Liberalisation challenge for dairy sector

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Mention dairy farming and most Malaysians will inevitable think of the National Feedlot Corporation scandal. That is unfortunate because the negative fallout from the scandal has cast a negative public perception over the sector.

This does an injustice to the good progress being made by the sector. One of the entry point projects (EPPs) under the agriculture national key economic area (NKEA) is the establishment of local dairy clusters. Aside from the goal to increase the nation’s milk sufficiency from 2% to 5% by 2020, this initiative also aims to help elevate the earning power of milk farmers.

“As an anchor company, we do contract farming with about 35 farmers. Aside from providing assistance to farmers, we also educate them on standards and best practices to maintain quality. Farmers now enjoy a 30% higher price for their Grade A milk. It is very encouraging, farmers are excited since this is a sustainable process model which allows them to be a full time dairy farmer,” says Loi Tuan Ee, managing director of Allied Dairy Sdn Bhd. Allied Dairy manages the largest dairy cluster in Peninsula Malaysia.

In terms of funding, this EPP is estimated to receive RM709 million, with RM184 million in public funding. The impact on Gross National Income is expected to be around RM326 million. Essentially, the funds are used to assist farmers through startup grants, providing them with high quality dairy cows from Australia, refrigerated milk tanks and solar water heaters: “All of this is done in an effort to improve both the production quantity as well as quality,” Loi explains.

One major deterrent towards moving into foreign markets is the fact that the diary industry is heavily protected with trade barriers in most countries. Import quotas and tariffs are common place and often viewed as necessary for the protection of local economies. The issues of agricultural product tariffs have brought many trade talks to a screeching halt, like the Doha Round, due to the inability and unwillingness to compromise from small and large countries alike.

“For now, all the milk produced by the dairy cluster is meant for local consumption. There are no plans to venture into foreign markets, nor are there plans to move into production of dairy by-products like skim milk powder. Due to the fact that the milk production industry in Malaysia is still at its infancy, production costs are much higher compared to New Zealand and Australia, making it difficult to compete,” says Loi.

Looming in the near future is the effects of the Asean-Australia-New Zealand Free Trade Agreement (AANZFTA) that was signed in 2009. Under this agreement, most Australian and New Zealand exports entering Malaysia will be duty free by 2020 and vice versa. Loi remains skeptical towards the benefits of this arrangement: “Small companies are always at a disadvantage. Our industry is still in infancy, so it is not time to liberalise just yet.”

To counter this, the best option is to educate consumers: “Some of the milk available in the chiller is not necessarily fresh milk. Consumers need to start reading the labels and ensure that the product is not made from milk solids. Also, Australian milk takes one month to get from farm to shelf, so why pay a premium for that when we offer milk that is only a few days old,” he says.

Ultimately, the benefits of buying local are plentiful. They are often cheaper and fresher, with lower carbon footprint. More importantly, it helps drive and develop the local economy and it also improves the country’s balance of trade through import substitution. This is what the diary industry wishes to achieve in terms of the country’s milk supply. The key to this success lies with the consumer.

Photo Flickr: User Law_keven

 

 

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