This article first appeared in Forum, The Edge Malaysia Weekly on January 30, 2023 - February 5, 2023
Politicians come and go, but the fate of most of our farmers remain unchanged. Stagnant productivity and poverty are their main profile parameters. This is particularly so for those under the government’s schemes such as Federal Land Development Authority (FELDA) and Rubber Industry Smallholders Development Authority (Risda), and even for independent farmers.
The politicians’ grip on them has grown over the years. For instance, FELDA has been placed directly under the Prime Minister’s Department for years, indicating its strategic position. Their relationship is almost symbiotic, albeit asymmetric, with power siding the politicians. While the smallholders are their well-planned pool of votes by design, this situation may suffocate the farmers’ future.
There are successful agricultural entrepreneurs and area farmers’ associations, but they are too few to trigger waves of change. Nevertheless, they can act as role models for the sector, pointing to the possibility of a better future.
On and off, oil palm smallholders do receive rewards but these are inadequate to really improve their livelihoods. For instance, FELDA’s smallholders receive between RM2,000 and RM5,000 in dividends per year from FELDA’s business, which is barely enough to cover living and input costs. On average, high prices for the commodity do not earn them enough extra income to build up farm capital, which is necessary for growth. Farm capital is needed for farm expansion; to buy new farm gadgets, machineries and parts; or to invest in ICT solutions. Without these, there is no farm innovation, causing static yields and returns. Besides, they have to bear the risks of mono-cropping, which has consequences both ecologically and economically. The big value-added advantage lies far beyond the farm — that is, at the processing and manufacturing plants locally and overseas — which would take them many years of business growth to reach.
The inflationary effect of the pandemic caused a ballooning of production costs and shrinking of margins as productivity was affected. Sadly too, price variations, in particular their upward trend, have thus far been their only bet to improve their position. This is the only game they know, although a risky one, as price volatility does not favour weak players.
In the 1960s and 1970s, the establishment of agricultural agencies such as FELDA and Risda were seen as the country’s best development model, which received high recognition from the World Bank as a poverty reduction strategy. These agencies succeeded in providing employment to landless farmers while igniting growth in commodity production (rubber and oil palm particularly).
However, the world landscape has changed since then. By the 1990s, globalisation became prevalent, where competitiveness was the order of the day. New competitors emerged and substitutes entered the market with lower production costs and better offerings. By the 21st century, the world was totally transformed — borderless and highly digitised — and a significant geopolitical shift occurred with China becoming the world No 2 economy.
Now, economic survival is dependent on three rules: having a sharp competitive edge; using big data and advanced technological applications; and adopting a green agenda. The smallholders have none of these. They are still stuck as mainly primary producers using conventional techniques, producing raw materials for manufacturers mainly in the advanced countries. Again, the smallholders take a back seat, playing the only role they know — as price takers.
The government has intervened to help the farmers, introducing institutional innovations such as listing a new business entity, Felda Global Ventures Holdings Bhd (now known as FGV Holdings Bhd) on Bursa Malaysia in 2012, utilising FELDA’s land that covers 860,000ha (of which 60% belongs to smallholders). The exercise failed to give a good return to the smallholders, except for the first few years of dividends. Instead, participating smallholders found themselves indebted to the entity to the tune of RM8.3 billion due to a fall in the value of their shares. A number of big corruption cases involving politicians and FGV officials emerged. The government has agreed to abolish 80% of FELDA settlers’ loans amounting to RM8.3 billion, which is about RM250 to RM300 a month. So the corporatisation strategy has backfired. While some of the politicians and officials of FELDA and the group allegedly earned themselves good harvests through corruption, the smallholders remain indebted.
FGV has turned profitable again lately. However, the relevance of such a model to the smallholders is still questionable. The following are the unsettling implications:
1. The orientation of a business corporation is profit as it is capital-intensive in nature. Return on investment is the major yardstick of its success and not the welfare index of the smallholders. In contrast, a farm enterprise has multiple objectives, which include profitability and the preservation of its only precious asset — the farm; the farmers’ livelihood; and the welfare of their families. To a farmer, the concerns are the return on the land, labour, capital and entrepreneurship.
2. Under the scheme, smallholders are merely workers at their farms as the management functions are run by the company. Over time, the smallholders may lose their managerial skills and creativity. The smallholders have little say in the running of the company.
3. The distribution of profit is highly inequitable as the dividends earned were proportional to the shares owned. Clearly, the smallholders earned very little while the executives typically paid themselves exorbitant amounts of profit.
4. If the above three developments continue, the smallholders will become stagnant if not extinct as they are stuck as workers on their own farms with limited opportunities for career mobility, horizontally or vertically. This is because the agribusiness sector, including processing and manufacturing, is controlled by the agency or company. With little capital, the producers have no capacity to invest in value-added activities and bargain for better prices from these big mills or middlemen.
5. The palm oil industry will be very concentrated with the growing dominance of big players such as private and government-led estates, while independent smallholdings continue to shrink. In the 1980s, the smallholders accounted for about half the sector, but they now make up less than one-fifth. Small farms are ecologically friendly as the smallholders tend to give more attention to their farms as they are their only assets and source of income. They preserve the farm’s physical environment and, through diversification into livestock and fruit farming, compensate for biodiversity losses.
Clearly, the above situations do not foster equitable development in the long term. Smallholder development cannot be nurtured at the stock exchange but at the farmers’ battleground — in their farms. Smallholder development entails the following capacity building, which must be undertaken extensively. These are: (i) R&D and extension to improve yield and productivity, (ii) adoption of digital and advanced technologies in production and marketing, (iii) better farm management practices, (iv) value-added activities through small mills and processing plants, and (v) shared prosperity through collective effort, particularly the cooperative model. The farmers should manage their farms, not capitalists appointed and funded by public funds. Ideally, the corporation should be run by farmers for farmers on the co-operative mode. A model for this is Fonterra, a New Zealand dairy co-operative owned by around 9,000 farmers, which has become a public-listed multinational corporation.
A worrying institutional trend is that the agricultural agencies are expanding their wings through numerous subsidiaries in the name of helping smallholders improve their welfare, although some of their activities, such as equity investment, are not related to the farms’ core activities. These developments may have negative consequences for smallholders: (i) There is a diversion of the agencies’ focus and resources (including personnel) towards the development of the subsidiaries’ rather than the smallholders’ interests. (ii) They are public agencies but wear a private sector outfit — pointing to a mismatch between their original mission and their current functions. The recent case of the Federal Land Consolidation and Rehabilitation Authority’s (Felcra) move to invest RM150 million in unit trusts is one example of a costly digression and leakage. Clearly, the notion that equity investment will improve the farmers’ welfare is just a camouflage of the real intention. The same amount of investment could be used to help improve farmers’ productivity and technology application. Besides, if these models are truly effective, the smallholders would be out of the poverty trap by now.
Other big projects that benefit the politicians rather than the smallholders include the National Feedlot Centre, where the beneficiaries were political cronies, leading to massive leakages. Similarly, a number of corridor agricultural projects did not take off as intended. The same fate is observed in selected agricultural entry point projects as reported by the Auditor-General. Clearly, the political footprint is deeply entrenched in the smallholders’ lives and their enterprises. These manoeuvres were politically driven, not for the development of the smallholders. The financial and social costs have been high at the expense of the sustainability of the smallholders’ future and the commodity subsector. It is hoped that the new lot of politicians at the helm will not replicate this costly blunder but empower the smallholders towards independence, sustainability and a resilient existence.
Professor Datin Paduka Fatimah Mohamed Arshad is a senior fellow of the Institute for Democracy and Economic Affairs (Ideas) and a fellow of the Agricultural and Food Policy Laboratory at Universiti Putra Malaysia
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