• Malaysia's paddy production has experienced notable volatility mainly driven by environmental factors, reduced agricultural land and limited mechanization. Declines in production have resulted in increased reliance on imports from Thailand, Vietnam, and Myanmar, heightening Malaysia’s food security vulnerability.

• In the recent Budget 2025, the Malaysian government allocated RM6.4bn to the Ministry of Agriculture and Food Security, with dedicated funds for irrigation, drainage, and collaborative agricultural projects. This investment aims to stabilize local production and strengthen resilience against external supply shocks, aligning with the UN’s SDG 2: Zero Hunger.

• Malaysia's production challenges contrast with the stability seen in Vietnam, backed by adaptive policies, and Thailand's climate-sensitive fluctuations. This underlines the need for Malaysia to adopt similar agricultural advancements and sustainable investments to reduce import dependence and fortify food security.

Deprivation of Our Staple Food is a Concern

For Malaysians, rice is the staple food, consumed nearly every day as part of their meals. However, the country has been facing a significant shortage of locally produced rice. From 2014 to 2024, Malaysia’s paddy production has experienced considerable fluctuations, highlighting key environmental and operational challenges. After an 8.9% growth in 2014, production declined by 3.9% and 6.2% from 2015 to 2017, likely driven by climate variability and inefficiencies in farming practices. We do note that there is a modest recovery of 2.7% in 2018 followed by a sharp 11.0% drop in 2019, signalling deeper structural issues. While 2020 and 2021 saw growth rates of 0.3% and 3.7% respectively, declines resumed in subsequent years, with reductions of 6.6% in 2022, 5.1% in 2023, and 1.1% in 2024 (refer to Chart 1). These trends underscore the need for sustainable agricultural investments and climate-resilient practices to stabilize production and support food security. Addressing this volatility requires prioritizing technological investments and integrating these efforts into national food security strategies to promote environmental stewardship and social stability, particularly in alignment with SDG 2 (Zero Hunger).

Declining Paddy Production

Minister of Agriculture and Food Security is committed to enhancing Malaysia’s food security issues by the exploration of potential areas in Borneo, to be developed for local paddy production, with the aim to boost Malaysia’s rice production. Amidst this current issue which reveals significant variability in paddy production across the region, Malaysia relies on the imports from neighbouring countries, namely Thailand, Vietnam, and Myanmar. For instance, Myanmar’s production peaked at a growth rate of 5.6% in 2022 but slowed to 2.0% in 2023 and 1.3% in 2024, mainly due to combination of climatic events, ongoing conflict, economic pressures and regional yield disparities which has contributed to the slowing growth rates. The declining trend in Malaysia's paddy production is primarily driven by shrinking agricultural land and limited adoption of mechanization technology. Notably, production saw decreases of 3.9% in 2015, 11.0% in 2019, and a further 6.6% in 2022, with only a brief recovery in 2021. Persistent challenges, including labour related issues which continue to impact farm productivity. In contrast, Thailand and Vietnam have shown divergent trends in rice production growth. Thailand's production rebounded in 2017 but faced a decline in 2024, reflecting the sector's sensitivity to climate variations and market pressures. Vietnam, on the other hand, has sustained a stable output, supported by proactive government policies and adaptable agricultural practices. These contrasting paths highlight Malaysia’s vulnerability in paddy production, underscoring the urgent need for improved policies and investment to foster sustainable rice production. Strengthening local capabilities could help Malaysia reduce its dependency on imports and reinforce its food security.

Budget 2025 Provides a Helping Hand

In the recent Budget 2025 announcement on October 17, 2024, Malaysia's government reaffirmed its commitment to enhancing local paddy production and improving food security, aligning with SDG 2: Zero Hunger. The Ministry of Agriculture and Food Security (KPKM) received an allocation of RM6.4bn, a 4.1% increase aimed at tackling agro-food challenges and boosting productivity. Notably, RM65.0mn is earmarked for developing irrigation and drainage systems in paddy fields, crucial for effective water management. The budget also includes RM300mn for collaborative agricultural projects with state governments, focusing on increasing rice yields, particularly in Negeri Sembilan. Additionally, the government plans to leverage modern technology and research to optimize crop yields through improved soil assessments and exploration of new planting areas. These initiatives collectively aim to strengthen Malaysia’s agricultural resilience and enhance food security in the face of growing challenges.

Our View – Leverages Precision Farming for Food Security

We believe the integration of innovative intercropping technology, presents a viable pathway to bolster food production and enhance food security. In Indonesia, for instance, a study highlights the potential of intercropping rice on approximately 2.4mn hectares (Ha) of immature oil palm land, out of a total of 48.0mn Ha of plantations. This effort could yield an estimated 4.0-5.0 tons of rice/Ha. Similarly, in Malaysia, as of 2023, around 522,397Ha of immature palm oil land are available for similar intercropping applications. Notably, under our coverage, FGV Holdings Berhad (FGV) has championed this approach through its integrated farming blueprint, which envisions a future-oriented agricultural model that leverages the inherent synergies within FGV’s extensive palm oil operations. By embracing technology and digitalisation, including precision farming, FGV aims to maximize yields through a diversified production model that includes cash crops, rice, livestock, animal nutrition, and dairy. This approach not only enhances food production but also establishes a circular economy framework that synergizes FGV’s palm oil assets with broader food security objectives. Extending this intercropping model could significantly contribute to the national food security agenda. However, while promising, the successful and sustainable implementation of intercropping at scale will depend on further research to navigate technical, environmental, and operational challenges effectively.

Source: BIMB Securities Research - 30 Oct 2024