KEYNOTE ADRESS BY
THE MINISTER OF AGRICULTURE AND AGRO-BASED INDUSTRY
AT THE BRAINSTORMING SESSION
ON 29-30 APRIL 2004, EQUATORIAL HOTEL,
CAMERON HIGHLANDS, PAHANG
1. Let me take this opportunity to welcome all of you to this gathering of great minds. We are gathered here today to undertake a journey of discovery. A journey of discovery of seeing what everybody has seen and thinking what nobody has thought. Our task for the next two days is to define and formulate policy direction in our quest to develop the agro-based industries and innovative approaches to upgrade the livelihood of the hardcore poor in the agriculture sector. Subsequently, this policy direction will be operationalised into concrete programmes and activities by the various implementing departments and statutory bodies under our Ministry.
2. Before the general election on 21 March 2004, 1 was appointed as the Minister of Agriculture. After the general election in which the Barisan Nasional won with a landslide victory, I have been retained as the Minister of Agriculture and Agro-based Industry. This change of name means that we have been entrusted with additional responsibility to oversee the development of the agro-based industries in line with the Rt. Hon. Prime Minister's economic vision to transform our agricultural food production sub-sector. Under the new political leadership, a strong wind of change is blowing across the landscape of agriculture food sub-sector that may portend a significant change on the way the traditional economic activity has operated and which will undergo holistic transformation into a modern and dynamic farming sector that will generate value-added income from both production and downstream processing. The ultimate quest is the revitalizing of the agriculture food sub-sector that is entrepreneurial driven and commercially viable entity.
3. There are a plethora of reasons for re-looking into this traditional agro-food sub-sector. Food security and increasingly import bills on food incurred by our nation coupled with the strategic need to diversify our economic activity base to insulate against the vagaries and risk of a synchronized global market slowdown. We have to enhance our competitiveness as the imminent opening up of our market through the implementation of AFTA and the on-going negotiations under WTO will further remove subsidies and other non-tariff barriers. There will be an influx of cheaper agriculture produces, thus our local producers need to increase their productivity and competitiveness in order to compete even in our own market.
4. In the light of past experience in which the manufacturing sector has lost its dynamism as it is prone to be mired in the global slowdown, it makes economic sense to re-look into the untapped potential of the laggard agriculture food sub-sector as the next engine of growth. After all, the sustained growth of agriculture output and high returns in Australia, Europe and the US during the global slowdown has proved, beyond reasonable doubt, that the food sector is recession-proof. In fact, during the height of the recession in 1985 where our nation registered an overall negative growth of 1%, the agriculture sector had a distinction of achieving a positive growth of 2.5% compared to manufacturing sector which registered a decline of 3.8%, mining recorded a decline of 1.4% and construction sector contracted by 8.4%.
Managerial Mindset
5. When we implement new projects or programmes for the farming communities, we always insist that the farmers who are involved in the cultivation of fruits and vegetables, the aquaculturists who are breeding freshwater or marine fishes and the livestock farmers who are rearing chicken, goats, sheep or cow must undergo changes in both their mindset. I think that the genesis for change of mindset should start with us - the policy makers and planners, the implementors and those who are working as researchers and extension workers at the grass root level. We cannot talk about transformation of our agriculture food sub-sector without a corresponding shift in our managerial mindset.
6. Often, we don't see things as they are but we see them as we are. Organisational behavioural theorists relate this phenomenon to the accumulated learning and experience as the mental maps or managerial frames in which they shape how we see the world and the frames provide answers to key strategic questions such as what is our core business, how do we create values or who are our competitors. But unfortunately while frames help managers see, they can also blind them. Over time, this managerial frames become part of the organisational fabric as they are enacted through the firm's administrative structure and processes such as the budgeting systems, the reward system, the strategic planning process, the training and socialisation process, and they reinforce certain responds and bias, and discount or exclude others. This managerial frames that is the accumulated experience and lessons of the past may cause a management disease termed by Abraham Zaleznik as the managerial mystique. Managerial mystique occurs "when the emphasis on smooth process may even cloud judgment and contribute to distorted thinking. Managers become so attached to their orderly structures and procedures that they erroneously assume wise decisions automatically follow...an error in which the process is made real and substance is ignored."
7. This new scope of function entrusted to us should not be construed as an additional burden but rather as a new challenge. We have to change our mindset as we are no longer providing policy direction and planning extension services to farmers who are involved in the production. Instead we have to enlarge our core business to include the development of agro-based industries and to formulate policies, strategies and detailed programmes to assist those rural entrepreneurs and other investors in this endeavour. It entails re-looking into the primary management practices of our organisation - culture, structure, strategy and execution - which represent the fundamentals of managing our core business.
a. Develop and Maintain A Performance-Oriented Culture
We must build a right organizational culture that champions high level performance and ethical behaviour. In a winning organisation, everyone works at the highest level. This organisation designs, and supports a culture that encourages outstanding individual and team contributions, one that holds employees, not just managers responsible for success.
b. Build and Maintain A Fast, Flexible, Flat Structure
There is nothing wrong with bureaucracy per se. Procedures and administrative protocols are necessary for any organisation to function well. But outdated procedures and too much red tape can delay implementation and impede progress, dampen employees' creativity and restrict their energy. Winning organisations trim every possible unnecessary bureaucracy - extra layers of management, an overflow of rules and regulations and outdated formalities. We must strive to make structures and processes as simple as possible not only for employees but also our stakeholders. To me, what matters most is organisational structure should simplify the work.
c. Devise and Maintain A Clearly Stated, Focused Strategy
The key to achieving excellence in strategy is to be clear about what your strategy is and consistently communicated to your staff and stakeholders. The strategy derives from a simple, focused value proposition that is rooted with organisation's policy direction and a realistic appraisal of our own capacities.
d. Develop and Maintain A Flawless Operational Execution
Superior performance does not depend on the use of TQM or benchmarking management technique, but it matters very much that whatever technique we choose to implement, we must execute it flawlessly. New technologies play a role in productivity improvement but such investments must always be evaluated as they significantly lower costs or increase output. We have to admit that with limited resources, we cannot be a world class service provider in every area. We need to determine which services are most important to meeting our customers' needs and focus our energies and limited resources in making these services as efficient as possible.
A Tale Of Two Crops
8. Like Charles Dickens' novel entitled The Ta/e Of Two Cities, the story of our agriculture sector is also a tale of two crops. The agriculture sector has often been playing a second fiddle to both the manufacturing and the service sectors. Within the agriculture sector, the agriculture food sub-sector always lags behind the agriculture industrial crops sub-sector comprising the palm oil, rubber and timber. As a result of the uneven development between the commodity and agriculture food sub-sector, about 80% of the 4.06 million hectare of agriculture land is cultivated with industrial crops such as rubber, palm-oil, cocoa and coconut. In 2003, the agricultural sector contribution to GDP was estimated to be RM19.5 billion. Out of this total, the industrial crops contributed 61% compared with 39% of agriculture food crops. The total export earnings from agriculture sector was RM36.3 billion in 2003, of which 78.6% came from palm oil, saw logs and sawn timber.
9. About 90% of the traditional farming of agriculture food is dominated by uneconomic-sized farms operated by smallholders. Such small scaled operations usually have high cost of production, low output yield and poor quality of produce due to low rate of technology adoption and mechanisation. The excess from this subsistence production will cater the local market, but unfortunately, the small local market lacks the critical mass to create the demand to attract investors to undertake large scale production.
10. In addition, there are also the production constraints arising from the shortage of labour as a result of aging labour force and lack of suitable land for agriculture. The rapid growth of manufacturing sector and other sectors of the economy has increased the intersectoral competition for the factors of production. There is an increasingly upward pressure on farm wages. Suitable land for agriculture is getting less as a result of the conversion of limited agricultural land for industrial and residential uses making it more imperative to optimise the land usage to enhance output and farm income.
11. With the exception of a few big companies such as Golden Hope and Sime Darby which are involved in fruit cultivation and organic farming, there is a dearth of private investors answering the exhortations by policy-makers and political leaders to invest in large scale commercial agriculture food production. Besides the small market, the other major deterrents that are discouraging the private sector participation in investing in the agriculture food sub-sector is that this business is both high risk and capital intensive. More importantly, the long gestation period, the uncertain weather, price fluctuations and long payback period as well as slower returns of investment have deterred private investors-and entrepreneurs from venturing into this business.
12. Post-harvest losses are very high. The agriculture produces such as fruits, vegetables and both the marine and aquaculture fishes are highly perishable and the marketing of these produces requires investment in innovative technology and techniques to preserve quality during transit and to extend shelf life. Enormous food losses still persist as a result of poor handling and post harvest practices, bacterial and fungal contamination as well as the deterioration in storage.
Global Market
13. At the international market, the recent shifts in trade pattern reveal dramatic changes in global food demand that will likely continue well into the future. The shifts in trade pattern portend a bright outlook for the agriculture food sub-sector. Income growth and the subsequent changes in food consumption emanating from urbanisation are key drivers in creating the shifts in global demand and trade pattern. In 2003, we exported about RM7.9 billion worth of agriculture food comprising mainly of livestock, seafood, vegetables and vegetables oils, and fruits.
14. The ability of our agriculture food producers and processors to make further inroad into the developed countries' market depends greatly on our ability to comply with the standards of food safety and quality. The shift toward a preventive food chain approach or from farm to table is spurred by concerns among consumers, farmers, processors, retailers and governments on the need to improve traditional food safety systems and to remove unsafe food that have been contaminated by zoonotic agents, pathogens, industrial contaminants and agriculture chemicals is a serious. Such an approach would permit greater traceability of food products, facilitating not only the withdrawal from markets of hazardous or contaminated food but also the identification of weak links in the food chain.
15. A few shipments of our shrimp exported to EU countries had failed to meet their food safety and health standards. The fruits exporters are asking the Government to establish facilities to provide random testing of their fruits. We need to resolve this issue as it may affect the livelihood of our smallholders. Local producers and processors must comply to the higher food safety standards, such as CODEX standards on food safety and private sector initiated standards, such as EURAPGAP and COLEACP if we intend to become a major exporter in agriculture products.
16. The failure of Cancun Meeting to agree on a further trade liberalisation and market access under the WTO framework especially for agriculture products means that more countries will opt for bilateral and regional agreements. The US is pushing ahead with this modus operandi, and Japan, China and EU are likely to follow. Within ASEAN countries, Thailand and Singapore have concluded Free Trade Areas (FTA) and we need to cooperate with MITI to double our efforts to establish FTAs with key countries that are our major markets. At our backyard, the imminent opening up of our market through the implementation of AFTA will see an influx of cheaper agriculture produces. Thus our local producers need to increase their productivity and competitiveness in order to compete even in our own market.
17. We have been talking about creating a niche market as producer and exporter of halal food to Islamic countries. But until now, we have still not finalised the standards and criteria for producing halal food. This delay is a great loss to us as the halal certification issued by our Department of Islamic Development Malaysia (JAKIM) is recognised worldwide due to its stringent criteria employed and also much sought after by other countries.
THE THIRD NATIONAL AGRICULTURAL POLICY: A REVIEW OF PROGRESS
18. We have reviewed and re-designed our Third National Agricultural Policy to accommodate the latest developments in our national and global economic landscape. The Third National Agricultural Policy is a direct response to the problem of an increased import bills on food which has been accentuated by the Asian financial crisis of 1997-98 and the strategic design to seek a new engine of growth as a result of the current global economic slowdown that has derailed the manufacturing sector as the locomotive of growth.
19. The Third National Agricultural Policy has set an ambitious plan of increasing the food sector's contribution to GDP from 29.5% in 2000 to 47.9% in 2005 while the industrial crops' contribution is expected to decrease from 67.2% to 48.9% during the same period. In line with the vision, we have also set the target of achieving sales value of the food sector amounting to RM81.5 billion for the period of 2000-2005. To undertake such a plan, the Third National Agricultural Policy aims to attract about RM30 billion investments to transform the agriculture food sub-sector. It is premised on the assumption that the nation's large capital resources and managerial expertise can make Malaysia a major producer of food, vegetables and downstream agro-based products. Ultimately, the goal is to develop a dynamic food industry comprising a strong local food production and processing industry to supply the national needs and international markets in terms of quantity and quality.
20. We need to review again our achievements so far vis-à-vis the performance targets before the end of the 8th Malaysia Development Plan. Strategies and programmes that have been implemented that do not contribute directly to increase in productivity or cost effectiveness in producing additional output should be re-evaluated. We must take cognizance of problems and issues faced by the agriculture food sub-sector, such as shortage of land and labour, and uneconomic farming land, and then only we can help the farmers under such constraints to either enhance their productivity or output.
21. Let us do an honest re-evaluation on the strategies and programmes that we have implemented as it involves expending limited resources. I was told by MADA that it will require an additional expenditure of RM900 million to achieve the target of 10 tonne padi production. On the other hand, it will cost us only a fraction of that projected expenditure to increase the farmers' income by involving them in cash-crop cultivation, integrated farming activities and downstream processing. I have directed the Ministry to undertake thorough auditing of all projects implemented throughout the country and to advise me on the viability of each project. Recommendation has to be made, such as projects that are successful to be expanded and duplicated in other areas, while those projects that are not doing well to be stopped or removed to other places.
RURAL POOR: THE UNFINISHED AGENDA
22. The latest survey conducted by Economic Planning Unit shows that the national incidence of poverty has dropped to 5.1% in 2002. Out of this national average, the incidence of poverty in rural areas is 11.4% compared with 2.0% in the urban, while the percentage of hardcore poor in rural areas is 2.3% compared with 0.4% in the urban. The hardcore poor earn less than RM265 per month.
23. We have an unfinished agenda in our fight to eradicate poverty in the rural areas. Despite achieving unprecedented -economic growth and having a per capita income of RM14,592 in 2003, it is truly sad to see that there are still pockets of poverty that is so widespread at the rural areas who are marginalized from the development process.
THE AGRO-BASED INDUSTRIES: DIVERSIFYING THE ECONOMIC ACTIVITIES
24. Both the Third National Agricultural Policy (1998-2010) and the Second Industrial Master Plan (1996-2005) have given emphasis to the development of agro-based industries and other resource-based industries in which the country has comparative advantage. The survey undertaken by Department of Statistics in 2000 indicated that the agro-based industries, involving in manufacturing of food, produced an output worth RM45.5 billion, and its total value-added contribution to the economy was RIV17.5 billion. We hope to double or triple this output once our concerted efforts and strategies are implemented.
25. Compared to the non resource-based industries, the agrobased industries have greater backward and forward linkages. Secondly, the agro-based industries have greater domestic linkages than the non resource-based industries. This means that the development of agro-based industries will have a greater effect on the domestic economy. Thirdly, the non resource-based industries have had a higher leakage effect than the agro-based industries. Despite having a comparative advantage, it is unfortunate that the agro-based industries have not being fully-developed to generate greater output and value-added growth.
26. Our efforts in giving priority to the development of agro-based industries is to diversify the economic activities of the farmers so that they could earn additional income. Studies conducted by our Ministry in cooperation with Ministry of Rural and Regional Development in 2003 indicated that padi farmers had the lowest average working hours totalling 2.1 hours per day, followed by fruits farmers who worked for 2.3 hours per day, and the palm oil and rubber smallholders with the working hours of 3.4 hours per day. Only the fishermen and the aquaculture farmers had an average working hours of more than 8 hours per day. This poor usage of time must be utilised and complemented with other economic activities that will generate additional income, and I believe the involvement of these groups of farmers in the agro-based industries is a possible solution.
THE CHALLENGES AHEAD
27. In their book entitled Built To Last: Successful Habits Of Visionary Companies, the authors James Collins and Jerry Porrias highlight how highly visionary companies such as Boeing or Disney often extensively use bold missions whom they call BHAG (Big Hairy Audacious Goals) as a powerful mechanism to inspire and stimulate progress. Likewise let us be visionary and set the following BHAG as the challenges for all of us:
a. To achieve zero-poverty for the rural poor;
b. To increase the agriculture food sub-sector contribution to GDP from 3.8% in 2003 to 7.6% in 2005; and
c. To increase the export earnings of agriculture food from RM7.7 billion in 2003 to RM10 billion in 2005.
28. Taking the cognizance of the industry structure problems and issues such as shortage of land and labour, uneconomic farming land and low technology adoption, the realisation of the BHAG depends greatly on important policy reforms and strategies to ensure the target can be achieved:
a. Increase Competitiveness by Enhancing Productivity
Measures to improve productivity and returns in this sector and develop downstream processing will have a significant multiplier effects on the economy.
b. Promote New Sources of Growth
Efforts will be intensified to identify new sources of agriculture growth such as biotechnology products, tuna fishing and processing, ornamental fish, seaweed, cut flowers, and specialty new products, such as herbs, spices and medicinal plants. We are building an integrated fishing complex in Tanjung Manis, Sarawak and Batu Maung to cater for deep-sea fishing.
c. Diversifying Economic Activities of The Rural Poor
In line with our objective to achieve zero-poverty among the traditional farmers, concerted efforts must be made to identify other suitable income generating activities such as cash-crops and agro-based industries.
d. Strengthening The Capacity of The Commercial Farmers
The capacity of the 10% modern farmers contributing to more than 60% of the production should be expanded. Market access through strengthening food safety and health standards in compliance to international standards should be explored and facilitated in order to increase export.
e. Improve Delivery System of Government To Create Pro-Business and to Stimulate Domestic Investment
Improved efficiency and eliminating bureaucratic delays in the public sector will effectively reduce cost of doing business and eventually boost competitiveness. We should look into reducing costs borne by the Government.
f. To Establish Malaysia As A Halal Hub For The Global Market
We should exploit the halal certification issued by our Department of Islamic Development Malaysia (JAKIM) which is recognised worldwide to establish Malaysia as major producer and exporter of agro-food produces and processed food products.
29. George Barnard Shaw once said that a rational man adopts himself to the environment, while the irrational man adopts the environment to himself, so all progress depends on the irrational man. And for the next two days, let us be irrational men to achieve progress in our deliberation.
30. With this note, I wish all of you a fruitful deliberation and your participation will be full of new ideas.
Thank you
29 April 2004