University of Bath PHD An analysis of agriculture subsidies in the rubber and padi sector of Malaysia bin Joharie, Ahmad Rusli Award date: 1988 Awarding institution: University of Bath Link to publication Alternative formats If you require this document in an alternative format, please contact: [email protected] General rights Copyright and moral rights for the publications made accessible in the public portal are retained by the authors and/or other copyright owners and it is a condition of accessing publications that users recognise and abide by the legal requirements associated with these rights. • Users may download and print one copy of any publication from the public portal for the purpose of private study or research. • You may not further distribute the material or use it for any profit-making activity or commercial gain • You may freely distribute the URL identifying the publication in the public portal ? Take down policy If you believe that this document breaches copyright please contact us providing details, and we will remove access to the work immediately and investigate your claim. Download date: 09. Oct. 2021 AN ANALYSIS OF AGRICULTURAL SUBSIDIES IN THE RUBBER AND PADI SECTOR OF MALAYSIA submitted by Ahmad Rusli bin JOHARIE B.A. Hons (Mai) D.P.A. (Mai) M.A. Dev. Econs(Vanderbilt) for the degree of Ph D of the University of Bath, 1988 COPYRIGHT M Attention is drawn to the fact that copyright of this thesis rests with its author. This copy of the thesis has been supplied on condition that anyone who consults it is understood to recognise that its copyright rests with its author and that no quotation from the thesis and no information derived from it may be published without the prior consent of the author M " ThiB thesis may be made available for consultation within the University Library and may be photocopied or lent to other libraries for the purposes of consultation " UMI Number: U602122 All rights reserved INFORMATION TO ALL USERS The quality of this reproduction is dependent upon the quality of the copy submitted. In the unlikely event that the author did not send a complete manuscript and there are missing pages, these will be noted. Also, if material had to be removed, a note will indicate the deletion. Dissertation Publishing UMI U602122 Published by ProQuest LLC 2014. Copyright in the Dissertation held by the Author. Microform Edition © ProQuest LLC. All rights reserved. This work is protected against unauthorized copying under Title 17, United States Code. ProQuest LLC 789 East Eisenhower Parkway P.O. Box 1346 Ann Arbor, Ml 48106-1346 IN THE NAME OF ALLAH, MOST BBNEFICIENT, MOST MERCIFUL Dedicated to;- My Parents My Wife, Hanisah My Children, Yuliana Yazmin Johar Arif Johan Ikran Yuhanie Ahmad Ashraf ACKNOWMsDGEMENT 'J'hiu thesis would no! Imvo mater i u 1 i nod without the suppor I mid inspiration of so many people. It is not possible for me to list rill of them but I wish to put on record the following individuals and organisations who have contributed directly to my work. Firstly, to my former superior in the National Institute of Public Admin. M ’siu (INTAN), Dr. Abdullah bin Abdul Rahman who urged and inspired me to pursue my post-graduate studies. Secondly, my appreciation to the Government of Malaysia for sponsoring me and granting me official leave of absence for the whole duration of the study. My intellectual debt goes to my supervisor Prof. Paul Mosley who patiently guided me all the way until the completion of the thesis and Mr. Edward Iloresh who complemented Prof Mosley’s task admirably from beginning till end. Fourthly, my gratitude to all my colleagues and new found friends in the various Ministries, Departments and Statutory Bodies too numerous to mention whom 1 consulted to get information arid data. However, special mention must be made of Mr Abdul Halim bin Butok Abdul Roof formerly Deputy Director-General of RISDA and Mr Him lid Huain Director-General of Lembnga Pertubuhau Peladang who kindly facilitated my research by giving me unlimited access to their officers and facilities at Hendquaters and State level. I am also indebted to all the farmers in Krian and rubber smallholders in Perak who willingly participated as respondents. To all may I say .jutaun terTina kasih and may Allah reward them. Last, but by no means least my perennial gratitute to my wife and children for having supported and endured patiently the long period of study. i ABSTRACT Malaysia is primarily an agricultural country where the smallholder sector is predominant. An integral part of the government strategy in agriculture is the heavy subsidisation of the smallholder sector. However, recently, the Malaysian government declared that the extensive system of subsidies in agriculture would be thoroughly reviewed with the ultimate objective of cutting back on subsidies which were deemed to be wasteful and unproductive. The government has taken the official stand that farmers and smallholders should not rely excessively on subsidies and that they must be more self- reliant and do away with the so-called " subsidy mentality The thesis attempts to investigate the claim of the government whether there is such a thing as a.” subsidy mentality " among Malaysian farmers and if there is one the reasons for its existence. In order to establish this claim, it is necessary first to prove whether, or not subsidies contribute towards improving the productivity and welfare of farmers. This is done by analysing the allocative and redistributive effects of agricultural subsidies in smallholder agriculture. In addition, the thesis also attempts to go further by investigating how farmers perceive and respond to subsidies by studying their attitudes towards specific subsidies. This is done by undertaking empirical investigation of two main smallholders’ activities in Malaysia, namely smallholder rubber cultivation and rice farming through the technique of sample survey. The study found that the effect of subsidies differs between different crops, types of subsidies and between farm and regional level. Hence the effect of subsidies is not conclusive. Generally, farmers had a positive attitude towards subsidies and most of them had to rely on subsidies because they were poor. TABLE OF CONTENTS Page Title Acknowledgement i Abstract ii Table of Content iii List of Tables ix List of Diagrams and Maps xv Glossory xvi CHAPTER 1 - INTRODUCTION 1.0 Statement of Problem 1 2.0 Objective of Research 6 3.0 Working Hypothesis 7 4.0 Research Methodology and Approach of Study 8 5.0 Outline of Thesis 1.1 6.0 Limitations of Study 1.2 PART I CHAPTER 2 - THEORETICAL DESIRABILITY AND ECONOMIC JUSTIFICATION FOR AGRICULTURE SUBSIDIES 1.0 Introduction 1.3 2.0 Government Intervention in Agriculture 14 3.0 Agricultural Pricing Policies 1.5 4.0 Definition and Interpretation of Subsidies 20 i i i 5.0 Principles of Subsidisation 25 6.0 Rationale and Justification For Subsidies 30 7.0 Input Subsidies 32 8.0 Output Subsidies 40 9.0 Combined Input and Output Subsidy 43 10.0 Critique of Farm Subsidy 51 11.0 Summary 55 Notes 56 CHAPTER 3 - IMPACT OF SUBSIDIES ON AGRICULTURAL DEVELOPMENT: A REVIEW OF THE LITERATURE 1.0 Introduction 60 2.0 Subsidies and Resource Allocation 61 3.0 Welfare Effect of Subsidies 69 4.0 Subsidies and Income Distribution 77 5.0 Subsidies and Supply Response of Farmers 83 6.0 Conclusion 93 Notes 94 CHAPTER 4 - THE SMALT, FARMER IN LESS DEVELOPED COUNTRIES 1.0 Introduction 99 2.0 Definition and Characteristics of Small Farmers in LDCs 100 3.0 Motivations, Values and Attitudes of Small Farmers 103 4.0 Objectives of Small Farmers ft Factors Affecting Their Behaviour 108 5.0 Allocation of Resources by Small Farmers 115 6.0 Responsiveness of Small Farmers To Economic Incentives 121 iv 7.0 Summary .1.26 8.0 Notes 1.28 PART II CHAPTER 5 - AN OVERVIEW OF SMALLHOLDER AGRICULTURE AND THE ROLE OF SUBSIDIES IN AGRICULTURAL DEVELOPMENT OF MALAYSIA 1.0 Introduction .1.33 2.0 Characteristic Features of Malaysian Agriculture 1.34 3.0 Role and Contribution of the Smallholder Sector 144 4.0 Institutional Support Towards Smallholder Agriculture 1.50 5.0 Typology of Government Intervention in Malaysian Agriculture 157 6.0 Subsidies in Malaysian Agriculture 160 7.0 Summary 169 Notes 170 CHAPTER 6 - IMPACT OF SUBSIDIES IN MALAYSIAN AGRICULTURE - EVIDENCE FROM RUBBER SMALLHOLDERS - A NATIONAL PERSPECTIVE 1.0 Introduction 175 2.0 Historical Development of Smallholders in Malaysia 1.76 3.0 Features of Rubber Smallholders in Malaysia 1.83 4.0 Rubber Replanting in Smallholdings 187 5.0 Replanting Subsidies - Rationale, Composition and Financing 196 6.0 Regression Analysis of Impact of Replanting Grants 21.2 7.0 Summary and Conclusion 225 Notes 227 v CHAPTER 7 - IMPACT OF SUBSIDIES IN MALAYSIAN AGRICULTURE - EVIDENCE FROM RUBBER SECTOR - A MICRO PERSPECTIVE 1.0 Introduction 236 2.0 Choice of Area Studied 236 3.0 Socio-Economic Profile of Rubber Smallholders in Perak 240 4.0 Effect of Replanting Grants on Smallholders 243 5.0 Attitude of Smallholders Towards Replanting Subsidies 258 6.0 Subsidy Mentality of Rubber Smallholders 266 7.0 Regression Analysis of Effects of Replanting Subsidies 272 8.0 Findings and Policy Implications 284 CHAPTER 8 - IMPACT OF SUBSIDIES IN MALAYSIAN AGRICULTURE - EVIDENCE FROM PADI AND RICE SECTOR - A NATIONAL PERSPECTIVE 1.0 Introduction 287 2.0 Fertiliser Subsidy in Malaysia 290 3.0 Guaranteed Minimum Price 303 4.0 Padi Price Subsidy/Coupon Subsidy 310 5.0 Effectiveness of Padi Price Subsidy 314 6.0 Regression Analysis of Input and