The dramatic transformation of rural Malaysia

Inclusive growth is what the Philippines needs. Most of the poor who are left behind in economic growth are in the countryside. They are the coconut farmers, small fishers, upland dwellers and landless farm workers.

This article discusses the Malaysian experience in rural poverty reduction from the 1960s to the 1990s. Specifically, it focuses on two development models:  the Federal Land Development Authority (Felda); and the Federal Land Consolidation and Rehabilitation Authority (Felcra).

Philippine experts confuse Felda and Felcra, and the two with the nucleus estate model of Indonesia.  Let’s clarify the main difference: Felda develops government forest lands for landless rural families while Felcra consolidates private lands into an economic scale. Both apply the modern plantation management system developed by the private sector to large tracks of lands either former forest lands or private lands.

The article describes the origins and the impact of these organizations in transforming rural Malaysia. It will help guide the Philippine movers and shakers in solving the high mass poverty in the country.

Rural Malaysia in the 1960s and 1970s

Malaysia became independent from British rule in 1957.  It had a dualistic agriculture: the smallholders who were mostly rice farmers; and the foreign-owned plantations, mostly in rubber.

Rural poverty was widespread. Total poverty in Malaysia was 52.4 percent in 1970 which dropped to 5.1 percent in 2002, a 47.3 percent fall in over 30 years. Rural poverty declined from 60 percent in 1970 to 11 percent in 2002. The poor were concentrated among rubber smallholders, rice farmers, plantation workers, and fishermen.

Since 1970, the Malaysian government adopted effective strategies which reduced poverty incidence. Among these strategies were: (a) the landless and those with uneconomical holdings were resettled in new land development schemes, where they could work, and eventually own, the rubber and oil palm plantations operating under the schemes; and (b) the in-situ development of existing agricultural land through rehabilitation and consolidation of the land, replacement of old commercial crops with new higher-yielding clones and the introduction of better planting techniques.

Felda

The creation of Felda was one of the most important developments in the history of Malaysia.  It was formed in 1956 under the stewardship of Malaysia’s second Prime Minister Tun Abdul Razak.  Felda’s policy statement in 1956 bannered: “no need to be poor.”  In 1957, the first scheme was to plant rubber and in 1961, the first oil palm scheme was launched.

Settlers were drawn from landless rural Malays. State lands, mostly forest land, were cleared for development, using private contractors under Felda supervision. Settlers were given at least four hectares of land planted to rubber or oil palm. All settlers were required to reside at the settlement itself, and were allotted 1,000 square-meter lots in a planned village, where their homes were located. Basic facilities were readily provided, such as water supply, schools, health centers, and mosques.

At the start, Felda schemes were designed as “cooperatives” where instead of each settler owning a defined piece of land, each settler held an equal share in the ownership of the scheme. However, the settlers did not prefer this scheme, as workers who did not tend to the land properly still benefited.

The government then set up a three-phase plan where, in the first phase, the cooperative remained as a mechanism for the settlers to learn how to farm. In the second phase, each settler was given a specific plot of land to work, and in the third phase, he was given the land title to that plot.  However, the settler was forbidden from selling the land without permission from Felda.

The costs of developing the land are borne by loans made to the settlers. The loan payments were deducted from the settlers’ income over a 15-year period. In opening land and managing settlers, Felda was guided by two basic principles: “giving opportunities to the landless” and “the best land for the right people”.

Felda eventually developed 317 schemes on some 811,000 ha (89 percent oil palm and 10 percent rubber) for 112,635 settlers, or 1.6 million people. Each scheme covered over 2,500 hectares with around 600 farmers. The average family income in 2010 was MR3,047 per month, or over P40,000 a month.

Felda is the world’s most successful land agency but there is a cost. In the 1980s, a World Bank report indicated that the capital spending reached about $25,000 per family for land development to new town amenities. Moreover, its strategy of clearing forest lands will not be acceptable to many environmentalists today. Felda’s current land development is now centered on replanting of old plantation areas, and forest clearance and burning.

Felcra

Parallel to the creation of Felda, the government created Felcra in 1966. This was in response to the need of more than 200,000 hectares of public lands which were given to farmers under the Group Settlement Act.

Some 1.2 to 3.2 hectares of land were each given to participants who were landless or with small landholdings. Little assistance was given and many schemes failed. In other areas, problems arose due to land fragmentation under the inheritance rights.

Thus as early as 1964, a working group was formed to create an autonomous land agency with the following functions:  (1) rehabilitate and develop fragmented land holdings plus other areas; (2) develop such holdings into efficient production units; and (3) advice and assist landholders after rehabilitation to ensure efficient agriculture practices.

Felcra’s operation was funded by grants from the Federal government.  For land development, low-interest loans were granted with a long grace period, interest capitalized and repayment over 25 years.

The smallholder agrees to a long-term usufruct arrangement. Felcra employed three profit schemes: (1) landowners have the right to revenues to their land size; (2) 80 percent of the revenues goes to the participants; and 20 percent for loan repayment; and (3) all participants as shareholders are entitled to profit sharing.

At the area level, each cluster manager manages a collective area of 8-10 schemes.  Each scheme has 50 to 1,000 ha in size. By 1995, Felcra had developed 268,000 hectares in oil palm, rubber, and ice. The latter is the only rice estate in Malaysia.

Incidentally, the director-general of Felcra during 1980-1997, Dato Mustapa Juman, was guest at the UA&P in February 2013 and met with the government and private sector in Pasig, Quezon City and Davao.

Nucleus Estate Smallholder (NES) Scheme

The scheme of having a corporate nucleus plantation and surrounding growers is not an Indonesian invention, but the country dramatically expanded the strategy.  The “earliest”   NES was the Mumias Sugar Scheme in Kenya with a private company as nucleus. In principle, the nucleus provides the technology, markets, processing and finance facilitation to the small growers.

In return, it has the raw materials for their factory without the hassle of owning the lands.  This system was applied massively in the expansion of oil palm industry in Indonesia and benefiting over one million small growers.

The NES is different from the Felda and Felcra management models because the latter are developers/managers of the schemes and the landowners are the small holders. The former owns the plantation lands and processing plants and hires workers. The outgrowers, normally 20 percent of the whole plantation areas, own the land they till. The Felda and Felcra schemes have some public-private partnership elements.

Going Forward

What do Felda and Felcra models tell us?  Good management is crucial to achieving good yields and, in turn, farm incomes.  And eventually reducing rural poverty.

Scale is also necessary in varying degrees for tree crops to achieve a critical mass of production to support processing plants and management structure.

Good management entails certain quality controls in site selection, seedling choice, planting standards, crop management, harvesting and the logistics of the produce to the factory or buying stations. While it is good to empower the small farmers, it is very important that they learn the management system that will bring good productivity and income.

We can learn from the Malaysians. There is not one single “silver bullet” to solve rural poverty. But the Malaysian track record in poverty reduction is just too great to ignore.

(The article reflects the personal opinion of the author and does not reflect the official stand of the Management Association of the Philippines. The author is the Executive Director of the Center for Food and AgriBusiness of the University of Asia & the Pacific. Feedback at [email protected] and [email protected].  For previous articles, please visit <map.org.ph>)