Chapter 1. Introduction

BACKGROUND

Agriculture has played a vital role in the development of modern Malaysia and continues to make a significant contribution to the national economy. The plantation sector, especially oil-palm, still leads the world in terms of vegetable oil production and research and development.

Malaysia's agriculture sector was accorded renewed and extra importance by the government after the economic crisis of 1997, with a particular drive to reduce the food importation bill. The balance of trade in the food sector in 2001 was RM6.1 billion (US$1.6 billion). In the year 2002, Malaysia's import and export of food was RM13 billion and RM7 billion, respectively. This represented an import deficit bill of RM6 million. Meeting the challenge of enhanced and more efficient agricultural production was one of the primary objectives for increasing the exports and reducing the imports of agricultural commodities.

TABLE 1
Agricultural production ('000 tonnes), 1995 and 2000, forecast to 2005

¹ Refers to commercial cultivation.
² Measured in million units.
Source: Eighth Malaysia Plan, 2001-2005.

The government formulated a strategic agricultural development master plan, referred to as The Third National Agricultural Policy or NAP3 for 1998 - 2010 (Ministry of Agriculture, 1999). The projected sales target for food crops between the years 2001 to 2005 was set at RM27 billion (US$7.1 billion).

The projected increases in agricultural production to the year 2005 for some crops are shown in Table 1 (Economic Planning Unit, 2001). An inevitable result of this policy for enhanced agricultural growth is the expansion and/or further intensification of land use for agriculture. Between 1995 and 2000, agricultural land use increased from about 5.7 million hectares to about 6.0 million hectares.

The importance of fertilizers cannot be sufficiently emphasized for achieving increased crop production. The cultivation of high yielding crop varieties requires a high and regular supply of macro- and micronutrients to achieve sustained and high crop growth and yield. The government provides an attractive and motivating environment for this purpose, including incentives for the development, expansion and modernization of the fertilizer industry, in order to meet the challenges of competition in the agriculture industry. Since fertilizer is usually the largest variable cost item in a crop farm budget, these incentives or actions are intended to improve efficiency in the fertilizer industry and to minimize fertilizer prices.

FARMING AND CROPPING SYSTEMS

Although rice (paddy) cultivation is the major food crop enterprise in Malaysia, accounting for about 0.67 million ha for all seasons in 2001 (Ministry of Agriculture, 2003), oil-palm, rubber, coconut and durian also occupy large areas in the agricultural cropping systems. In 2001, there were 3.63, 1.57, 0.15 and 0.12 million ha of oil-palm, rubber, coconut and durian, respectively. Together with paddy, these crops covered almost 97 percent of the total cultivated agricultural land in Malaysia (Department of Agriculture, 2003).

Three farm categories exist for crop production, namely the smallholders, the new land development schemes and the large commercial (estate or plantation) holdings. The new land development schemes (FELDA, FELCRA and State Economic Development Corporation -SEDC) are initiated by the public sector. The FELDA schemes have holding sizes of 4.04 ha of agriculture area (planted with oil-palm or rubber) and a 0.10 ha house lot for each farm-holding family.

The smallholdings are those whose area is less than 40 ha, the majority having on average between 0.5 and 3.0 ha. These smallholders usually practice some form of mixed cropping, mostly food crops. Small farm sizes have been a major cause of the low incomes of many smallholders, due to diseconomies of scale. The government of Malaysia, through the Ministry of Agriculture, is committed to overcome this problem by grouping small farms into mini-estates and "group-farming" in order to achieve economies of scale, better farm resource management and production sustainability. This is one of the government's policies for improving the living standards of the rural poor and small farmers.

Large holdings (> 40 ha) are those of the commercial plantations. Their production is well organized for both local and overseas markets. In almost all cases, they practice monocropping (Ramli and Wong, 1989).

To sustain high yields under these cropping systems, the application of large quantities of fertilizers is an important component. According to the Department of Statistics' figures, in the year 2001 alone, about 1.32 million nutrient tonnes of mineral fertilizers were imported into Malaysia, costing RM1.14 billion (US$0.3 billion). However, there is a gradual trend to complement or substitute mineral fertilizers with some form of organic fertilizers, where feasible. This is a result of increasing fertilizer prices and the environmental hazards of their use.