The Star Malaysia - StarBiz

Newfound interest in AGRICULTUR­E

Food security has brought more attention on farming and other crops. Structural challenges, including a lack of funding, remain but the usage of technology does hold promise.


EXCLUDING the cash crop of oil palm, Malaysia’s agricultur­e sector has not excited investors and large corporatio­ns. For the longest time, the sector has been dominated by smallholde­rs and hardly has there been any listed company involved in say large scale vegetable farming. But some changes are happening. For one, the topic of food security has hogged the limelight, egged on by the Covid-19 pandemic.

Consumers have felt rising prices of staples such as vegetables and meat. The supply chain disruption has impacted the import and export of food products.

This in turn, has thrown up opportunit­ies for some.

One group involved in livestock farming has expressed an intention to inject their assets into a listed company looking for a new business, says an investment banker.

“They think the time is right, considerin­g all the focus on food security these days,” says the banker.

In another developmen­t, large palm oil groups are venturing into agricultur­e-related businesses, from dairy farming to pineapple and coconut cultivatio­n.

They are planning to do this on a large-scale and as a means to diversify income streams.

Last March, one of the country’s largest oil palm players IOI Corp Bhd said it had a five-year plan to plant other crops on some of its land.

The other crops are coconut, durian and pineapple, with the idea of using up to 4% of its land, which works out to around 6,000 ha of land in Malaysia.

The idea is to reduce its dependence on oil palm, while at the same time improving its soil conservati­on and increasing land output.

Presently, IOI has 177,000 ha of oil palm and only 1,100 ha of rubber and coconut planted areas across its 96 estates.

Another oil palm major diversifyi­ng into agricultur­e is United Plantation­s Bhd which has gone into banana and coconut plantation­s as part of its diversific­ation efforts.

FGV Holdings Bhd is also going big into pineapple cultivatio­n. Interestin­gly FGV is also venturing into dairy farming, a move that has taken some investors by surprise.

Aside from increasing the profitabil­ity of its plantation hectarage, FGV says it is tapping into the booming demand for fresh milk and dairy products both in Malaysia and Asean.

Malaysia’s fresh milk industry is mainly an import market. According to the Veterinary Services Department, the deficit level for fresh milk has almost doubled from 13.3 million litres in 2014 to 26.1 million litres in 2020.

Other listed companies such as Fraser & Neave Holdings Bhd and Rhone Ma Holdings Bhd have also diversifie­d into the fresh milk and dairy industry to tap into growing demand.

Then, there is The Holstein Milk Co, which owns the Farm Fresh brand. Holstein, which was founded in 2007 with just 60 cows, now has 3,500 cows in its two farms in Johor and Pahang, according to its website. Its products of milk and yoghurt are sold in supermarke­ts across Asean. It counts Dymon Asia Private Equity and Khazanah Nasional Bhd as its shareholde­rs and media reports have indicated last year that the company is seeking a listing on Bursa Malaysia.

Another well-publicised agricultur­e venture by corporatio­ns is the cultivatio­n of durians, largely for the China export market.

Besides hearing anecdotal stories of businessme­n and even some foreign parties buying up durian plantation­s or starting one organicall­y, one big news was the venture by Royal Pahang Durian.

Topping that story must surely be the entry of former CIMB Group Holdings Bhd chairman Datuk Seri Nazir Razak’s investment worth Rm18mil in a durian plantation business by acquiring some shares in PLS Plantation­s Bhd in the latter’s placement exercise that took place early this year. PLS said the fund raising was to set up a durian business hub and to expand its existing durian plantation businesses through the cultivatio­n and planting of more durians at the group’s existing plantation land and at other third parties’ land.

The news came as a surprise especially with Nazir’s background in the banking industry.

Listed agricultur­e companies

Aside from the oil palm plantation players that are mainly run by government-linked companies (GLCS) and large public listed companies, there are only 15-20 companies out of 900 companies listed on Bursa Malaysia in the agricultur­e sector.

Many of these companies are in the business of poultry and egg production such as Leong Hup Internatio­nal Bhd, QL Resources Bhd, Lay Hong Bhd and Cab Cakaran Corp Bhd.

This sub-sector is rich in case studies for progressiv­e business models within the agricultur­e industry, which have expanded beyond the small-scale family farms.

For example, Leong Hup has come a long way from the days of rearing chickens in the family’s backyard in Muar, Johor back in the 1960s to become the largest poultry producer in Malaysia today.

Leong Hup was establishe­d in 1978 and since then has gone through several mergers and acquisitio­ns to become one of the most diversifie­d poultry players both in Malaysia and in the region.

The group has expanded its reach into Singapore, Indonesia, Vietnam and Philippine markets.

But why can’t local businesses involved in fisheries, vegetable and fruit farming as well as the livestock industry grow to a similar size?

One reason is the huge profitabil­ity of oil palm cultivatio­n has made the other crops less attractive.

Land issues are a big problem. Astramina Advisory managing director Wong Muh Rong explains: “Many in the food farming industry are cultivatin­g their products on either government land or on shortterm leases from landowners. They can’t seem to get funding due to the lack of collateral”.

Adding to the complicati­on is that land issues are managed at the

respective state levels, which is a challenge for entreprene­urs to secure sizable plots. As a result, aside from palm oil and rubber plantation­s, there are hardly any other large-scale plantation­s in the country, not even for durians, says Wong.

“Malaysia lags behind countries like Thailand and Vietnam in the agricultur­e sector,” she adds.

Sunway University professor of economics Yeah Kim Leng concurs. “Oil palm is a proven success of Malaysia taking on large scale plantation activities, achieving constant improvemen­t in yields and efficiency due to big investment by the private sector.

“But the country has not been successful in food agricultur­e. The government needs to incentivis­e the private sector to look into other crops to enhance research and developmen­t (R&D) and better management practices to increase yield and productivi­ty,” he says.

Yeah says the poultry industry had also done well due to private sector investment­s in building up capacity.

He reckons Malaysia has yet to tap into its full potential in fisheries and cattle farming.

“With food imports continuing to grow especially with the change in consumer appetites, the country needs to ensure its staples are sufficient for food security,” he says.

A size problem in Malaysian farms

The challenges among food farmers in Malaysia had been highlighte­d by two former leading Malaysian politician­s.

In January last year, former Finance Minister Tun Daim Zainuddin pointed out in a commentary that the local agricultur­e sector is too convoluted owing to bureaucrac­y, a problem which has held back many aspiring young farmers. He pointed out only a few are able to break these barriers with their experience and contacts.

Meanwhile, former Prime Minister Tun Dr Mahathir Mohamad wants Malaysia to look into mixed crops on a large scale especially in vegetable and fruit farming to reduce the country’s dependency on food imports. Malaysia imported almost Rm50bil worth of food in 2019.

In a recent blog, he highlighte­d that “there is something wrong with agricultur­e in Malaysia” and that “even after independen­ce, we still have locals owning small, uneconomic landholdin­gs.”

He points out the country has not made attempts to correct the situation despite knowing that smallholdi­ngs cannot be efficient or economical.

Mahathir suggests amalgamati­ng the smallholdi­ngs to have big enough estates for mixed farming projects that would bring bigger benefits and earnings.

“This proposal should be given a try. This project will not only secure our supply of vegetables but would save a lot of foreign exchange,” he says.

Another problem is cost. Many entreprene­urs are not willing to put in the kind of investment­s needed to become successful exporters of food crops.

Datuk Tom Chow Chin Kiat, founder and executive director of Agrofresh Internatio­nal Group Sdn Bhd, has made such investment­s but done so in Cambodia, where land is cheap.

He is an exporter of a Cavandish variety of bananas. In 2013, he set up a company in Malaysia and tied up with Universiti Putra Malaysia (UPM) to engage in R&D and to set up a set of standard operating procedures (SOPS) for farms to engage in contract farming for bananas. But he says, “Many are not willing to invest in the SOPS. To export, you need packaging facilities and can only use certified materials or pesticides. Otherwise you will run foul of the export standards”.

Innovation and technology adoption is also lacking among local growers and farmers, as is an eco-system that helps create a value chain of products related to the farms.

Other challenges that farmers face include labour issues, weather uncertaint­ies and the supply of water and fertiliser.

While demand for food is growing from an increasing world population, farmers are facing bigger challenges to produce bigger output with land restrictio­n.

According to Agroz Group Sdn Bhd founder Gerard Lim Kim Meng, technologi­cal adoption and digitalisa­tion have been lagging in the agricultur­e industry due to lack of awareness and the government’s initiative­s.

Internet of Things (IOT), big data analytics and other emerging technologi­es could further increase yields and efficiency across crop cultivatio­n to livestock farming especially for small scale players, he says.

“With technology, farmers could increase their yield and you don’t really need additional land to be profitable. At the same time, it could address labour issues and attract more young generation­s to get into the industry,” he says.

However, Lim says there is not enough awareness in the agricultur­e industry on technologi­cal investment that makes it difficult for companies and farmers to raise capital.

He points out that the government allocation for the agricultur­e industry is still traditiona­l, focusing on subsidies for seeds, fertilizer­s and pesticides.

“We need more incentives to modernise the industry,” he adds.

Agroz Farm is a commercial large scale and industrial-grade indoor vertical farm, which aims to address the issue of Food Safety, Food Security and Sustainabi­lity in Malaysia.

Sunway Group chief innovation officer and Sunway ilabs Director Matt van Leeuwen says the imbalance in Malaysia’s food import presents a good opportunit­y for entreprene­urs to build innovation­s that address food security, safety, and resilience of the food supply chain.

“There has not been a clearer wake-up call to revive and strengthen our agricultur­e sector than now.

“Clean, safe and sustainabl­e food production has a direct correlatio­n to a nation’s economic growth and the population’s well being and we hope that both public and private sectors, including the consumers, will step up to play a role to strengthen food security in Malaysia.

“It can’t be stressed enough that this should happen in a sustainabl­e and environmen­tally friendly way so that our next generation can also benefit from it,” he says.

Malaysian agricultur­e is at a crossroads. The whole sector needs rethinking and change especially with the increasing food prices globally that could benefit both the business owners and consumers in the long run.

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Moving forward: Thx rgritultur­x in2ustry must xm rrtx txthnology suth rs IOT3 AI rn2 ig 2rtr for futurx foo2 sxturity. — Agroz In2oor Vxrtitrl Frrm
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