A case study between Malaysia and Thailand in palm oil and paddy production

PARIMELA DEVI (EGA090056)SA’DIAH (EGA090058)SITI ROHAYA (EGA090047)SANEMKHAN (EGA090042)

COMPARATIVE ADVANTAGE IN AGRICULTURAL SECTOR :

Introduction

Rice productio

n

MalaysiaRice is regarded as the most important

crop in the food sub-sector.

Mid 70s, the area under cultivation of

paddy has persistently declined and 90% of the rice consumed

locally was produced domestically.

(Athukorala et al., 2009)

1980 to 1989 the production of paddy decreased until 1.7

million tonnes(Department of

Statistics Malaysia, 2002).

ThailandRice production

contributes significant portion of Thai’s economy.

Thailand also recorded 10 million tonnes of rice exports in 2008 which remarkably far before

other exporting countries.

2009, Thailand produced more than 27 million

tonnes rice and exported an amount of 8.5 million

tonnes.

Besides, the production of rice itself consumed

half of the farmable area and labor force in

Thailand

Palm oil production

MalaysiaMalaysian

experience in producing, trading and financing palm

oil is now being exported to other

countries with favorable conditions for growing the oil

palm.

Production of palm oil increased from

only 1.3 million tonnes in 1975,

through 4.1 million tonnes in 1985 and 7.8 million tonnes in 1995 to 17.7 million

tonnes in 2008-2009.

Thailand

Thailand’s recorded as third world producer after Indonesia and

Malaysia.

Plantation area of this commodity is 512 000 hectares which successfully enable Thailand to

double annual production to around

6 million tonnes, representing an

annual growth rate of 9.5 percent

Introduction

Malaysia Paddy and Rice production (‘000 tons)

Palm Oil Production in Thailand and Malaysia (000

metric tons)

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

2006/07 2007/08 2008/09 2009/2010

MALAYSIA

THAILAND

Palm Oil Export in Thailand and Malaysia (000 metric tons)

Research StatementThe study aims to identify which country has comparative advantage in paddy and palm oil production and also to analyze the factors which contribute to it.

Does Malaysia has comparative advantage in producing palm oil?

Does Thailand have comparative advantage in paddy’s production?

What are the factors that made Malaysia become one of the leading palm oil exporters in the world and Thailand to lead in paddy’s world export market?

TSCs of total agricultural products in Malaysia and Thailand

Objective of the Study To examine the pattern of Comparative

Advantage for Malaysia and Thailand in production of palm oil and paddy between 1961 and 2005 using Revealed Comparative Advantage (RCA).

It will reveal the factors that make the country enjoy comparative advantage over the production of paddy and palm oil and to discuss how a country with lower comparative advantage can adopt the strategies and policies of another country which has comparative advantage in those products.

Significance of the Study

To assist the government/policy makers of each country to specialize their production of certain agricultural product and also adopt the successful strategies and policies such as research and development, productive labor and land, government policies which are implemented by another country. By doing this, the contribution of agricultural sector to the GDP of the country will increase since agro-based industry is still playing a vital role in a country’s economy.

Literature Review

(iv) R&D

M’sia: Beintem

a et al. (2008)

Thai:Suphahnachart et al. (2009)

(iii)

Expo

rt

M’sia

:(Dep

artm

ent o

f Sta

tistic

s Malay

sia,

200

2, U

N FAO)

Thai

:Sia

mwal

la a

nd S

etbo

onsa

rng

(199

1,19

93)

(i) GDP

M

sia:Ahmad, F et a

l. (1999)

Thai:Perehudoff (2007)

(ii)Production M’sia:Pletcher (1990,Athukorala et al. (2009)

Thai:Ammar (1996), and Coxhead et al. (1998)

Paddy

(iii) Disadvantages of palm oil productionThai

Choy (2004) Bandita Yangdee (2003)

(iv) Contribution to economyThai

Mbabaali (2000),Khun Krisada Chavananand (2009)

(v) Tax and SubsidiesThai

(World Bank, 2008)

(i) ExportM’sia:

(Pletcher, 1990),Gopal (2001)

(ii) R &DM’sia

(Kajisa et al., 1997) Tengku Mohd Ariff (1999)

Palm Oil

Statement Of Hypothesis Malaysia has comparative advantage in palm oil while

Thailand has comparative advantage in paddy.

This will be proven by using Revealed Comparative Advantage (RCA) which is calculated using Trade Specialization Coefficient (TSC), (Balassa, 1986). TSC takes a value between 1 and -1.

The study assumes that the country mentioned above has comparative advantage over a certain agricultural product due to different government policies, research and development and factors of production.

Conceptual Framework

Trade:Export and ImportAgricultural share of GDP

Technology:

R&D

Factors of production:

Land and labor

Government policies:

Subsidies and tax

Comparative advantage in agricultural

sector (A case study

between Malaysia and

Thailand, production of

paddy and palm oil)