Future of food production

THANK you to M. Veera Pandiyan for his piece on agriculture in Malaysia “Just too much to swallow” (The Star, Sept 18), and Datuk Wee Beng Ee for sharing his views on the same topic in his letter “In search of young and visionary agro-entrepreneurs” (The Star, Sept 28). Both highlighted the state of our nation’s food security and opportunities in the agricultural sector, and called on Malaysian youths to step up to the challenge.

The agriculture and agribusiness landscape has been steadily improving since World War II. The 1980s saw the rise of biotechnology and this decade, we entered the next phase of growth with the confluence of IR4.0 (Fourth Industrial Revolution) technologies and agriculture.

This ecosystem of agricultural technology (agtech) promises to improve efficiency, quality and affordability. The world has enough food in terms of supply and variety, but it is not always accessible at the right price where there is demand.

This is partly caused by our industrial approach to food production, which has been equated with the production of things where cost and profitability are the drivers.

While this approach towards food production has made food available and affordable for the masses, it has also exacerbated a business operating model that champions low cost, tiered quality, mass volume and low prices. New agro-entrepreneur entrants to food production will need to cross or work around this.

Another emergent threat to the food production system is climate volatility, which impacts supply and prices. At the production level, it creates a different set of challenges, such as the spread of pests and diseases (African swine flu and army worm, for example) and extreme weather conditions (hotter and more dry days, stronger winds and heavier rain), which result in fluctuating yields, inconsistent quality and higher operational costs.

To succeed in an environment that is increasingly volatile, our youths and agro-entrepreneurs will need to think of new approaches in food production. These should be specifically targeted to the production of food, not the production of things, and change the pivot and perspective from being cost-centric to risk management-centric.

Having enough financing power to last through each production cycle is definitely a necessity. Beyond the financing objective for sustenance, financial solutions could also be designed for the objective of risk management.

From this perspective, two key tools that are ripe for consideration in the Malaysian food production landscape are crop insurance and forward contracts and futures.

Crop insurance has been used as a risk management solution for the past 50 years. Essentially, the idea is to protect the agro-entrepreneur against financial ruin through loss caused by a volatile event. While crop insurance is applicable to farms of all sizes, another variant, micro insurance, is a more targeted tool suitable for the B40 (low income) segment of society.

The true value of crop insurance is not in its financial compensation. The real effect is its ability to create both financial resilience and, more importantly, mental resilience among agro-entrepreneurs.

Forwards and futures, on the other hand, are risk mitigation tools used to hedge against output and price. Forward contracts provide the benefit of guaranteed produce off-take, while futures, although more applicable for commodity crops, can be used to hedge against price uncertainty. The ability to lock down off-take and price variables in turn has the potential to create additions along the entire supply chain of producers, suppliers and buyers.

Risk-based financing is still a green field in Malaysia. With IR4.0 well on the way to powering production innovations, Malaysia should grab the opportunity to develop risk management-based financial innovations in the food production sector.

So here’s a vision: 10.10.10: Ten years from now, Malaysia would have 10 food items producing above self-sufficiency levels at below 10% drop-off rate, with the remaining 90% of Malaysian agro-entrepreneurs using some form of financial risk mitigation tools.

SIEW YAU CHANG Kuala Lumpur