"Restoring Malaysia's Competitive Advantage in Agriculture:

Taking an opportunity based approach"

Murray Hunter University

Malaysia Perlis8th Malaysian International Agro-Bio Business Conference 2012

Agriculture in Malaysia still amounts to almost 12.0% of GDP

Agriculture employs more than 1.0 million people (13.0% workforce)

Taking Perspective

Oil Palm Rubber Rice Other TotalEstates 2,707

97.5%61

2.1%.. 10

0.35%2,778

40.5%

Land Development Schemes

1,243 84.0%

226 15.2%

2 0.1%

8 0.5%

1,479 21.5%

Independent Smallholdings*

540 20.7%

960 36.9%

680 26.1%

420 16.1%

2,600 38.0%

Grand Totals 4,490 65.5%

1,247 18.2%

682 9.9%

438 6.38%

6,857

Table 1: Crop Areas on Estates, Land Development Schemes and Individual Smallholdings in Malaysia, 2012 (‘000 hectares)

* Independent smallholders 1-2 Ha. plots managed part time

Crop Diversity Table 2: Agriculture Land Use, Overall Value & Growth

Crop/Activity

Land Use (%)

Overall Value (%)

Growth (%)

Palm Oil 29.29 34.40 5.5 Rubber 44.00 6.70 (1.4) Cocoa 3.29 5.90 (4.6) Rice/Paddy 11.6 3.50 0.2 Livestock 0.6 7.60 ? Coconut 4.33 1.69 (2.9) Fruits 4.50 8.60 5.6 Fisheries/Aquaculture N/A 14.40 ? Misc. Crops/Activities* 2.40 17.21 1.2

*Includes mixed horticulture, shifting cultivation, sugar, pepper, vegetables, tobacco.

Competitive AdvantageApproximate Costs of Plantation Development for Palm Oil, Rubber & Cocoa Crop Land Costs

RM per Ha. RM Costs to Maturity per Ha.

RM Total Costs

No. of Years to first harvest

Palm Oil 3000+ 6500 9500+ 2-3 Rubber 3000+ 14000 17000+ 5-7 Cocoa 3000+ N/A N/A 2-3

Approximate Cultivation, Harvesting and Handling Costs for Palm Oil, Rubber & Cocoa. Palm Oil Rubber Cocoa RM/Ha. RM/Ha. RM/Ha. Fertiliser Costs 702 134 541 Other Upkeep Costs 252 281 893 Total Upkeep Costs 954 415 1434 Collection Costs 721 2046 901 General Charges 479 608 969 Manufacturing & Despatch 217 67 320 Total Costs 2371 3135 3624

The Issues

Heavy use of chemicals. Leading to declining yields. Cause of high input costs. Loss of cover protection. Leading to residuals in crops.

Loss of humus Loss of trace elements Compact (inhibit root growth) Erosion Accumulation of chemicals

Carrier of disease (the unrecognized problem)

Contaminated water Poor drainage - floods Carry away top soils Generally afterthought – poor maintenance

Poor appreciation of the growth medium

Obtaining Finance

Technology

The Necessary Skills

Finding New Business Models

Farmers

“Mindset Barriers”(Small Holders)

• market passive • copy cat approach • ‘quick-fix approach’ • poor exposure and perhaps resistance to new

ideas,• practice isolation, • market isolation • perception of agriculture as only a fallback

profession • fixation on a single success.

“Knowledge Trap”Professor Hans-Dieter Evers of the University of Bonn

The process begins when data, knowledge and information is taken over without

understanding of the corresponding local and site specific issues involved and this data

becomes the basis to copy solutions into the local context

general optimism bias – overconfidence metaphoric idiom as ‘berlagak pandai’

and/or

‘segan bertanya sesat jalan’ (if we feel shy to ask, then we may go

unguided)

Culture of Competi ti veness

The wall between farming and business

The biggest barrier

The World has become a somewhat integrated market over the last few decades through the phenomena

known as globalization

Traditional economics would explain this

phenomena in terms of specialization,

comparative and relative advantage

Sociologists would talk in terms of the ‘cosmopolitan

man’

Product Opportunity

Gap

Social Social and cultural trends

and drivers. Reviving historical trends. Influence of international

trends. Changing demographics. Styles, fashions & fads.

Economic Stage of economic

development. State of the economy.

Level of disposable income. Macroeconomic, general

industry conditions, financial &geographical environment.

Technology Current state of the art and

emerging technology. Re-evaluating and utilizing existing technology in new

areas. New knowledge.

Invention.

Government & Regulation

Government needs & priorities.

Restriction by Government. New laws & regulations and impact on product markets

and supply chains. Trade liberalization.

Our Inner Self Our upbringing, domicile outlook, experiences, interests, skills & abilities, assumptions, beliefs,

attitudes, perception, cognitive processes, patterning and biases, our inner psych and emotions, imagination,

energy, and passion, etc. The way we interact and stimulated by the

environment and make connections

Randomness & Unexpectedness A random or unexpected

event that creates an opportunity

Changes in any of the factors

New Knowledge or Information

Interrelated Factors

Construction New technologies

New Business models

Imitation Replication & Extension

Allocative Supply/Demand changes

Demographic changes

Discovery Incongruities

Structural changes

Locus of change

Value creation

Analytical

Deductive (Black & white)

Intuitive

Inductive

Degree of ambiguity Active/Imaginative

Passive/Reactive The forms of opportunity©Hunter (2012)

Market Orientated Firms

High adaptability to the environment but low

generative idea & strategy ability

Conservative firms

Very low adaptability to environment

Both Market & Entrepreneurially Orientated Firms

High adaptive and idea generative & strategy development ability

Entrepreneurial Firms

High generative idea & strategy capability

Mar

ket

Ori

enta

tion

Entrepreneurial Orientation

High

High

Low

Low

Four potential firm opportunity seeking typologies

Success in the global market would depend upon……

Competitive advantage grows fundamentally out of value a firm is able to create for its buyers that exceeds the firm’s costs of creating it. Value is what buyers are willing to pay, and superior value stems from… providing unique benefits that more than offset a higher price. According to Professor Michael E. Porter

Restoring Competitive advantage

Must move from this:

To this:Branding

Promotion

New & efficient technologies

Novel new products

Its all about value (both industrial and consumer products)

USAAsian Influence

Sesame, wasabi, ginger, noodle and Asian

cabbage

Indian Influence

Fruit, spice and toasted nuts, chutney, quince

pear, roasted coriander, pistaschio,almond &

walnut

Blue and goat cheese

MexicoTarmarind, squash

flowers, huitlacoche (corn mushroom),

portobello mushroom, duck meat

North AmericaCuisines with most potential for growth

Mediterranean influence

Indian influence

Middle East influence

Slow Food

Europe

Fusion style

Thai, Indonesian, Vietnamese influences

Contemporary cuisine

Mediterranean influence

Exotic combinations

South America

Fusion style

Thai/ChineseWestern/ChineseIndonesian/Thai

American/Mediterranean

Italian

French

Asia/Pacific

The New marketing

Heaven Strategy (Dan Hill 2010)

Emotional Response

Response Rate

Negative Positive

Low

High

More negative/high

response

More positive/lower

response

More negative/lower

response

More positive/highe

r response

Industrial products with potential for growth

Cocoa in Samoa: Disadvantaged by distance and sea

Samoan cocoa into the finest handmade chocolate

Boutique crops with potential for growth

Sandalwood goes nuts in Katherine A contract to grow up to 1400 hectares of Indian Sandalwood outside of Katherine is pending on assurances from the NT Government of enough water.

Australian Wildflower Industry

Protea Leucospermum LeucadendronSerruria

Banksia Telopea Grevillea

This industry developed OUTSIDE the traditional global supply chain

Queensland

100 Growers

New South Wales

150 – 200 GrowersVictoria

60 Growers

South Australia

30 Growers

Tasmania

20 Growers

Production areasWestern Australia

150 – 180 Growers

• Possibly 200 growers• 43 active members of

PWGA• Exported via Sydney or

Melbourne (Japan)• Domestic market to

Sydney or Melbourne

Victoria227,600 sq km

ThryptomeneWax (Chamelaucium)BanksiaLeucadendronLeucospermum

ProteaLeucospermumLeucadendronSerruriaBanksiaTelopeaBruniaceae

ProteaLeucadendronBanksia

Tasmania67,800sq km

20 Growers

DryandraSerruria

New South Wales811,428 sq km

• 150 -200 growers• 2 active associations• Good govt support• Large Sydney domestic

market

Actinotus helianthiCeratopetalum gummiferumBanksia plagiocarpaLeucadendronProteaGrevillea

TelopeaGrevillea

ProteaLeucadendron

GrevilleaActinotus helianthi

Ceratopetalum gummiferumBanksia

plagiocarpa

Queensland1,787,200 sq km

Tropical foliageStenocarpusLeucadendron

AnigozanthosChamelauciumOzothamnusLeucadendronProteaLeucospermum

30 -100 GrowersDomestic and exportGood govt support

Stenocarpus Chamelaucium

South Australia984,000 sq km

30 Growers10% Adelaide domestic market20-40% export50-75% Eastern states domestic marketSome large growers >20ha

ProteaLeucadendronLeucospermum

BanksiaProteaLeucadendron

Leucospermum

ProteaLeucadendronLeucospermumBrunia

ChamelauciumAnigozanthos LeucadendronBanksia

Western Australia2,525,500 sq km

150 – 180 GrowersExport to Europe and JapanSmall local domestic market2 active associationsGovt support

Australian Wildflower Industry

Barriers to Entry

•Labour costs and availability•Exchange rate•Fuel and freight costs• Water issues•Developing new supply chains

Challenges

•Value chain development•Product value creation•Building an industry approach•Market development• Research & development

Competitive Advantage

•Diversity of plants for new products – min of 270 species currently sold•Close proximity to Eastern markets – lower freight costs and good trade relations•National body for cohesive industry – access R&D $$, local and international promotions, information flow (Industry claims)

Seek Innovation

through novel

means

Microwave Oven Pressure Cooker

Chemicals & Spoons, etc. Glassware

Tissue Culture

• Minimise Production scale to account for initial low sales/production quantities and lower capital investment

• Mobile GMP Facility

• Simplified Technology

Locked into old paradigms of business

We need to move from here…

To Here …

Conclusion: Integrated Competitive Advantage

Haram (Those things prohibited by

Allah in the Al Qu’ran)

HACCP

GMP

Sustainable environment, community

& business

Community Benefit

Toyyibaan

Clean Healthy

Non-exploitive

Traceable

Supply Chain

Ethical

The Halal/Toyyib supply chain is another example of integrated competitive advantage:

Non-Muslim concepts of ethics, sustainability, and goodness are merging with Islamic concepts

Summary• The “good times” of palm oil and rubber demand and prices has caused great complacency• The sector is heavily reliant of foreign labour where sources may dry up relatively quickly•New crops initiatives are slow – some hope with “Crops for the Future” initiative• Perceptions about university-industry linkages poor•The paradigm that “agriculture” is a business just like any other business does not exist•A risk that the farmer may become “an extinct species”•The whole “rice” paradigm has to be overturned with a “new approach”•“New crops” research, knowledge, and dissemination and “extension” are critical• Agro-entrepreneurship pedagogy and delivery needs to be re-examined.

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