State govt proposes creation of corporate entities to boost agriculture industry
THE state government proposes to establish a special purpose vehicle ( SPV) which will be tasked with identifying commercially viable agriculture businesses for investment purposes, and subsequently form a subsidiary company to manage and operate the businesses.
According to Minister of Modernisation of Agriculture, Native Land and Regional Development Datuk Amar Douglas Uggah Embas, the SPV may finance the business either from its own resources, or it may form joint ventures with suitable private partners.
“A key feature of the SPV business model is that the SPV will divest itself of its equity in the venture once the business becomes successful and achieves a sound financial footing.
“At that point, the equity belonging to the SPV would be offered at par value to cooperatives or business organisations formed by the participating farmers and land owners,” he said in his ministerial winding up speech at the State Legislative Assembly sitting yesterday.
Uggah said the proposed SPV will be a new corporate entity created under an existing state statutory body.
To enable the SPV to function and operate, he said the state government has decided to provide a seed grant or venture capital to the tune of RM100 million, adding that the funds will be used as investment capital in the establishment of new agriculture businesses by the SPV.
He then stated that if people are to bring about agriculture transformation and achieve a quantum leap in agriculture production and trade, they need to consider other development approaches and adopt new business models that can accelerate agricultural growth.
“This will help to raise the income of the rural communities. The new business models must be able to harness the financial resources and business acumen of the private sector, while leveraging on their management and technical expertise.
“This means that agriculture businesses must be developed and managed by corporate entities and by giving the corporate sector a bigger role in developing and managing commercial agriculture, we can ensure commercial viability while reducing the financial burden on government.”
Uggah acknowledged the proposed approach was vastly different from past and present efforts of government to commercialise the agriculture sector, as they have generally focused on providing subsidies to smallholder producers and small entrepreneurs.
“Such subsidies are usually in the form of production inputs, materials and small equipment. The main drawback in this approach is that it focuses on primary production and does not address all the issues along the supply chain.
“In particular, not enough attention is given to postharvest handling, value- added processing and marketing. Past attempts to address those issues have not been very effective and serious bottlenecks in our agriculture supply chain still remain.
“The other major weakness in our present smallholder system is the lack of organised effort that can ensure reliability of supply in terms of volume and product quality that the market demands.”