The Effect of AFTA on Malaysian Agriculture

The agriculture sector is the sector that would be adversely affected due to the implementation of AFTA. AFTA will also lead to agricultural country facing greater competition from other countries manufacturers that have excess production costs. American food imports has increased every year from the effects of increasing the number and standard of living. In 1996, imports of food (including animal feed) and agricultural inputs was RM10.5 billion compared with RM4.6 billion in 1990. In 1997 (January to October) the import is RM9.1 billion. Malaysia experienced a trade deficit in food (including pet food) and agricultural inputs. This means that there is an outflow of surplus state funds to finance imports. In 1996 exports amounted to RM4.2 billion, and in 1997 (January-October 1997) was RM4.5 billion. This means that the trade deficit in food and agricultural inputs in 1996 were RM6.3 billion and RM4.6 billion in 1997.

Although, agriculture Malaysia at this time still dominates the market, there are concerns that performance will not last after the AFTA implementation. Malaysia agricultural products can only compete at this juncture because the aid of subsidies and taxes imposed on the protected agricultural neighbours. So too, some agricultural products from Thailand and Indonesia still cheaper than products in the country. Furthermore, the output of vegetables such as from Cameron Highlands will rising prices due to rising prices of fertilizers and pesticides. 

Thailand agricultural products are available for sale at half price until two or three times cheaper than our country. For example tomatoes from Thailand were sold at wholesale at a price of RM14-RM20 for 20 kilograms while tomatoes in Cameron Highlands can reaching up to RM40 for the same quantity of tomatoes. Meanwhile, Indonesian products such as cabbage are sold cheaper than double the output of cabbage Cameron Highlands. Indeed, Indonesia is the quality of vegetables grown in the highlands of Sumatra is not so good. However, if no taxes are high, prices will be very cheap to buy the buyer gets a big advantage. Although forced to remove the damaged portion of vegetables, this is definitely not a problem. 

Effects of AFTA can be clearly seen on the rice/paddy sector. Before the end of 2004, the government has raised taxes rice from 0% to 40%. The purpose of the import tariff is to protect the domestic price of imported rice to be higher than the price of local rice. AFTA law requires a maximum of 40% imposed in 2005 and will be reduced to 20% by 2010.  According to the local rice industry, the rate of 20% of rice imports in 2010 will not be able to protect the local rice industry.  As a result farmers are ruined to excessive paddy supply and low prices. Our farmers also unable to compete in the open market without the subsidies provided by the government, as the production cost in neighbouring countries is much lower.

Market supply of fish, especially for the west coast of Peninsular Malaysia such as Perak, Selangor, Negeri Sembilan and the time is increasingly dominated by catches of southern Thailand. After the implementation AFTA, the fish are expected to dominate the market throughout the country. This is because fish caught by fishermen Malaysia is higher due to rising diesel prices, rising hot spares, and transportation of fish to market high. Perhaps the most affected industries are the automobile, even though Malaysia postpone the opening of the domestic market to foreign products until 2005. 

AFTA also affects more than 300,000 families of rice planters, more than 80,000 fishermen families, more than 400,000 smallholder families, more than 250,000 rubber and oil palm smallholder families. This is because industrial crops such as palm oil, rubber and cocoa will be dominated by the estate and corporate. International agricultural companies large and small farmers would be competing with the cause of small farmers increasingly marginalized. This is due to AFTA is in favour of big traders but not the farmers and small entrepreneurs. At the same time, priority is given to corporations to develop the agricultural sector. Thus, large corporations dominated the entire process of agricultural production such as production and stocks of seeds, processing, packaging, transportation and marketing. Farmers do not have the authority to determine and only employee of large agricultural companies. Farmers also do not have the power in the production of agriculture product. Not only that, small farmers also have only two options if they cannot compete which are selling the land or work as labourers.

Furthermore, implementation of AFTA has also affected the agricultural labourers. This is because the opening in the trade competitiveness of the company causing the transfer of labour-intensive to technology-intensive companies to reduce production costs. Thus, unskilled workers were adversely affected because the big businessmen looking for sites to operate in low-cost labour. The transfer also resulted in the employment opportunities of local workers and the diminishing power of employee consultation will also become more vulnerable.

As a conclusion, the implementation of AFTA will affect the farmers adversely. A reduction in the import duty will make foreign rice cheaper and this will crowd out domestic rice production. This crowding effect may potentially result in the unemployment of some 150,000 rice farming households putting additional burden on the government.