This article first appeared in The Edge Malaysia Weekly on October 10, 2022 - October 16, 2022

THE rising cost of food and agricultural products globally has prompted the government to focus on food security and the development of the agricultural industry.

The government notes that as of 2020, land usage for the purpose of growing food had declined to only 1.2 million hectares, compared with seven million hectares for growing oil palm and rubber trees.

To improve food production, it intends to develop up to 800 acres of abandoned land — belonging to federal agencies such as the Federal Land Development Authority (FELDA), Felcra, and the Rubber Industry Smallholders Development Authority (Risda), as well as agencies under the Ministry of Agriculture and Food Industries (Mafi) — to grow food.

A number of initiatives that aim to increase the country’s level of self-sufficiency in food production and encourage the use of technology in the agriculture industry have been introduced in Budget 2023.

The first initiative is the Bank Negara Malaysia Agrofood Financing Scheme, which will provide financing schemes at an interest rate of 3.5% per annum to agrifood entrepreneurs for the purpose of increasing their productivity. A sum of RM1 billion will be set aside for the scheme.

Retirement Fund Incorporated (KWAP) CEO Nik Amlizan Mohamed says the country can only have sustainable economic growth if it has food security, particularly a Malaysia-owned food security strategy.

“The government’s initiative to highlight food security as one of the focus areas for this year’s budget is indeed timely. The fact that RM1 billion has been allocated for the central bank to drive its Malaysia Agrofood Financing Scheme, focused on facilitating productivity improvement for entrepreneurs, augurs well for the future of Malaysia’s food security.

“KWAP is also focused on impact investing in the area of food security as it will have direct positive spillover benefits for Malaysians as well as the nation’s sustainable development,” Nik Amlizan says in a statement.

Secondly, the government will introduce an “Agrovest” investment programme by Agrobank. This scheme aims to provide funds to start-ups in the modern technology agriculture industry, with a fund of RM250 million.

The government, through Khazanah Nasional Bhd, will also invest RM200 million via its Impact Fund with the focus on increasing the income and productivity of smallholder farmers.

Meanwhile, the Digital AgTech programme under the Malaysia Digital Economy Corporation (MDEC) will be expanded to 264 Pertubuhan Peladang Kawasan, with an allocation of RM20 million, to train more smallholder farmers to adopt digital technology.

Under the government’s programme to eradicate hardcore poverty, the programme will also focus on encouraging selected households to grow in their gardens food that the country is not self-sufficient in, such as chilli, ginger and cabbages.

The role of cooperatives in promoting food and agro industries has also been strengthened with a RM100 million allocation for the Malaysian Cooperative Commission’s Working Capital Fund. The fund will provide financing to cooperatives to develop their agrifood industries.

This effort is also supported by the Cooperatives Supply Chain Empowerment Programme, which aims to provide consistent supply of food and consumer goods at lower prices.

Besides microfinancing, the government is also allocating RM10 billion for financing programmes to support small and medium enterprises in agrifood industries and the tourism sector. The financing programme is aimed at encouraging automation and digitalisation of SMEs as well as supporting the agenda of food security and the tourism sector’s recovery.

The government, through Skim Jaminan Pembiayaan Perniagaan Bhd (SJPP), will also provide financing guarantees of up to RM9 billion for SMEs that specialise in strategic sectors, namely agrifood, sustainable technology and tourism as well as oil and gas vendors.

While improving Malaysia’s food security, the government is also ensuring that sustainable agriculture is being promoted. To support this effort, a fund of RM56 million has been allocated to Mafi for various initiatives in developing a sustainable agrifood industry.

Besides that, the period of tax incentives for the production of food items will also be extended until the end of 2025, with the scope of the incentives expanded to also cover modern agricultural projects based on the controlled environment agriculture concept.

The government is also proposing to extend the tax incentives application period for BioNexus-status companies until the end of 2024. In addition, the incentives will also be improved by increasing tax exemptions on statutory incomes from 70% to 100%.

To drive agricultural productivity and increase efficiency through automation, the government proposes to provide an Accelerated Capital Allowance and 100% tax exemptions on capital investments.

This incentive is applicable for the manufacturing, agriculture and services industries that adopt Industry 4.0 elements, as well as agrifood entrepreneurs who implement the closed cage system.

While the government is focusing on providing more financing to improve the country’s self-sufficiency in food production, it is also introducing a multi-tiered levy system that is targeted to be implemented next year.

Through this approach, companies with a huge number of foreign workers, such as those in the plantation and construction sectors, will have higher levies imposed. The government plans to re-channel the additional levy to support employers to fund their automation initiatives in order to reduce their dependency on foreign workers.

The Federation of Malaysian Manufacturers says that while it commends the government’s firm decision to implement the multi-tiered levy system, as well as for channelling the additional levy to support employers’ automation initiatives, it had hoped that the entire levy contribution would be channelled towards a National Automation Fund and National TVET Apprenticeship Fund.

Meanwhile, the Malaysian Palm Oil Association (MPOA) says that oil palm growers were taken aback by the plan, if it is based on the ratio of foreign workers to local workers. The association says that in all engagements with the relevant stakeholders on the multi-tiered levy system, it has been highlighted over and over again that the system is not feasible for oil palm planters.

Its chief executive Joseph Tek Choon Yee says in a statement that during engagements, improvements on the land-labour ratio linked to mechanisation had been proposed as a practical option for levy review involving the plantation sector.

“The multi-tiered levy system would further put unnecessary pressure on the cost of plantation operations in a commodity business that is a price taker and not price maker, thus inability to pass the costs to consumers,” says Tek in a statement.

He adds that despite initiatives towards mechanisation in many aspects of plantation operations, the oil palm sector still relies on foreign workers, especially for core operations, including harvesting jobs which until today do not have a practical and cost-effective solution.

“Oil palm growers are struggling during this challenging period amid crop losses and the slow return of foreign workers. The proposal to introduce the multi-tiered levy system will only add salt to the wound,” he adds.

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