universiti putra malaysia - psasir.upm.edu.mypsasir.upm.edu.my/39253/1/fp 2012 66r.pdf ·...

UNIVERSITI PUTRA MALAYSIA

NURUL NADIA RAMLI

FP 2012 66

A SYSTEM DYNAMICS SIMULATION OF THE MALAYSIAN RICE POLICY

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A SYSTEM DYNAMICS SIMULATION OF THE

MALAYSIAN RICE POLICY

NURUL NADIA RAMLI

MASTER OF SCIENCE

UNIVERSITI PUTRA MALAYSIA

2012

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A SYSTEM DYNAMICS SIMULATION OF THE MALAYSIAN RICE

POLICY

By

NURUL NADIA RAMLI

Thesis Submitted to the School of Graduate Studies, Universiti Putra Malaysia,

in Fulfillment of the Requirements for the Degree of Master of Science

2012

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Abstract of thesis presented to the Senate of Universiti Putra Malaysia in fulfilment

of the requirement for the degree of Master of Science

A SYSTEM DYNAMICS SIMULATION OF THE MALAYSIAN RICE

POLICY

By

NURUL NADIA RAMLI

May 2012

Chair : Professor Mad Nasir Shamsudin, PhD

Faculty: Agriculture

Among the agricultural industries in Malaysia, the rice industry is the most highly

protected, with a web of policy intervention in place to ensure the sustainability of

the industry. There are three types of government intervention which are import

restrictions, production subsidies and price supports. This study therefore attempts to

simulate the impacts of government policy on the Malaysian rice industry in terms of

its production, demand, trade and self-sufficiency level (SSL) with changes in policy

instruments. A system dynamics model was employed in simulating the impacts of

changes in the government policies.

The simulation result indicated that the decrease in quantity of import quota leads to

a decline in rice stock. Based on the simulation results, the rice stock showed an s

shaped growth followed by a decline for the period of 2015. After that period, the

rice stock will decline gradually per year. This scenario occurs due to the imposition

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of import quota that restricts the amount of rice that could be imported.

Consequently, this leads to the decline in rice stock as the rice stock should be

released in order to meet demand. The percentage of decline is about 17 per cent as

compared to the baseline scenario.

Simulation result indicated that the fertilizers used can give a significant impact to

the yield. The removal of NPK fertilizer subsidy will lead to the decline in the yield

obtained. The percentage decline in yield is about 24 percent. This occurs because

the paddy farmers do not buy the additional NPK fertilizer, resulting in the decline in

yield obtained. Thereafter, this leads to the decline in the SSL as the population

continues to increase. Percentage decline in SSL is about 25.47 percent.

A simulation on the price support revealed that it can give a positive impact to the

farmers’ gross income. The result suggests that if the government removes the price

support policy, the farmers’ gross income will decrease about 18.4 percent. This is

because under this policy, farmers will earn additional income of about RM248.10

for each metric tonne of paddy they produce. In other words, for each metric tonne

of paddy production, the farmers will gain RM248.10. Thus, withdrawal of the price

support policy may result to the decrease in farmers’ gross income.

The simulation results indicated that the introduction of new variety of paddy leads

to increase in yield, and hence also increase in the production level. The percentage

increase in yield and production is about 3 percent per year in 2015 and 2021.

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Nevertheless this may not be able to sustain the industry in terms of the targeted self-

sufficiency level due to the increase in population. The simulation results also

suggested that from 2011 until 2014, the decrease of percentage in SSL is about 2

percent per year. In 2015 until 2016 the percentage decrease in SSL declines to 0.5

percent due to the increase in rice production because of the introduction of new

variety of paddy in year 2014 until 2016. Unfortunately after 2016, the percentage

decline in SSL is back to its normal rate of about 2 percent per year until 2021.

Again in 2021 if the new variety is being used, the percentage decline in SSL will be

0.5 percent per year.

Therefore, it can be concluded that the overall policy implication indicated that

paddy production in Malaysia cannot be sustained without fertilizer subsidy and

price support programs. However due to trade liberalization, the initiatives to support

the industry will be limited. The reduction in import quota leads to the decline in rice

stock as the rice stock must be released to meet demand. Thus it is suggested that

production must be increased to replenish the rice stock that has been released.

Thus, the major policy implications from the study suggest that attention is be given

to increase in the yield in order to meet demand. Therefore the government should

introduce a policy that can encourage the farmers to increase their yield through

acquisition of extra fertilizers or through better management practices.

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Special funds could be established to provide assistance for efficient paddy

production and also to educate farmers to increase paddy production. Investments on

research and development also should be encouraged since the introduction of new

variety of paddy leads to the increase in the yield obtained. Investments by the

government in the Research & Development, extension and technology transfer must

continue and further strengthened. These efforts would considerably improve the

agricultural productivity in order to ensure adequate supply of rice for the Malaysian

population.

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Abstrak tesis yang dikemukakan kepada Senat Universiti Putra Malaysia sebagai

memenuhi keperluan untuk ijazah Master Sains

SIMULASI SISTEM DINAMIK KE ATAS POLISI BERAS DI MALAYSIA

Oleh

NURUL NADIA RAMLI

Mei 2012

Pengerusi : Profesor Mad Nasir Shamsudin, PhD

Fakulti : Pertanian

Di antara industri pertanian di Malaysia, industri beras merupakan industri yang

sangat dilindungi, dengan dasar campur tangan kerajaan untuk memastikan

kemampanan industri. Terdapat tiga jenis campur tangan kerajaan iaitu sekatan

import, subsidi pengeluaran dan subsidi harga. Oleh itu, kajian ini mensimulasikan

kesan-kesan polisi kerajaan ke atas industri beras Malaysia dari segi pengeluaran,

permintaan, perdagangan dan tahap sara diri dengan perubahan dalam instrumen

polisi. Model sistem dinamik telah digunakan untuk mensimulasikan kesan

perubahan polisi-polisi kerajaan.

Hasil simulasi menunjukkan bahawa pengurangan kuantiti kuota import membawa

kepada penurunan dalam stok beras. Berdasarkan keputusan simulasi, stok beras

menunjukkan pertumbuhan berbentuk s yang diikuti oleh penurunan pada tahun

2015. Selepas tempoh itu, stok beras akan berkurangan secara beransur-ansur setiap

tahun. Senario ini berlaku disebabkan oleh pengenaan kuota import yang

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mengehadkan jumlah beras yang boleh diimport. Oleh yang demikian, ini membawa

kepada penurunan dalam stok beras kerana stok beras perlu dikeluarkan untuk

memenuhi permintaan. Peratusan penurunan adalah 17 peratus berbanding “baseline

scenario”.

Hasil dari simulasi menggambarkan bahawa baja yang digunakan boleh memberikan

kesan yang siknifikan kepada hasil. Keputusan simulasi juga mencadangkan bahawa

penghapusan subsidi baja NPK akan membawa kepada penurunan dalam hasil yang

diperolehi. Penurunan peratusan hasil adalah sebanyak 24 peratus. Senario ini

berlaku kerana pesawah tidak membeli baja NPK tambahan, mengakibatkan

penurunan dalam hasil yang diperolehi. Seterusnya, ini membawa kepada penurunan

dalam tahap sara diri disebabkan oleh peningkatan populasi penduduk. Penurunan

peratusan tahap sara diri adalah sebanyak kira-kira 25.47 peratus.

Simulasi subsidi harga mendedahkan bahawa subsidi harga boleh memberi impak

yang positif kepada pendapatan kasar petani. Keputusan simulasi menunjukkan

bahawa jika kerajaan menghapuskan polisi subsidi harga, pendapatan kasar petani

akan jatuh kira-kira 18.4 peratus. Ini adalah kerana di bawah polisi ini, petani akan

mendapat pendapatan tambahan sebanyak kira-kira RM248.10 bagi setiap tan padi

yang dihasilkan. Dalam erti kata lain, bagi setiap tan pengeluaran padi, para petani

akan mendapat RM248.10. Oleh itu, penarikan balik polisi subsidi harga boleh

mengakibatkan penurunan dalam pendapatan kasar petani.

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Keputusan simulasi menunjukkan bahawa pengenalan variati baru untuk padi

membawa kepada peningkatan dalam hasil, dan dengan itu juga dapat meningkatkan

pengeluaran beras. Peratus peningkatan dalam hasil dan pengeluaran adalah kira-kira

3 peratus setahun pada tahun 2015 dan 2021. Walau bagaimanapun, ini mungkin

tidak dapat mengekalkan industri dari segi tahap sasaran sara diri disebabkan oleh

peningkatan dalam populasi. Keputusan simulasi juga mencadangkan bahawa dari

tahun 2011 hingga 2014, tahap sara diri menurun sebanyak kira-kira 2 peratus

setahun. Pada tahun 2015 sehingga 2016 peratusan penurunan dalam tahap sara diri

telah menurun kepada 0.5 peratus disebabkan oleh peningkatan dalam pengeluaran

beras disebabkan oleh pengenalan variati baru untuk padi dalam tahun 2014 dan

sehingga 2016. Malangnya selepas 2016, penurunan peratusan di tahap sara diri

kembali ke kadar biasa kira-kira 2 peratus setahun sehingga 2021. Pada 2021 sekali

lagi sekiranya variati baru diperkenalkan, peratus penurunan dalam tahap sara diri

akan menjadi 0.5 peratus setahun.

Oleh itu, ia boleh disimpulkan bahawa implikasi polisi keseluruhan menunjukkan

bahawa pengeluaran padi di Malaysia tidak boleh dikekalkan tanpa subsidi baja dan

subsidi harga. Walau bagaimanapun disebabkan oleh liberalisasi perdagangan,

inisiatif untuk menyokong industri akan terhad. Pengurangan kuota import

membawa kepada penurunan dalam stok beras kerana stok beras mesti dikeluarkan

untuk memenuhi permintaan. Oleh itu, adalah disyorkan bahawa pengeluaran perlu

ditingkatkan untuk menambah lagi stok beras yang telah dikeluarkan.

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Oleh itu, implikasi polisi utama daripada kajian menunjukkan bahawa perhatian

perlu diberikan untuk meningkatkan hasil bagi memenuhi permintaan. Oleh itu,

kerajaan perlu memperkenalkan satu polisi berkaitan bantuan yang dapat

menggalakkan petani untuk meningkatkan hasil mereka melalui pemerolehan baja

tambahan atau melalui amalan pengurusan yang lebih baik.

Dana khas boleh ditubuhkan untuk menyediakan bantuan bagi pengeluaran padi

yang cekap dan juga untuk mendidik petani untuk meningkatkan pengeluaran padi.

Pelaburan ke atas penyelidikan dan pembangunan juga harus digalakkan

memandangkan pengenalan variati baru untuk padi membawa kepada peningkatan

dalam hasil yang diperolehi. Pelaburan oleh kerajaan dalam penyelidikan dan

pembangunan, lanjutan dan pemindahan teknologi perlu diteruskan dan

diperkukuhkan lagi. Usaha-usaha ini boleh meningkatkan produktiviti pertanian

untuk memastikan bekalan beras yang mencukupi untuk penduduk Malaysia.

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ACKNOWLEDGEMENTS

All praise and thanks be to Allah the almighty for His guidance and Grace

I would like to take this opportunity to thank everyone who contributed to the

successful completion of this thesis. Special thanks are expressed to my thesis

supervisor Professor Dr. Mad Nasir Shamsudin for his invaluable advice, guidance

and support throughout the thesis completation. Without his tireless assistance,

leadership and confidence in my abilities, this thesis would not come to its timely

completion. I also thank him because he has opened my mind to a New World of

knowledge, opportunities and experiences and a beter understanding. Working

beside him was extremely demanding and challenging, and helped me significantly

to get my best intellectual shape. Sincere thanks are extended to my supervisory

committee members, Prof. Dr. Zainal Abidin Mohamed and Associate Prof. Dr.

Alias Radam for their constructive criticsms and recommendations in this study.

My sincere appreciation is also expressed to my colleagues at Department of

Agribusiness and Information System (JPSM), Mark, Muaz, Kelly and Faizal for

their support throughout these years. My sincere thank is also expressed to all

lecturers in JPSM for their advice and support throughout the thesis completation.

To my friends Kamarul Hidayah, Faezah, Zuraidah, Nuralina, Nurul Asrin, Hilda,

Shafina and Khansa and who are are not mentioned in this short acknowledgement

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for lack of space, I appreciate your help and contribution toward the completation of

this thesis.

I am especially thankful to my family for their love and support. To my husband, I

appreciated his understanding and moral support in completing this thesis. His

support gave me the focus and determination needed to complete this thesis. I am

most thankful for my brothers and sisters. I am also grateful to my parents for their

prayers and encouraging words. Their wisdom has helped me a lot.

Finally, I would like to thank to the Ministry of Higher Education Malaysia and

Universiti Putra Malaysia for the financial support in completing my Master’s

Degree.

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I certify that a Thesis Examination Committee has met on 7 May 2012 to conduct

the final examination of Nurul Nadia Binti Ramli on her thesis entitled "A

System Dynamics Simulation of the Malaysian Rice Policy" in accordance

with the Universities and University Colleges Act 1971 and the Constitution of

the Universiti Putra Malaysia [P.U.(A) 106] 15 March 1998. The Committee

recommends that the student be awarded the Master of Science.

Members of the Thesis Examination Committee were as follows:

Mohd Mansor Ismail, PhD

Professor

Faculty of Agriculture

Universiti Putra Malaysia

(Chairman)

Norsida Man, PhD

Associate Professor



(Internal Examiner)

Ismail Abd Latif, PhD



(Internal Examiner)

Abu Hassan Md Isa, PhD

Professor

Department of Accounting and Finance

Universiti Malaysia Sarawak

Malaysia

(External Examiner)

SEOW HENG FONG, PhD Professor and Deputy Dean

School of Graduate Studies


Date:

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This thesis was submitted to the Senate of Universiti Putra Malaysia and has been

accepted as fulfilment of the requirement for the degree of Master of Science. The

members of the Supervisory Committee were as follows:

Mad Nasir Shamsudin, PhD

Professor



(Chairman)

Zainal Abidin Mohamed, PhD

Professor



(Member)

Alias Radam, PhD

Associate Professor

Faculty of Economics and Management


(Member)

___________________________

BUJANG BIN KIM HUAT, PhD

Professor and Dean

School of Graduate Studies


Date:

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DECLARATION

I declare that the thesis is my original work except for quotations and citations which

have been duly acknowledge. I also declare that it has not been previously, and is not

concurrently, submitted for any other degree at Universiti Putra Malaysia or at any

other institutions.

__________________________________

NURUL NADIA BINTI RAMLI

Date:

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TABLE OF CONTENTS

ABSTRACT

ABSTRAK

ACKNOWLEDGEMENTS

APPROVAL

DECLARATION

LIST OF TABLES

LIST OF FIGURES

LIST OF APPENDICES

LIST OF ABBREVIATIONS

CHAPTER

1 INTRODUCTION

1.1 The Malaysian Rice Industry

1.1.1 Area Planted

1.1.2 Production of Paddy

1.1.3 Production of Rice

1.1.4 Import of Rice

1.1.5 Consumption of Rice

1.2 Malaysian Rice Policy

1.2.1 Production Policy

1.2.1.1 Fertilizer Subsidy

1.2.1.2 Guaranteed Minimum Price

1.2.1.3 Paddy Price Subsidy Scheme (PPS)

1.2.2 Import Policy

1.3 Problem Statement

1.4 Objectives

1.5 Significance of Study

1.6 Structure of Thesis

2 LITERATURE REVIEW

2.1 Government Intervention on Rice Industry

2.2 Commodity Modelling

2.3 Rice Modelling

2.4 System Dynamics

2.4.1 Economic Models

2.4.2 Management: Firm and Market Model

2.5 Econometrics versus System Dynamics

2.5.1 Econometric Model

2.5.2 System Dynamics

2.5.3 Strengths of System Dynamics Model

2.6 Conclusion

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3 METHODOLOGY

3.1 Introduction

3.2 Theoretical Framework

3.2.1 Import Restriction

3.2.2 Fertilizer Subsidy

3.2.3 Price Support

3.3 Steps of Modelling Process

3.3.1 Problem Articulation (Boundary Selection)

3.3.2 Formulation of Dynamics Hypothesis

3.3.3 Formulation of Simulation Model

3.3.4 Testing

3.3.5 Policy Design and Evaluation

3.4 System Dynamics

3.4.1 System

3.4.2 Simulation

3.4.3 System Dynamics Model

3.4.4 Types of Data

3.5 System Dynamics Model for the Malaysian Rice Industry

3.5.1 Technical Component (First Sub Model)

3.5.2 Economic Component (Second Sub Model)

3.6 Data Sources

3.7 Descriptions of Scenarios

3.7.1 Baseline Scenario

3.7.2 Scenario 1 (Import Quota)

3.7.3 Scenario 2 (Fertilizer Subsidy)

3.7.4 Scenario 3 (Price Support)

3.7.5 Scenario 4 (Improvement in Yield)

4 RESULTS AND DISCUSSION

4.1 Analysis of Simulation Results

4.1.1 Baseline Scenario

4.1.1.1 Technical Component (Baseline Scenario)

4.1.1.2 Economic Component (Baseline Scenario)

4.1.2 Scenario 1 (Import Quota)

4.1.2.1 Technical Component (Scenario 1)

4.1.2.2 Economic Component (Scenario 1)

4.1.3 Scenario 2 (Fertilizer Subsidy)



4.1.4 Scenario 3 (Price Support)



4.1.5 Scenario 4 (Improvement in Yield)



4.2 Validation of System Dynamics Model

4.2.1 Pre- Simulation Model Validation

4.2.1.1 Boundary Adequacy Test

4.2.1.2 Model Structure Test

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4.2.1.3 Error Checking Test

4.2.1.4 Dimensional Test

4.2.2 Post Simulation Model Validation

4.2.2.1 Extreme Condition Test

4.2.2.1.1 Extreme Condition

5 SUMMARY AND CONCLUSION

5.1 Conclusions

5.2 Policy Implications

REFERENCES

APPENDICES

BIODATA OF STUDENT

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