• Following our recent meeting with Department of Agriculture Sarawak (DOAS) management in Kuching, Sarawak, we are of the view that the development initiatives by DOAS will improve the job market and indirectly facilitate the consumer spending of Sarawakians.

• DOAS is prioritizing high-impact projects to advance agricultural and fisheries activities, focusing on supporting small farmers and commercializing crop production through downstream segments.

• DOAS mission is to rely less on food imports thus capital expenditures are provided to small farmers to encourage high-value crops production along with the availability of e-tani platform and 155 office stations across Sarawak.

Department of Agriculture Sarawak

The Department of Agriculture Sarawak (DOAS) is one of the seven agencies under the Ministry of Food Industry, Commodity & Regional Development Sarawak (M-FICORD). It is the only agricultural government body in the country that focuses on a variety of functions, such as food crops, commodities, and fisheries, with the exception of livestock, which is currently managed by the Department of Veterinary Services Sarawak (DVS). DOAS's vision and mission are to achieve a sustainable agro community, aligning with MFICORD’s goal of advancing the agriculture sector and rural economy by 2030. These initiatives are designed to support the Sarawak state government’s Sarawak Post COVID- 19 Development Strategy (PCDS) 2030.

High Impact Projects

DOAS aims to enhance food security, contribute to the goal of being a net exporter of food by 2030, increase agro-commodity production, and promote a high-income agro community with an average monthly income of RM6,000. Its focus includes high-impact projects such as Smart Farming Parks, Permanent Food Production Zones (TKPM), Privatization of Agriculture Land and Stations, CPPCs, Food Terminals, Agrofood Incubators, and the Aquaculture Industrial Zone (AIZ). DOAS targets industries involving food crops like durian, coconut, pineapple, and banana. It is also focusing on paddy cultivation to reach a self-sufficiency level (SSL) of 70% as per PCDS 2030 goals, along with aquaculture developments such as the cage culture for red tilapia fish in Batang Ai. Additionally, DOAS emphasizes downstream segments, including agro-products and agropreneurs.

Improvement in the Job Market

DOAS's downstream focus is expected to create new job opportunities for locals. For example, Sarawak's indigenous seasonal fruits, such as Dabai—known as Sarawak's equivalent of the black olive—and durian, which is unique to Borneo Island, are central to these efforts. Due to the seasonal nature, Dabai is harvested twice a year, from May to June and December to January. However, DOAS initiatives are promoting the commercialization of agriculture through value-added products. For instance, Dabai has been transformed into products like Dabai crackers, frozen Dabai, and Dabai nuts. Sarawak Fruit Enterprise, one of DOAS’s partners, sells Dabai and Durian crackers. In 2019, Sarawak Fruit Enterprise collaborated with DOAS to produce these crackers. Such innovations and support for local businesses and start-ups can potentially lead to job creation and increased disposable income.

Food Security and Small Farmers

In 2023, agriculture contributed 10.6% to Sarawak’s GDP, with local demand still reliant on imports. DOAS's mission is to elevate agricultural activities to meet local demand more effectively. For example, in 2022, DOAS received an allocation of RM22mn under the 12th Malaysia Plan to boost the production of coconut, durian, pineapple, and banana. As part of its initiatives, DOAS supports small farmers by lending them land for farming at a minimal annual charge of RM150. With capital expenditure provided, small farmers are only required to manage the operational expenses (OPEX). Furthermore, DOAS has digitized the registration process for farmers and fishermen to apply for services and assistance schemes, thereby extending its reach to a broader audience through the e-tani platform. Despite this digital expansion, DOAS maintains a substantial presence with 155 offices and stations across Sarawak.

Positive Impact to Consumer Sector

We are optimistic about the potential benefits of the activities initiated by DOAS in the consumer sector. The initiatives aimed at commercializing agriculture and supporting small farmers and fishermen are expected to increase job opportunities, thereby boosting the disposable income of Sarawakians. DOAS is also focused on enhancing selfsufficiency and food security by transitioning from oil palm cultivation to high-value crops like coconut, durian, and banana, while also striving for self-sufficiency in rice production. These strategies are likely to raise the overall median income of the Sarawak populace, which will positively impact the consumer sector. As of 2022, Sarawak ranks 10th among Malaysian states with a mean household income of RM6,457 compared to Selangor and Kuala Lumpur, with mean incomes of RM12,223 and RM13,325, respectively. We believe that DOAS's efforts could further increase the mean household income in Sarawak.

Maintain OVERWEIGHT on the Consumer Sector

Looking at consumer sector under our coverage, we reiterate our OVERWEIGHT stance on the sector, supported by an anticipated increase in consumer spending resulting from several factors, including EPF Account 3 withdrawals, wage hikes for civil servants, cash handouts, and infrastructure improvements alongside higher tourist arrivals. We particularly favour the F&B segment and value-for-money retailers (i.e. MRDIY, AEON, and Padini) as the primary beneficiaries. Our top pick for the consumer sector is MRDIY (BUY, TP: RM2.49). In the staples segment, we also like FFB (BUY, TP: RM2.02) and Spritzer (BUY, TP: RM2.90).

Source: BIMB Securities Research - 24 Sept 2024