The Malaysian paddy and rice industry has always been given special treatment based on the strategic importance of rice as a staple food commodity. This study attempts to simulate the impacts of changes in government intervention policy, namely the fertilizer subsidy on the Malaysian paddy and rice industry using system dynamics model. Simulation result indicates that fertilizer subsidy does give a significant impact to the paddy and rice industry. Fertilizer subsidy increases the yield obtained and hence increase paddy production. The removal of fertilizer subsidy decreased the paddy production and consequently, decrease the self sufficiency level (SSL). With the removal of fertilizer subsidy the importation of rice seem inevitable due to the reduction in productions. Meantime the growth in population will further put a pressure to the government to increase importation and to find alternative policies to sustain production and to increase yield.
Rice has been a staple food of the Malaysian community and the paddy/rice industry is considered as a strategic industry and always gets special treatment from the
government. The industry is heavily regulated because of its social, political and economic importance. In 2009, apart from being the main source of food, it also provides the livelihood to 172,000 paddy farmers in the country. Land utilization for paddy production is currently at 674,928 hectares which is 76 percent in Peninsular Malaysia (515,657 ha) while Sarawak and Sabah accounted for 18 percent (118,919 ha) and 6 percent (40,352 ha) of the total hectareage respectively. The complexity of the paddy/rice industry makes planning and policy formulation is not an easy task. For example the instability in rice prices in world
market which occur in early 1970, middle of 1980 and recently in 2008 give a big negative impact to the industry. Besides, paddy/rice industry is also the most highly protected industry in the country. There are three types of government interventions, these are: import restriction or quota, fertilizer subsidies and price supports.
In order to evaluate two policy measures meant to stimulate growth and crop production. The simulation results indicate that fertilizer subsidies promote cash production and a more land intensive production pattern while maize trade liberalization, on the other hand, stimulates food crops and land extensive production processes. In contrast indicated that the fertilizer subsidy is not a key determinant of the use of fertilizer in paddy cultivation. The regression results from this study indicated that changes in the prices of fertilizer and paddy do not have a significant effect on fertilizer usage, which points to the fact that the fertilizer subsidy is not a key determinant of the use of fertilizer in paddy cultivation. The study also found that there is a The Impact of Fertilizer Subsidy on Malaysia Paddy/Rice Industry Using a System Dynamics Approach International Journal of Social Science and Humanity relatively higher correlation between fertilizer usage and paddy price than between fertilizer usage and fertilizer price. These findings suggest that the fertilizer subsidy could be withdrawn gradually over time.