0 29 4?. 63 3Si 0 id 4 73 0.03 0.14 it4397 1 0741 1,204 1. 204 211 4d" 7. 72 4 6? 0 64 43 5,3 .26 40 -0.1$ 7 41 7 l 61 .34 114? SID 36 1 1104$ 1,004 P.104 264 244 2 77 2 41 0 0. 36 511 30 36 .0 it 4 70 ?J74.2 I.441 SO 45 I.40 41`47 1,021 244 2 3 1? 2 46 0 to 33 67 21 24 0.1?I 606as P 47 P 1144 14 64 I 0054 1.241 1.2$2 ?M 24e I 312 . 0 00 46 914 34 S.f -0.13 9 72 3 4 o3 2 IP70 30 I7 I 0.40 44? 7.040 231 760 4 to6 0 It 34 IF 23 04 -0 Io 4 64 7 34 00 MI7 St I7 1 12111 117` 670 609 212 4 62 2 40 .0 26 22 it 31 23 .0 to 4 04 7 42 0 10 1673 " I22 MO.3 70. 472 ML7 2I5 23 292 -0 23 27 00 21 It .0 23 6.9 7323 0.04 WS7 33 06 I 0646 1.272 1)342 227 .9/) 2 IA 2 72. .0 0 40 11 31 O0 .0. " II 24 4 6$ .0,14 6974 34 40 I 6004 1.140 1,469 "S1 404 2 61 .104 0.0. 44 s6 33.32 -0 26 146$ 60 Oa -0.34 Ills ads 26 I 106 226 1. 241I." 316 172 2 24 2320 0 02 33 91 24 07 .0 24 64 44 10 43 *0.30 JIM6 30 14 0 9021 1.624 1.401 724 72 I 27 v94 *0 14 dl 21 29 3? .0 24 1 #7 to.03 0,77 1417 40 RI I 0011 1.714 1,746 1006 6 66 2 1o -0.s2 43 4a 24 52 -0.)1 3.60 4.61 0." 1673 43 of I 033 1.420 6.974 220 3.2 246 2 to .0 44 AS 62 24 26 -0.34 7 46 4.10 0.10 %474 41, J-I 0 477 2,23) 2.23021 $14 3)0 2.bR 32 2 -0 Al 40.6 $2.63i .0 34 7 73 4.95 0."4 1960 16.041 1641? 2.417 2.74$1 340 277 728 272 .0 49 13 ? 33460 .0.3? 7 34 909 0.33 14141 641 44 I 1437 2.104 2.40!; 41L., 10 I 22 2Al9 -0 44 42 23 37 46 .0 34 4 i$ It 02 0.36 12901 14 4 1 1739 1,230 1.663 317. 270 S. 01 2O 0 0 40 30 47 22.5 as0 24 6.66 t0 57 0.711 241413 42 33 L 1472 1.944 3.230 200 22141 9 77 2 4. -0 76 351 79 24 21 -0 37 3.66 10.13 6.71 06.6...: 1I) Cot.M I im, tee. Aepdi. .161. 12. ,o.-.. 23 (23 Cel. 11 -O. bogtedl, TebI. 4 .olo.. I) Col~art0PP 3 014 * mptl free Ao.6A4ia Tests 11141 OWP,.. 4 *ed 12 .s"t.t.Ai.* (41 "I.. .- 6.6o.Ap046,Til 7. 1.1(3) col...s 1 )~) P.oe. 6 6o 04oe leo. 6.6.041. Va.ois 11(3). coI.e.p 6 004a 9 ee.t.P TA014 17A(2). PAL4.AYSIA fOlAL ItFElCIS (W I91ICIWA. P() I JIS' ON '.MIti10j1hit tIjIltili IlAIl.! ti N litt)Al lO VA) it MWIll. 11160 IVflt ........ ...A ...... e..., ... Vt..V..Vlq VI, )). , 91, l'. .,fY ...l'r,..t. 1 ..rVI,. MtofVs.* f*.* of Pf. Agr.. Equ.1ibi,ivis dedO A44*4at A4i of Aolo.14 01 Added of 644.4 o,f AJJOd of NttsL o' Addeo of .44,4 of Rlot. of Cultural Nnot at*I I 33. ltlotde 5.6blll.olde te QC P.144,1 ,t S.6lll,01d., 5*61tt,o14.' Iota.I - ..lhtoIdo, So 1aI I h,tdo, P'no,t.tto, of Price lode. E.chet..i Rubber Ft.bba. P&Jd.4 at C!F Pr.,,q, .l,* t,, Vol.t, I,,blh.' to Effsfle of RvttbbofI to lubb*r to0 ~lme)tt,oda' AdjusLtll for Re.6, to A4jugt.d Aol,unted (If' P.,t. Flyioeoln A.4404 of P.447 Volvo. Addged Ffr,,,o Vet... A644.4 Vgolvo Added Rotbber Total Wffcts hmo..&t fr Oi,*itt to, TotalI l,,..h Adj,,aosd it Cit Or,c of Lwal Pa ', -to o~ of No. Aor- of moo of Pri,ift (lle.het) Effect. of Eff.ct.. of at Fe'. top lot.)fa.otn Paddy both' SmaIthold., e,,1t-.,, P.o,P Agficultt.,o pol),ioo C.tt.a.eio 1r.,,n P.,t,-, L.fot tfff.cl. of bott, Adj for Una.djut.ted 4..bbo* Ino4.. bolt, Price lodgi note Polec... Policies P,c. Totl. Iffect. for Tot..t poiodgt.ioo Adjuit..l. for 6.6t' tiosj for (E..0 1): Potts'. of t'r,n- Effect's of L..' t,ott fLolg Effect.. Total Iffilitt Ndi' S)) Paw,cioi. Pr;ti.I pall, it P-o..,, of P1ri't.' paticoit ProaliOttoft Policies Poli,.ito m9 sill) (Me mill) (146 mill) (MI6 mitl) (2) (SI 14().(2 (S.2 416)(1/5 4/()(o)(o low 80.00 I1.06*6 1,944 2,060 176 169 10.92 8,66 *0.39 80.43 W120 .0.22 19061 30.3? I M4I4 1,461 I,60 191 27o 7 65 6.04 -0.34 52.30 40 It *0.23 10412 29.06 1.1009 3,20?? 1,523 21.3 1.136 6.48 4.00 .0.20 152.43 39 41 .0.25 1to8 29.12 1.109? I , .-J 1,432 208 S1 S 6 ~0 4 SI -0,26 49.)6 34.01 -0.25 i964 2N. 0 1.0090 ' , 06 1.314 IsA 21,5 6 42 4 20 -0.35 45.45 34.29 -0.25 it6" 9. 23 1 00444 1,217 1,295 368 19? C.M, 4 2) -0.34 44.31 33.79 -0.24 190 29.? 1.0141 1,164 1,21)0 . 1 3262 5 52 4.04 -0.26 41 99 32.13 -0.24 19,117 30.31 1.0399 10926294 3 s0 3.31 -0.00 AA 9' 25.8'7-.2 '60 30.4 ;.0090 WX 90 299 375 3.02 3 00 0.02 32,27 23.62 *0 27 199 29.64 1.001) 1,201 I1,.so 200 290 4.37 4 is .0.00 40.41) 3)714 .0.22 1970 30.67 1. 06140 921 990 231 210 3 99 3 12 -0.22 3? 18 23.1)0 -0.20 197t 31.37 1.A213 62 3121 16 2)2 4 1) 2.79 -0.44 29.50 2(.2.1 -0 50 . 1672 2.9 1.1636 707 3619A 725 3.63 2.30 .0.31 P1)26 16.05 -0.34 1913 i.53.0 1.0545 1.217 1.2031 35? 3?? 3.4) 2,77 -0.19l 30.791 27.74 -0 30 1974 30.40 1.1004 1,473 1.620 546 642.69 2 64 .0.02 44.51 29.94 -0.35 I97 30.19 1.1097 1,060 1.198 8.6 812 2.09 2,09 -0.00 31.30 2t.90 -0.30 1976 *6.64 0.9635 1,639 3,5)3 224 3210 68.? 2 76 -0.60 60.90 27.54 -0.29 top 40.62 1.0011 1,6,6 II660 m00 206 8.0) 2.8 .0.64 40.65 27.66 .0.32 Ism1 43.36 3. 0315 3,412 1,6?? 320 3.2 1) 66 1.96 .0.46 43.48 27.23 -0.3? tO7t1 45.27 0.977n 2,254 2.203 3S" 35 6.29 3,04 0O.52 46.66 30.20 -0.3a 1l0w 51.00 1.0497 2, 09 2.632 300 31? 6.94 S 49 O.b.8 1)1.5 31.78 -0 3A 396) 60.94 I3.3433 1,965 2,249 457. 54 A.36 2.39 .0.80 39,85 P5.s . P 0.33 192 5t.6)'L 1 1739 1.4) OM,70? 315 3/0 4.5) I.8M -0.00 291.53 20.70 .0.2? M93 62.3 1.1472 1.014 2.001 200 ?,19 9.0) 2.23 -0.75 33).39 24.18 -0.26 ... . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not.m: (1) Column. i if free Alpionoli 9.6). 12. ir.t..Mh 1.3. (21 Collmino 2 is fros 4waindis TW S.6 . ..ot,o. 13 (3) Calu.. 3 gtod 6 moo feeae Aopendls To.61. M3(4), coleasie 10 6nd 12 respectively. (43 Column, 6 I. P.o Asetd". Table 11(2) v, ili90 6. (5) Cotvmn it i* frto Ape,.fid Takla 11(3) column 7. - . .~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~.~. lut 124(3): .AAYSIA - IOIAL EffECIS Of PRICIUS POLICIES O1 PAiL OIL BASED N RELATIVE VALUE ODED, 19,10-1983 Tear U ofj 0 Value~t de ,.lUcRat V aI VAluC RatiQ of Ratlo o0 Protection Ratio of Ua,ve Ratio of 0 ftectilV 01 *n ffl EfU 0 r P Ylo Ad A 1 Ad01eI AdAe o V aet A ef5u A'dt Rate AdfSd of Pe a VNUe AddSd Rate of CultUrnl Mouse I AjuSte Paf i1 Paddy at P vait oPaII 0 011 lot II Oalo to ave 0I P Oln 01 r PttctiOn 1~iceT s4e Ecasg Io luct Aj CII PrI c Cirice to V* lye Added to VIu (iris i o Added p Woo to value o a a. Ott Ad~t od r Rat gig MCCe siot tr otal Equivaent Eqijiv lent of PidMyat Ad~f A~IC~I Agicul ural 4dd d IlMor Tat 1 t Wo l s Pr cag ft c11 O aj far djusteO CIr Plce (ocadI Pad1 Pa1l FIc * Pice Qtide Ag lC Iural 0.1 PiIcI" . let 1 PON Ces Pt ri11 Levl or lotal Equiv 1 l O ady on Pq s il lotl Adl for tlad lusted Poic I POI lett (I I InA ElftC T o 1CUC n Iotaj erlClC pPicn Ioa* i .¶t te?, j0 toU 0 PijiCin Ifs Q. i Pol c ts o t <.n Pl cin Paddy pollItes w I1 Policles Po lcit6 Production IneiFll) 1mmmiii InM^islil INS*Iifl I ,60 30 .0u 1 . 0Sv6 S IS S44* 16 ,e 2 .8*9 I .9 A 0,4 J Is.I IS. 65 0 .1I4 1 30.11 I 09Oe3 5 0 191 ?01 t.i31 2.04 -.2~' 19.23 16.'4 0.11 2.0s l.10 213 ?35 .,3l 191 -0,1? 19.15 15,13 0.16 I t 4 3 " . 1 7 I.? 1.109l 419 543 .205 28 ,1tu0 0 . 10.64 Is.)!9 0.I 1 I A.AI 2 6 "I w A . i A 9U"2; 1.0441 24 6 lS It? 1 9 3. 3 9 ?31 0.3) P " 1 l .0 ' 0.16 29:17 1.0741 140 19 Ol 22 H4 2.0 0.2t) 19 47 16,'4 Q.Il 1 ;vU 30.31 1.1043 $08 561 266 ?94 1.91 1.93 0.01 lo.!! 14.19 -0.19 1,b 30.45 1.00 350 s l 13 199 325 1.19 1.35 0.11 Il. 71 10.35 -0.l9 ItYt 1.0054 3 35? ?86 ?90 I 22 1.13 0.0) 11.80 10.16 -0.14 tI970 3 } :V 11.O410 ?45 591 231 ?50 2.36 2.01 O.I.' 19.?1 15.64 0.I9 ltil ~~~ ~ ~~~~550 41? lot M2 2,92 2.O9 O2 19.64 15.5? 0.21 I972 B3312 'I A:gh , 494 Its 2?} 92.110 La80! 8' 11 11,53 0.28 l?E3 3 3 10.054S 463 510 35? 37i 1.35 0. O) l!.I 1' 00 0.:2 19 4 34HO0 1.1004 1032 1634 548 404 1. 8 1.86 0.01 31..1 20.37 0.35 . ~~~~~It75 39.It H.091 9J3 1080v5 5?? S1 I.0 i .74 O.O0i '} ,§, 10 'S .0 3S It. dl. O . 931 lS1 )Sl 224 120 3 .4 1iI. S; 0. ill, 9 L 4, " I 5 . i 3 MI; I t197 40.62 I,0I0I 1106 110?7 208 a09 .,3 2.00 0.6o o .6 1 w 0 .9 196 I43.14 1.0355 1034 I073 3)0 33? 3.23 2.15 0.34 24.95 19./' 0.'1 . 1t7t JS.2l 0.7? 1088 1063 359 JS0 3.04 2.01 0.31 23 ii '0.0' O.I 1" ' 51.06 I.047 ts'l 140I 360 37l 2.65 1.83 *0.3i l1 to 16.64 0.1' i.t4 l.1433 91 1064 455 520 ,'05 1.28 0.3! 18.69 I; il 0,19 .69 St l 1.1)39 '128 3I5 3)0 1.12 -O. 15.50 12.4 0.16 ; 63 4.37 1.1472 24 94s 00 2?79 4.12 1.19 0.71 I5.I6 1',89 D.I0 I ~~~~~. .. . . . . .. . . . . . . . . . . .. . . ..................... . . . ..... ....... ... .. Notes; I to usar too wendii e 1?, 2. liun 13. 2 Co lun I IS o$ Appn ii Ia 6, to umn 13 3 Co usonc 3 an Sate iii 4a1t 1 14 toauurl Ii I 4 Co U:n 3 Is Ms Appendsl 1b Irt LO u5nY 5 Col ur tI is I tOa Appetndi table IM, LIUN, 1). CHAPtER SIX EFFECT OF PRICING POLICIES On OUTPUT. CONStIEPTIOUr AMD FOREICH EXCahANG A. Effect of Pricing Policies on Output The agricultural pricing policies in Malaysia have created a set of effective rates of protection that ha:ve systemarically discriminated against the rubber and oil palm sectors while favoring the paddy production and industrial import substitution sectors. Although these policies hiave created zhi; ia, 'LE A6Vi~ WeVA AigflLy (_#r!J.S;L:ft OVez LaMe. in aaoxicon. :or most r ~~~~years this bias has not been particularly large. For the case of rubber and palm oii, the ef'iective rate of protection has been generally in the range of -15 to -35 percent. in the case of paddy, the effective rate of protection. has been generally positi-ve but ranging fromn -34 to over 100 percent. with large year to year fluctuations. T1he large changes in the effective rate of protection -for paddy came about primarily because of the chan-ges in the world price -for rice Ii ~ ~~rather than as a result of changes in government policies. The basic policy framework was p-.zt in- place by the government during t-he 1950's and has beer. modified from time to time in order to maintain i-ts effectiveneass. Tn the case of thle food crop. the overriding objective has been to maintain or raise the standard of llivinv of the vaddy farmners. ~or che exoorr crops, the focus of policy has been tc at;sist in stabilizing the price of the products at the farzr.gate while ensuiring that the government shared in the surplus generated bv the rubber and oil palm sectors, particularly when world prices were high. These policies have had a- impact on the output of each of these crops. K ~~~~In the cases of rubber and palmr oil, the lower net prices received by producers r - 132 nave rescitea in smaller acreages of treec. In addition, because rubber has been reiativeiy more heavily taxed than pal. oil. less rubber has been planted relative to oil palm because they compete for the sane land. The price support given to paddy production has resulted in =ore paddy being produced and less of other crops, and, in addition, is likely to have slo%ad down the rate at which |nirrigated paddy land has been abandoned. To model the supply response of rubber to changes in prices and pr-Icing policies, it is necessary to consider how a change in prices alters tapping and fertilizer practices to produce a short xun response in output, and how it Ir alters price erpectations that affect replanting and newplanting decisions. Given that rubber and oil palm are alternatite crops for the same land and are often grown by the same producers to diversify income sourcec, a higher price for paLm oil will result in less replanting and ncwplanting of rubber and vice ve_sa. Hence, the long run supply of rubber or palm oil will be affected by both its own output price as well as the output price of the other tree crop. ! The change in the quantity supplied due to a change in prices of rubber ana palm oil (relative to non-agricultural goods) can be expressed as a function o£ short run elasticities of supply that describe their production response over time through more intensive tapping and ferti.lization, and long run elasticitids of supply thst reflect the lagged response of output due to the effect that higher prices have on the decisions with respect to the replanring and exF3nsion of acreage. The cross-price elasticity effect of the price of palm oil on the production of rubber or the effect of the price of rubber on the production oi palm o_l will also affect the long run production response through their impact on the repl3rting and acreage decisions- The particular formulation used in this 133 f,tudy to describe the change in the supply of rubber arising from a series of price changes in both rubber and palm oil is shown as fol±ovs: (1) dQtR QRt(ti=o * EsiRR * dPjR/Pij) +(Lti-k0 * ELiRB * dPiRIPiR) + CTt-=ko * ELIR° * dPi/IPio)) where dQt is the change in the supply of rubber in period t caused by cumulative changes in the price of rubber and palm oil from period 1 to t; QtR is the quantity of rubber produced in vear t in the absence of the price changes; E_.RR i- tt. _ or rubDerl witri respect to the change in tCe price of rubber that occurred in period i; dPiRIPIR is the nro-ortional change in the price of rubber (relative : ~z .s ...a~.-zaz a goodsj znat nas occurred i. period i; ELiRR is the long run elasticity of supply of rubber2 with respect to the change in the price of rubber that occurred in period ; '*Ro is the long rur elasticity of supply of rubber with respect to a change in the price of palm oil; dPio/Pi° is the proportional change ±n the price of palm o0l (relative to ron agricultural goods) that has occurred i.> period i; and k is the time lag i. years between a price change and the initial year whea tWho 'ong ternm eiasricity takes effect. The equation describing the production response of palm oil to changes n the prices of palm oil and rubber can be written in a sin;! : 2- equation (1): 1 Here the elasticity Gf supply refers to the response in the supply that occurs because of increased use of inputs, irproved husbandry or tapping. but excludes the impact of expanded acreage or replanting. 2 The long-run elasticities of supply refer to the response of prcduct.ion to changes in price that occur because of expanded acreage or replanting. diP~.w 134 i~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~~~L s(2) dQ.- i5 QUt((Eti= rSi00 7 dP10) + (Eti-ka * ELj00 * dPi0) + (rt-=k * ELiR oR dPi°)) If one wants to determine the immediate impact of a change in pricing policy only the short run elasticities are relevant, and then onr.y for the periods over which one wants to measure the response. In the case of paddy production, it is likely that the supply response to changes in paddy prices will be quicker than in the _ase of rubber and palm oil. Paddy can be planted and harvested within at period of 6 mon;hs. and two crops can be growr. in one year if sufficient water is available. In addition,. the competition for land between other crops anc! paddy is not as strong as i- s in I the case of tubber ane oil palm. The relationship between changes addy production. dQt and the prices of paddy and other crops can be expresse_ as follows: (3) dQft. =ttt=Q, ( * dP4id + (Eq_ Ef.m * dPz!)) where E vs the elasticity of supply of paddy with respec- to the change i^ the p?:ce of paddy (relative the price of non-agricu:tural zoods: in period Qft i, the quantity of paddy produced in period t in the absence of dPfi is the char.ge in the price of paddy ir year i; Ef;1' s the elasticity of supply of paddy with respect to t!he _'nange in t.e Trice of other cr)ps that could be grown on paddy lani; an_ dP6:- it tha change in ?rice of these other crops in period ^hanges in pricing policies will also have an impact on the demand for rice for consurmption purposes. The response of the quantity of rice deemanded can be . i < S . .. :1 l~~~~~~~~~ ~ ~~i. Ut. , t ~~~~~~~~~~~~135 expressed as a function of the own-price elast;city of demand for rice Nft f, the change in the price of rice from period 0 te t. ItitO dPfi, the cross-price elasticities of demand for rice with respect to the changes in price or other goods Nftj. and the change in the price of the other j goods from time period 0 to t, Eti= dpj i- This relationship can be expressed as: (4) dQftd Eti= Qft * ((Nftf * dPf;) + (m Nf J * dPEi t i=0 Q t t vJ-. t1 To construct estimates of the ozo---e zz.acing policies, two main types of information are required. First. the cuanta:e measurement of the c!'rges of the pc-I'-_s t,,s Lhe impact .rey nave on prices and the values of the elasticity parameters need to be calculated. Second. the elast cities of supply of coamodities with respect to the_r nor- price and the prices'of other goods have to be estimated. The changes In -ea! producer prices brought about by a comp'ete disnan.::ng of the agricultural t.icing policies and crade distortions can be deri_ed fro. the measures of the total effective -a-e cf :roteccion ER? es:.ima:ed an:4 reported in Appendix Tables 12A(l), !2P.(2,. and 12A(3).3 The ch,anges r e effective rate of protection can be convet:ed into changes in t.r;ces sim=y by multiplying the values for RRPr by the ratio of the producer prices of the co='.cdiry to th.e value added of the co0n.odity adjusted for both the :irect an; indirect effects of agricultural and trade policies. Tne lar:er two -:ariabl-s are reported in Zo,l-zs 2 and 3 of Apenddix Tables 13(A..') to l(A>4. 3 Th.e effective rate uf protection provided by both irect and _iirec- policies. ERPT is reported for estate rubber- in Table 12A(I) ccurur'. '12. for r-ce in Table 12A(1) colun 15. for smallholder rubber produc-ion in Table 12Ar2, coluanv. ;2. and for palm oil in Table i2A(3) coiumi 12. 136 The changes in the producer prices of the agricultural commodities caused by the direct effects of pricing policies; are estimated by subtracting the effective rate of protection for the indirect effects ERP, as reported in Table 12(1) from the effective rate of protectioto from the total effect of policies ERPT.4 The details of the estimacion of the effective rate of protection of only the direct effects ef .he policies ERPD are presented in Appendix Tables 13(1) to 13(4). To express thess effective rates of protection as changes in producer prices. the rates are multiplied with the ratio of th.e producer price Z, _ tv _ _i Z _- = 1f: _ _. _ __ t! _ . a I *L. a a -' d _, d ¢ f t _ e _ c .z d a, -' J: .; s _ a _' f z; _, ' v Z.: t.1 and indirect effects policies. Tne second key input vequire6 ror ;ne esz:-.stzon ot :n-e oupout e:--ec o: policies are the elasticities 'of supply for each of the com.nodities. There are a large number of empirical es tmnates of the short and long run e'asts-c-_es -' supply of rubber, and the ranve of results is very wide. All the statistical eviderce o-& thie elasticity of -upp?1y uf r__bb r indicates that the short run tesponse is qInite low S n thŽ -firs: year after a change in- pricc the estimates for th- shor-, run response range f ro-. a 0.25. In most studies it was found that :he shcrt run elasticity IV - : was larger for smallholders than for estates. T'1his is probably d.:e :he fact smallholders are able to dis:r;bute their time mnore easily between ta^ping rubter 7 and other activities than it is for werk crews on the estates. To ref'-ect : is ^ Zecause ER?. and ERP, are calcu.ate! using different den_n:naacrs. the values of ERP, have to be adjusted to give ther. t..e same denominator as ER?- T%e estiration of the effective rate of protection given by the dir-e: ef:ects only, are presented in Appendix Tables 13(1) to 13(4). 5 See Pee (1977), Chan (1962), Stern (1965), Cheor.g (1972). Chow (1975), Berhman (1975), Hartley. Nerlove and Peters (1984), and Smit (1982). .. J,.... di_i s.1.51' ...__.__ j - ; 2 : fI j 8 if : }f 3. ;- . ;, .. , , , ;. li t . difference between the smallholder and estate sectors. the estimates of the impact on output from policy changes have been made using a first year elasticity of supply of 0.1 for the estate sector thast rises linearly until it is equal to 0.3 in year 6. For Psmallholders, the elasticity of supply is set at 0.2 in the year of the policy change and rises linearly to 0.3 in the sixth year after the policy change-. As it takes six years for a rub'ber tree to mature to the point of productio'n. there Will be at least a six year lag between a change in pricing policies a.ti the increased production arising from a replanting and newplanting response. In the empirical stuIdies of the long-term response of ruabber production to price changes in Vh~iland and Sri Lanka, it was est:rtated tnat the long run supply elastic-ity was greater than one and could be as hg as 2.7 (Haztley. Nerl-ove and Peters. 1984 PI!). Given the large relati;ve magnitude of the zubber sector in Malaysia. it is likely that these results -re too, large to be applied directly to Malaysia. All the studies of the long run sucpoy elastici~ty of rubter frM3713-Siz 4Jtained! -eut hat dzae long rn elaticit. Th e etT'od besti;matior ir the Malavs_ian td.:~- suzbstantiaily f r om one to the other. as well as from that used inte st:udhes carried out in Sri- 1anka and Tha-iland. --f cL"_ :Crng r-.n .eiponse ~f 0"tp~t tu pr_ic ing reported here, the elasticity of supply is as-umed to grow linearly fron 0-.3 in. year 6 to . by year I0. Th-is~m~a-s that the sho:.t run. supply e'ast.ciccy as a result of better h-usbandry and more -intensi4ve tapp-ng i;s 0_.3, while the long run elasticity of sup-ply arising from replanting and nevplant ing is assu...e to equal to 0.8. -v 138 The cross-price elasticity of supply of rubber with respect to the price of palm oil will be negative, since an increas;e in the price of palm oil _ ill provide an incentive to replztt rubber plantations with oil palm. Or the other hand, a fall in the price of palm oil will cause relatively more of new land to be planted in rubber instead of oil palm. There have been no en'pirical studies which have tried to measure these cross-price elasticities. For the purpose of this study it is assumed that the cross-price elasticity of suD-,y is equal to -112 of the long run elasticity of s_--'y arlsing from re, anting a,d new-piaantng. Hence. in yea) 7 the cross price elasticity of rubber proeuc:on to the price of palm oil is -0.1 anc will grow + -0.4 in Year '. Because of ;:he absence of any e=virical stulies on th.e suplv e:as. c:t:es of palm oil and the simnilarities between rub5er all-- oil pal. as tree :o^s, '-. same own and cross-Drice elLs:c-:res c 5:o>v Kre esed for o-: --:, ass r bber in the est imates of the im-act .f pol;c-es on the c *o- :^_s se-.e- -. the case of paddy, a carefu;- st.--'y o: i, l*rg Zr es.nse e_ r t the a pce a- .- study, the long ru-.; rrice elasticity of s^-anv is est -aefd e e-. -a: - ., Ina. the estimates of ouut_t res-nse tat fe : ts ass:ha--- e:asticitv of su_^: :5s C2 -n the Vear of -:- -r4- h :hne. .:3 A nu.-.er of esi..mates 'ave been ade cf -:e z*-n--r -e emaas- s .or re:e in Malays:a7 All the st-udies. inclu2:ng iecent ones, ha-:e es.-.mate_ 6 !.oktar Tamn:n. -Zu:pu: '_^- and Facter e-mand F;^nc'.ons a---- r_ rarms: A 'ase Study of the ':da Ree-.', .ai sn nc-. Ma:sa: - I979:1-32. Sez Arrcmee ; 4 an-- ^.:-a. o~~~~~~~~~~ the own-price elasticity of de-and for ric:e to be about -0-4. It is this value which i-s used in the estimates of the response of consumption. to changes in pricing policies. The short runL response of the output of estate rubber, smailholder rubber, pa1l- oil and paddy pr-,ducta-on to the- elimtination. of all the direct effects of r ~~~pricin-g policies are reported in. Table 13(A.l). For this estimation. the short run is defir-ed to be the response that occurs one year after th-e year 4in which he poMY change ocre ine the change in out=put that i-s reported in a given year is t!ne result of a change in policies whih cure ne ya earlier- The detailed caicuathirns that. were undertaken to construct 7ab'e 13,(A.l) can be foun:d ;r Appendix Tables; 13(A'_!_l), 113(A1-2), 13~AI.3. ano_ 3'3A1.4. Inth case o' the e state rubrsector, the shor-:t run imvac.t of 7!.e dr- F effects of prlic g poc1zces c~f !-m-ayasia has reduced the level of ~outc.' ~nyabo-ut -I :ercent --ruhu 7-ne period frszm 1-960 to 1-972 (Tabl'e 13--rAu. jln3; . Fron)- 172, the sh-ort ru.n _innact of th-ese poliDcies increased ~aial as to,e export tax increased un t`. output wa-s suppres sed by an eszimatet 5 o)rcent icr the -Er:icod' fro= .-972 to 21981D. after wnich i4t ±fell to about;- 2 PF_-en:. Becau_se orf me l'arger sno_rt r-un elas-t:city of supply or f .o.e ~~ tr:oducti;on, --he 'i:ezt effect s of~ pr:;n pci:es sbe 3A; oi :re du c e dte n" ' 0 rI-:sc sector tesnort run by about 4 percent Der year fron 19E: to 1-97S. ::~ hen u_ntil 1980. the short run outpu_t ef_;fect rose t a ihcL 9 Tercent a-:! then. fell bDack to 4 percen.t by 1982. fe remova:. of thne d_:ect effects o-f pricing polizc;es woud ave n-ac a %-ry i-.a act c- toe -,a- : secto~r 'Tab,l,e 13-'A'). Col-ru 9j. Fcr nz:ears th.--e sh-ort rurn Lmpact was nii~aat nbcum- I percentm- it was on>- in the 140 M . .L, XA 9 ( isir taat the short run output effect increased to a maximum of 4 percent of output, In the case of paddy production, the removal of the direct effects of pricing policies would have had a much greater short run impact, and it would be much more varied over time- In the period from 1960 to 1966. the short run impact of t:^e direct effects of pricing policies was to increase production from 3 to 6 per:ent each year. During the period from 1967 to 1970 and again from 1973 to 1975, the short run impact of the direct effects was to reduce production. in the period since 1975, the short run impact of increasing production was ge-nerally larger, ranging from 6 percent in 1978 to 22 percent in 1983. The snort r_- total effects of pric-ing ;.c _ices on. the out?_-f zubber, palm oil and, rice are reported in Table 13(A2). with the detailed calculations made in Appendix Tables 13(A2.1) to 13(A2.4). The total effects of Pricing policies nave red_ced the output of the estate rubber (Co1txrm 3) and palm. 0oi 'Col'"^r 91 bZ between 2 and 6 percent depending on the year in question. The snort r.un o°'rut m pact was generally larger in those years when the prIces of the rduc ts - we:t -hig-.est, an- as a result, the export tax was largest. Because of th.e greater snort rur. elasticity. the impact of price I-ntervent.ons on output is 'arger for the smal"ho'der rubber sectcr. (Coluzn 6). utpl_t was reduced by 5 to 10 Perc nrt a year- Because t-.e tota: effects of pricing po.iuies are of opposi'e sig., the short run opac f of their total effects on paddy produc or. s :ess than the short run -'pact ^f t-e direct effects alone. In, genera:, th.e short, run tota; impact on output ranges from a negative 11 percent in 1974 to a positive :8 percent in 1983. Usually, the short rurn output impact of the to:al effects is I *~~ ~ . . , . -_____._ 314 hrom 3 to 4. percentage points iess trian toir tme direct ettects only. Much of the support given to the paddy sector simip.y serves to offset the indirect effects of pricing policies that occur through the exchAnge rate. The cumulative effects of these pricing policies since 1960 on the s~upply of rubber and palm oil are =uch larger than the short run responses. In the case of paddy. because the supply responses are more i ndiate, the short and long run supply responses are almost the same. In the case of estate rubber, we find that on average the cumulative direct effects of pricing policies reduced supply bv al'out 9 per cent (Table 133!.1) col 3). The corresponding average supply responses for smallholder rubber and palm oil were ~eductl;ons of 16 oercerit and 7 percent, respectively. (Tablel3(B.1) cols, 5 ano 9). This compares with average short run responses of between 2 and 5 per cent. When- the c='ulative total effects cf pr> .g policies are considered the supply responses h~as been even larger. For estate rubber, supply was reduced on average by about 13percent and for smallholder rubber by abcut 20 percent. Tn the case of paim oii the cumulative total effects have reduced supply on average by about il per cen.t. (Table 13(B.Z) Col- 3, 6 and 9). B. Eflfect of Pricing Policies on Consumption Price interventions also have an ~:mpact on the fevel of domestic consumpticrn of thef agricultural commodities produced. As consumption. of rubber and pal-m oil in Malaysia i-s negligible compared to their production. tl-e impact of price interventlo4s on domestic consumption of these two commodities wi2J1 not be examined. On the ot:--er hand,. the consumpt-ion of rice as the stap7p food will be altered in a significant way by price interventions on rice. 142 The estimates of the impact of the direct effects of pricing policies on the demand for rice are in T.ble 13(- 1).. To measure the impast on the consumer price cf rice as E result of the removal of the direct effects of pricing policies on the pr_ce of paddy, it is necessary to understaud that the paddy support price was largely financed by requiring importers to buy local rice at a high price when they imported cneap foreign r-ce.8 Under this in.stitutional arrangement, the change in the consumes- price of rice that resulted fromr the removal of the support price of rice was estimated by multi1lyinz the ch-.anqes irn t^- ttz ^atf r.I, _ q_antity of local y prcd-_ced rice to total consumption of rice. The result thIen must be divided bv z-- c n f::tz: cf Z .rI o paddy and r-ze to get the recuired change in th.e f-inal ccnsumer price of rice. Th.ese changes in the cons,u.er price of rice due to the direct and the total effects are reporte_ -. olu-Ln 11 of Tables 13(0.1) and 113(C.2) respectively. The direc- effects of nricing policies have reduced t..e dernand fcr r=ce in Malaysia (Table l3(C.A). Co'une 10) during the period 1960 to 1966 by between 2 and 4 percent and !rirg the per-od f-rom 1976 tc 1983 fr=_ t^ over 22 percent. For t-.e -nterening decade 1966 to 1976. the effects c- the govern=ent's po icies in some years _ncreased rice consumption while in others it reduced cors_p-tion-. Overall, it ha -;more cf an effect on sz-,oc-:h-rrz __-:-e pattern. of cons=m,tion wh -. would have existed because of trhe high volati- ty of world Prices -ha.a. changing th7 average level of rice corsumption. :he average 'le:e' of rice consu:t -ion was reduced by about 4 percent over the enti-re 24 year pe,.iod due to the direct effects of prici:Lg policies. The system for financing the h.igh producer price for rice is described in detail in Chapter 4. . .i7~..~i~-±±,T . . . _ I ~~~~~~~~~~~~~~143 In Table 13(C.2), Column 19. the impact on domestic rice consumption is estimated fur the total effects of pricing policies. During the period 196G to 1966. the impact of these policies reduced -the consumption of rice by less than 3 percent. In seven out of the following nine years, the agri-cultural pricin.- policies actually increased the overall level of consumption of ri-ce, by as much as 10 percent in some years. The pattern. changed Jramatically in the period from 1976 to 1983, when the overall impact of these poli-cies was to reduce rice -.insumption from 3 to 18 'ercent. Over the entire period, the total effects of pricing policies reduced rice consumption by about 2 perc~-nt. C. ffect of Pricing Policies on. Foreign Exchange one result, of the agricultu ral sector Drici-.P nolicies i-s that, both the supply and demand for foreign exc)hange are altered. Tlhe export taxes and the adjustment iln the exchange rate aja resul-t of tariff policies have discouraged the export of rubber and palm oil4' in the case of rice, the direct effects of the policies affecting paddy prduio have generally reduce,! the need to rnnorrt r ce. Ths has i-n turn been part'ially of-,set by the ind-irect e-ffects: Qt an overvalued exchange rate. T-n thi s study, the impact ~f direct and otoa'~ interv.enticn on foreign exchange is assessed. For each of th~ese two situations the impact on :ne availabili-ty o-f foreign exchange is measured for the short run (one year 'later) and for the c~umuative impact of these policies since 1960. For rubber and oil! palm, the impact of the pricing policies hnas been to reduce the amount off production from these two sectors. This results in a Loss or exports and foreign exchanige that is measured ~y the FrCB vallue of-, co:m.ccitv times the change i-n quantity proOc.iced, less the foreign exc-ange ca)st of thp in-puts that would have been required to pDroduce this addit ional o-utput. -n Table I. i 144 14(A.1). Columns 1 to 3, the gross change in foreign exchange associated with the short run impact of price inter-entions on estate rubber. smallholder rubber and palm oil is measured. These values are derived by tak-Ing the FOB price of the commodities times their change in output. The latter variable is estimated and reported in Column 10 of Appendix Tables 13(Al.1) to 13(Al.3) In order to facilitate the estimation of the tradeable component of the inputs used i-. production and transpertation, the FOB valve per tonne of rubber or pa'm oil is broken down into i-s .nree components of (a) the valLe added of c-f-odity t the f'agata a- J,Led fur export taxes, (b) the input costs at t'le farm level, and (c) the marketing and transnort costs. c an analys- lcf the iz 5ts used in the marKeting and transportation of rubber and palm oil, it is estimated that 60 percent of the value of these services is wade up oi tradeable inputs (primarily vehicles and fuel). Tn addition, the intermediate goods used as inputs to rubber or *a:m o_ production at the farm level are basically all traded. They are esti-ated to be equal to 15.5 percent of the produ er price of rubber and 15.7 percent of the producer price of palm oil. The change in the foreign exchange val_.e of the inputs that would have been used to produce rubber by estates and sma-1.holders and used to produce palm oil are estimated ir. Appendix Tables 14(A'..) -o (Al-3) Colu=m 5 and aggregated into Table 4(A.1', Column 9. The price interventions in the production of paddy and the consumption of rice generally stimrulated production and restrained consumption. As s consequence of the expansion ir. output, foreign exchange was saved by the amount of the charge in production times the CIF price of rice. This change in Foreign exchange earnings as a result of the snort term direct effects of pricing policies is reported in Coluzn 7 of Table? 14(A.1). But at the same t_me. foreign [~~~~~~~~~~~~~~~~~~~~~~ _ ._-___ 145 exchange was used up by the necessity ofL having to import a larger quantitv of intermediate inputs. It is estimated that approximately 70 vercent of costs of transport, drying and willing represent expenditures on tradeable goods, and that all of the purchased inputs at the farm level are tradeable. The sumn of the tradeable components of the intermediate iniputs is reported in Column~ 10 of Table 14(A.1). The short-term net effect of direct intervention orn foreign. exch'ange earnings, including both outpu!- and input effects or-z all- cro~ps is reported in Colu= 12 of Table !-(A.1). These same estim-ations of the impatct of pricing policies on :foreign I ~ ~~exchange are also carried out for the short run Itotal effects (-able 2~A2l the cumulative im-pact of -1iirect efflects CT7able, 14'B.1lfl. and :me cunulative impact of the total effects of pricing policies (Table 14(B.2)) nClu : of these four tables. theo annual im-pact on neJ foreign exchange earnings iS expressed as a percentage of th.-e actual val-ue agricultura'. exports :n that year. Consideri4ng the enti-re period from 1960 to 1983. the avraze sn-ort-:_er' impact of di_rect pricing policies reduced the~ amount or :cre-9- excn-ange available to Malaysia by Slightly More than 1 Percent of the tot~al a:-.Cunt agr icultural- exports (Table 14(A.1. Colu= 13;. The sbort-run im-act on th.e amount of 1foreign. exchange available duie to tot~l intervention was an average reduction of about 4 percent of MKalaysia"s actual agricuiltural exports -"at.Le * ~~14(A.2). Column 13). Under the assum-ption that the economy had -fully adjusted :o tn-e pricing policies by 1950. the long run or cumulative impact of these distortions ---as much larger. The cumulative direct imrpact of; these pricing po'licies was to * r ~~~~~~~~~~~~~~~~~~14(6 I ~~~reduce the foreign exchange available to MalaysI3 by about 9 percent of average agricultural exports (Table 14(B.1), Ccilumn 13). while the cumulative total effects war, a reduction of the foreign exc:hange e'zailable by more than 15 percent of average agr.cultural exports (Table 14.(B,2),, Column 13). From these results. it is clear that the export taxes on rubber and palm oil. in conjunction with the effect of the tariffs on import sub-stitute goods, have reduced the arnourt of foreign exchange available to Malaysia. This reduction in foreign exchange has beern greater than the amount, of iforeign exchange saved through progra.r,;-es designed to stimulIate p3ddy productien through high, domestic prices. The cumulative impact of these policies was qui-te substantial. I I IABLU t(AI) NALAYSIA -SNORI 1(011 OIR(CI EffiCt Of PRICING POIICIIS ON OJIPUi Of fISAJI ANO SMtflMOLOIR NUaiJLJ, PMIf OIl AND RA)DDY, [/60 IMa Year Act"a Output of Propodtional Actual Iupu Actuprt nl Out put 9 ProglrUo1I4 Actual Outm 0( u rp(o 0(ior Output of late Change I ul smaiod dcv Cb1j1: III Ou ut u I Pa Ia O1 iauiye ill Ou1l-ut u P4tId hi Ill Autet 9 ber Outr ofi smi cev Ru e 0 uof Pat sOi Ibu ou ~ ad ihu ftoe m tioiit state Rut~ w u Sm de dcve Pil I 'O ntivtad Estates 0 fec Rubbet loilec ~Rubber 1ti-e I Ilonines) Itonnew) 1tonnts) I liwinesi jtoni,esj ttfiilgebl I 1 I'uI~ I onv'u s) (1) 12) (3) 14) ~~~~~~151 IL) W7 IS) Y(li1) . ......... ....... (3....... . ...~ II 1960 443.968 443,969 0.00 46,$? 346,50? 0.00 92,000 92',000 CO ! oC /1.1000 0,00 1961 459,021 445,529 0.01 39,01/ 314,109 0.04 9S,000 96,143 0.01 O,0 I 000 965,32O 0,06 1942 '441,5 473,435 -0.01 326,069 339.315 -0.04 109,000 109,331 -('.01 1,1,000 ,099,844 0,03 194) 401,00 493,443 -0.01 344,397 358,159 004 126,000 127,561 -fO 1,89,000 1,140,788 0.04 1944 sob,54 512,161 9*.0 36 4 :'o 31,84 0,01 4 123,000 14,14 92" 0,01 1,103,000 106,971 0.06 1965 5?20,4 526,265 0.0 1 396,196 41 2.,828 0.04 150,000 151,169 .0.01 1,56,000 11,19037) .03 L9.L q' ~ 5604 00 431,1.,31 485?-0.94 j0,O ?9,2 IJ.CI 1,34,000 1,94,434 0,03 161 sS:~ 54,34 -0.01 439;A40 4150,80 -0.ui :26,00u 2uu,'1 -0. 001 1.1 4,0I00l 1,2"I32, 01I ;.03 1940 56821 593,697 -0.01 512,112 535,032 -0,04 293,000 284,494 -0J.01 1433,000 1,53?,693 -0.07 14? 625,44 4 32,364 -0.01 642,!;41 641,255 -0.04 351,000 355,004 -().01 1,.597,000 1,681,3210 -0.05 19;0 639,675 6445,373 -0.01 430,'78 660,176 -0.04 431,01fl 436,209 -0.01 1678,000 1,661,916 0.01 1 I 11 411,40 683,421 -0O0 641,140 412,210 -0.05 589,000 5%4,316 0(.01 I,809,000 1,102,683 0.06 IM t7?6 $?0I: 0. 629:1/8 661,526 -0.06 127,000 138,56L, -(I.0: 1,840,000 11,742,147 0.04 1914 4073 699,49 -0.03 844,(60 900,347 00 0400 028 -.; .03000,O6 1915 400911 614:90) -0.03 858,4"'o 099,345 -0.05 21,51,000 1,309,349 01)04 1,916,000 ?,131,5:4 ,C0 1974 6)4,9 700,349 -0.03 935,601 992:552 -0.06 1,390,000 1,421,50' - 1,02 1 .99j,000 1,73,096 0.13 1977 652,80 67?,038 -0.04 .935,166 1,000,925 -0.01 1,612,000 1,669,46 0(.03 1,922,000 1,689,59 0.14 19)0 443,220 675,352 -0.05 939,235 1,021,127 -0.08 1,786,000 1,817,180 - 0.02. 1,499,000 ,407,115 0.06 19/ 631,305 4666,95 0.05 9368,22 1,031,073 0,09 2,198,000 2,219,161 -0.01 2,095,000 1,9465,800 0.07 190 608,643 442,511 -0.05 921,354 1,010,301 .0.09 2,576,000 2,603,434 0.0 1 12,111,000 2,1029,4640 0.07 191 592,02) 616.122 0,04 916B2!19 983,981 - -,IAS 2,2,0...81,076. (1.0 2,14.,000 1,969,318 0.09 ItO 46,17 519,649 -0.02 927,455 962 474- -0.04 3,514,co00 31, 53 3,2 U.CI1 1,93?,C00 1,565,268 0.1? it M~134 S 501,519 -0.*0-- tsa,S054 1,031,120 -0.04 3,011,000 3,021,804 (1,00 I ,819,000 1,491,449 0,22 Avevape t1941-1983) -0.02 -0.05 -o.ol0 o.os Note.: Ii Coluans 1, 2, and 3 ale trot Appedli table 131 A )col I, II, and 12 respectjv elY. 11Columns 4, 5, an 6 ale (von Appen1l v latj e 13(AI. vL 1, 11, fn1 e6pect1k,c1y. c 1111I8 an ae to ppendi II l Al. jcL II, an~ I? respect . Co ~~~~~1 lelsAppendi 13(A 4 oa I, 6, and 7 vespectIm IAO&( I3(A,21: MALAYSIA -SHORT IERM101 (HA EtICIS Of PRICING POLICICS ON OUbIPU Of £SIAIE ANO SNAdHlOi 01R RUBOIR, PAMl i Oil AND PADDY, li,t 19d3 Tear Actual 0u1uioF P110o1tionjii Actud 0 t l tllIA Acual 01 9 Iiaro Wo UUi i t,JuItI Ou tptttPodl istles ~ Oitrto ea~It. Ru bvi OINru of Pill Oil wilIiou 0uI ul vf Piody wIIIIhoul Owpo~t u I Wile$ TWAI R6bber Iota Rulbber feso les Potlcies P IIoies 121nns 131 n ) Itres Aors)1 11II I lneisP 110 frirI ill iroe 1960 443,96 443,968 0.00 346.50? 346,50? 0.00 921,000 V., 000 0.00 ,'.l, 0O ,, '1,000 u.00 1961 459,021 469,525 0.~~~02 359,Oil 3V9,201 0.05 95,000 96,968 0.02 ,0:1,I3'00 M8, .29? 0.04 M?6 46),514 479,086 .0.02 326 0119 345,/3? 0.06 108,000 biO,633 0.02 1,VJS,000 1,150,84 0.00 1963 481,904 499,759 0O.02 344,3?/ 365,424 0 06 126,000 1,89-0.02 1,I11e,000 1,'1)5.609 0.01 1964 506,544 617,959 0.0? 364,201 386,'660 0.06 123,000 1,86-0.02 0 I,IJ y,O 1a,0612 0.U3 198 520O,244 531,140 0.2 396,6s96 418,884 0.05 (50,000 b,3 j 1" 0.02 1 ,2"6,000 -,s05,681 0.04 19&6 541,314 552,270 0.02 4 31,6:,41 45,,571 0.05 190,000 194,114 -0.02 ,I 14,00O I,2,1 0.01 1967 555,312 53,04? -0.0? 439:440 46?,915 0.06 226,000 231,854 0.03 l,l74io0a 1,21"i '.I 0.06 0 1969 586,270 801,15? -0.0? 512,11? 54l5,604 0.06 28,3,000 290,07? ~ 0.10 I 4i5,O000 I,6 8 o.o9 1969 625,643 36,024 00 642,547? 613,345 0.05 351,000 357,041002 16,00 ,0,19.0 1;7? tiv1 653 l17 -0.02 630,618 673,695 0.06 431,000 441,066 0.0il 1,1678,003 :1,1 1,14 00.02 191 140, 649,91 -0.03 641,140 489,620 0.07 589,000 606 169 0.03 1,B.8a,00 1,10,:31 0.02, 197? 674.5,15 495,2,33 -0.03 629,778 688,037 0.060 712,00u 753,063 -0.03 1,840,000 10,84,2.90 0.01 17 699175 720,03 -0.03 943,340 905,095 0,01 810,000 834,410 -0.03 I,967;000 2,042,8)3 -0.04 1974 49,43 70,07 -0.04 844,060 923,171 0.09 ,041,000 1,100,117 -0,06 2,09`3,000 2,544,12! -0.11 I175 6,91 6723 -0.04 8158,420 923,520 0.07 1,251,000 1,131,025 -0.06 1,998,000 21,1990,5 0.09 ' t6,. 04,399 -0.04 935,601 1,001,673 0.0 71,390,000 1,4219,804 -0.03 1 M9,000 I1 73 41? 0.1? 5ti 2,867 6133,34 -0.04 935,16 1,011,651 0.08 1,612),000 l,6800990 -0.04 I,9'?,000, I ,692,86U 0.14 1 711 43,0 61,609 -0.06 939,235 1,036,615 .0.09 1,766,000 1,635,116 -.003 1,499,000 1,436,805 0.04 I 79 631,305 669,431 -0.06 938,822 1,037,217 0.09 2,166,000 2,2295 020 2095,000 l,9'3,306 0.06 IT 4 6400526 92,6 1,2347 0.10 ?,576 000 2,625,987 -0,02 21,1 1000 2,068,001 0.Oj '0 625'853 ?I~ 199 03 I 625,833 -0.05, III '190 ~1,008,529 0.09 2,824,00 2,897,219 3 .0,03 2,147,000 2,060,145 0.04 ~~Ui m~~~' 589,355 -0,04 9271,455s 99),019 ob0 3,514,000 3,699,959 1,.02 1,832, 000 I,6I5,701 0.11 * 596909 -0.04 988,554 ,05 ,9?B 00 3011,000 3,06,1`11.9 0. 021 o,800 1,54,4,504 0.18 Average (1961-1933) -0.03 0,07 0.03 00 Mo1es: 1I Coluens 1, 2. and 3 ale(o ppni4e 13(AA co Ic 1,1, and 12 respectively. 12 COluMn 4, 5, anil 61a 11 fro Appptrd I, 114~1 1'31 62.2'1 col 1,1It: ali I? respect Ivel y. j ~~~~~~3 Co U:fthlIan 9are (fAippendlii 1I I 3(A? 3I c III II and I? lepc Iy 41 CoIu ns 16, 11, and 12 aIre ItrOa Appendi h Iable 13(A. .4. tof 1, 6 atd I mt itye - ,." I~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ . . AE !X8.1): IIAYSIA CIU AIIWl OIRElC EfFECIS Of PRICING POLICIES ON OUIPUI OF SIATIE AND SRAl&1DLOR RUW0IR, PALM OIl AND PADY, 1960 1983 aY1 Actual Output of Proportional AcIua Oitput of Propctiiofi ACIUa1 Oteut P111tiional Act u Oulpyt of Prit yi0fl4i OutpuI ol [tail Lhan9e I SOo altuIodef coa igc Iq Outul ol VI Ol D 4rnge In llulliu uo du tdlvve in #r Rubber 0psut ol fsa C A Rubber f P Oi t 0uteu led mittlJUt Oulpyl of hoot iI}IJI E te Weit wit ut So 0lelllr DIrct Pic 011tt Ltg,ljll ctate, 0rec lubber Oltcc Rubber El(eq$,ol (Pdy,lb . [~~~~~~~~~~~~tile I e Elctlccol Po1cmli;is uicei Po EIies Po cie (Ionaes) IlonnlesI [tonuoes) Itonvics) It urnesi ltloes)c (t uh,ltJ lituie~b) II) 12 ) 13) 14) !s?) I) I?! 19) j9) 110) 111 112J 1960 443,969 491,104 -0.10 344,507 409,284 -0.I5 9?,000 96,189 0.04 1 OIG0o 6,1I, 0.10 tm6 459,0?1 501,02 -0.l0 359,01? 423,953 *0.15 95,000 993421 '0.04 .01,000Do T )4,'?. 0.09 196? 46s 514 515, 16 0.09 326,069 394,513 0.15 108,000 11g9367 0.04 ,135,000 1,062J,90 °80,0 1963 491.904 531,205 -0.09 344,:lt 405,861 0.15 126 000 131 o8i *0.04 1 to 000 1,121,93 0.06 1964 506,544 556,942 0.09 364,.07 4J9,235 0.'S 123,000 128964 0.04 a .103,000 1I04, .i 0,0? X, 11465 520,244 511,391 0.09 396,196 401,59S 0.15 150,00 156,894 0.04 .256,000 1,162,148 0,08 19.66 541314 S93,191 -O.09 431,1.31 508,092 0.1 190,000 198,71J6 0.04 I,234 ,3 1,156,2135 0.07 1967 551,312 602,741 0.09 439,440 518,S93 d0.1S 2 00 236,499 0.04 L194.000 !Xi-3 0.01 1949 58,210 639,556 -0,08 512,112 604,909 9.! 52;, 0 292,i: 1 . ,U3000 I,4S;43 C 04 1949 625,63 L5,, 0.0) 64i,5? 754,J061 0.15 351,000 369,522 0.05 I,'9W,000 1,109,117 0.0) iiiO 639,6i5 693,602 0,01 430,610 143,031 0.15 431,000 J ,I0. 0.06 ,'.101,000 I,.39,.9 0.04 It1 61,410 118,042 0,06 641,110 755,08) 0.15 481,000 626,529 0.00 ,009,000 1,1 ,130 0.0C I)M 614.595 712,916 0.05 OS 9,18 71f8,071 0.16 127,000 776,4bo *0.0. :.604,0,0 1,736,S9'2/ 1. 1911 I99,115 140,11 6 I43,348 916,993 0.15 910,000 8671:, 00?7 " XI00) 1,90o6,)9W 0.03 1974 680,143 123,7 9 0.Ob 944,060 11,008 0.1? 1,041,000 1,131,632 0.08 ; O?T,MOO :.,9,114 0.04 "t17$~ ~ ~ ~ ~ ~~~~~00 I 91i 12 I43 8 g 93s4l i°l8,os .613008 1,0 2 ,s,oo l9X 90n 197 Ul0,301 tO3,9436 0.10 0938,8,t 1,0103,006 0.21 1,2170000 2,111,1.14 -0.09 7,095,000 ,148$,1U9 0.03 1911 616,8 0 V12,0?9 -0.01 913560) 1,110,006 0.16 1,390,000 1,122,109 0.09 1,995,000 1,9)1,09Q 0.10 .II? _ l91 5203042 0.08 O9138, 1 ,5I 35 0.20 1,12,000 1,115,317 0.10 1,922,000 I,91 31,! 0.11 .19126 64,0 133 0o.0 93,108,S2 0.19 3,SI6,0000 1,94,3)5 0.09 1,499,000 l,21',1: 0DA 1 13 63 .5 I0, 3 -0 I 9396,022 1,9,0 ,) .9,0 ,),2.09 0 ,09$,000 1,851,186 DA3 1980 60 43 66,692 -0.11 9 3'4 1170021N 6 o 2 161 0.09 2,1)1000 1,974,090 0.10 666 954 '0.11 9~ 9 ,4,6 029400 3 0 '50.)' 2141,000 lm,i)4514 0.11 IM ?10 j 434,14 -0I 455 1,100,521 0.16 3',514,000 4,0VIA) 0$I1110 I9 ,, 193 513,438 659,556 0.13 989,554 1,1f1,001 0.16 3,01/,000 3,413,801 0.1 ,,616,000 1,1;,000 D.25 Av.teive (1I j 1983) 0.09 0.16 0,0? 0.06 Notes: I Cul unns 1, 2, in 3 ate lot Appeto1, lhl e t 13U 01.1 tI, ns 1,Ha1 11, I,d I2 hebptrl ,1v 2 ^ t n Iums 4, 5, o1l 6 Ae ICiti A).ep,hit 12ib I 631.) 0iA uitl I, 11, d14J2 l t' tlvIIY. 131 Co umns I 8 and 9 a e lfui Appenlit 1aI1e 1319) 3 (lvtn 1, 11, td I.' IesJtILVlveYl, |4 Colusna 106, f, and 12 di t ums Appei.dil Ie)1 13(91.4., 6 o a 1, 6, and 7 IetlV 1A81( l3(8.21.: NMA9SIA CUNUAJIV( bliAt UIf(CIS Of PRICING 'OLICI(5 OW OUIPUI 0f FSIAI(' ANO SHA11IHOLIMt ROUOOR. PA!' CIL ANO NOWj, IYf,O :993 |~~~~~~~~. . . . . . . . . . . . . . e . . . . . . , r.. . . .; > 4 Teat Actua1 outrito Pro r1ionaI AciUl a ~ ~ o r~I~o4 d1 Olu a Pofor1ion,i Atuil OI$o rjdu4I I~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Sd Out t ol state tgdngI I St u dci II 1tdr9 ~ 10 o ut I Or lune I I Utu1put VIhrrci tt RuObei output o I Sma 1tiolder' Rut II Plo,il wr!hou, out u P4od, wrlhuu Outqtul Oa without tsttate Rubber it ouu So to den lotd PMr ,0iI W Estates Iola ~ Rubber Iot Rubbet illtiqJo tilt~ life 1S.01 lllt~Pc ies D oiil uili ~~~~~.... ... .... ..... . . ....... ........... ... ... .. . ....... . .. . ... .... .. . .... .... .... .. ... ...... .. 0 ts~~~~ ~~ltone6 (tonnul Ilonnee lcnnul (tonrues Itointeu otun ItunrejO .II 1t 1 l (33 ... l4! !s . ! 6 3 Z1 41° l 5161 I'IIlei1 L 112 1940 443,968 506,040 -0.1? 346,502 420A4):1 0.18 9',000 99,145 0 U71 0 G'12,83) o 0800 1961 45t,021 523,015 0.1? 35$9,011 436,839 0.18 9S,000 10?,570 001 ;, 02,OCO 9¶j]4 1 007 1"42 467,514 533,207 0.)? 32?,069 399,071 0.10 108,000 116,999 0.118 I 1,1),000 1,096,014 0.04 1 3 401,804 556,502 0.12 344,391 420,881 0.l 1Q,00 134,180 CAB 1,199,000 1.63,0'4 °'.0 1964 506,544 577,214 .0.12 364,207 444,605 0.16 '"J,000 I3J,'tr9 0 )O l,13,00 ,213,m 0,03 Im6S 520,?44 S92,1SO 0.12 396,696 483,360 0.10 150,000 16?,54 018 1 25/ 000 1a ,20014 0 ol 1966 541,314 615,503 -0.12 421 631 25 ,858 0.18 190,000 2O0, '3 I.&0 123G,00O 1,194,937 O .o: 1961 s5s,37 621,492 0.12 439,440 539,252 0.19 26,000 246,588 0 08 I ,'14,000 1,2l 0,551 O 's 1968 $8,21O "7.t41, -0.12 WM?, 629,654 0.1 283,000 310,263 -0.09 I,43j2000 l,i'; 11 0.0, 196, 425,643 16i5,03 ^.11 6t?,541 781326 0.18 3S,d000 JdS,806 0.09 l,'9!,000 1,)56 9n4 1970 638,675 719,381 0.11 630,618 MAO,430 0.19 41,0t00 A9,9r 0 10 618,6?00 1.797.518 0.01 1971 611,410 150,5J5 *0.11 641,140 198,119 0.20 589,000 663,300 -0.11 1,009,000 1,841150 U.O; 1972 671,565 759.437 10.1l 60,7)8 794,440 0.21 721,000 825,411 0.1' ,840,0,10 1,8'9,?86 0.01 I197 699,11$ 183,984 G0.II 943,340 1,048,981 0.20 810,000 918,180 0.12 1,967,000 1,996,541 0.01 1974 680,143 268,815 0.11 844,060 1,063,935 -0.21 ,041,000 1,'05,158 -0.14 :,03,000 2.91,2;9 0.08 197S 400,911 681,143 -0.12 I88,420 1,079,036 -0.20 1,.1?,000 1,410,488 -0 IS 1,l8,000 2,40,126 0 11 I9I 676.880 767.839 -0.12 9S5,601 1,169,418 'O.0 1,3'0,000 1,605,477 0 13 1,995,000 ',002,0IS 0.00 IitJ 6$o2,611 748,319 *0.13 S35,166 1,111,392 0.21 1,612,000 1,684,2/0 0 Id 1,9/2,000 1,168,634 0.09 1978 643,220 746,171 0.14 SIS9,235 1,219,0a6 0,23 1,716,000 2,071,.01 0 4 1,498,000 1,336,U1 C., 1979 631,305 142,409 -0.15 926,8U 1 ,36,142 0,14 27,108,000 2,541,08, 014 IJ 0. 5,000 1,893,813 0 li 1960 600,443 718,449 0.16 S'1,3'4 1,233,041 0.^S 2,574,000 3,011,642 0 IJ I'l,;0D G'0,'1 0.0' 1I98 592,023 711,211 0.17 918,199 1,,19,300 0. 2 ,82,000 3,38,992 0.17 ,I14),000 2,009,)44 0.00 1992 566,727 671,260 .016 921,455 1,181,112 0.22 3,514,000 4,293,961 0.18 1,83?,000 1,458,16 O 1933 573,131 699,426 -0.18 908,554 1,?52,040 0.21 3,01t,000 3,611,263 0 1) 1,018.000 1,550,396 0,1' tverage (1196019683) 0.13 -0.;' 0Il ... ................. , ,. ...... f.... .. .. ... . .. .. .. ...... lNotets I Cltu"lli 1, 2, in 3 are 1ro Append lib t 13 81.1 CO 111, and 1? espectve Iy. ? co ulns 4, 5, an re rog Appendi lb t 13982. co2 o 1, 11and l? i csPecl' el. 3 Coluens I I and Yre Io Append,l lbl t3f 02 3 Ct I i and 12 lespct lse I. 141 Co usn: 16, fI, nd 1 2 ar t rum Appndirlai r 13(8.4) tol 1, 6, dnid ) rtspecilive /. k~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ I ;'.~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ,- , 5 IA&l( IC 1) I,UAYSIA - OlR(C1 (MMCl' Of PRICING POl(llS ON "UAilly Of RIC( O(UNO(O, 194C 1983 ie.t Actu:1 hilTed Rice lotl (Ifec1iv Loomuser Consumer Ylblue dded Chaille i t Plolliul,il Plup4uloin4l Output oi Rice Ioports OussteIt Rdtec ol Price Pt Pcrit o f PiU Pdyr t uWildt I'I tofl in Cliw,ge III Paddy Conupli on Protection Rice Ptdd( CIl Plilo Rice Deuorrd i O'iJnl Ijl O the Consuser ori le tdue to (quiva en (tqul vsit,et a11* eIt Kt Plice ol 0., Olect 0 IUtLAdju leqf oi Oecinded Pie i.lecli ol lidiltq d1 e'.lt o eElcl o Pli jng : :; ll~~~~~~~Ionnesl llonntsl llonniesl l1onnesI hIlStonhlel lIlQ/ltnnel 11.j i'tsl 11 21:1115 13) 14H44j'l) 1SJ 16l1 }61 III: 5 {SII4 l}9i4 11 . . . . . . . . .~~~~~~. .. .......... ....... .. ....... .... . ... .. . .. .. 1960 1)1,00 W 1150 441,400 ,142,SSO 0.34 545 3')4 II? 36633.4 1 0.03 0.06 1961 1,021,000 463,650 423,816 1,017,528 0.25 545 354 Iu1 31860.06 0.04 0.09 196? 1,135,000 731,750 392,39?2 1,130,i4 0?12 5)9 37h 25 :303.84 0.0^ M.0 1963 1,10,000 1)2,20 4171,266 1,249 466 011 S78 315 23i 31084.02 0.0 0.06 1964 1,103,000 7 16,950 506,991 1,?23,919 O0 561 36l5 2I5 413677.70 0.04 0 09 1945 1,254,000 911,400 3B8,?46 1,1D4,666 0.9 578 375 19I1 S0198.92 0.04 0.10 1166 1,?34,000 802.100 336,366 1.138,466 0.13 6?1 408 2 I:,963 8? 0.0? 0.05 19sJ 1,194,000 716,100 393,618 1.169,118 0,10 726 417 241 1 V631.3' 0.0.' 0.64 1966 1,433,000 931,450 316,01?, ,1,1 0.?0 726 47? 3?5 11.8, 14 0,4 0.!O 1969 1,591.000 1,038,050 316,?56 1,354 306 0 Il 693 450 ,310 4138 4S 0.03 o.oJ !9.O 1 .61000 1,090,700 3SS.5 17 1,446,1161 0.04 61 407 :A2 V71l32 -o I O.0: 1911 1,909.000 1,115,850 235,;?3 1.411,0/3 0 5i 161 21? !61.6.9 0.05 0,1l 197? 1,940,000 1,196,000 202,;I 1 .398.511 0.23 560 364 25 6 34.6i; 00i ) I, 1173 1,967,00 1278,550 288,?30 1.566,180 0,04 9$0 631 3.1 11$536l,. O.I 0o0: 19)4 2,093,000 1,360,450 333,966 1.6944116 0.24 1,007 6i4 604 11s951 i4 0.01 0.18 19V5 l,96,000 1.298,100 146,1715 444 P75 0C1 1,056 68i 5/2 8168&358 .O.Jt 0.14 19)6 1.995,0Q0 1,296,750 210,334 1,507,084 0.8) 1,040 616 ;0 1401 :t. 9 0.10 C,.4 1971 1 ,922 000 1 .49,300 293,301 1 532 ,S3 1.01 1,056 6P6 218 1531450.1 0.10 O..'O 19)9 1,498,000 913,100 408,610 1,382,310 0o31 1,060 631 331 5'4L0.0: 0.OA 0,10 1M99 2095,000 1,361,/50 239,014 1.600,824 034 1,060 609 350 ?J,/?.17 OO.i 0.14 t1tO i!,71,000 I 5 0 11393 1 5)0,543 0 33 1,060 689 377 10C00?.41 0.S% 0.16 19fi ,141,000 1 ,395,550 316,638 1712,18b 0.40 1,0)0 696i 52 15.34, S u0 0.24 1982 1,832,000 1,190,800 392,630 1,583,41701.02 I C 96 i1O 254091 ( ;, 0.l 1983 1,8 18,000 1t181,100 358,251 1,539,951 e18 1,0/0 69i ; ? 32336.ud0 O.2. 0 ,. Atvel age 0J.04 O0.10 Notes: ICo usn I is flit Apir'ii6 lable 1, tol.UArI 9. 2' (olunn 3 Iddt fU 1960 1969 ? ? dIue ltit i AO Iru' t ,UIill I tedbuu)iI rdl fur I90 198, l 1, 8 t rL' Ui'1 Sof Il li i t i, ) 3 Column S is rl Appendii a !atde 13( 41 coluni . 4 Co umn I fta for 1910 19/0 is hum t1 t U'pt l1 StdUt.tls, liun,1lI ltddil iI Bul kin, MIAi 2uirt ,ou1., i ,, M ,i and rttel to l(uitfIii ol Sjfamesr Uit (vlittl, i bu6¶f). for I / 191 the, 19e ioi (PO is aI'I ot,d tei , '4 i it , t 151 t OtS 1ttls1 d Id t it I f'lo C4ISf I d )119 91i d fII If Lt> C o Ullv11 Il dltltt I ,.,1 i . I (u (I I lI fit ch4nv. i ni I it (WkfiIt r at uIt C Wna (t Wl, ll lIt lt'b4 11t a tl, 't Ilidtiit h(ithe w i'a (i f utl.attA t1,ilF ILt0 r l. ildtd flu I tlIt' ' ul ';wth i llttedi Afid dU,6,i ,(GjI) I,tJ r nt K nhi'ij ow ii. t i (lit tb4'+01l 1if!, 1411iy I IA84( 13(C.2) MNAAtSIA IOIAL Lf(C(IS Of PRI0116 POHMCIS ON QuAlNilIT Of RICL 01.1AN010, 194,0 19113 weal Actual hilled Rice lo14l (f1ed.ivi C~omae) C.n,suaer Y bue Added C131. II) hIif-IUoio4 I -rr . toil Outp.jl o Rice lapowte Or*etic RdIe of Plitt o Price uf o Paddy .'k ~ j itil y i 0 fa hr III:~ Ill Paddy COnS41ptjon Pr Ole( IIon Rie P1dd( CIT P ice Rice Des~nde vvi.t, y o: thc CuIhuuaer 0 A Lt due9 t4uiva en tl PrgLe of lo a I A4Just4 'Oi ~ jlrjct Oemande,J Rice cIf ts ISoI oIrec ii Pof iel lccs so INZ rIce: Pol icies ltonnes) (tonnesi ltonneu) Itonnes] IH$,1Iionne) IIIIitonpe) 1nrs II) 12%11j1 131 (4);(.)tPI i S)1 16) M- (8) U0l1I II]iL 1960 ?11,000 501,150 641,400 ,14,550 0-2,' 154 5 35j4 1 8? XI A(I0 0 C1. 1961 1,021,000 663,650 4 23,8 O le I'81,52 0.16 54s 354'I0 20l50o6) G 02 00 19421 1235000 731i,150 392,392 1,130,142 0.02 578 3)5. '131 *2815 COO0 0.01 1963 .1,18,000 112,200 411 2t6 ,249,466 0.04 51)8 3/5 "I28 8416 0.01 0,02 1964 1 103,000 716,950 506,99 1223,9:49 0.15 561 365 205 .454 3 0.0e 0 uS I96 ,256,00 916,400 38,2?66 l,2O4,666 OA1 WS8 3M5 )97 37846 0.03 0,0, 1M66 1,234,000 802,300 336,366 1,139,466 0.04 6?? 408 2216 1163 0.01 ." 196) .1,194,000 176,11110 393,610 1,149 118 6 ..0 /26 417 294 38663 0.03 0.08 1960 ,433,000 931,450 316,0) 1,24;,5?20 O.2C 726 472 325 .123 C.06 0,15 1969 1,597,000 l,03f,0S0 316,256 l,J54,306 0'2" 691 450 290 56/93 0.04 0 10 1910 1,619.000 1.090,100 355.51? 1,446.211 0.08 62) 400 ,50 .2025 O.Ci 0 11 1911 1,809,000 1 175,850 235,213 1,411,0/3 0.10 560 364, "I" 7)33A1 02J 0 .05 1912 1,840,0~0 1,196,000 202,571 1:34i8,5? 0.04 a6 h64 14)9/ 033 0, 1913 1,961,000 1,'218,550 288,230 1 W1,566,180 Ol e / 631 il11 )0o 1974 2,0931,000 1,360,450 333,966 1,694,416 0.34 1,002 54.04 /o 103j2 C.1a 3 I9) 1,998,000 1,1298,100 146,115 1444,8/ 0.30 1,Otis 684 I'll I30 :') i 0.0? 0 2'3 1916 3,995000 1,296,150 2;0,334 1,j01,:084 0.)) 1,040 626 2210 121961' 0.0 0 .221 19/1 3,22,000 1,249,300 28338 1,532,68/ 0 "9 05O16 686 2390 1ll369 0.0? 022' 1918 1,499,000 913,100 408,610 1,382,:310 0 ,v 1,060 609 327' 3690:' 0.03 0.-017 1919 2,095,000 1,361f15O 239,0)4 1,600,824 0 .29 1,060 689 J 91.30 .35 0 .12 :10e 2,321,000 1 411,1S0 1671913 1,5)18,54) 01.23 1,060 689 3// /)411 fl.05 0.11 I3'vs 2,341,000 1,395,550 316,638 1,712ISO 0.21 1010 696 520 06337 0,05 0,3 92A 1,.b32,0013 1,190,8000 392,0410 l,5343 1 1,070 £9i 3)0 1)9935 0.11 0.78 I~ 1,818,000 1,181,700 35i,?m 1,539,951 IJ5 1,0)0 696 M2 "I"') 9 0.1e . Average o:0 .04 Notes: Co e sI Apl,i lt3 lSiI. I? Co Ifni 13 idL sa lI 160Ic 4'e I4 1 i, I ADII oI'ruuI. Ii nI YaI tIUuIta I jip t,,Iro V I '0 Ii,Uc i I ,iJ, ,.. Co 1uu 5 is It aI4bie I)? CUU' S' , li llj,'lI,IIrh5'a ~,~ ,4Co u n 6 di qL 401 0 is liu 0't U, ,I ul'1.1 )L Ii, '11111d 10i111, '-11:11 4-;r lto smpur r ol 514ce5e r (wfIlI', Id fo6it;i) Ill i.11 /I ,1 IS Il ~Ouf I 1I 11 W ,i,,1 .)I (I I , I II. f 5141 II,t I. zri lL aairIttt t,h ir jjr lu us) III the l.'1LtIItl file true l,- "It o,f OuC ei'u't '' u!I [it ,ft,liliit of r Iik t Ib 'AdC.'t hdth bupI'ohl pl31.e of pddy. 153 - .4 C 4.4-- - . 00'  - .. ,j .w - - . -a.. .000.0CC) ...4CC0 .C . C0   0 -CC)'.- - - 00000000oCCC .0.0CC .4'C0 o - 0.- - .- - C - 4) 0 C'-.- ..a 4) -- - - "-. -C -C -in)'-' CC -. C) CO- '- .4 - - '40-00.  -  - .% - -.- --- -coo-  * 0 - 4'. *0* 4). .Z. 0.0.Q?.0.0-.0C.C0...Q0-C0-..-O-)  0. .C 0-0..-,... - - - =. C.... - - --  .--0--.-.-- *C .a - -.4W - *-0'- -. - - * 0- - CC4kC'-.. *0fl0- .40C0- 0-O-cC.,. - 0. -- - 0.0 -fl..C - 0t..O. -r C*  .4 . - - -. - - -- .'00 - .5)'. ..00. -0fl .0-0- -.000 -.oor...aar..0-%r,@-.. t'0.0.-. - - C 0. ..3 C -O 0.00.0 -O-.O. -0- .C= - . . , - * -0.0.0 - .0.0.0 *'*'..  in..- - 0 4k 0- o- 0- 0.0-0-0.0.0-0.0.0.0-0-0-0-0.0-9-0.' 0.9-0- -a---- 2 21 .0-0.0 .0.0.0-0.0.0-0-0 -.0.0 -c-c. .0-c - -o -c-c .c 'I eWe  a- 0.. a- 0- 0-0- a- o- a- - f 0W 0 - 0-@W....0- ot- C -C a 0 0. t 0 a 0-aCa0eC-ta ...t-..- 0*U -.. - -- - - r . - 1 Ct..) OiO t..- C -.0.a tnO- a- -a O -0 n -e --mc - a S -C C Pt = C 4,.. w -c - a. Cc-, - - = )* - , = -c a a a - - - - - - -. wtr'-.aO-'-.tJ'..*'0,.r-0e- tjti'O- )4tJt.)DWI... a - -- W0JtOCt.P*.C -..W00 t..O---..aC.Lit*0.Q-W - W'. =  C = a - ca--c - a S a - - - ti- 0 ttC.) WLJ 0 tflft.0- 4 taO- Ct ti-C- .-ar - __ 4. C.. S -t 4t t..40".)OC t.JW -CO -0C- .0 %,O..O 0.-COW- -Jt.' - 0. C - - - 10 -a .00- 04 WO.ta-. - *0 - Pt ft C 0C C- .0.i-0-O"...Ctt00- o)O. - - - - -a en = Cc-, 44 C C 0- .0t C-C C- - - . - t 0 -a ti-- .t-Ja..t.a-aN0.%...-.a- -. = or t - an - a .-0-0.- .C-Cat.e0ti.Oot.tC-.C.-t.a-CWtrOC-......,r - OPt Pt0 Pt Pt - 0-O.aO. .4,'WC ...o-W.aOOO-..OOt.nta... - - 0 C - 00--We C..-- ,-.o-o.co-a-..C--a a. - C00- - - C OPt = - 40. a.-. - r..t o---..--..... -c - -i-Ca-C'-- 0-- tot t-to- ..ot.a.0- - -- - - - a. C- - - .oa . a .c ..o' a .0 - - 7 00--. -....W0-tt - --..a - ----C - - - cc r' on 0. C W..? 0t..a - - t..rc.- ..t 0-0- ti-C. t,-t.r - - - - ti0.i.....OCC-0½1.C1 *CW.0-c .- - -.. -at  t 0...'0-t.g - - Cr. - - - -----a -a- -   A-, 0000000 .000000400000C00a - to e - - - - a Pt C f C ft  - -r--tc cC -a- -.. a- 0 -a.-u...,..,t...,-.t.s.CC-.,Ct..,..... tr-..--.-.. C - -a a C-V 0 -- -c a- -C 4,'O 0-t-4..t.0t.L...L.)tatat-.. - -- - C 0 -- - I tr 0't0 taC tr- -..-uo-.. - V. ----a- 0CC Pt = - - tS fl a n.r a C - a CO- -a,.rCc- .r -e -.-%)t -OOt.r C.)- .t -. S C - a - %. - 0-..i-C0- -..a.-- - OoC-aa A- C = 0 ,¾.i .t-.O aC- .oa t-.. - -0 ,ta,-.a..Jt.r-0 -.--.W- -. - - - - c-c- -- - 0-Ca 0.a-CWO .0 0-0fl .0i- a-C-a . -.. - - ----cc - -C-A-C -.tt t.-.r 0 -.OCCC0ti-..ti-.. CC - - ft Ut = C ftC? - = -a c-c -e - - 0- C- aa C-'- C.. 000000000 C. 0000000 000000 -.. - - - - A- C 00000 0000 Ott 00 0000000000 = -. C C C C... ft Ut = a .t c S. C C. t.a 0-- 0.%..CoC.. 0 - Ci 0t.)ft-ta0 -.00-. .-.- -- e- = - -0--ti-4t .,-...0Cfl-a- -.Ji---.S..iC'-.ra OaC--a C .r -a a C 0 tt0 CC. C - C 0- -Otita a .-...C-.0O ..O .t..t CC---.-tatr-- WtaW- 04 ---t C **-0.r; -C-- - -C= e C- 0- ti-ti-ac ta)a - S O.. C S. C = . ,eo, ..acr a a. - . .rc. .<>0 .0 CC CC C  * a A- 0-a-C a0t.o-t.ne...ce-0-0C- ci.'0A- .tCtrc,0..W - Oft C' )0- 0 a.t.t-C .U0.-CW..i-tf0 -t..tCO-- 0a-.- - - -- - -C-aC.-.ote-...-...0CC- ,.i-,.-i.i--..C-0 Cti--...,..,.-.0 -a - = c-Ct-- 3 0Ct.tta.t.J.C.S.C.OC. - - C - - C. - - C - .0 tit .40-C L ... .t. - - Ott. -- - -.00 .00 -....at 0- -- - - C St - -c 0 - C- - - 0a.-..0t.-..0 ..,ot - -..O-.. .-O.Ct..-t. .40-- - - - C ft 01 a at-.- a- C. -- ...------.,- - a I - - - . . -- c--c ---.t,C--  .. ...tCtto.00C0C 00. ..$ --WtO -0 CC- 4-- .C = -- -.C-4- -.C: e -z -: -. CCCI - -. Sa.WOCWt.-. -.- .J'att.-. taC ....Z0-.4V. ..-. .04 -1 en a-c--- --- - a - =- - . o *0. Jt.-4*-. t-.t...taC.0 .,ci'- -. -Za'.0. .ta-c.t. - = r' -a - - Ot..)-ti--0a.-00 - -. .4CU -0C--t..4W- -- - C t: C C C.- - - *=-Ctc. CC. Ca ..00r - C 0 - - = 0' -oc.. tta- - - . - - 0. - - - - - C 00000 00001.1. t1C0C0000Cc0C..- - . - - C 0- tO* ..0a - tt .- -0-c--C taC... .4. - .tt.t. -- -- t C -.. S - I I oc.ooo7oo-.1.C.CoCo0C0.00oo - C C ". 0-a a ft C - Cc..4a ott0a..' - - .i-0-' . .t - C - o --o-e..- ..-,cr .... - .0.. 0tta -,- .0-C U -- a. -r z. .C - .1 C -C--O-cCt> ..0 tat- C.S.- - iABtL 14(8 Mt: flAS1A Ci.UULAIIVi 0114(C ifiLCIS 05 PRiICfl4 PowLCsS ON fR1111 4 EXCIIAHGi (AREINGS fCR RtiIAL11, Htill Olt AND RiCI (00L 1983) leas (btn9e in Cbange irt Libnge in £ltaj e in Vilue ol it4Io VI Chvigtte III Rjioi ~l ilt~ gllt.idlr,)t II-it bttil 11,4 it Ed"i ~Io Io~g Fci foelrt ( ItdiI9eitt icrhat (JidIrit uI Ief £ c'i ILitntn c iit( iutlI foa tI it'Iit It fr~.it (Aieityti dueI o duel ~ ~ I t?O 101? in IfiItyt id1it tll Iu li :9tt d II Vltldt I~ lltttct9I out~ I iit L o (U I,~rg L0 I~ ?,o' I i~t ,jrt Change in (ntiage i9 CIintje I 4~ai labi I lpof I; t il.tan due to I1,t:hvt.qC Clt4fle if Ufanqe Ittl Lh.ti'jp III thtiWiei tfl jI iuv Du I t ol I Oukttlitu . OZUlp of due to d.d I Ab Mt usu~ i Itr Use ofl List If utt u Output (if I lot104 sIsate 'laillhotdel PA Is oil [4an9tI due to trpolls NL'J.t.e Ittiltus luf 1ittis htfput5 15itusI,) I Ai tLuf rottliet Rulittet OtICj uL of ilt,tgt IIt (IR Nie Illtu Is of LiOII~Lt ' I04 [put( 0Liobji of Ritie toIII t i'udi t ltori t ilt I~ (rof's I lui I Cr Ikill Valo t- I'uduil tool tu vaIue ofttld4 Aqt I I o It ut a I rtt l Itj ituluort IliuNi A III (21 131~~~~~~~~~~~~~~~~~l W~ 161 I41/w Ill 18) /)It ilf I' l'I:h IV.fl ~ lYto 111.9400 14 1. 2200 /.bboo "Il .8400 Ibit 0.tiQt f lJSIj.LtY O.i(. 4 39 .10 8.J O/t lt oitt.l 0.0) 1961 86.4)19 116 .121 4 2.801t 20S.396) 1:?I I'illIQ.i'? i .0 4 V 0.0145 3.Ijt4) V .40, t ~ 180O44 J 06i0$ 92 91.8063 .99.1215 3 .01129 1814.020 1 `69 0.11s8 44.89992 008 921. i /II . LI 61'. . O 1963 /9.0458 90.3416 3.436) 160.8203 l,0i 0.1120 4S.0120 0 .0.181 2919'J7 "? 1.6I . % IO9 114 .1089 0 0/l,, 1964 IS.1986 9).9019 3.6500 W).2%05 I~41) 0.1151j 49.1612 0.031H 2.841I ?.W?~ 2Oi ?00 101 1819 0.0u9 1965 1)3804 101.2.10/ S.16?5 189.81136 I ,6i 0.1140 67.03,48 0 .0:11 30,1639 10.1/jO 1.998/C 101.)918 0 (t64/ Q966 .89 1i1.t 1 0.516908) i)2.41A I lb,016 Oil?) 522)94,11 0.024219 " 89599 0 I9' :1153 IV I8 0.0I42 1961 62.1802 96.72 2 90.9337 -1.16 1 82890'4 0.1163 88 2).388 0.6016 8169' IL" % 223 104326 1L1 80,2 0.0940 1960 S9.7411 -107. 4101 .22,90 1152.5590 1805 0.k11 69388.922 00496 29841462 ?./18 3 2.0201 204AGO O.SO 1969 I.1981 161.210 7.49/. 0 91.804631 28:91 0.1090 94.3101 0 0628 413.431 /,/34 1 02.44094 4489.64" 0.101 8608-3.4 451 .0959 40.91 5 0 12 055.940 8,36? 0.0522 462.3554 0.013/ 3618 /44 00464. 48 i' .15 511.:In4 0 0184 19 venge (1096 11.13 2 90 900198210 0.1181 9.74 0.023 3 O /60I8?98 1161 0 .OtI3 1 Roles;,69 I I olt;s 2 t sir 9I Ap 1todi JItI 1(1 I0 0,04 503t0 u0lis /964 1." "14Y 0.4o 19?3 42.60 l5ri -l2I35S .0oi I66t 34061 3 1.16 1 3311 0.9) 3 l6 u00st,6 " -.01 $5V 5.35 .11 1974 -?9.120 Co1 I u0it99 i liii197 Altt 1. iji I Ii fil 01 ti9c0 .09 l30Sii1191 U 008 KD 04, 01 IPS -SS (0omt Itit IAt I22t138 iti10 42.31 titit ______09_00___9U 9 ? 7089 11 011 .1 1976 -94. t0 1t35,1i.8802 120391nt-'t 166. l4l¶ 01 0H1 2,91 .12 8.99 H99J 7 1V.3o.o- . 1W 114.1149 A413.0t4r . I 2i v.0295 4 A2.28 *1 tdit l 0.i 1 261i .,5 111,10. 138 1,61 0 .116 00~1 1918 -143.0 ,11 I96590 22s 0 .3469I 859Iic 96i66i 6 4 llu 04 3 12I6 ,35 1.16 3.9' 0,0, ~ .6 .9k IKIE 14(4.21: AL.AYSIA - CUWAII 151AL ((iLCIS Of PRICIK P0C (IIb ON fOR(IGN EXCiiANGE [ARNINGS fOR RUO0ER, PALM OIL, ANO RIC( (1960 09831 Teet Cha,ge In Chafge in Change in Ch.angejI Value ol eAtlo yf Change in tatio gf fofeign (ZchLlngc Ieat;ton liact un Fltio 1y Foreigt toreign torelgn ota lot Ctane J6 ofoIeIgn C ange .o Eect cDI I lla Ijouts tc i l oici n Cl.ild,g it, tI kin chne En han ge Fo elsn Aoi1cua 11 [fxIa?e Total. - -. fchtr9te (ichlige Fojeigit tzut.~ ~ ~~~1 oh2 Ito a t o fl inge tutal fofoelst.~ ofial {oe I t Oue to Due to lMo lt(it E frtioigt Chan ane Chae avAi able fports tii due a z sch4ngis Change i? Change rj Chane it Change it (I Val amt1 l toi ru 0 0Ufal` due O iva: ie Chalnge In 110 Use o Can ol Use ol Outpult t ol fal jrou der Pi a Cnge due lo 11porl6 peruj ItPut6 Iripts Inputs la olts I Agricu lubbtO Rud t a 6 ut 0t G C g Change In ( Rice I oilt, 0o to; LIpOx (1101 I ce KI lUI. I port Output of Rice ltoI:pur Crops Wiport Crop viur, Pr(oducnIrin to value o of lot l total Agricul Agricultural tural .Xpor16 (zpol Is . . . . . . . . . .. ... .. . . . . ... ..... ...... . til 1~~ ~~~~~~~~~~~~~~~~2) (3) (S11 1'X 61 141/151 171 lui 1)l/151 1I'd 1101 1111 191.5 Q;1i 1960 -1S2.8000 -181.9100 4,6AO0 -31Y.3600 1,8Y3 0.17?3 29.1631 0.015/ 48.4/ 8 1 5514 45.3?C64 2L5.I.'O5 0.l( 3 1961 -122.4365 -148.6369 -5.2235 2/6.2969 1591 0.1137 31.4216 0.019& 40.48.1 :. 33.43 6 .09.4367 0.131 1962 12!.1206 -132.6110 -59313 9.YG3/ 1JO?9 O.1636 14.1008 O.O09 37.$ 91 3.1811 3'. ; ' I10.52M3 0.1325 1963 -119.9S3S 133.200t -6.9457 260.0999 1603 0.16 2 12.6b09 O.Od19 30.4113 2.09dA 36.35vG 21l1.0330 O 1I ji 1964 -114.2998 -129.6215 7.3185 2 1.73Y7 i,540 0.1631 20.1296 0.013! 38,0110 . 0 35,63!0 19i.6 0,S :.lIJ 196S -114.6216 -137.9247 -10.115 2.2,68/8 1I665 0.1571 30.6745 0,0194 40.3489 4. 1l. 36.i9: 7 1,0J.22 0 .11,6 1966 114.5130 145.2211 11.41?2 ?1 . -:4I l,6J4 0.1601 16.5699 0.0090 42.01(0 3.1830 3d .82?0 215.lill 0.12/4 196? -100.9908 -131?.95$ 13)259 249.6)24 1 SOI 0.140 30.)914 0.0231 38.1510 2.3v1 41.03/9 210. ;S 0 . !1 fl 1968 -18.0810 -!45.033 '2.303 ? . .t41 I,67 0.13 98.i65 3.0633 ll,.l. 9. 161 3.8.33 S!l.33iO 0.1863 1969 -119.7177 -209.09R9 15.0308 343.8/3 2,79/ 0.1.91 96.3811 0.0420 56.283 12.4618 68.7453 3M .4/0:)l 0.1618 1970 -101.55I -1186.5924 34.4666 3:2.6141 ,3(.7 0.13t3 5S.1639 0.0229 SI.J5503 10.160B 61./1(9 31.O18 01.131 1971 -9V.5932 103.5954 51.2550 335.4435 2,101 0.1591 3.2315 0.0015 53.2510 :. o590 56.1110 2?v,09'iO 0.1314 972 -81.9838 -111.5396 -51.7010 -31).2244 1,600 0.1983 9.6 17 0.000 50.4524 0.95B4 49.4940 250.10U8 0.1613 19t3 135.6357 -328.2599 66,46985 530.3640 3,39? 0.1561 4171180 0.0140 83.0594 3.079/ 96 1171 491.9629 0.1448 .194 -175.4934 -446.55)5 -214.75J4 -836.9055 4 IS4 0.18a) -344.9294 0.07)14 117.98J4 24.2273 14I2.2114 1039.5235 0.2332 1975 -123.3973 -337.2070 -265.5228 726.12/' 4,321 0.1681 3?8.1189 0.0159 101.0331 32.2713 140.1044 '14.1416 0.2116 19)6 -172.4990 -443.7715 194.2777 810.549: S,Olb 0.1591 71.64i4 0.0141 127.4 13 0 .514 128.308; -610.591? 0.1203 1977 -191,6309 522.3004 352.2608 10,7200i 5,821 0,1840 13.5/8G0 0.0/28 1 /.I 1 19.v2)0 131 3501 801.27;0 0.1375 M918 -241.2660 642.3115 310.4344 1254.0119 6,128 0.2046 109.850G 0.01/9 17 0.500I . (71i,3 I50.1J4l 95. 3195 0.'60U 1979 -296.1361 793.157 -458.705)8 J154335?5 8,8) 0.5168 168.8/79 0,0?4 O .J 13. 08 7./ ;71 I.6Q6%'. 42.t 30102/ 1980 -371.9330 981.6062 -579.6199 1889.1591 ,8;1 O.23U11 144 .14/ 0.0103 261.4;.. 2IJ.9 .J1.;'s . :C,J.'Y)'. C.1910 1481 332.6463 834,1621 714.4230 1813.314 1 ,80S 0.2S1 O 24 1 tO26.56 16916 O/ ,,..5IJ ?41A.s t;A9 87 0.161k 190? 245.688) 566.0310 SW6.4059 1618.0?!It 1,11:1/ 0.O154 284.0910 0O041 LO.'.Q; .: "Lo'4 ' 1 61 ,.9. Y.V,'. 1903 318.1434 697)9654 682l4133 160 Ii 8,61.8 0.19li W33 130 (I'.0J9? 2: - .1- ' 39Y.., 2C/. 12h ,3.24 ; 0.I3 4 1 P~~~~~~AVeId9e llY61 19841 0.1/va O.01 OO31'{I Notes: I Co Usti I is wI\ ON A;prtdliI [It, I 141 II,. I J ulu), 1. to COulm, 2 Is Ius AppIei4lI Idt te 111 :' B , (jIII I 1. -. I 31 Co Uln I is tIoa Apped i I l4A 112.3l, .O lue 1. 4 C UOn iS l6 1or IAO lidi. Yeitiuu . S CO Uln I IS (lOm APpendj lable 141 I,' 4) cUlumIU 1. 6 CO Us 49 is Ile ry9tiv (1,1 siir SU 0 ;U1n1s 6 Hi1 :- | ~~~~~~~~~~~~~~A4fPDI11,. E4 tn . ,,. 1 EFFECTS OF PRICING POLICIES ON ' ~~~~~~~~~~THE BUDGET A. Overview In Malaysia, the budget i_ s dif-ere-tiated into a current budget and a development budget. T3e former reports the revenue and the recurrent expend- iture o-f the government. Expenditure on development is kept separateiy and re_ienr._sed with funds fro- the current budget every year. Identified as part t o the v-arics state gover--=ens and state enterprises. From Table 5. Colurz 3, ' C-. e seer- -:ai Se.._t; ''a:a>a= '-.' a __ ,- - _ - 's ove r expe..iture every year si7-e '7960, w.tn.e exception of i972. -. t-a year, revenue -was less t-an current governm=ent expenditure because cft --e 'zW cor-.mczV -rrces. -etwee- 1596 and :969, reve-.ue in real terms grew a2 2 rate of 8.3 ?er cent a year. rising to '3.9 percent per year n -:-e next zezc_e, 'efcre decln-rn.2 to on.v 5.1 percent -er ann=z.. `-e growth- rate of recurrent ex-end--'ure In real *erms exceeded revenue Dy - percen-tage pon-ts o-y period 1967-1969. _t iatc-ed or was _ess thran revenue in the next 14 years to 1983. nDevelo=ment ex^enz'.re 'r reai terms declined from '6.2 ner_cent a vear in 196C-1969 to '5.0 percent -per year, and to a negative 4.9 pecen-- . 9 8 -98 3. he fa:l in deve:opment expeni.-ture in the last fcur years cZ'_? ~e atri--bre-d to dec:-ning re:en-ue Taking inotn tne curren.t an2 te _e:_ U4_gets together ?abe 5, Go:z 7- . Malaysia had an a.nr.nal be-ge: -e c- every year except in 1.9%, a budget deicit whic.h in 1980 accounted for .8 percent o- t:-e total b-udget and '4.2 percent of nominal GNP. it should be noted that the budget deticits were primarily L.aused by large * ~~development expenditures. Attempts to reduce the level of development - ~~expenditure have proved to be difficult because of contractual cor=iiments and a time l-ag between development project planning and implementation. Hiowever. financing of this budget defic:t h-as not been difficult, since most of the -f,nds came from domestic sources. 1 Exte rnal borrcr-'ing to f inance the budget came from * ~~two sources. nairely. international institutions 'or project- loans, and nonev markets for ncni-project l-oans. Considering only the period -1975-'983, th-e development 'budge-, deficit: -.as I ~ ~~,n trend and ren-ainet rela: ivel-y stable as a share of nominal GNP at aro-und 8 Dercent a year untilI 19080. Inthat year. the share of the development budget deficit was 1-4 percent of nom:-nal- 3N?. and in t-e subsequeiit vears tne sn-are -was even higher at 20. 19 and 14 cercent respectively. Thlis sharo inre-sei :ne develo::nent -cudget defic:-t was cartl-y an attemvt to counter tn-e c-:-ia ~cwnturn n tne ec onomv, and a:. an increased rate o4;xen:: to :h - a-C5- f t'.. alarge d;-velocp7:ent budge: also -was de: r. th,rou;gh earnings from oil. In 11;2, for tne first tMe. PEErRNAS (the oil corp.oraticn) directlv rez-i-tted dividendHs on its earni-zs to thes--e:'zn and ha-s -continu,ed since then. r:eme.the corporation '-as 1A zmajor source of such fiunds is the Employees' Prov.ident run. :e naltianal socia. securiJtv funLd to whIch all employeas mst con-,-tiu-te a pecerzenage f. their earnings. This contribution is matched by, a simila:r e contribution by their employers. I59 emerged as a maior financinQ source of the deficit throueh its ourchases of the government debt.2 B Effects of Pricing Policies on the Budget The main price interventions experienced by the rubber and palm cil sectors have been export taxes, and replarting and research cess payments. In the case of rubber all three of these fiscal instrumentt, have been levied on the ex,ortz of the commodity. The annual revenues raised by th.ese taxes onr rubber are reported in, Table 15, Column . Taxes have been levied on the palm oil sector in a slightly different manner. The export tax, the research cess, n.d the regulatory cess payments have beer. levied on the tctal production of the cocnrodity. As the vast Ma3or_ty of palm oil is expored, t e practical diff'erence between the tax basis or rubber and palm o_e' is small. The tax policy. of charging the palm oil tax payvments on all of production is corrtct. The export tax or, rubber, however, tends to teao to inefficient use of it as in in.rut i-.to further manufacturing. The t otal ann^..a revenues from th.ese three taxes on Daim oil are reported in -ab:e 15. Frcm t-e to tine. there are a a -.be: of other - --o: taxes -. oroduction and/or export of other a2ricultural co=modi-ies T-7e tax on th-e export of pepper is one such example. The aggregated revenue from :i-ese taxes 2 Dividends remitted to the government by PETRONAS were M$950 mi::ior M$1,450 million, and M$600 million respectively in. 1981, 1982, and :983. The ;alue of governmert debt which the corporation bought during the sa-e period cam.e to M$1,772 million, M$3,672 million, and X$3,495 m-illion acccrding to Bank Negara Malaysia. L~ ~ ~~ ~~~~----______________________ ____________ I 160 On the expenditure side of the budeet. Malavsia haq A7=- -ali, &U1 I ~~~spent very little directlyv from the budget to subsidize the production of paddy. I ~~~The price support has largely come about through the regulation of imports and the maintenance of a sufficiently higzh domestic retail prIce so that the profits I ~~~made on cheaper imports wouild pay for the higher priced domestic paddy. Most I ~~~of the budgetary expenditures on. the promotion of paddy production hias been spent I ~~~on developing infrastructure such as i-rrigation systems, roads, and processing facilities. I ~~~~in the period 1960 to 1972, the government provided a modes: amount of subsidization, but it is not- clepar that thi-s level of subsidization affected I ~ ~~the marginal production and h.ence, the price (Table 15, Column 20). From 1974 tlo 1976 a modest subsidy programme was again initiated to provide naddy farmers wi-th financial1 aid to purchase u-rea fertilizer used i-n the cultivation ofl the new high yielding varieties o-f paddy. These expenditures are reported in Table 15. Colum_n 8. It was onl-y In 1L980 that a heavy budgetary subsidization of Paddy L ~ ~~r~roduction is found. 'ThIs has talken tlnef_ a ire ssub=.1t- of production, with a cost of' between MSl.0C and MS186 mil-lion per vea-r (Table 1-5. Colurv-n 6)Ij. In addit11ion, there nas bee,i a direct subsidization of inputs by an ,a=ount approxfr'.ately equal to MS45 .45 pe-r tonne of paddy produced.- The annual. S'etary cst 15srz r,.. .~~ Overall- thIe ~-et imnact of -rici-.g pc.icies on thle 7nationa. bu,dget has been nositive as indicated in Column -2. 71-esa net revenues as a Percentage of, total gove,.nment reven-ues; have fluctuated conSidElrably. from a high of about 23 percent of guvernment revenues in 1-960 to l-ess t'nat 1 percent ofI revenues in 1983. On average, the impact oF agric-ult1ural pricing policies has accoznted for about 7 161 nercene c'f tot_l~u~tary az_;s . Af;t:& &ae crAmatic increase i.n petroleum revenues in the late 1970s and the introduction of the expensive subsidy schemes for paddy production, the relative importance of the agricultural sector as a source of government revenues decline,1. In Table 16, these tax revenues and subsidies are expressed as unit taxes or subsidies on the quantities of the commodities produced. As obser:.e-e elsewhere, the direct fiscal subsidy on paddy was relatively sma'1i urtil af-er 1980. The unit tax on both rubber and palm oil has been highly variable ce:2 Itme. This is a direct result of the structure of these taxes. They are designed as variable royalties and as a function of the export -r:ce o- the co=odity. with the intention of capturing a higher (lower) share of t-e marg.na. gains due to price increases (decreases) of the conzmodity over ti.e. -. Thdices of investment and Expenditure Bias in the Budget Another i-dication of the direction of goverrnent olilcies o--rardsz agric-altural sector is the relative degree _.y which it undertakes ex-en-d_-_re- bot: investment and current, that will benef;t this sector. Because CZ c f ae^= .S-.--' a::.-y t-e c.;rze-. expenditures, mace fy :e g W- " benef - 7ay different g-o-s sc lety it is d_---u c_:; - `evee-O^ =easure of the bias -n govern-ment ex;pendit,:res whose absol_te val.e has a _ - -ean -ng Tn contrast, changes of in.dex of relative expe-i.t_res over -:.e s_ _v a ia1rly ciear signai of the direction of government ^oc-y sector. 'I Table 17, the values of totaL govern=ent investment exr-enz4-;tes a-' govern.-nent investment expenditures in the agricultural sector are rerzr:: Co:-.ns I and 2 and the2.r ratio is giver. in Colum.n 9. Tne S-oss C:e i: ?roc;,ut if there had been no price interventions, is esti-ated usl tgne a--_a ~~~~~ ~~- r.._......--- _ .__ ._ __ __ _ 162 4iWF in the agricultural sector (Column 3). less the cumulative value of transfers3 arising from the total effects of pricing policies (Coluan 4), plus the change in the value of output that would occur if the price interventions in the economy were removed (Columr. 5). These results of GDP:(A)NI are reported in Column 6 and the ratio of this variable to the economy wide CDP is presented in Column 8. By taking the ratio of GI:A1GI to GDP: (A)NT/GDP, the governm.ent invest:nent bias is obtained. This ratio is reported in Columri 10. For the entire period. the value of this indicator has a value of 0.79. Prior tn 104&. :; ms a -, always less than 0.5 but from 1964 through to 1980 it was always above 0.7 and in 1968 the ratio was as high as 1.38 becau - 'f- _ _-. -e i. ..e ; otaae in irrigation n4frastructures. After 1980. the govern-en^t .ade -e:a;r:e y:ewer investments i^n the agricultural secto., causing -his ra-to to rera-.an -e 0.6 mark. 3 By dividing the ratio of goverm-nent's currert pLus investmnent expendi:ure in the agricultural sector to i;s total expenditure by the ratic of 0-?: 'A.; to GD?. an index Is constructed which measures mhe cnange -n -;-.eg2 er--ee . s a..aocation of _-s :otal exnend;.__-es o:er ti-e. .he res--ts are re_n :e - ..~~~~~~1. Onr a3erage. this index had a value of e0.1 a-d had ve.y little tren;d 1979. In that year the index had a vallue of C.09; it then rose zo a va:e 0.23 by 1983. These observations, in con^unct:.on wt-: the index o- _-.:es-..2- expenditures reported previcusly, indicate that the government has been shi--i-ng the nature of its expenditures in t-e agriCultural. sector from being i.ves;-en- 3 The estimation of the values .f transfers is described in Cha.tter E. I~~~~~~~ I'I; 163 in nature to being either subsidy or service oriented. This is consistent with the change in the way the guaranteed miinimum price of paddy has been financed. from being entirely financed through the income earned on imports to being partially financed directly from the government budget. I' I tA&I IS NAI AYSIA iMPAU (A PRILtioI'G II IAIII ON flt 11 I'JlMkiCl iI' B IUjlt IYOU IY8 Revenue flog taies on ftwoitibtes iar ill liut. I ~-.i,dilurcs qn,Subsi ie total Net Nlet Net It.~vente la, tated toD P1 IC ng Po iuies iPendituires Re,1e!ides Rr itiiue6 s. r.u ru bLttotal lo ca ltl Ito key frur ' on Svbs ilies flog al a g I Ytat bares lairs Iaie~ Oa Ispork~ol tics dd Subsidy Subbidyu flpaddy ItatMed to PrI IcIny Pt opotion PIroporti10n oh Ot lit Ag Ii Agrtculttual irrt) 1'rice on Inputs Utea ofo Production Pricing Pol icies ol totla Of aidgrt Rubber Pill 1D1i~ LIIAlt tu IPuts Crops Sumpot to Paddy (9/4-1976 Subi,idi policits 1ludieL De IL. (iports ~~~~~~~~~~Subsidy (1960-19 1 ml still (ns mitt! Ins milJ Ins sill] Ins ijIl Ins situ 15$ sill! Ins .1111 Ins milslfill) I mimlll) Inmill) 1960 ?14.11 4.54 4 43 N.A. .1 IS.1 0.05 0.05 1113.10 0.213 1961 13/.25 4,60 3.91 N.A, 145.65 1.?9 1,28 144.3) 0.13 .4.111 1962 111.16 4.89 /.14 N.A. 126.10 0.61 0.6) 1215.51 0.10 0.!. 1963 1041?1 5.1) 1./3 N.A. 11111 L.68 1,66 lot,24 0,07 -1 1961 96.42, 6.00 0.62 N.A. 103.33 1.55 1.55 101.19 0.05 0, 1965 101.2)5 6.21 6.96 N.A. 122.4? 11.21111 I 00:3 1966 95. 29 9.00 3.41 11.11 101.76 2.00 1:' oO 0.10 196) /0.95 8.66 9.5) XNA, 89.18 1.12 I'll, 97.46 0.04 0.16 1968 17138 9.34 10.38 N.A, 91.0 2,43 Z.413 95.06 0.04 -0.18 1969 146.10 11.4/ 241.18 N.A, 181.43 3.00 3,00 119.43 0.01 -0.11 1910 1!.? It.$? 13,43 N.A. 145,41 4.14 4.14 141.33 0.05 -0. I0 191? 19.6 32.13 23.00 MA 1". .151.1 1?3.54 0,04 01 t9/i I9.O3 3?J 23.00 N.. ,1S.6 135.36 0.03 QJ10 19ll 269.05 50.01 24.00 N.A. 343.06 343.86 0.06 0.33 19/ 419,54 229,04 60.00 W.A. 108.5 15.3) 15.31 693.21 0,11 04 1915 294.63 283.26 40.00 N.A. 616,09 11.16 11.16 600.93 0.09 0.17 1916 411.99 16S.39 4.0NA. 661:.1 4,69 4.69 656.59 006 0.13 191 595.22 341.61 30.00 N.A. 960,83 900.03 0,09 -0.l5 ItfS 625.54 205.19 3W.0 N.A. 869.33 669,33 0.01 01 19/9 11551.1 230.19 31.00 N.A. 1424.91 14214.9/ 0.10 0.319 1900 1131.69 10e.Oi 21.00 N.A. 1333,50 110.60 98.6/ 209.211 1124.23 0.05 -0.16 190l 6109.12 164.24 16.00 N.A. 191.96 101.20 9/,59 is.1 513,17 0.02 .~35 1902 165.24 95.21 25.00 N.A. 205.46 106.0,3 03.26 2,61:29 16.11 0.00 0.)0 1963 335.54 69.21 31.00 N.A. 441.14 182.40 62.63 265.03 116.21 0.01 -0.02 Average (1960-119031 0.01.3 Notes' l ColVon lii from Appen~I 4I 5 ) $cc9lumn 3. t uoI m li troo 11% Gv' Fnace S tats cli Yrtarboo6 (1960-1903). The4e values include the ltr on pepper, food items and other aIricultural goods. 14 :yen A reflers to gicultural inputs which ate bubjtcl to tar iiWs or Waes, of whjich there ire very few. go breakdown ol dlata on this va itable is available. ac diU M SO ffAkld eUto akKgl aasa ICo u( 6 data are r.omsiled Irum tirp Sinistri of ItaI e -and vdIu suso Iy.nulU~rIo an e~afaa6a r.to u.n I data ate based oS a 5utrsidp ittefr 1 paddyi itlpus of 5145.45 per boone times the touta output 01 pJ dy I l toln 8 jili lot rum1 tht Mflintl tyOf A91rcUItlur', SalaYSia. 19 ~o Jon 9 dAl& fr 1960 19/i int udeb,e ez1oen4tuirs on1 Pat11 Suttunb, Paddrl Seed Mlultiplicat ion, Paddy fertiliier Subsidy Schemes o h sttfundedi litrtriure l b te efdcrad IGo eIi,srnt imi e Suibsidy, and f I naiitial AS$ 0isLtne to Ptaddy farmerOts. h source o h data is the Strirsuir o f A Liurr Ic.A ?0 CI :n is L UU1 11 flv (Yrd fr Oldlu1ie ry~r (ituble 5, coluuti 81 Ill COu 13 s (0 u(I 11 divdd bry budq&'tdry de it ita1ble 5, co uma 11. 1' 165 TAKLE 16: WAYSIA - TAXES APO SBSIDIES ON FOO C )W AND O T 1S. t960-1983 year Total Total Per LhiIt Total Total Per tUit Total Tota: Per in it Stsidles ;uft ity SbsIdy Tax an O.utIty Tax ao Tax an Qsa1tIty Tax tn an Rice of PadLty on Pal lfr of RLt.wr O.Intlty Pala of Palo Quatity Prodtm Proltd of Ler Oil Oil of Produced Prodtxed Palo C:! Procxed (15 all] [tcraTr [WN5toreJ r Mn t t,rem] 4/ttwis] (15 nl] £ttfres, CS/crne, (1] [21 [3]. '4] r5] [61- (71] r8) Eg- [l([2] (414r5] E71/r8) 1960 0.05 711.OW 0.08 214.77 790.470 271.70 4.54 92.000 49.40 1961 1.28 1.021.00W 1.25 137.25 818.039 167.78 4.60 95,00M 43.37 1962 0.67 1. 135.0 0.59 114.15 793.583 143.86 4.89 108.000 45.24 1963 1.88 1.18S.000 1.58 104.21 832.201 .25.22 5.17 126.000 41.07 1964 1.55 1.103.000 .40 96.42 e70.751 110.73 6.08 123.000 49.46 1965 1.21 1.256.300 0.96 107.25 916,940 116.97 8.21 150.000 54.74 966 2.00 1,234o.0o 1.62 95.29 972,945 97.94 9.00 190.000 47.36 '967 1.72 1.194003 1.44 706.95 990.812 71.61 8.66 226.000 38.31 1969 3.00 1.597.000 1 46.78 15268.i30 115,.4 11.47 357,00C 32 6 r 1970 4.14 1.678.000 2.47 112.22 1,269,353 38.40 19.82 431.000 45 9q 1971 1.15 1.809,00 0.64 3c.e5 1.318.6 SO. 71 28.59 589. U00 48 54 1972 :.8:G,000 000 79.63 1.364.353 61 05 32.73 727,0Oc 45 C2 *n~~~~~~~~~~~~~~C 1 154n nm?m 73 41 rh2 50 .1 A' C: IMr R 197 15.37 2; C S3;0 00 7.34 i19-54 ..524.83 2755 229M.04 1,041.0l)) 2ng.02 1S975 17. 15 1.998.o rr 5_9 294S V 459.331 202 23 2&3 2 .257.300 225 34 1976 4-69 1.995.000 2.35 :'9 S 12,481 292.65 165 3S 1.390G *39z 1977 1.922.00 -.X 5 c '22 588. 053 374 .1 347.S1 1.612.3617 2-5.- , i978 1 98,30M 0.0 .2554 '. 2. 455 395.3C 238.79 ',786.000 X. 1;979 2..00 0.80 1'-?3 ' .127 736.'' 238.'9 2.1;88.000 '28.315 1980 209.27 2171.300 96430 ' ," -2S9S7 73967 '8081 2._ 6.00 *9 '98t 278.78 2..'7.3(E t2985 505.2 10,222 4373 '6424 2.824.3(0 58:' :982 269.29 *.832.300 '46 09 2 14982 ::'2.60 95.21 3.514.000 27.29 !383 2M55.3 1.8'8.090 '451.7a 55 *.5l 992 2 4.3' S9 2'. 3.,37?30C '' No:es: £1 0c5r.s t. 4 aC - 'a!a a,e ,:eD "e :5. :,s '. . 2 -eSc' e .2' ^tm 2 :s *tom W^ S ^ ^-'- '31 Te erx: :x : ,,a ws z2sec o ! : ' -!e :'2 ' a -ra2ted s^ae. r.s.- _ ress..e 4 'j e emorz surmarge an ocx': YCer arc X :e ir osew :974 a.5 -c e e--ce ¢ sr;.y ~ x3 wes .:ECrX-2:e :^':o :.r exDr: :2x~ sre :9. : -5: Ccki. : Oata fcr -960-1973 xis:es ex er4i:..es cr S Stat. o. - Seec :-x;o x --,< LL; .:z- zr -. -er, .' .Zqr 3S=s. S-enfes .soa:e-f=W ou! 9L teDSX y 7le ceOEta! Scve-xmern . '.nx S.Cs.:v. . ac F.nzc;ai Ass;szi-re tr. - .arners. -he sot;rze :s tcie WI ;StY z .... ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ -- .~ s; : ! ' . i ;¢ : UW . : > o ! ¢ | . . : i ; t. t f ;1 |* a . . I P~~~~~~~~~~~~~~~~~~~~~~~~ I."V~~~~~~~~~~~~~~~~~~i 4ttW.tS '4i t"ttsiitjtt P.'*14..Iqit..-lttI. 'NJ.'.t' I P*.'4'lh5 Vt .A.,''* ..,-Ii's Cu 's I 01 0 LoU Ut 'v o (.two l4m6) e.0 *' sC 00 C m ON pit'. 10 0 1. ;t4I. *. I' '. ,I It Pt I '. rii.fl I9. inrt It 0 00 0 9 tOt 9 IdaI! It0 0 C I 0 It0t.Z I WI 59I. II 1'I I 9Pli 91 I v I C't! 10 I I 3 co0 6 Ut 0 909, ;I 09 0 L I 1' U. O OCt I. It I1*01.1 /9SI I 6 slil lI I I IW? I I I11 19011 ci 0 coO C £0 S06 :1 10 %I 0 It.0ft' 'I weA 01 101 .4II ) tt I lit I "A, t .UM 0 r 0 tdtw t~I to00 toO C 9i I 090, It to i I0 Ite II tpev, P w9t (1II've. Itt i ' A ,*o ?t: . P6 * l-0t Al 91 0 to 0 1M SO 090' I ('0 1 64 I it Ii 919 i. Ii. 019.U I',(1 IM U,V (tt . t 6, le% 04 61 01 0 to4 a I(ml C Ott, 91 0 ofU IIo11 0It'tI OtOt 11 11 IV :99 P i 2 4 1iIts' 0 *1CM. til1 90 o 0 9i¶$ it Pt*4I *. 0 9/6Oft 0, Ut IC U? Vt. iti9 It? A-.i. t 0 UI 9 I Sill jell to0LI t 0 C,COO 699 4 110t 0 P Cl. It It ii '.111 t¶ I Ii09 1 19 I 4)I .11' I i 6 iIs' 1.I til. 0 61I to00 toO 0 alo 0 sit'' L I 0 Vt el. ti /.90(II2II II P Ct' P' OI I 1' .11 : . s, /.9 t 9101 tlor tOo 0 tO 6 t10! OglE't' ft 0 It ( 9 /t I e.V /' up Il 111 P1 5 L P I.I P1 0I /161 9 sIP( W.eV I IAtI to 0 to ti Io 0* 1' 90', 000I 0 it DIi IlII 9 .1 I. it I Pt rl*v ,toi:i '.1 I1 IMA) I t,P: ti/t 0! 0 tO t 09 0 Ott' Sj II Ci i 0 S'I 1 ~ Ii oil C oo, it sri S. #UI I C/, P i6iil lilt 600 to 0 )9I I 1t ye': 'SC: PttI ;pV. 1( It. ? 61i"i/ tl too too (ts6p C Ott,. I 0/. 0 1/4 I 64 Y to, 1 1/s 420vil IS. I s 'ti 6961 ClI 0 11O 0 601P 0 lbi' k/1I P?v 0 Wo t I: II liti I/ '0 t .Ilt .1 I sti 016 0041 Cl t 0 COOC* I 0611 I 9/ V IU 01 oil Iti! 9.5 P9.5 &12It I'. I 19 St$) 94 400 £0 flit 5 1.9 .1 I.O, 'InV(1 6111 1 .051/? '1111 tiN! C.9 tit I0 do00 lAO ( tt 0 160' Iwo It 'vI iCt6 111. 'eio :4.!$9 IUI pu% I. /00 Ui 0 0 Vt.I O' vi.s . 9'')10o/ '.I' 1it PAS t I' H- 1 IC6I v 160 I941 go00 tO0 0 90 0 ItSO 1'.U 6/ 1 '1t I ti U/ S. I I . fit tOt, /it '. 19' 14 to0 tOO Ott O 9tO ,-I. wI It'-V.1 t.4 i.i1tA?.9.'5 '19/ el0,1.0 041 IOV iv Pt i . /91149 '51/ I.?t/I ,"'1tAll (vMV0 (Alt I t' IsA Iw. I II.s tls .* 5. 'fts 3..Ust ''sI .59 ' t., 5 ,. 5 5. ' S I .l)'~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ -4t,~~~V. I P I Ab CHAPTER EIGHT EFFECTS OF PRICING POLICIES ON TRANSFERS OF RESOURCES - ---..--'-- - i.- -_r -;... S ~- -. s :-ese ~:- s -s - s- a- r a r ar.fc s.s_e- s_-: s _ :ef _:_-e f - ezo-. ' - :- -.e .~~~~~~~~~~~~~7 _ 168 per u.nut wi.uh an~d without~ pricing di stor~tion~s in both the out:z_: azd fac:t markzts. t'ieo vyt-e average n=zber Df: act-:.ai units pro&uced and th.e nz`_e r t2-at wC-ulm h-ave beern prc-d.zed 4if there hrad beer. n-o price d strics -T;he resu'Kts c-f th'e esti_ati`r.s cf th'e zh-ange in~z:~r> s by th e c ric .n g p o izi;e s 4nt h e o u p -: t ke ts a rea show :n a:eI t fozr tot' t-e A;rect effects of :these t :~c:;_es aswas _s for tr.e er:er:s ~T e oeta--s of the na-ysis are Shrcwn AnnenzO:x - anO n ex:;crt tree -croo7s zer.eral-v e. sml. - . a….- -------. I~~~~~~~~~~~~~~~~~~~~~~~~~r7 '59 Tn able 18B and the correspondirg Azpendix Tables I7(B :' to 8(h.s. this same analysis is carried oe t by exa-'nring t-e c-ange in a.ua'e added c: the paddy and the expo-t tree :rop sec:or - Happily, the res,lts are ident-cal tc t-hOse -eported - aDle :8A. :n order ^c es-_-a-:e:e ::a : _e z-a-s:ers re-e::e_ ^ .e agri_':_ra --sec:^ - _ -s ne-essary :o ad -cget -:- ch'anges -n zr-oz_cr s ro_s :a_: -a-:e ccc--rrec 'e_a-se o: pr:ue c?anges, ..e _-:er.-e-: ex,e :_res -afe x. _^s .a , - -~ :~_re '~_:_ - - - -'- -:a:-_e :- - - -- s_ .s: - - -_ - - afi'_- ..-: -2_5 '_.. a-,:a:_;--a:- :-t -'. ... .- ---a- -, C -~* - - * _ _.y c- _ _ _ .A A -_ _ _ _ ____ _ _ _ _5 . . _ _ - _ .. ._ r _ _...- . . - ~ . - _ . . - . . -__. _ _ ~~~ _ . _ . . -S_. :-_: .._._-.._S -^ez-s a-- ---,:---- . a -:_ r:-: -:--: ::-~~~~~~~~~~~~~~~~~~~~j percent of: :ne vallue of the CD? from the agricultural sector (Table 18(C). our Th,e elim~r.ation of the direct eff-;ect,s of the pricing policies - ~ -ur nave an, iz-pact on the general price level of thecunr as mneasured bv th-e C?>' !:irect effects of th~e pricin-g poli4cies on rice will ha-ve changed th-e valu;e o: th e 'PT through its impact on the food com.-onent c: the index. Cve r t:rme tne -~~~~-eighr or tne rood cor~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~nonent in the C? h~~~~~~~~~~~~~~~~~~~~~~~~~s ron 67.1 rercent zf the :cra~~~~~~~~~~~~~~~~~~hs"ale 6.1 ~ece _f , uni 967, to 45.8 percent from -hen uni _ 99 an d finally --c362 -no-7:f 198a3 to the :)rese-t. Wi;-thin th~e food; conconent. ri~ceha aczo= :ed a-A 2~ erz-ent of thIe weight :hroghou O.f rl ce ._. e f-rctn-e e st:-mat:on of the :ons _z e lndie:xczrrrecte:cez:-'- - '-~ s ...- anc r~-~- tnetcant 7...2. , . _a _~~~~nco- ne sz:ze -. - - r- .tans re ffecss s ..c T -S e fe e--:7 ae V ------- ~ --z -, -, z ..c r- -oco os' .e,cCa c ;… were re7n,.-:t zye C. - :… of -E - I-. I' I .0--. -'< -e A ~ ~ ~ ~ ~ C ' ~- . ~ - 6w,~~~~~~~- r1 -- I k I 1 1~~~~~~~~~~~~~~71 Using this adjust=ent to the onrce index, the real values of the -co-ne trans-ers are estimated and presented in Table 18(BR). The estinated real transfers caused by the direct effects of pricing policies (Co'lu 'I) are e. ta:ed to be equal to 12 per-cen- o agricu.-ture's contribution to S?. T' s a larger than t:e esi -atet no-.nal tr--nsfers out of agr: cuur e . ':hich as es:i_Zted to be 10 Derce f: o ag:-ic_ r>e's oron-ribution to SZ? as renc Ta'e 17(B) On t~:e ot:e ~ -a^, t-e re_-;' rans:ers out 3- ag- c_ t:re ca_sez by the total effects of ?-ic½'g po'cies a-e estimated to be eoual to R5 er enr w-ic- is less har --t.e es. ma:ed nm.c-ral ':ransfer of 1o rercen: cf agricut:ure's Ic2ntributi.n to 5D? - s re-.ersa: cf real and nomi^na` resu.s as :alcu.a:ef | - z--_ a e c ~e^---C- --- - o r3? . .--_'i-:S_ liA I I~~~~~1 r I_ r 172 F -, a.' - . c *-r -- 7 - ::=.- - - PRxC:~C PCL.C2ES 3c OUTPU AND :Et'% PA' 0ES. 2550-1963 --- -- -- -- -- -- -- -- -- --- -- -- -- -- -- -- -- -- -- ----.-- -- -- -- -- -- -- --- -- -- -- -- -- -- -- -- -- -------- -------- -- a-- t-- -------- - --- ---- --- ---- --- ---- ---- --- ---- --- ---- ---- --- ---- --- --- --- --- -- t--- -. -act-- ta--.-----T-t- --------o------ -- - - - - - - - - ---- -t -- --- -- -- 0;~~~~~~~~~~~~~~~~~Eic.£c. 8061 1- 8 87,.t4 1C274 -228.67 -356 55 -257- 35 -as; C: -8 5: -5 : -Cl7 33 -se0 A3, -.2 :58 562 S8S--SS? -28 : -'-;:5 3 -290 45 -; 78 -23 54 -33-7 53 -555 38 ~;63 '"3 74.S '_-2C -_Z; 2 -2,Q 3 -I;5C -27' 53 -: 2 -24582 -nc ?'1 I :58 -; :5 -'C.3 -:5352 -:27351 -23926 -525:45 -26 - SC5 -22; -55585 3 -5' 5 ~~~~ "P ~~~~~~ I. -7:3 :57: :5*: 775~ ~ ~~~~~24 -22;" '727 -S'2l -357 -go2 :672 :"72 :3':SG 31236 -67'22 -2336: -: 8 : "' 5 5 . 13-:5822 -:"' 7 -52 -4 >.Ta :5j38 -3; 9. -:23 $5 -730 57 -2.7' 32 -37I SS *.4 C $ .5 -8 53 -372'6 553C6 -72-V "7 5' -A: 53 --53 52 -.2" 22 -: -'2 . :8 -'C- 23 -565 52' -3 W5 -sa'22 :o M -5:s2 S6 :7- :1's as 25.3 -'; 7$ -:o7 -$5 5: -. ; -'22 ':52 -2 ; -:S 5 -2 us;7 : 57 6.75 '63 22 -33 7 - 3:2- -'82 55 -.52 3 -,23 '6 -: 8 - 585 :: -5CC 5 * ; -:57 "'3 28 '30 2: -36' 552 -2a :. -ss. ss 1-s7 4'2 -5; 57- -:.. 7; -'4 2: :' ..78 .;1 3578 :5 6: :33 35 -.C S7: ':6 -277 3: -77 5 -8:5 -3425 25 -:!2 27 -.'r 3 25 7 753 -5 5 5'-3 :' - 57 ; -S2: 5-2. 35 -:S: ss -:6; ..oc :;8 2'61 :7 227 I -24 -2 so - '_ a2 -e2 :.- s:E 53 2: - - -37- :5 -252. -:s ; Z52 :058 462- Z: 37: 53 -a : : -2':E. 5 -:5 5 -5 -Z.5: :5 3 2 52 22 6;-:-33 I- 48 537: 5'& 22 -3L5 74 - 33 22' -2:2 - 57665 -:3 55 -_525 .323 -826" '5'72. - ::.: ..t-~ ~ * '-5A .5 -,z 2-6:7 --: !6 -E - a a:8 a - --w - _~ -- - - - ---- - - --I- -- - - - - - - -- - 7- >-- - - - - - - - - - - - - - - - - - - - - -- - - - - - - - - - - - - - - - - - - - - - ' " - - - ""' - - - - --~~~~~~~~~~~~~~~~~~~~ nw7_~w-F - 'r r lr F 7 4 r IAIII,t I~,' l,,,l.,oA I,, I. ,.,,4 an I'. sq.. All I,.,u4..AIAI -8.z . s .-.- , .. I , <**,.F 1.4 1 ', ,1 AI ',, ,, 11 I A f*,~~~~~~~~~ ~ ~~~~~~~~~~~~~ AI,s I t, I},E t Al.l ,. I AI I I It*, ,tt,,, t11wt s A 1. '4. *. '4. 4 1b,, " 1bS*, *4AIlO II Al (HI *dit, 1,,6~ 'I . .1d tl, 1 *(I I (M I M I I [Ml I I (ml I I /4 (43( (144 (I') ~~~~~~~ ~ ~~~~ ~ ~~~I IG) [ 17, (4344 ( '41(0 2 |Ht (4 2,') 14 I(| I (((Ii WI 16 I I /(VH A | 434,/4I 1 A I,4I 1 ) I3 It I | /4' 36060 24 0 IO t 11t 407I 1 4,.'/ 4 03 i 0 1I I3071 4 1 1961 1 or 10 4 4 v) 44 2 26001 '.'"I 0 00 0 16 00% 193t4 4942 9' 0 41A 4 9'6 237 I I '..1 4 0 01 0 11 I/is 4 (WI 1961 1J 1 42 1.A '4 17 195 (11 'OH b' 0 04 0 16 1 1441 I '19 1964 60 0 U ) U1t6 176' l4 41) 6o 0o05 0 13 I oAn I1I 17s 190 0 74 Jl 10V I Z li 84 ¶7 61 0 05 0 It Io0l 2 23% .us ag o4 ,IJv 34 V r4 4'41 /f 4I711 0Os 0 11 12/I 7 7s% 1947 ' 134S 0 16 )6 41 96 290 7S '71 1' 0 09 0 18 1 661 3 29% 3944 4 1 0 1t 45 I7 656 413 O 601 4. 0 11 0 N) 2 J6t J Ia 16 '9614 . 44 0 172 i 41 SS', 6. '.19 ',A 0 42 0 13 -2 6514 2 61t 1970 f 7I 0 1 IS 41 36,4 II, V5 647 1' 0 07 0 14 1 41 2 786% 4147 W1)4 0 '3 aI 61 '. I IA 43 '.69 't' 0 03 0 iI 0 70o % 521 tO77 1 39 0 S 96 4 69 2n 1(4 /1 61 It1 0n0. 0 12 0 ?1 2 639 1972 1 16 0 *1 71 14 672 6( 96(0 2' 0 14 0 16 2 Vs 3 3S# 1074 I I 02 0 68 ,4 P1 60 4404 04 ."Cal , 0 22 0 32 4731 7 02' 1495 1 *') 0 62 ('5 7, 2/ (0',1 9', 7I.60 144 0 16 0 26 3 74 1 961 1947 PA 0 11 13 48 587, I ' L44 1 006 0 07 I 71s I 3s1 1977 1 11 1) 0 14 0 9S 100'2 21 1041 9' 0 14 0 15 2 615 2 768 3976 S4 0 28A I0 'l ( 27 7 U 1490 '. 0 4n 0 22 2 911 3 MS 3979 *.3 0 n 1 24 64 15,26 9n 11S4 0( 0 20 0 16 3001 2 015 4960 ' 1,I 0 IS 441 54A24 11904, 1821 6' 0 17 023 A 601 3 401 11441 4 S3 10.14 9 0 126 5 44 3 7't 14 S.34 '.1 1519 4( 0 06 0 10 I O? 2 Olt 41402 66 19 a4 21 0o 4 IA 66 19 r76 04 110 44 L t, 6 0 1 0 09 0 211 ba1l 1993 61 47 t' 90 0 It ' 4 61 411 147 4'. 1444 6 4 29 34 002 -0 07 0 271 1 101 A..,.9. (1960 1983) 0 10 0 16 iAfLf 1(8AL: HAtYSIA IRRANSftfiS Ou I* ( I AND INIO (I) Ab6RICUI,URI OUt tO DIRICI AND IOIAI llflS Of IPRICIN6 POLICILS ON RL[AiIYf PRICtS, 1960 1983 TIantSferb on VUlue Addtd All lr.r>,l ob o -h- e ot 01'3 A Paddy stiate Rubber Saliliuoldt Rubbetbr 1 ',, ')II All PftudJttb Year Dilect Total Direct lotal DiOtLt lot"! DifiLl It3.l OlneLt 1ol0d tffecLt lIIecb OIT ULt Iutdl Itl. nill EnS fl:t) Ifs3 flit) Ins nil) Ins "li) I(S Mill (MI ll Ins nill Ins nilll In$ Hil -i11 ~121 (11} (41 1S] (6) M 1111 19111{l 101llll t1 , 1960 d7 14 12 94 228.6/ 339 18 51/3' 346 /2 8 'J1 14 '6 401 39 6.'J1 .' OI 1 1 1961 91 tO 62 St 141 46 266 65 IS4 6 Ž020 915 11 /O /.6009 17 04 0 Ct) v ' 196? 56 65 8 64 125 37 273 69 159 03 264 )6 9 7v 21 6? 31 53 S51 4. 0 0 0 1. 1963 /4 15 25 61 109 22 255 15 14 968 7 08 10 17 24/ 195.82 508 89 0 06 0 11 1964 103 11 70 32 104 61 221 Sil IS? 43 238 30 1150 12 335 165 36 412.88 0 0 0o 196$ 124 16 9a 53 114 18 202 33 II1 90 240 34 16 32 28 55 1/8 C4 37 68 0 OS 0 11 1966 63 20 288 5 9954 197 92 169 24 249 42 17 6v 32 81l ?83 26 41 30 ct 06 0 1 1967 51 56 lie 16 10 46 1t? 80 143 63 234 62 1911 4? 490 17 5/3 1i9 0 01 0 I IS6 59 230 67 13.30 1/0 l/ 166 14 252 ./9 I 03 3430 413 06 1e;7 44 013 0 . 196 146 13 153 09 127 35 138 56 ?61 4s ?15 16 20 9? 22 69 556 85 589 5o 0 1' 0 1 19O0 25 36 -33 05 89 Da 10 ooo 213 86 01A l3 70 ' IC' 1 , ItI" I i ' U Ir .. .1 I I .1 - 1~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 1. 11 ,. ill~~~~~~~~~~~~~~~~~~~~~~~~~~~~~I I ~ *~ 4V, 4U U 19/i 15/Is S 87 96 71 37 ?06 26 192 02 323 61 528 121 36 1 (8 49 569 34 0 03 oIl 19/2 134 IS 44 15 6 02 209 9'U M 17 3180/3 59 5) 147 Y9 114 1 631 O8 0 03 0 1. 1913 39.95 99 85 -180 67 264 )/ 310 30 416 6/ 81 69 118,6 6)? 61 960 25 0 11 0 l 1914 361 S0 526 92 244 32 3906 O 442 20 640 15 359 94 '2?2 79 1408 04 2007 02 O.' 0 1 19/5 -251 28 406 s -iSO 76 266 35 240 0) 391 00 401 82 594 36 10i1 95 1660 23 0 lu 0 I, 1916 4631 5 481 3 331 10 31I /I 485 69 464 04 231 46 2 1 446 s.5 10 5,14 30 0 00 0 o0 1977 443 718 450 32 364 59 376 91 554 65 S)O 8a 526 14 S.450 1002 21 1041 95 0 14 0 1 1918 151 61 135 92 428 11 493 I0 666 01 760 90 2985/1 3M2 38 1227/0 1490 55 0 10 02 1919 252 12 21? 79 568 54 545 9i 904 00 861 13 307 IS 253,65 ls56.96 1393 98 0 20 0 If 1o80 246 o) 212 51 543 68 646 4H 818 I? 1oi03 96 214 71 351 14 1390 45 1821 .66 0 1O 0 i 1981 409 0/ 293 12 29040 4/9 66 4/S 91 710 09 1/) 26 561 19 534 5 I"l/l 8? 0 o,L 0 lIf 1982 $26 12 457 74 -112 44 263 a I) 190 6 428 2 0 iOS 50 S11 32 itO 63 800S6/ 00 o0 0 G 1983 645 SI 622 92 159.84 316.05 281 2S 530 9? 59 9 395 55 144 8 2 627 59 0 o0/ OOi Average 126 81 77 38 200 50 300 91 329 28 4 354 126/8 21319 53.75 -0)6.33 0 10 0 1I Notes I cojumns I and 2 are from Allpendnn li ble 1/ Il4 0, otn' 6 .and 9 2Co uDsn 3 and l4ae lius AppenMr lCdbl II0 (oluons, t and 9 3 Columns Sand 6 arfe Too Appendli lable 11(I2 ) LUsrifb 6 anJ 9 4 Lolusmie 7d l(l 8a t,d Ifrso AtIpCeidl Tt) I 178 03 to I tumin6 ard Y S All columns are elitr hle irl t IBo I dol d I , ai, I dlt Yd br li t I.:d jwi,t ed Mil,iasith £11 6 GOi A ib tIhe value ol ytUlturdl uitlpu i Vpre,l'tl in i cdl turnP , 11d i frlOl IdIlt ', U ialr I [ABLE le(OR); flAAYSIA - REALIR!AHS[1 RS OUI Of ANO 11,110 ~ijAGllCM U RI.H OUf 10 OIR(CI AIIO TOIAi (FIECIS Of PRICING PflIICl(S ON QAtil( A11DIO, 901 * . * Sii~~~~~~~~~~~~~rcll Dt GOP A Paddy ~ 161ie 6uIeie Sialltruldvr Hubbrr PImdi Oil All PruduLlb .. IHsoi IMl (K il nill lsa) L$ r in$ Gill) Ln' .'' iM U sill Ins t ill (M l mt sill II 13) . 14j j51 (61 1I to 18 1 '''-:Ij i0i;-jlAI ~ ll 1960 /9.09 /4.63 -200.1? -32),64 -298.07 336.61 -11.20 -13.63 -$0949 0O3.30 0.14 CM1 1961 29.62 - 69.26 -13-9313 1-24-35 -1-f -3U1 -456.36 0.11 -0.14 1962 45.49 28.46 -158.66 -24.44 -182,40 223.11 12.43 16.89 308 00 *U'$. 98 -OM 0.13 1963 62.16 45.96 WAS70 -196.42 113.25 213.41 13.80 -18.84 ~ 266 35 W8.11 0.08 0. ,, 1164 91.99 81.24 141.56 185.44 -119.08 212.2') 1 5.24 19.10 243 88 136.I~ 0.0? 0,10 1965 108.26 101.02 162.08 -194.69 -208.11 2 3 4.49 22.9? 21.,48 "l84 34 155,64 *3.08 0.10 1966 51.51 39.75 131.1? -166.21 -194.41 -225./0 -22.52 -28.26 296 53 62.41 0.08 0.11 196? -63.93 81.00 -82.15 .124.46 -152.90 188/3!, 21.48 30,1? 320 46 -430.0 0.10 .014 1968 170.36 -207.2? -91.62 -138.91 -182.02 225.210 -?0?27 -2076 4642? .40. 14 0 15 0.19 1969 162.30 -165.10 t55-00 159-19 -290,06 296.44 -25??2 -25.90 632 67 t,46,13 0.14 -0,14 218.25ll 206.850 6061.9 -65,10 ,I .14k.it 9 I -$,2 31A.24 311 611 A8.1 .- 322.30 321.6$ 342.85 438.29 5$/Ol )06.0~~~~~~~~~~~~~ 281.92 413.92 81$ 54 L96,65 0.13 0.16~948i,6 0.0 I 4981.15 412.167 102.91 310.00 219.38 239.40 813.80 41.03 I-d1006.37.200: 6V-3024. -40 22.841 -236.80 -318.34 -409136 $39.40 329,66 349625 132439 S/ e29.IA 0.U31 0,0) 19 A 3e 35r0a4 0e5 (1960319830) 8 57. ~ 335 231 015 f15 0.1;' 0.1$, 1 N1 te419. i Coun Ian2ae 42ram3App014 -44IaH -614 61(.7 6H45,30 65urs u4.8 329 14 3OM09 1981 V2.30 All6 co4Iii 85 a 43 ir 2se in real tr (9106-k I o 9 u4 retlte tr9 t"I 8d15e' M.i., 1'96.6 LI0 1982 49B~.S GOP.1 A 16 ty vl97 aqrirut0rra .3 rt 3U r-,, r.tu i 0 r8 I trrm.03 :rIj M ie l,,il I ruiditi lAfLit l8(Cl ftAAtASIA P91CC ANO WON P1UICL I RANSI ilRS W0 0I Of ANO INtO ( ARMINIM1~4, 3960 1983 won Pr ice l(insters .Price Rilaied lolal olN Pu dfrd I DIalI ol P[ri e aind fliPIL ?t a1ed 1l-i 1 PI I t Re Idied feat lixcs oh Subsidy Replantitng lotal IU(ql Ut1reu S ubtotal rnfs It Oilisl~ m 4 a oth t on Grante tor Inyetowat Crtdit AgiiulU 5li4Ite ul G0Pl-A Agiu lint Rubber iipendituire ub dy Sut;a1 lid ect?Sldi ~ I?Ia ic t lob 1b tailua Crops Rice ~~AgriculturePad n toausq Ini oil) INS mi11i tfi oil) INs Iill M~ bill IMS all) bi ill lh$ oil] in$ $0) It~s mill (I 2] 13) 141 151 16]1 i~S 9 19) 11.1(f j I OOP lh'01 1960 8.60 0.09 8689 46.1 (3.04 124.5/ 40/,39 6`//.26 2862.82 502 .69 0,08 0.14 1961 1.41 2.50 6336 6.57 0.20 114 .1.2 160.0 51>. .601 135.01 '381.10 0,04 .1 196? 13.89 1.31 49.93 26)'. ?? 0,70 244.0$ 231.53 $51.4? 6.5 301.3) 0.00 0.09 196 3.26 3.54 33.94 let, 36 1.60 222.17 19S.86 bo0.09 216. 30 Db I,1 0.0 0.09 1964 1.5$ 2.93 54.92 130.29 S.891 192.A$ 165.42 W1.90 "1.04 Q. 0.01 0.0/ 3965 13.18 2.29 72.92 131,8? 6917 .200.6! 1)8.83 3 7?,. o7I I.?8 III A16 lj 1966 6.46 3.13 $0.59 I96A41 /.? M5.6 ? ;, 3. 25 451.30 3io ./ w9 ", 0.01 0 et. 1961 11.17 3.09 40.23 25.);6 3 ~.3O 2 I"8.0 oi 290.7 9 Wi$.3I ~ .7 'id.24 o, l1968 18.68 4.-0 $1.38 31:.43 1Q 19 359.70 41I).,,1 681.1) 53,51 128 0/ 0.0M 0.10 1969 43,64 5.42 S0.9 40V.4? t I -' 5r46 13I1.0V :114 . ? 0.03 0.04 19/B 23.81 /.34 63-i3 3-W.96 0.07T- 13.09 429,33 31/.15 611.15 1171.80 361.8? 0.63 -0.04 1971 289.01 Ml0 4 4.. 3',4 0,13 '.03 349.06 MA1,6 'iLY ,40 MIv, 'VA0.34 0.04 0,04 191/ 38.65 /8.49 44i.a9 0.11 1.40 W0.11 /14.38 vJll.1JV 4 0./ "LI. AC 0.02, i9)3 36/70 64.31 4U'.1 0.3 22.4 462.60 612.5 '160.'3 I20'/S 491 t, 0.04 0.08 1974 18.13 20.82 61.9$ 455.89 0.60 24.38 404,75 1408.43 '1089.06 9?13.&? l604 .3 0.14 0,2511 M95 49.88 21.40 31.61 S4UM 0.83 la 38 569.25 10152.411 661.49 483.22 v09.-.I 0.08 Ox1 196 2?.16 5./0 34.15 620.87 0.90 34.09 667.15 582.09 511.13 85.06 156.0? 0.01 0.0?, 39/? 44.08 24.9 809.06 0./6 38.39 829.06 9?0.35 -1038.33 169.29 20.60.02 0,0? 1918 38.61 32.60 906.3? l.?B 53.36 9N.9 1226.?8 1499.81 2)1.84 $34.67 .0.04 0.08 1919 33.06 $1.62 1,364.58 1,A0 84,58 1A46882 1525.52 1392.68 56 .70 /6.14 0,01 0.01 1980 21.00 V8.6) 87.90 1,392.81 L?22 148.51 1 ,708.10 1389.8? 1821.20 38.a24 113.18 0.04I 0.01 1981 16.41 88.95S 49.06 1,243~66 1,48 157 43 1 ,524.98 534.69 1519,34 990.30 !a50.1 6 .00 1982 21.53 71.71 8W.9 1,192.19 1.6/ 11.10 1,'443.69 116.08 808.A0 1560.51 0~.28 0.1/ 0.0/ 1993 30,13 68.63 79.1 1,166 /0 2,11 132.95 1,418.77 145.03 6?8,91 IS63.80 Wel.8 0.18 0.09 Average ?n,J9 21.17 56.15 549 34 0,90 31.Ib t,35./l 112i. 4) 416AJ 10'. )4 .'41.09 0.0) 0.06 Notes., IC unIs fROISA 1ab 5i Lohinril 3 rd9o al S uCom: 3 is fro D eeI 78 , 94- MI,' RISQA; drid Oati~ Negaid f1daywo,r 'Arwm4l ikIlots,' %,,it IOu'. lSUv,. 4 Co um A is from Bank Negara dlajidiI, 'urlter1y Icorromic Bulletini' varlDUS 1~Uj 5,Co oUn S Ili from Bank Per lariani hal oybid SIatjsL kdl A1orrdl,ot~, I900 MS,5 6tCo umn 6 is flio Bank Negara "aidI a,n 6rICry f(oriungc Dul etiri', varruuos W~ue$. 1i Clilumn 8 arid 9 are (rom 1db] e I? ) u I,g~ / "id 18. 8 GOP A is t he vjIue oh ai9licqi louis o'til'ut i.I,( c.sed IIi il ti:1as, Ifd I ll utlrable 3, th Ii CHAPTER NINE EFFECT OF PRICING POLICIES ON INCO¢ DISTRIBUTION A. I-*troduct i _^ 'he i.pact o t-.e agricultura' p'ici.ng policies o. incoz=e der:-ez r-_b'ber. o12lpal. and pa.dy _.s measured us-.g :wo ass=otiorns. The ftrs- ass, t-;o :s tr-at t;e cla.anges in _cor. e -ce to t'he direct ar.3 we tz_2' ef"ec-l _f - pr'--g policies are shared a-c-g a:' t:e ac-ors c ;z-c: z -. a: _a:'e acez. T'e se: ass-.^:tzo.. cz-.siders :-e case wer- :te ch,anges '-: ' .e a-e al l F_-:^e D::er case za :c' '- . e assz-e_ c'-as a--':a: :s ._: :-.: '-'a:;s-_ -. a-. ...3-;e ~r- : --r e:o ' :rs s_-.- . +_csa ^ce -^ :ear- 'r. ra -s'---_ --: s - : ;s a_sa t-e case a'-.a lan' _se_ :cr _ .as a:e.-a- a r- aCc.I-r. 1 it a n e _e :or z r. , - a^.- vege:a_es. W. the r rczer draz- a, ca dcv Ia^a - ic I c ' cr-.: ^:a-.ted wi_th^ r_ a^er vr c': ,1a: -. As a c sez.etce. - t.e :-.- s_-s'_. ;:rr pza_y procc; -4cn _s c-ar.ge. : at- ce ex-e:-- '.ate e-- -.s::. Case. a'abr is ccnsderei -c e -te 'ac Z :^- a-:ve: : s--. ' 's sc=e e.- idece tc s_._ ccr u ts ass..-- a 'e --o .- 'rcwing areas ct Mfda a-.d Kezcamae c.stream d-S int-e c-er: s -4 a-. -'e w--essread ado :ior of paddy d oIe cr p0tn 2 .g 2a d c a s ^ _?-.a-._ : i2s s t:.e _zc.c^ practice o:f pa_.± 'ar,ers -.g . g an,-4 . e=._;,. Kelar:an durirng the af' seascn. L. . 0 : .D; w_ __ ; -~~~~~~~~~~~~~~. i I I a :7or la'-or-. 'Wages increased substantially for- naddy,far-r work. (Goldman and S:u:r-e, 1982; p757)I. in the late 1-970s. labor - der'and in the estate secto:r (ru~bber- an-' oil Da-zll) became apparent, an.d wage increases dizd o: sucee a 2t''c:io nor-e labor. .ns:antaneous changes in i-come duei toa intervention inagietrlprcn :o oces arec estim;ated by taking the ifrne of~ the dumest,ic vareadd zrctucer level and the v~alue added for th-e nr;" ---sr- dorect or toe toaefr:cts o:' tn,e i': g r-o: Coe?s anez- ~rc:uct. The resE-,t is then ;; rooec :vte r-ecofhe a oto ad:e comesti-v'-; 2-4:ec at --'-t -' :nto-e snort ru.n case, tea-er-age? cx. ' --- wnere to,e a~er-age o:to cm.zov e cutu n o :u u::ae-- -cical ~~~sourc-es o:'v-os:-o:::ot sa or mesa incorne ch-anges are tron- tw,o narn. u-.5 ----.e~ o_~ Stati,stic:s in 1970 'the Post Enumerat-io-n Su-- PS:- Ex-_end_:t--.;re S~~~~~~~~~~; rve corec -Z-- - ocosenons on Malay-sia was e t rc . A -n. - - , ..- p12 3 24) inic a te.4. tha th -ntro --:7. - - crceom0:t ~ a hs eh old-s ith lae1 s a -l ear->I.s ' orc-oto-t ion of -oor n-oo.sehuldAs ha elie o ar,"-4n4 Z- - was es -~ateA to be onl 1or-c ent~ 'Malaysia. 1:g, : :e - ..me level was esalse: ' eryar rn-. - . WAMom~ V I 17( those headed bv land.ess agric ult-ra: :aborers, smal" paddy far-ers a-.- r-_ber sma:'o74ers. ski:ed urba- workers. estate workers. ad s.a:: s -ra-ers a-,. : :i- -workers. A.v:her 25 ..erze. : :te tzoa: :sS z s Ma-avs:-a h-ave *c..- Letwee-. MS 5'.5' a,i Mv^.3^' er a== tecuvale-_ and MS6&* ' . in e ic- - ii. --. ed the d-o5.;e cro.ping and larger paczy :armers. -.arger r-_ber tf.e sem.-ski':e- and sk-''e -_.:rers. an.-- :- _er S S^-e r- ^ a' ?:asers.:'..r.- ::-~z ---- a s ;- s e ^ ; -a:- .^ -^ a - -e^Z-e_ 0? ~e <- ~er -:^. r - '' -' ~.r er.: ' r ': ...-^ _.. :- .- ^ .-^e:--, * :::: ...a~.:-.s are ^a-_e ..l_:r_s-::: .. . . - ha.ges in InrGzmes Estatie R_; ber -^._-r -fe --ss_.--: :: -- .:: - - -:-_-_ t.>::v :-: :-.- |.. :- :~ . - - _ L e s _ ~ - - _ ~. -: _ . .: > s A . -, - - *; - v - - *; _ _ t _ 185 7.n t-e short run, the i-pact was 19.2 percent and in the c=-. 'atie c ast t was $3.5 Rpelrcent. indicating t-at es:a:es -were ab_e to s:-rt o r. f er -A ov<-:er ti-.e, which theyv di : a-d !antei oil za:s ins:eaJ Cf runDer. -e :mzact or: t.n ea toa' effects o oricing _olicies on es-ate r w er was o Azverage acroxi.a-e'v :U percentage go:-ts greater t:han the direct e' ers, S.Ow-..g :he portan-Ce or t-e ex-na ze ra:e eftect on toe exports or r_::er. I ;to^. -e --stan-taneos. -te short -_-. an the t ai ive _aes es -r -- s -: e 4F $7~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ i :r*-' w';-s eS ta- _ be e 23. oere-~ e - . - ,r -: ~ - ~ _- ~ ~ ~ ~ ~ ~ ~~~r -:s - swe_ ~_e- - s -er ey2- - -.: C -- ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ - - : -- . a-_ : ^e- -: -. - . e - F~~. 'a..eS-s. -,zes:--~ -: - -- l : . -.- e - -a.A * S -,.,-, -.e---:s:.- s-::--- -- : . -1 ..::..:.,.. _ - - ,~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~'l , __., D .cmX -* m< 1 rU / 'i 4 , ¢ > rr~~~~~~~~~~~~~~~' Generally. r-abber s all o'ders t= ~e-- i,anO no;cings, wnetnter as reeho'c or leasehold Sh-are cropping9 is the norm for rubber smallholdizngs. i-n which the trees are tapped by otlhers and~ th-e out;ut or its value i's shared between the own-er of the 'holding and the ta-,per based on somme co=-tactual arran.gements. T. _-ns 4.s unlike the vaddv farmer, who can ren:- in l-and for c--lt;-vat-on. and4 -av oav his rent nn-- k-4d cr i cash. The s-ha-re cronper 4:n a r-ubber small"holding is considered as a worker on the land, who is paid in kind by theone of :nhe ho' d--g. Umder- the assz-D,tion that allI factrorE snare eaually :n' the ch-anges - Zncome, the Income o: --e ru-n;er7 s== t.no.C. de-l--ed d7-- to t-e 'i-ct ="ec:s of pricing po:ioes Te exr:-i .-ax ancd the cess .aensfreeroad rep~ -ant in-g h-,ave reduced,. on averaze. t:_e incomes o: th e ru7er smaI Ihe oe r s o 27.7 percent. :n t-e insr-antaneous case for th---e period of the study. :n V~-ears of good rubber prices, the mo-act cn t-he Incomes o: the rubber smaKho~_dersha been as high as 541.9 perce-t in 1979. with te usua7 reduction aro 2n 2 inercent :or =cst vears. ab.e 9 ;~A -2 C 1cl=_ t-e s;n-cr :--. s mne rersm= esaenra & za.et their holdi-gs to oth'er- aiterna:t-..e uss, "te in-pa c: o to C.r pricing policies operated to-- decrease incomes of the smal 71oldes even mor e. On average, thMe rec4uction i4s estim-ated tc be 28.5 -Dercen.t for th..e :Derioz of t-e st-udy. For years o;f good rubr :rces. t.ne re-d%cticon is again larger as in IC- when it wa s 5 7 6 entas can --e seen in ou- 2. nHe same .nina-:s repeatec: i-nn o ~t.ae case where the ci7ncact e~e tn -co-mes of s~r-o7>'er -v 'z:.5 -oercen: on average. z.ven ;n the Ion7g te=r -he rubber- srallhoider i-s sti;.l unable to convert to other crops (or replant hi-s hnoldings) despite the Loss in income as a conseque.nce of the direct 182 e`fects of tShe zric. ing _ol s- He ca=not afford to forego the i-cone frorh t'-e smial.holding for the time pe:iod _t takes lor the replanted ru9ber Ior other crops) to mature. Because rubber is an. expcrt crop, the exchange rate e:-ec- _s a-so operati-:e t- t:e izer-v-entiozs on pricing poiicies, and hence t:-e taL effect:s oc t.-ese p:_cies- nave t.e -act of reCd1cing the incomes of the ru-ber s=ahr.o:_ers even =.re- olo .s 4. 5 and 6). The .educticrl -was 37.6 nercen:, .9 ^ Percezt, and -2.5 -ercent on average in t;ne _nsta-taneous, t-e s'hcrt run. w-;en . was est--a:ed t_ be 57. _ercent, 60.8 percent, and 67.3 _er_en-- -or:e .'._er ::e ass-.=:u1- -:a- _abcr ca-:ures all t-e c:anges in inco-es cue to _-e ---e_- e eecu s f r - --. ~<-~es " the DroDortiona: C_e - - a-- ' decrease by 43 rercent _- -ne :nsta-taneaeo_s case. y -'er_e- r-.n case. a cercen-: n t-e c-.:lative case- . C .._ -S_2 e-fe--s -- __-. o:___es c-.on aor inco3e. _-ner :-ae sa-e ^ss--as e-;e-.--e ser-ous, re_ .4-.g .abor. -nc=e zf ---_ _^ s-. zfe- s v e e -ee.. an-. 6….._ - . 's_ y. r :-- :-.s-a :a-e^_s, --.e sh r -_-- a-- t.e ~:at-:ie cases. :hese -- - -- -. a_e _' 7 2-. - . . `anzes in :nccces of .- Estates ..e resu::s -.f -e c-ar:es in th.e incomE of oil -,a- esta-:es are shown in T ah:e _IA.3 U. sin' t:-e ass_.-:_z^ of a:. :actcrs sharing e-al _- - :-a:.ges cf -.nco.es f_e t: -e __rect effects of pr_cing po:_:ices --- .a.- -:. t-e r;;sr-ts sn-wc t-at: a n:nce -eclined by 13.2 percent, 3.' Dercen... a2,: er_cen: resre::tve'v :or the instar.taneous. the short run ar.n d e Ct- .-_ : i83 cases. The largest decLi:es were in. the years of good prices for :he DroCuct as in 1974 to 1977. Ths range of redcucions varies from 3 to 5 percent for most years of the study, as can be seen in Coltmns 1. 2 and 3- Based on th%e same ass, tion above, total intervention reduced incomes on average approximately by an additional 10 perce..t -w.en compared with; the :mpact of the direct effects for all three cases. (Co-u=.s 4, 5 and 6;. T_:s is due to the i:portance of the exchar.ge rate on the exports o pa_ o^-:. Fo- t-e _.4stantaneous, the short r-un, and the cl=ulative cases, the red_-ct:-n was - ----_t- ^:'a-rcen' ZZ-c e_ee._ G L. De:.nt resnectlvelv. Under the assmptionC of labor captu-ing all the changes r. _nc-mes __e to ;fh:ca 2___ bu Ke became o1era:cna.a. 5975 and :977 respectivey., the -.arketabie s:-:s cS _a almost doub:ed _ o.,antit- due to th.e ex^-ansion in t:e or: season croz. (dz-a2 184 and Squire, 1982; p756). From '975, the amount of paddy retained for hor_: consumption was estimated to decline Ly 10 percent each year u.-i! a - ninum amount of 30 percent was achieved in 1977, and maintained at that leve:. for the rest of the study.3 Assuming that all .rztors of production share equaL.y -'-. t..e income chan.ges, the income changes due to .'ie di:ect effects of the inte-:e-zzcns I,? pricing policies have resulted in an incr-::se of 10.2 percert c. a-erage _-n the income of paddy farmers i-n tne instantaneous case as show.n ir. ab_e 19(A.4;. Col-sr 1. - '-,eve-. ± n tlie yez E .he tE orice oi r:ce was verv -&;gh as in 1967-70 and in 1973-75 the i. -ac:t of the direct effects -ed_zed :he a^ -' t2 ra;; pr _y as =uzh as _-.4 percen- rn '974 for instance.4 Over the ner-od of the study, the im-npac cf t'ae cirect effects or -addy tarne-s' ic_-e-e 'as been -verv -.ar42-'e, ran-gn- fro.: a _ow o- 4 percent -. :9552 -e 2a gh f 35 pe--cent i- .977. On0y in '982 and _983 was the --=act on i.nczre i-gb.e at 37 and 49 percent respective> y, because of the int-roduc$'in of the Cas-. su'sidv elenent. in the shcrt r-rn case (Zvol' 2,, t:he di-rect effects :-2-_ reased d - vry -_arers Y zce 9 -ercent cn average. Vhile :h.e range -v-ar.ed froc 4 ;rerre-t '- 1;62 to 33 percent 'in i377, and in tne years of h'-gh consun.er prices. -n-co-.es were reduced bet-ween 2 erce-ent in :973 to '3 percent in 1974. '-e s-e Fro. :9t- -paddyv farters began se:ling their entire padcv c__c- g2_a-n ro= the p-ice s.bsidy. ::s ^racc:ce beca=e the -r in subseae-.ent -eas. F_r t:s chapter. this had nct been taken considerat?- due to ar uncer-:anty-:etaer or not all paddy far-ers -were invol.ved. and they becane i-;: e-. 4h_s ass--.es t:-at Daddv farners sel' a!- their outout at t-e 3S:? w'ich was not raised concLrrently with t-e consu=er price of rice. Usua'v'v. C_r_:ng years of high rice prices, farmers sell to t-he private =illeers at p-ices whi-ch usually exceed the G1M2 for paddy. 185 of a substantial increase in paddy farmers' incoces was observed in 1982 and 1983. although the rate was lower at 35 axnd 45 percent respectively. In the c!imulative case (Columu 3). eirect intervention in Dricing policies increased padd. farm--s' incomes by 6 percent on average over the 24 years of the stud7 between 1960 and 1983. The imoact o.- the cumulative case was silar to the impact in the short run in terms of the changes for a given year. Under the assu2pticn that all factors of production share equally in percentage terms in the income changes, the total effects of pricing policies increased paddy farmers' incomes bv 7 percent in all s _-n and cu=wlative cases. (Columcs 4. 5 and 6 respectively). Since rice -s imDorted. the excharve rate ^e- - c h The impact in the instantaneous case varied from an increase in far:ers income by 1 percent in 1962 to as much as 35 percent i-n '977 before tme introduction of the cash subsidy element in the suppor iricp for naddy In 1S8 After thatF year, ,-rDmes went u-n by 32 and 46 percent respec ively in :982 aii: 1983. These changes -n .aar-ers' incomes were also reflected in the short run and t;-e c 'uatve c--es. w-::- the appropr:ate adjustments of -he s:-ort --. "the cu=mulative ef-ects taken into accou-t. Under th.e alternai-ve as-=tion in -hic- all the inco..;e changes d_e to tne direct effects cf interv-enticOns in pricing policies are ca:t_red by .abcr. the proportional changes in abor 4acome in the instantaneous, the short run and the cumulative cases (after correcting for -ome consumption) were estimated to be 20 percent. IS percent, and 11 percen1: respectively. the share of labor in value added to tota: value added for paddy was calculated to be 52 percent and the increase in labor inco-.e -was derived by dividing the changes im _-. eme -~~~~~~~~~~~~~~~~~,i~ 186 due to the direct interventicns with this share factor. These results are presented in Columns 7, 8 and 9 of Table l9(A.4). The total effects of interventions on the proportional change in labor income, under the same assunption of labor captiring all of the changes in prices, were estimated to be 14 percent, 12 percent, and 1- ercent respect-ve1v for the instantaneous. the short run and the cumulative cases. T-e de:ai's are sh.o-*. in the Table 19(A.4), Coluz-.s LC, 11 and 12. In Table 19(A.5), the imoact of t-e direct effects o' vrici.g nol_cies o0? | D~~~addy f ar. e-er s i ....... -cs c=-:c ~- -> ---'- e ~ omre c-- feo ne s z ntorio as stated earlier a-d for th.e ratio or Dadac 'rcc-e to zotal Cncc.e _- 65 Derce.) +was es.z,atea to Increase ov --. -.-_ -^-,e-- the s':.-r ru.. aad 4 perce-n _nz-e zu.ac-ve _ases resJe_ _-e.v. m-s s based n the ass-_.t^c- ha:- al2 factors c'-f Lroduc_ion sh-are e,al_Lv -i. t.e cha-ges due to direct inter-cention. 7c2a' :nr:er-ve-t:on, =cer -:e sa-e ass'ption, increased farmers' paddv _nce-es by 5 Dercent in th-e instantaneous case. Jnd 4 vercent _n _ot' the short run and the c'--ulaa:ive cases. f la'or h-ad capttred ali the changes in i-coc-es cue to -c-ecz :ntervent;on. as under the ather.-.-e ass_ pt cr. -he Drocoricnal -ncreasea_ iac i-.nccoie would be :3 ner:ent in the ln_stantaneous case, _2 per_er. i- t:e snorrt -* case. and 7 nercen: in tne c_-_uLai-;e case as snow-.n _rn _c:--.ns 7. and 9. Similarly, t-e changes in _-.comes due to total _ntervention, under t-hs ass=-tniqn, wo-uld lead to a proportionai i.crease -n la'or incones vy 9ercen:. and 8 nercent l- both t-e short run and tre curmuat:ve cases r - (ii) Non-Rice Producing Households The i=pact of pricing policies on non-rice producn_::g `ncuseho;:ds is indicated by the expenditure on rice and u.ti=ately in the ccost of rivirg of ' I .r.. a..., - ! '}. ! -:ji 18 7 these households. The exDenditure on. rice, flour~ and cereaxs ac--- the HzES 1973 4fcr the urb-an and the rural' areas was ass=ed, for- theouooe of this analysis, to boe spent soiel.y on rict since Malaysian co"suz-.I::on or nO- w-heat flour and other cerea'ls was usuall-y quite small. This experditure catego-r did niot incltde expenditura on bi-scui-ts, breads, and mee. which are products =lade with whealt fflour. Ter. expenditure deciles 4fo-r thle total- =-.thlv, expenditure on. r:e ad been constructed in-ta whc l oshls a ennozdb e xv enadI t :r e. Te m~ean o:t ex:)enditu;re for eac%- f--cc-:e h.-ad been cal-culated and thIen ex:pressed as a percentage of the total- =onthly expend-it---ref- .4eci'e. IV-ISa-::L, 2.%i6: tat,1e A.28). T'h.s 4-s ta ultirplied -with t~he rate cl-ange in the cost of rizce ccns=motion_ The p- -lcedur~e is carried out for- botn~ t-he urban and the rural: E.rea=s se:aratelv w ith respoect to th'e direct and th-etti e f fect-s o tr o c in g ol I cies. Th-e r esu. 7t E ar-e sh own in the- :c r ~abIe s I - n:,e oyrerall average rate of change :nthe cost of r-:ce cn~ rice p-rod-ucing househ-oId due to t-e d irect effects for the periJod of the s!:-ucv was a-n inraeo' -04 percent. ;`owevec7. tm~s averase rate f_e the range -:teIz'.act, across incone gro-Ups. 3ecause of the s-ubtsidi_esz to na_- fa=-ers. non.r ce4rduin h-usehol's had to reduce t-e-;r ':ce consu_.;insn- tey nad to pay a highe -r :rce th ze; r basic stavJe~cereaI. ;hen the-,- was a reduced rc e and con-UM ers gained. Ths was evident in t`e rer -zoeween 1-965 and 1969 when tn-e :o,c-res reduced the consumer cost: of ri-ce by 2.5 nercent on a-verage. cuigthe ot%-e fi%e Year periodls, th-e "Ili:ces :n7crreasez~ the pc e of rice by 14.1 percent in I96C-54, 3.7 pe:-cent i.n 1.970-74, 12.P percent :_n 197-5- 79, and 21.9 p>ercent _in 980-2983. It is obvious that the ob;ecti'.-e ofr :a:sin I~~~~~~~~~A ~ At ! 188 th 'i~4- --#- -z ---- , ' s , a I impact on tne otrer merners of society-. This detrime-..al i pact affected t-e poor and the o ircome groups more than those with higher incomes in both the urban and the rural areas. This is because the poor spend proportionately more of their income on rice, a basic food, than the rich. In the urbar. areas, the direct effects of the policies resulted in households in the two lowest deciles (in terms of exvenditure on rice) having their cost cf living irncreased by 1 percent during the period of t;e study betwe-n 1960 and 1983. while households in the next two deciles had an increase of 0.9 and 0.8 percen.t respectively. lTable 19(3B.1), By comparison, households in the upper two deciles saw their cost of living rise by only 0.5 and 0.2 percent. For t".e households in urban areas in all deciles, t-e direct effects of rice pricinn policies had t:e ir-act of increasn-g the ccs: of iving by about 0.6 percent d rIng the perlod of the stu-y. In the rural areas. the imoact of the direct ef-ects of pricing ;o: c_es on rice with regard to .o-.:ice produc-ing households was --ore u bstan:ai. e S six lcwer de-iles _. terms cf t-tal expe-iture on rice h2a2 a: increase ;- their cost of living of 2 toe 3 ercentc- a-;erage. -!.e upper decies had t.heir cost of living raised by about 1 pe-cent. On average, the -impact on:. s5_ch househclds in all deciles was 1.2 percent. (Table 1(32.l). ±che impact of thn totai eifects of pricing policies inl rice on non-rice producing households, as seer irh Col-=. I o' Table 19(1B.2). was 'ess th.an the direct effects. For the period of the stud', the total effects resulted in an increase in the cost of rice by 3.0 percent. During the five year period betweer 1960-64, the cost of rice was up by 7.4 vercent due to the pricirg policies. but in the next decade, the policies caused the overall cost of rice to be reduced 189 by 9.1. a-id 7.8 oercent for 1-965-69 and 1970-Y4 resp-ectively. in- the s-.5,seQuent Dericds of years fz 1975-79 to 1980-83, these households had their cost of rice ~..creased bv 8.C and :-5.8 percent respectlve:.. Excent for the non. rice voi~_cing ur'tan ~-osehclds in. the uzo-er deci:es, ~~..ich had a cost of living increase of 02. percent. the ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~O~~ Se,rng1dS in ome I ercnt thwheh tre e deciles saw their cost of living inc:rease by 0.3 percent between 1-950- 1983. while the ho--se-o:ds i.n cne re=ai-ig deciles had an. increase of al5o';t 0.2 percent. Fro all deciles, the increase in the cost of livi--ng for urban househoalds uwhich are nc: rice orcd.zcers w;as average oniv 0.2 ernt vc o=ra7isc7. 7Ura- non-riceol~ naa a larger _nzrease their cost, :'f :v as a ~onseq-,ence of the total, effec:s ofi:~--- r;ce :r`ces. as can be S1ee- in7 Coiuz=, I of- Table al:2 exrnd t-e dec iles, the inc re~se in the cost of living was 0. A -er-7en:fo -0 :9%3. nenuenc n t-e Iw-erto deciles h-ad an increase cf '_ :ret -.rlle the cost o: liv:,ng _or :ose hseosint next :hr~ - . -6 -De:cent. F or cs e.-c ds .. p.e 1er deziles. as cn _dez 4ed. the co-tc:, Jn~:2icre=ses we7-re -ess. n7e im:ract o-n rura: nc-r:oe oLoing no2senodswas ev.en zreater :nan. s sno-~ c--Dv tn:s ana-vs:s :oeca-.;se th'ese ho hlsde:rend on the m-arket for : r'1- e re_rne: =nd are nc: at:e to s%zbstit::ze bread_ rar.4 other -wheat r:du: ce ns easi': as, i.rtar. on nc=e :ntn addv sector. Ithe norresult w-as t-at the --ces ere dilrected. more towards stabilizing the incomes of the far-.ers and the -rc of r:ce to the urban co-Frne_rs than to changes in the average le-vel of o:e. in 3 rural society and inth context of !ha:.aysian ethnic 0o.itics. th:s 4:s - ~ ~~~~ - -. -~~~~;cJ I t o - Iporz-an The Po.icies for the paddy sector are t:.e=se:ves an- outgrawth of the Nev Ecoomic Pa'icy i .- --hc: -ne producct -;v:y o- :he zr,ditio.a: agriciltural activities are to be Increased th-cugh cirect zricing intervernt:cr.- I 1 i I I~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~. I IABU. 19(A.I: fIAIAYSIA INCM 01 AwKS Iii W'A:1 NOUUIO OU 10 CIRICI AI00 lOlA) lfIfECS Of PRICIN& POIICIIS 0k lAbOUR, 1960 1983 icr INS1a16,e91111C9 Soll M4R Cutuliahye Ifti%aneljs Short 69vr Cumu1At1.le plvvo rrltioo Pi O?P k 10o11 P1191tion I pit~itian4l PIIIr % IIun,4l prupulmq4ii ac IN jncoae l ncoa lncose Iftcose 110 nfc0sC tab ur I(ose uQ IA~oae tUbuu In oee L dburIabe Ld 1t)f floe htate Il s It ale 6ae fi#[tt m Sit(o asaitlesu'l 1)09 ~Ita 1esitln1101 ~ I esulli O a egn l01 :e6 t lng ilm r~u)irg o Rubber dwe Rubbe, due Rubbef due pub 'er due Rubber due Ruhiber due to tt~~iaieag StIDOlt R40 l.U4 I it V Inslt 4neo~l~s Short Rqn cueuifa Iq: JUDIR to IRIC 1 1 DIRUC I IOA tIo iOIAL to IOT0A Cangq In C arri) in CIt g~ In Jha1gf in chaige In chdrilli III I of IttIti o i lO l is af lf ecis Of MeqS e¶ol l11fome I oe Incoeri- as Income as4 incoa. to j cose Go a I pilis I bof Pi Pj 0 Pj co IrI Pri it ng Pi 9cn (state Rubber wi te Pub ef Istdte Ru et Estate ub et (state Ru bti W6ake Ruflnen PC IC es cl?e f cCss d OIR((j due 4~ IhIR(C due I 1DIREC d u ode11A es Pu c~~ee Pa ic ci P(jlIC Pll olcice Pa icie dut16 ci ulcj so,11 iu,, ITA0 due 0a1c, to Pa Ptsto o .11) 121 [31 ~~~ ~ ~~~14[ [: 61 (/1 (11/0.64 (81 .121/0.64 (91. (31/0.44 (10I 1.11/0 64 [lii .161/0.64 11II 16j'c, 1.1 1760 0.1463 0.1463 0,1631 0.2126 0 7,/Lu 0.2'6 O.22JI0 (, . 22/O O.0 *0.332 -0.3322 YslY 1961 0.1110 0.11)6 0,0142 0.2016 O.tlOO 0.2~22 -0.10823 -0,1836 0.1919 -OX344 OA328 0 A ll/ )Y6? 0.1019 0.10?6 0.10)2 0.2116 0.&.1 0.34 0.1692 0.1602 0, 1616) 0.34)6 0.3468 0A.' I63 0.02) 0,0313 0.09,)4 0.2)125 0.2)6)J 0.22)6 -0)448 -0.145? 0.15?2 -03321 0O 3162 0. 3 ', 1V64 0.090 O,09)1 O.0962 0,1884 0)1906 "O. I 1 01416 -0)142 0.148/ 0.2943 O.2'91l, 0. I I ' 1966I 0.0968 O.09)3 0.1016 0.16/4 0.16/1 O.I'm./9 03)6? 0 ~ .16 i 6 0.264 0. 'ht I? 0 .06t& 0.0860 0.0896 & 16r9 o.6~~~~~~~~~~ 0.1)62 ~~0.13?) 0.13289 01386 -0.2W) 0.760) 196.) -0.0)M 0.0)30 0,0)61 0.1846 0.1661 0.19/3 0,1136 0.114) -0.1108 MM68 0.219 1 1 IA 1968 0.0)64 u./6 O0/8) -.---. I)II O.2L 2O~86 ------ =I0:)-fr 0.1229 -0.2'674 0.2)03 0 .' 16)n' 1949 o.o9si 0.09s 0.oVI? 0.1016 0.1023 0)0lo" 0.fl0 .0.1498 0.15!10 -0.1506 -0.169? 0okeb It/C 0.086) 0.0866 0,0691 4.1)14 0.1/m 0,1866 0.1346 01 3S2 0)1393 0.21)) 0.2804 0.214' 19,)1 0.0720 0.0)24 0.0)42 0.20/21 0,204/ ~0 2145 -0.1126 .0.1131 0,1169 0.316) 0 31 98 O. ir"l I??, 0.08)9 0.0823 0.0842 0.12484 0.212? 0,2638 0.1280 0 .i.)0)1316 0.3881 0.19s1 0 4 li?) 0.1481, 0.1496 0.1626 4.2101 0.2139 0.22136 0.91!S 0.233 0 21363 03.3293 0.334' 0. l1 191 -0'9 02)6 0.2)66 0.3311 0.3383 0.362/ C. i9 0,3321 0.3383 03 I it. 0. S'26I 0 II 19)6 0.2134 0,2163 0.12/04 11466 0.3542 0.369) 0.3316 0,1'9 0.34 43 0.6415 O.66140 1 IM0.3138 0.3)93 0 32I6 1-29)6 0.29)6 0.3112 0.4904 0 u4a9 0.6.0115 0. i6i, 0, 46 491 l0 )r., I?.?? 0.3560t 0.363) 0.3/Il '1.6) 0.3659 0.3836 0.5663 0 566/ 0.6/96 0 s5686 0.~)M 0.I '14 19)9 0.4292 0.4400 0.4'106 14800 0.4943 0.6)92 0.6)0) 0 68/6 0/Oil 0./600 0 1/214 086111 I179 -O.S133 0.S218 0.64261 ). 4/89 0.4933 0.62)0 -O.W0l -0 O24 0.84/) 0)48/OV 0.1)90 ?1) 1960 0.4'? 0,4863 0.60241 I.S4 38 0.5614 0.69)4 0.232/ 0/1582 0.28S0 0.8490 0 8//l 01 14 1981 0.3168 0.3233 O.319 '1.6066 0.6)9? 0.6