Comparative Advantage in Agricultural Products in Malaysia

Topics: Agriculture, Economics, International trade Pages: 15 (4633 words) Published: March 20, 2011
1.1

INTRODUCTION

Malaysia and Thailand are both members of ASEAN and these countries are agricultural based economy since 1960s. Malaysia and Thailand have tropical climate which is suitable for the plantation of palm oil and paddy in the country. 1.1.1 Rice Production in Malaysia and Thailand In Malaysia, rice is regarded as the most important crop in the food sub-sector. However, the area under cultivation of paddy has persistently declined since the mid 1970s (Athukorala et al., 2009) and 90% of the rice consumed locally was produced domestically. Rice production rose from over 1 million tonnes in 1960 to 1.9 million tonnes in 1979, but starting from year 1980 to 1989 the production of paddy decreased until 1.7 million tonnes. The peak of paddy’s production was from 1995-1999, when production increased over 2 million tonnes (Department of Statistics Malaysia, 2002). Rice production contributes significant portion of Thailand’s economy. Statistically, in 2009, Thailand produced more than 27 million tonnes rice (UN FAO) and exported an amount of 8.5 million tonnes. Thailand also recorded 10 million tonnes of rice exports in 2008 which remarkably far before other exporting countries. Besides, the production of rice itself consumed half of the farmable area and labor force in Thailand 1.

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1.1.2 Palm Oil Production in Malaysia and Thailand Production of palm oil in 2008-2009 was almost 43 million tonnes coming mainly from Indonesia and Malaysia with smaller amounts from Thailand and other more than 20 countries. Production in Malaysia has 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. Malaysian experience in producing, trading and financing palm oil is now being exported to other countries with favourable conditions for growing the oil palm 2. In palm oil industry, Thailand’s recorded as third world producer after Indonesia and Malaysia. Currently, the plantation area of this commodity is 512 000 hectares which successfully enable Thailand to double annual production to around 6 million tones, representing an annual growth rate of 9.5 percent 3.

1.2

STATEMENT OF RESEARCH ISSUE

Since 1960s, Malaysia and Thailand have agricultural based economy. The main crops of the countries are paddy and palm oil. Over the years the production of paddy in Malaysia is decreasing while in Thailand, the production volume of paddy is increasing, besides Thailand is known as the top exporter of the paddy in the world. On the other hand, within the plantation crops, palm oil is the main contributor of Malaysian economy. Before 1980s, Malaysia was the third largest exporter of palm oil and since 1985 there was a significant increase in the volume of production of palm oil. After 2000, Malaysia successfully became the second world exporter of palm oil.

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In the case of Thailand, palm oil is also one of the main plantation crops that contribute to the country’s economy. However, the plantation volume of the palm oil in Thailand is still less compared to Malaysia. In recent years, Thailand was declared as the world third largest exporter of palm oil. Based to this discussion, 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? The 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. 1.3 OBJECTIVE OF STUDY

The main aim of this study is 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...

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