NATIONAL AGRICOMMODITY POLICY (2021-2030)

Policy Document 95

Identify and ear-mark suitable areas for large scale rubber cultivation

Focus will be given to revive the upstream segment by forging a stronger alliance with and
streamlining functions amongst the various rubber-related institutions to coordinate programmes
for replanting, new planting, and collection of raw materials. This will involve modernising and
professionalising management of smallholdings and integrating them into midstream buyers
through cluster development and mini-estate concepts, including collection depots set up on a
co-operative basis. To this end, efforts will be channelled to establish 15 cooperatives and 15 rubber
collection centres to boost production from smallholdings.

The usage of e-bidding through the My Rubber Online system (MyRol) will be expanded further
to cover more smallholders so that they can benefit from more competitive farm-gate prices.
Replanting will be intensified, in which 25,000 ha of land is to be replanted with high yielding clones
yearly. New planting will be undertaken in collaboration with State Governments by identifying and
earmarking suitable areas for large-scale rubber cultivation.

Implement a quality assurance scheme to regulate imports of rubber products, and to support
trade and domestic consumption of rubber and rubber-related products

Quality assurance schemes will be put in place to enforce Malaysian Standards (MS) aligned with
internationally recognised standards on rubber products that are imported or produced locally to
ensure domestic market access for high-quality products, whilst enhancing the competitiveness of
the domestic rubber industry. The scheme will also explore options for imposing mandatory product
certification particularly for imports of rubber products used for health and safety purposes. The
MS developed will be implemented in collaboration with product certification and enforcement
agencies.

2
Productivity: Expand productivity
improvement efforts across upstream,
midstream and downstream

Strengthen advisory and extension services to smallholdings

In order to improve the productivity of smallholdings, advisory and extension services will be
strengthened and provided to farmers. The focus will be on adopting good farming practices, which
includes replanting using high yielding clones, adoption of modern farming methods, application
of digital platforms for tracking output and quality such as RRIMNiaga, and adoption of harvesting
technologies such as RRIMFLOW, gas stimulant, and low intensity tapping system (LITS).

96 National Agricommodity Policy 2021-2030 (DAKN2030)

Introduce incentives and encourage progress towards IR4.0 for modernisation of the
midstream segment

To revive the vital midstream segment, restructuring and creation of an additional funding scheme
and incentives will be emphasised. This will help to modernise the industry, besides improving the
management and operational excellence of rubber processing plants. Consolidation of existing
facilities to reduce over-capacity and create economies of scale will also be encouraged to rationalise
technology investment. Towards this end, training and skill development programmes will be
enhanced to produce an IR 4.0-ready workforce, in addition to nurturing management professionals
and researchers.

3
Value-creation: Strengthen R&D&C for
greater commercialisation of products

Strengthen R&D&C capabilities and coordination between industry, academia and research
institutions with specific focus on developing specialised and high value-added products

Cooperation and coordination will be enhanced to strengthen R&D&C capabilities between industry,
academia and research institutions with specific focus on development of specialised and high
value-added products – especially in specialty rubber-based products (dry rubber). Joint research
with the private sector will be encouraged to ensure commercial viability and applicability of
research output.

Extend financial support for commercialisation of products with high potential

Efforts will be made towards extending financial support for pre-commercialisation and
commercialisation of products with high potential. Champions and new players in producing
specialty rubber products will be nurtured, such as masterbatch compounds, hoses, tyres,
high damping rubber bearings (HDRB), latex foam products and conveyor belts. Local rubber
industry players will be prioritised when seeking suppliers for national projects in automotive and
infrastructure. Mandatory product certification will be implemented to ensure high standards of
quality, health and safety requirements on imports of rubber products such as condoms, teats and
soothers, as well as inner tubes for trucks and bus tyres.

Policy Document 97

FLAGSHIP PROGRAMME 4: KEDAH RUBBER CITY

Background

Kedah Rubber City (KRC) is the first dedicated Rubber Industrial Park in Kedah. Covering an
area of 1,244 acres, it is envisioned to accelerate the development of Malaysia’s rubber industry.
The project is a synergistic effort supported by Indonesia, Malaysia and Thailand to stimulate
socioeconomic development in the border region. It will be developed into a “Rubber Corridor”
that will link the region’s major rubber producers under the Indonesia-Malaysia-Thailand
Growth Triangle (IMT-GT) sub-regional cooperation initiative. Key players in the rubber industry,
in particular high-value product manufacturers, will be encouraged to invest in KRC based on
the conducive eco-system to be developed that can produce raw material supply necessary for
the sustainable development of the manufacturing sector.

KRC is surrounded by highly reputed and globally recognised government-linked R&D
organisations that will serve as effective linkages. This provides a platform for dialogue
between industry players within KRC with related local and global agencies and institutions,
bringing benefits for manufacturing and research activities, as well as commercialisation
of projects. Academic institutions within the region can act as knowledge centres that
encourage intellectual interaction, leading to the creation of an innovative community within
the KRC and Northern region of Malaysia.

(left) Examples of rubber products; (right) KRC site at Kedah

Objectives

Spur economic growth and increase inclusivity through the rubber industry
Increase private sector investments in rubber products manufacturing
Provide job opportunities for the local community
Leverage on the abundance of raw material supply in the region to create value-added

downstream activities

98 National Agricommodity Policy 2021-2030 (DAKN2030)

Target Segment

Domestic and international investors
Manufacturers of advanced latex products, tyre and tyre related products, automotive

rubber products, engineering rubber products, specialty rubber materials and
biotechnology rubber-based products

Lead Agency and Relevant Stakeholders

Lead Agency: Northern Corridor Implementation Authority (NCIA)
Relevant Stakeholders: rubber industry players

Expected Outcomes

Modernisation of the rubber product manufacturing sectors
Higher contribution to national GDP by the rubber industry
Contribute to the national goal of achieving high-income status

Source: Malaysian Rubber Board (MRB)

4
Market Development: Grow markets
through industry-led strategic
partnerships

Promote the transition of high-potential companies into higher-value industries and higher-
value branding and distribution

Incentives and support services will be enhanced to identify high-potential companies that can be
transitioned into higher-value industries (e.g., in the dry rubber industry) via joint ventures (JVs),
mergers and technology adoption. This will be achieved by strengthening support services and
enabling a conducive business environment, establishing R&D&C incentives and restructuring
financial facilities to promote investment into diversified rubber products. Innovative financial
instruments targeting to grow local enterprises and MSMEs will be introduced with the support of
financial institutions. Adoption of standards and certification to improve the quality of products will
add further impetus for strengthening the domestic market and enhancing foreign market access.

Policy Document 99

Intensify promotional efforts to increase global market share for specialty and dry rubber
products, creating Malaysia’s presence in higher value product

Two main strategies will be pursued to sustain and explore potential new markets for Malaysian
rubber products:

Strengthening promotional programmes including participation in trade shows such as the
Automotive Aftermarket Products Expo (AAPEX) in the USA and Automechanika Frankfurt in
Germany (for the promotion of automotive components, green rubber and tyres)

Continuing Free Trade Agreements (FTA) negotiations under the Malaysia-EU FTA (MEUFTA) and
Malaysia-European Free Trade Association Economic Partnership Agreement (MEEPA)

Further promotional activities will focus on key markets to continuously promote the qualities of
SMR which are in compliance with standard requirements set by the USA and Europe. To enhance
market expansion for products such as tyres into the USA and Europe, local production capacity will
be improved with additional financial support and incentives to existing manufacturers to expand
production and adopt advanced technologies.

5
Inclusiveness: Enhance Bumiputera
participation and safeguard
smallholders’ wellbeing

Increase support for local Bumiputera enterprises

The involvement of Bumiputera entrepreneurs in the rubber downstream segment will be
strengthened by MRB through the Usahawan Bumiputera Industri Getah (UIBG) Programme. The
programme aims to establish 20 Bumiputera entrepreneurs within the next five years. This includes
setting up a vendor development programme with anchor companies, conducting specialised
product development courses and establishing an incubator scheme for products with commercial
viability.

Increase adoption of digital tools for establishment of a comprehensive database

The MyRol and RRIMNiaga systems will be rolled out nationwide, enabling the development of a
comprehensive database and demographic profile of smallholders throughout the nation. MRB will
use the data to enrol eligible smallholders into the IPG price support scheme and collaborate with
relevant agencies to keep track of new planting, replanting, collection and supply of raw materials.

100 National Agricommodity Policy 2021-2030 (DAKN2030)

ENABLERS NEEDED

Two enablers are outlined to ensure effective implementation of the strategies to synergise
transformation of the rubber industry value chain.

Investment Facilitation

The current financial support and schemes by various government institutions will be restrategised
to support investment in high-value product development and commercialisation. Private financial
institutions will be encouraged to introduce innovative and easily accessible financial instruments
to encourage local MSMEs to venture into rubber-based products. A comprehensive downstream
segment development strategy highlighting specific products with good market potential and
outlining the necessary infrastructure (physical, financial, human resource, market access) will
support further downstream product diversification.

Institutional Realignment

The responsibility to manage and grow the nation’s rubber industry cuts across a number of
Ministries (MPIC; the Ministry of Rural Development; the Ministry of International Trade and Industry)
and federal agencies including MRB, RISDA, FELDA and FELCRA. In addition, corridor development
agencies and state-level entities, including in Sabah and Sarawak also play a role in the rubber
industry’s development.

Each of these organisations has different management structures, financial allocation, and
prescribed functions, resulting in the need for better coordination, collaboration and clear
accountabilities to effectively drive the rubber industry’s development. Realignment of these various
functions is needed to support rubber smallholders in a more cohesive manner. Coordination of
major functions under a single agency could avoid overlaps and ensure efficiency in the utilisation of
funds and manpower.

Policy Document 101



Chapter

Modernising The Timber
Industry Towards

Increased Resilience

5

104 National Agricommodity Policy 2021-2030 (DAKN2030)

Policy Document 105

Way Forward 2021-2030

16 14

Indicators Strategies
& Targets

1 5

SUSTAINABILITY INCLUSIVENESS
Promoting Increase participation of

sustainability across the Bumiputera in the
timber value chain Timber industry

S1. Boost the S13. Empower Bumiputera
implementation of participation in the
certification of timber timber industry
and timber products through
smart-partnership
S2. Strengthen the timber activities
raw material supply
chain S14. Raise workers’ welfare

S3. Continue the Forest 2 4
Plantation
Development PRODUCTIVITY MARKET DEVELOPMENT
Programme Expand productivity Enhance certification
improvement efforts practices and
S4. Encourage alternative across upstream and industry-led strategic
sustainable sources of downstream segments partnerships
raw material, using S5. Improve efficiency of
circular economy S9. Encourage and
principle e.g., bamboo, the timber industry by promote greater
oil palm trunk (OPT), using modern uptake of certification
kenaf and biomass technology (GMP, 5S, (legal and sustainable)
lean management, for the timber industry
R&D&C, smart
manufacturing) S10. Foster foreign-local
S6. Promote take up of collaboration in
IR4.0, automation and commercialisation for
mechanisation among international markets
industry players
S11. Promote greater
consumption of
sustainable local
timber products

S12. Develop Malaysian
firms to become
globally competitive
timber and
timber-based
companies

3

VALUE-CREATION
Accelerate the shift to higher value-added activities
S7. Elevate the industry’s initiatives towards ODM, OBM, and production of ‘Made in Malaysia’ timber products
S8. Expand design capability and innovation for the Malaysian timber industry through transfer of technology
and branding, including in collaboration with universities and TVET institutions

106 National Agricommodity Policy 2021-2030 (DAKN2030)

1 CURRENT
STATUS

The timber industry recorded steady growth in
the last decade

The timber industry, under the purview of the Malaysian Timber Industry Board (MTIB), the
Malaysian Timber Council (MTC) and the Malaysian Timber Certification Council (MTCC), is the third-
largest contributor to the Agricommodity sector after palm oil and rubber. Globally, the Malaysian
timber industry is well-recognised. In the upstream segment, in 2019 Malaysia was in the top 10 for
global timber exports of plywood (4th) and sawn timber (9th), while fibreboard (13th), logs (17th) and
veneer (18th) were in the global top 20. In the downstream segment, Malaysia was in the top 10 for
wooden furniture (8th), wooden frames (6th), mouldings (8th), and in the top 20 for Builders’ Joinery
and Carpentry, BJC (16th). The definition of upstream and downstream segments of the timber
industry is best illustrated in Exhibit 5.1.

Exhibit 5.1: Upstream and Downstream Segments of the Timber Industry

Source: National Timber Industry Policy 2009-2020 (MTIB)

Policy Document 107

In 2020, timber export value was RM 22 billion, achieving 90% of the RM25 billion target. Sectoral
GDP contribution of the timber industry was RM15.2 billion, accounting for 1.1% of the country’s GDP.
The highest contributor to timber exports was wooden furniture at 48.2% (RM10.63 billion), followed
by plywood at 12.9% (RM2.84 billion) and sawn timber at 10.9% (RM2.39 billion).
Imports grew strongly with a CAGR of 14.7% between 2010 (RM1.73 billion) and 2020 (RM6.81 billion).
In 2020, the main products imported were wooden and rattan furniture 28.6% (RM1.95 billion),
followed by plywood 15.5% (RM1.06 billion) and sawn timber 8.3% (RM0.56 billion). As imports are
increasing at a more rapid rate than exports (CAGR of exports is at 0.8%), the trade surplus has
decreased by a CAGR of -1.9% over the period of 2010 to 2020.

Exhibit 5.2: Timber’s Contribution to GDP (2010 -2020)

Exhibit 5.3: Timber’s Exports and Import (2010 - 2020)

108 National Agricommodity Policy 2021-2030 (DAKN2030)

Increased certification practices in face of
rising global demands

The timber industry has increased efforts to keep abreast with evolving market requirements and
demands in the international market for timber and timber products. The rise in demand has been
for certified timber. From 2010 to 2020, the area of certified forests65 increased from 4.23 million
ha to 5.27 million ha. A total of 22 Forest Management Units (FMUs) and eight Forest Plantation
Management Units (FPMUs) hold the Malaysian Timber Certification Scheme (MTCS) forest
management certification in 2020. This marks an increase from just eight FMUs in 2010. The number
of companies holding Chain of Custody (CoC) certification has also increased from 125 in 2010 to 381
in 2020.

ENSURING SUSTAINABILITY THROUGH CERTIFICATION UNDER MTCS

The Malaysian Timber Certification Scheme (MTCS) is operated by the Malaysian Timber Certification
Council (MTCC). It provides an independent assessment of forest management practices and audits timber
product manufacturers or exporters to ascertain that their products are
sourced from sustainably managed forests. Besides ensuring sustainable
management of Malaysia’s natural forest and forest plantations, the MTCS
has contributed significantly towards a green pathway for growth, facilitating
the supply of sustainable timber to meet the market demand for certified
timber and timber products. As of December 2020, a total of 5.27 million ha
of forest areas and 381 timber companies have been certified under the MTCS.

In meeting legality requirements as stipulated in the Lacey Act (USA),
European Union Timber Regulation and Australia Illegal Logging Prohibition Act, the MTCS chain of custody
standard has incorporated a Due Diligence System (DDS) mechanism which ensures that no material from
“controversial sources” enters the supply chain.

The MTCS has been endorsed by the Programme for the Endorsement of Forest Certification (PEFC), the

world’s largest forest certification system since 2009. As a PEFC-

endorsed scheme, the MTCS is recognised in national procurement Four main certified timber
policies of countries such as Belgium, Denmark, Finland, France, products exported

Germany, the Netherlands, New Zealand, Switzerland and the United

Kingdom. The scheme is also accepted under the Malaysian Green

Building Index and other international Green Building Systems in

Australia, Canada, Italy, Japan, the Netherlands, Singapore, United

Arab Emirates, United Kingdom, and the United States.

Source: Malaysian Timber Certification Council (MTCC)

65 Under the PEFC-endorsed Malaysian Timber Certification Scheme (MTCS)

Policy Document 109

The Forest Plantation Development Programme
aims to address raw material shortages

To overcome the shortage of raw material for the consumption of the downstream segment, the
Government launched the Forest Plantation Development Programme (FPDP) in 2005. The plan was
to plant 130,000 ha of plantation forest by 2020. In addition, Sabah and Sarawak have also launched
their own forest plantation programmes. To date, there are 350,000 ha and 450,000 ha of forest
plantation in Sabah and Sarawak respectively. The take-up rate of the FPDP is 97% (126,458 ha) as at
December 2020. The first forest plantation harvest is expected in 2022.

110 National Agricommodity Policy 2021-2030 (DAKN2030)

Value addition has increased

In accordance with the National Timber Industry Policy (NATIP) 2009-2020, the industry has seen
a structural shift towards exports of value-added timber products. In 2010, the ratio of value-added
exports versus primary products was 42 : 58. This ratio improved to 66 : 34 in 2020, surpassing the
target of 60 : 40 by 2020.

Exhibit 5.4: Value-Added Products Exports versus Primary Products Exports

Policy Document 111

2 KEY
ISSUES

The timber industry faces several challenges, namely shortage of timber for the downstream
segment, stricter product requirements from importing countries, heavy reliance on foreign
workforce and low productivity of the industry. The lack of investment in R&D&C and innovation
has also limited the potential of the timber industry. Furthermore, the industry faces challenges in
increasing the participation of Bumiputera in the industry.

Upstream

Shortage of timber raw material

The timber industry is experiencing a shortage of raw materials, particularly rubberwood.
Supply shortages of rubberwood timber have affected the manufacturing of furniture and other
downstream products. The main reason for the shortage is reduced rubber replanting, especially
in Peninsular Malaysia. In 2020, the rubber replanting area in Peninsular Malaysia declined to 13,566
ha as compared to 15,520 ha in 2019. Based on the current replanting area, it is estimated that there
will be 488,376 m3 of rubberwood sawn timber supply, which only meets about 65% of the annual
demand of approximately 750,000 m3.

Exhibit 5.5: Timber Production (2010 - 2018)

112 National Agricommodity Policy 2021-2030 (DAKN2030)

The Forest Plantation Development Programme (FPDP) which is implemented in Peninsular
Malaysia, Sabah and Sarawak, aims to fill the gap in the supply of raw materials. The current
allocation of RM1.045 billion which started in 2005 as a soft-loan to encourage planting was
exhausted in 2020. The first harvest of the FPDP will come on-stream in 2022, and 26 million m3
is expected to be produced from the targeted hectarage of 130,000 ha. The second tranche of
the FPDP programme has approved 50,000 ha of planted forest to be implemented during the
Twelfth12th Malaysia Plan period (2021-2025). Sabah and Sarawak also have their own separate forest
plantations. Despite all the investments in forest plantations, they will only partially close the gap in
timber shortages.

Downstream

Evolving international trends and stricter requirements from importing countries

The timber industry is susceptible to developments and trends in the global, political, economic and
environmental as well as climate change landscapes. The implementation of various international
regulations on timber products by major importing countries such as the USA (Lacey Act), Australia
(the Illegal Logging Prohibition Act), EU (the European Union Timber Regulation or EUTR), Japan
(the Clean Wood Act) and the UK (Timber Regulation) will limit and constrain market access.
The rising demand for certified timber globally is already a major challenge for Malaysian timber
products and will continue to shape future demand.

Heavy reliance on foreign workforce and low productivity

Currently, the timber industry, in particular the furniture industry, is heavily dependent on foreign
workers with 55% foreign worker employment in 2019. The main reason for low participation of local
workers and young talents (both general and skilled workers) in this industry is due to the negative
perception of less conducive working environments, associated with 3D (Dirty, Dangerous and
Difficult) factors. Malaysian workers have wider choices beyond those offered by the timber industry.
Worker productivity66 in the timber industry at RM67,201/person/year is low as compared to the
national productivity of RM92,000/person/year in 2020. This is likely due to the lack of adoption
of mechanisation and automation in the timber industry, and also due to the shortage of skilled
workers.

Low adoption of R&D&C and innovation

In terms of downstream activities, there is a lack of R&D&C and innovation particularly in the
aspect of design. The Malaysian furniture industry is most prominent in the Original Equipment
Manufacturer (OEM) model that is centred on rubberwood. This is due to the historical development
of the downstream segment, as the initial investors were Taiwanese companies who adopted the
OEM model. As a result of the successful OEM model, the industry has grown tremendously, as
shown by the world rankings for Malaysian wooden furniture.

66 Worker productivity is defined as total output divided by all workers in the establishment.

Policy Document 113

However, the furniture industry has not progressed towards the Original Design Manufacturing
(ODM) and Original Brand Manufacturing (OBM) stages, which could result in higher mark-ups, of
more than 50% compared to OEM. This is because the transition to ODM or OBM requires significant
investments in R&D&C and innovation, significantly higher levels of design skills and talent, and an
understanding of international market demands and requirements. Moving to the next stage of
ODM and OBM will also require knowledge of trends, marshalling design talent, penetrating market
niches and establishing brand presence. Making this transition successful for the industry will
require establishing a supporting ecosystem that straddles the entire value chain.

Limited Bumiputera participation

The contribution of Bumiputera entrepreneurs to the timber industry’s exports is relatively small,
at RM64.7 million or 0.3% of total exports of timber and timber products in 2020. In general,
Bumiputera entrepreneurs have limited capabilities and technologies, rendering them at a
disadvantage to compete and increase market share. Due to their small scale of operation,
Bumiputera entrepreneurs are also heavily dependent on unskilled workers to manage their mill
operations and machinery, in addition to lacking capital to purchase high-tech machinery to
enhance efficiency. Many of them operate mainly at the artisan level (for example in carpentry,
woodcarving and joinery) and their skills are not passed on to the next generation. Consequently, the
knowledge and experience of the skilled artisans, for example in the east coast states of Peninsular
Malaysia have not received recognition, nor enjoyed improved market value.

114 National Agricommodity Policy 2021-2030 (DAKN2030)

3 WAY FORWARD
FOR RUBBER

The timber industry needs continued supply from the upstream segment for its sustainability.
Modernisation of the downstream industry will further fuel Malaysia’s strong position in the global
timber products market. The content that follows covers key indicators, targets to 2025 and 2030 for
the timber industry, and related strategies and enablers needed.

TIMBER: INDICATORS, TARGETS
AND STRATEGIES 2021-2030

Policy Thrust Indicators Baseline 2020 Target 2025 Target 2030 Strategies
29% 40% 50%
SUSTAINABILITY 1. Percentage Boost the
Promote certified forest 30 FMUs 40 FMUs 50 FMUs implementation of
sustainability areas (natural 381 CoC 600 CoC 750 CoC certification of timber
across the timber forest and forest and timber products in
value chain plantation) to total 4:1 Malaysia
forest areas 100,000
Strengthen the timber
2. Number of MTCS 15% raw material supply
certificate holders chain

PRODUCTIVITY 3. Labour Intensity – 4:1 4:1 Continue the
Expand Land : Labour ratio 67,201 83,000 Forest Plantation
productivity (ha : worker) Development
improvement 10% 13% Programme
efforts across 4. Labour
upstream and Productivity 1,331 1,600 Encourage alternative
downstream (RM, value added sustainable sources
segments per unit labour) of raw material using
circular economy
5. Transfer/ principles, e.g., oil palm
licensing and trunk (OPT), kenaf and
commercialisation biomass
rate of R&D
projects Improve efficiency of
the timber industry
6. Value of foreign by using modern
and local technology (GMP, 5S,
investment lean management,
(RM million) R&D&C, smart
manufacturing)

Promote take up of
IR4.0, automation and
mechanisation among
industry players

1,850

Policy Document 115

Policy Thrust Indicators Baseline 2020 Target 2025 Target 2030 Strategies
15,160 19,615 27,044
VALUE-CREATION 7. Contribution to 5,182 3,823 3,164 Elevate the industry’s
Accelerate the GDP (RM million) 9,978 15,792 23,881 initiative towards ODM,
shift to higher 1 : 0.7 1 : 0.75 1 : 0.8 OBM, and production
value-added Upstream GDP of ‘Made in Malaysia’
activities (RM million) 58% 65% 70% timber products

MARKET Downstream GDP 34 : 66 32 : 68 Expand design
DEVELOPMENT (RM million) 28,000 capability and
Enhance 22,022 9,000 innovation for
certif ication 8. Utilisation 7,591 19,000 the Malaysian
practices rate (Ratio of 14,431 20,070 timber industry
and industry- Production: 20,000 through transfer
led strategic Domestic 15,209 of technology and
partnerships Utilisation)67 17,500 500 branding, including
RM85 million in collaboration with
9. Percentage universities and TVET
of companies 59.2% institutions
classified ODM and (500/845)
OBM 30 : 70

10. Ratio of Exports 32,800 Encourage and
Upstream : 9,800 promote greater
Downstream 23,000 uptake of certification
22,850 (legal and sustainable)
11. Total Exports 24,500 for the timber industry
(RM million)
600 Foster foreign-local
Exports Upstream RM100 million collaboration in
(RM million) commercialisation for
international markets
Exports
Downstream Promote greater
(RM million) consumption of
sustainable local
12. Balance of Trade timber products
(RM million)
Develop Malaysian
13. Value of Domestic firms to become
Consumption globally competitive
(RM million) timber and timber-
based companies
INCLUSIVENESS 14. Number of 370
Increase Bumiputera RM65 million Empower Bumiputera
Bumiputera entrepreneurs participation in the
participation 43.8% timber industry
in the timber 15. Contribution of (370/845) through smart-
industry Agricommodity- partnership activities
based MSMEs to
Agricommodity- Raise workers’ welfare
based output (RM)
71%
16. Percentage of (600/845)
Bumiputera
MSMEs in
midstream &
downstream
segments–
especially “Next
Gen” Bumiputera
Entrepreneurs

Source: MPIC, MTIB, MIDA

67 Formula used: 1 : (1 – [export volume/total production]); products only inclusive of sawlogs, sawntimber, plywood, veneer and moulding

116 National Agricommodity Policy 2021-2030 (DAKN2030)

STRATEGIES TO

MODERNISE THE
TIMBER INDUSTRY

TOWARDS INCREASED RESILIENCE

Fourteen strategies will be implemented along the five policy thrusts, with the objective of
improving sustainability practices across the value chain to support the modernisation of the
downstream segment.

1
Sustainability: Promote sustainability
across the timber value chain

Boost the implementation of certification of timber and timber products in Malaysia

Certification is increasingly becoming the key to gaining access to international markets. Consumer
markets see certification as the epiphany of sustainability in ensuring that the timber products they
purchase come from sustainably managed forests. These are seen as a conscious effort on their part
towards reducing deforestation, protecting biodiversity and peat areas, as well as mitigating climate
change impacts.

Malaysia’s commitment to implementing sustainable forest management is strengthened by the
MTCS in 2001 which provides for independent assessment of forest management practices with
respect to the sustainability requirements of a prescribed certification standard. Greater uptake of
certification is envisaged, which will see an increase in the number of certified FMUs, FPMUs and
CoC certificate holders. Hence, more certified timber materials will be available across the timber
value chain throughout Malaysia.

Strengthen the timber raw material supply chain

As the problem of raw material shortages exacerbates further, imports of timber raw materials have
also increased. It is thus important to ensure that the entire raw material supply chain is free from
non-legal and non-sustainable products. Traceability has also become important in that regard.

Policy Document 117

Continue the Forest Plantation Development Programme 2.0 (FPDP 2.0)

In response to persistent timber shortages, Malaysia initiated a forest plantation programme in
2005 and established Forest Plantation Development Sdn Bhd in 2006. The funding of that initial
programme has ended in 2020. Continued funding for the FPDP 2.0 could produce an additional 26
million m3 of plantation timbers from the current targeted hectarage, and that would reduce the
shortage of raw materials. FPDP 2.0 envisages it as a fund in the form of soft loans for plantation
owners and farmers. FPDP 2.0 will focus on selected species, based on industry needs.

FLAGSHIP PROGRAMME 5: FOREST PLANTATION
DEVELOPMENT PROGRAMME (FPDP) 2.0

Background

In an effort to reduce pressure on natural forests as a source of raw materials and to ensure its
availability for the timber industry, the Government is promoting the development of large-
scale commercial forest plantations. In March 2005, the Ministry of Plantation Industries and
Commodities (MPIC) was given the important task by the Cabinet of establishing large-scale
commercial forest plantations. Therefore, the Government had launched the Forest Plantation
Development Programme (FPDP) in 2007. The programme’s target was to develop 130,000 ha
of commercial forest plantation by 2020. This programme will prioritise selected fast-growing
species that can be felled within 15 years. The take-up rate of the FPDP is 97% (126,458 ha) as at
December 2020.

Given its importance, the Government has allocated RM500 million through Budget 2021 to
continue the development of forest plantations in a second phase known as FPDP 2.0. Under
FPDP 2.0, the allowable area is 4 ha and above, depending on the planted species. It can be
implemented through existing means or community farming, involving the B40 group in the
plantation sector through companies, cooperatives or related agencies. Some improvements
will be made in FPDP 2.0, including:

shortening the maturity of the loan to benefit more people;
prioritising degraded forest areas;
implementing Shariah-compliant loans; and
listing of new species depending on the suitability and needs of the industry, and ensuring

that these species give good returns to forest plantation entrepreneurs.

Sabah and Sarawak also have their tree banking (forest plantation) programmes. Sarawak has
a total of 456,855 ha under different species while Sabah has about 350,000 ha.

118 National Agricommodity Policy 2021-2030 (DAKN2030)

Objectives

Ensure continuous availability of timber raw materials for the country’s timber industry
Reduce pressure on production of timber from natural forests
Provide opportunities for private investors to venture into the forest plantation sector
Create job opportunities or entrepreneurship opportunities for the B40 group

Target Segment
Timber plantation owners

Lead Agency and Relevant Stakeholders

Lead Agency: MTIB, FPDSB Rubberwood plantation
Relevant Stakeholders: timber plantation owners (B40 and

other groups)

Expected Outcomes

Estimated 50,000 ha of forest plantations developed in the first 5 years (2021-2025)
Estimated raw material supply turnover of 10 million m3 for a felling cycle of 4 to 15 years,

depending on the planted species

Source: Malaysian Timber Industry Board (MTIB)

Encourage alternative sustainable sources of raw material using circular economy principles,
e.g., oil palm trunk (OPT), kenaf and biomass

A further programme to mitigate raw material shortages is to leverage the circular economy to
encourage the use of alternative sources of raw materials, such as oil palm trunks (OPT), biomass,
kenaf/plant-based fibres, and bamboo. , palm-based biomass and oil palm trunks. These alternative
sources are sustainable as they grow naturally or are by-products of other sustainable sources.

Policy Document 119

2
Productivity: Expand productivity
improvement efforts across upstream
and downstream segments

Improve efficiency of the timber industry by using modern technology (GMP, 5S, lean
management, R&D&C, smart manufacturing)

Improving efficiency is a vital strategy for the entire timber industry. Key components of that
strategy include Good Manufacturing Practices (GMP), 5S (Sort, Set in Order, Shine, Standardise,
Sustain) and lean management – all of these will raise the efficiency of the timber industry.

Adoption of smart manufacturing technologies will also increase productivity of the industry. In this
regard, utilisation of digital and e-commerce platforms will be useful in different parts of the timber
supply chain. With that, younger and skilled talent will also be attracted to the timber industry.

Promote take up of IR4.0, automation and mechanisation among industry players

To further raise the industry’s competitiveness, the Government is committed to using the latest
technologies to increase productivity through automation and mechanisation, as well as to design
new and better products, such as Cross-Laminated Timber (CLT) and Laminated Veneer Lumber
(LVL). In line with IR4.0, MIDA has launched the Domestic Investment Strategic Fund (DISF) to
accelerate the shift of Malaysian firms to high value-added, high technology, knowledge-intensive
and innovation industries. Some key IR4.0 technologies relevant to the timber industry include
the use of Unmanned Autonomous Vehicles (UAV) for aerial survey of forests, undertaking forest
inventory, and aerial management of pests and diseases; 3D log scanning can establish traceability
especially if combined with blockchain technology. IR4.0 technologies will enable the industry to
think creatively on improving the entire value chain from manufacturing to distribution to delivering
better customer services. Some of these technologies are already in use in the timber industry in
Malaysia, while others will be actively encouraged during this policy period.

120 National Agricommodity Policy 2021-2030 (DAKN2030)

3
Value-creation: Accelerate the shift to
higher value-added activities

Elevate the industry’s initiative towards ODM and OBM, and production of ‘Made in Malaysia’
timber products

Malaysia is known as an OEM in wooden furniture products. However, the higher value-added
segments of the industry are in design (ODM) and branding (OBM). The goal is thus to have ‘Made by
Malaysia’ products that are internationally recognised and globally accepted. Shifting towards ODM
and OBM will be facilitated through incentives for investment and other forms of support needed for
the industry in making this transition.

Expand design capabilities and innovation for the Malaysian timber Industry through
technology transfer and branding, including in collaboration with universities and TVET
institutions

For an ODM and OBM strategy, it is necessary to create an ecosystem and network of furniture
designers who have the skills, knowledge and experience in major furniture and lifestyle consumer
markets. Malaysia has already started various programmes to enhance creativity and talent in
design, e.g., TANGGAM Design Centre, Furniture Design Competition, MOBILI, Professional Designers
Programme and Design Incubator Programme (DIP). These programmes will continue to be
expanded and improvised during this policy period.

In addition, it is vital to develop a collaboration programme with international designers to
strengthen design capabilities and spur innovation for the Malaysian timber industry. The
establishment of design centres will help to create a critical mass of talent in design and innovation.
It is also important to widen the ecosystem to international networks, universities, schools of design
and architecture and to other design centres of excellence.

Policy Document 121

FLAGSHIP PROGRAMME 6: FURNITURE ORIGINAL DESIGN
AND BRANDINGDESIGN AND BRANDING INTENSIFICATION

Background

Malaysia’s achievement in the OEM sector of the timber industry is evidenced by its world
ranking in the wooden furniture (8th) category in 2019. <NOTE: 2020 data to be updated once
published>. In this climate of intense global competition, companies must differentiate
themselves through new concepts and outstanding products developed based on a deep
understanding of consumer needs. MTIB, MTC and the Malaysian Furniture Council (MFC)
furniture design programmes to transform the furniture industry, including:

TANGGAM Design Programme: TANGGAM® Design Centre (TDC) is equipped with design
facilities and it is a design hub for designers, students, related industries or any other end-
users.

MOBILI - Furniture Design Competition (MOBILI):
an annual competition where winners are selected
to participate in major international fairs to gain
exposure and build networks with exhibitors, furniture
manufacturers and entrepreneurs.

Professional Designers Programme (PDP): combines
local creative talents with local furniture manufacturing
capabilities to produce new designs and products
that are ready for local and international markets. This
collaboration is further uplifted with assistance from a
select group of international designers.

Design Incubator Programme (DIP): helps the Malaysian
timber and furniture industry grow and upgrade
along the design and brand value chain by assisting
manufacturers to craft designs that respond to
consumer expectations. This will accelerate the shift of
buyer’s perception that Malaysian timber and furniture
products have high-value manufacturing, design and
functionality.

Objective

Transform the industry from manufacturing-oriented OEM into design-oriented ODM and
OBM

Target Segment

Timber product and furniture manufacturers, product designers, interior designers,
architects, universities and TVET institutions

122 National Agricommodity Policy 2021-2030 (DAKN2030)

Lead Agency and Relevant Stakeholders

Lead Agencies: MTIB, MTC, MFC
Relevant Stakeholders: timber product and furniture manufacturers, aspiring designers,

product designers, interior designers, architects, universities and TVET institutions

Expected Outcomes

Transform the design capability of Malaysia’s furniture industry
Nurture a new group of young and promising Malaysian furniture designers
Broaden the range of furniture exports via high quality and value-added products
Develop innovative designs for furniture and other timber products

Source: Malaysian Timber Industry Board (MTIB), Malaysian Timber Council (MTC)

4
Market Development: Enhance
certification practices and industry-led
strategic partnerships

Encourage and promote greater (legal and sustainable) certification for the timber industry

To overcome non-tariff barriers and target high value-added products, more efforts will be put into
expanding and actively promoting the MTCS, and also all other legal certification systems such as
The Peninsular Malaysia Timber Legality Assurance System (MYTLAS), the Sabah Timber Legality
Assurance System (Sabah TLAS) and the Sarawak Timber Legality Verification System (STLVS). These
certifications will leverage on overseas Malaysian projects and FTAs.

Foster foreign-local collaboration in commercialisation for international markets

Increased utilisation of digital technology and e-commerce trading platforms will strengthen
collaboration and industry-led partnership with international players, e.g., e-Trade programme by
MATRADE and Trade Assurance Programme. Such technologies have the potential to open up
markets as well as become a means of networking. Improving the investment climate for the timber
industry will also provide support for this initiative.

Policy Document 123

Promote greater consumption of sustainable local timber products

Malaysia has a considerable domestic market for timber products. It is vital that sustainability should
be promoted locally and that sustainable local timber products be made available to instil awareness
and increase consumption for the expansion of the domestic market for sustainable local timber
products.

THE MALAYSIAN DOMESTIC TIMBER MARKET

Since the second Industrial Masterplan, the timber industry has focused on the export market. The export-
oriented policy has seen timber and timber product exports grow from RM3 billion in 1981 to RM20 billion
in 2010. Since 2010, the export sector has grown rather modestly reaching RM22 billion in 2020.

Over the past 20 years, domestic consumption and demand for timber and timber products have grown
significantly due to economic growth, the expansion of the middle class and higher incomes. In 2020, the
domestic market for timber products is valued at RM 17.96 billion with the potential to grow further. The
domestic market has also become a hedge against fluctuations in the international market.

The domestic market for timber is found in many sectors of the economy as illustrated below:

Construction: column, beam, roof truss, door, window
Furniture: bedroom, dining, tables and chairs, living hall
Handicraft: pottery boxes, baskets
Housing: structural or decorative parts
Interior design: partitions, panel, built-in furniture
Outdoor: swing, pergola
Public Works: bridge, playground, hut
Boat: yacht, ship, vessel
Carving: panel, screen, furniture
Non-wood forest products: bamboo, rattan, gaharu

Given the strong demand and the size of domestic timber and timber
product markets, the Government will prioritise its development in
the next ten years.

Source: Malaysian Timber Industry Board (MTIB)

Develop Malaysian firms to become globally competitive timber and timber-based companies

To be a truly global competitor, Malaysian firms need to scale up and expand into major consumer
markets, specialise and invest upstream into product design and branding, as well as capture
trading and supply opportunities. Currently, Malaysian firms are too small and not well capitalised
to take on competitors in established global markets. Strategic partnerships or acquisition of
established firms in key consumer markets will be encouraged in order to develop brand or product
presence. There are vast opportunities in the international markets.

124 National Agricommodity Policy 2021-2030 (DAKN2030)

TIMBER EXPORT OPPORTUNITIES FOR MALAYSIA

Certified timber

There is rising awareness in developed countries on the role of sustainable production and consumption,
and their linkages to environmental issues (e.g., climate change, biodiversity loss, conservation) and social
issues (e.g., forced labour, human rights). Associated with that has been the rise of certification as evidence
that products are sustainably produced.

Under the European Green Deal, for example, all European countries aim to be climate neutral by 2050
through, among others, using renewable materials such as certified sustainable timber in building and
construction. Apart from Europe, there is also rising awareness in the USA, Japan and the Middle East for use
of certified timber in landmark projects. In this regard, the timber export opportunities are closely tied up
with producing certified timber products.

Malaysia is moving in that direction. For example, certified timber products from Malaysia have been used
for the construction of the Japan National Stadium for the (now postponed) Tokyo Olympics 2020. Malaysia
has the 14th largest area of PEFC-certified forests globally or roughly 1.6% of the total PEFC-certified forest
area. It exported about 243,367 m3 of PEFC/MTCS certified timber and timber products in 2019, mainly to
the Netherlands (26.9%), United Kingdom (9%), USA (8.5%), South Korea (7.4%) and Germany (6.1%).

Product Opportunity for Export Growth

Opportunities for timber export growth also lie in value-added products such as mouldings, builder’s joinery
and carpentry, and wooden furniture. These products embody skill, design and creativity and Malaysia’s
products are mostly exported to developed countries such as the USA and Europe.

Given the highly competitive nature of timber products, those that are efficiently produced can also compete
globally on price. Panel products such as plywood, fibreboard and particleboard and even woodchips and
saw dust – all of them make use of timber materials with a greater degree of recovery. These competitive
products are mostly exported to Japan, the USA and South Korea.

Trade Agreements

Malaysia has recently signed the Regional Comprehensive Economic Partnership (RCEP) – a free trade
agreement of 15 countries in the Asia Pacific region – to strengthen regional economic resilience
without barriers to trade or disruption to the global supply chain. The RCEP is expected to open up more
opportunities for trade, including in timber products.

Malaysia has bilateral FTAs with several countries such as Japan, Pakistan, New Zealand, India, Chile,
Australia, Turkey and multilateral FTAs through ASEAN (The ASEAN Free Trade Area - AFTA) and regional
arrangement through ASEAN with China, Korea, Japan, Australia-New Zealand, and India. These bilateral
FTAs also present some opportunities for greater trade and exports of Malaysian products, including timber-
based ones.

Source: Malaysian Timber Council (MTC)

Policy Document 125

5
Inclusiveness: Increase Bumiputera
participation in the timber industry

Empower Bumiputera participation in the timber industry through smart-partnership activities

The rationale for greater participation of Bumiputera in the timber industry is to contribute towards
creating a Bumiputera Commercial and Industrial Community (BCIC) and to develop skilled talent
among the Bumiputera, with the eventual goal of closing the inequality gap. In this regard, the key
strategies include: (a) to foster partnership between Bumiputera and non-Bumiputera MSMEs in the
timber industry so that there is greater diversity in the industry; (b) to create more entrepreneurship
through the Certified Timber and Credible Suppliers (vendor development) scheme; and (c) to
promote greater local cultural skills such as in carpentry, wood carving, local designs from the East
Coast, and expand into domestic market applications.

Raise worker welfare

The welfare of workers will be further raised in line with Malaysia’s vision to become a developed
nation. Malaysia has taken recent measures to improve housing standards for workers (The
Workers’ Minimum Standards of Housing and Amenities Act 446). The Employment Insurance
Scheme is another recent measure that provides temporary financial assistance for workers in
case of retrenchment and job losses. Occupational safety and health laws are in place to minimise
workplace accidents. For foreign workers, various measures have been taken to improve working
conditions, reduce the cost of working in Malaysia and improve their welfare. One of the most
important measures of welfare is income, and Malaysia has introduced the minimum wage ruling to
ensure that workers are paid fairly. Malaysia is committed to continue implementing and enforcing
these measures during this policy period.

126 National Agricommodity Policy 2021-2030 (DAKN2030)

ENABLERS NEEDED

Four enablers are outlined to ensure effective implementation of the strategies to sustain and
modernise the timber industry towards increased resilience.

Investment Facilitation

The Government will facilitate investments by providing loans, grants and incentives to assist firms
in getting certifications for timber products, penetrating new markets, upgrading technology
and increasing productivity. For instance, the MTIB Fund has been accessed for R&D to develop
commercial-scale oil palm trunk in 2009. Efforts towards reducing reliance on low-skilled labour, and
improving product design and functionality will also be supported. The Government is considering
amendments to various legislations as a way to improve the investment climate for all investors.

Improving Market Access

To improve market access, the Government will partner with the private sector in joint efforts for
sustained promotion of MTCS, MYTLAS, Sabah TLAS, STLVS and other relevant certifications in the
timber industry and in international markets. The Government will continue to share information
and updates about developments in consumer and lifestyle markets, foster linkages between
producers and traders and participate in lifestyle, marketing and trade shows. On the flip side, the
Government has continued to update industry on barriers to consumer markets, especially non-tariff
barriers such as product-related environmental regulations, and also new tariff, trade-related rules
and regulations.

Mechanisation and Automation

Strategic partnerships between industry, government agencies and research institutions will be
fostered to develop commercially viable solutions. Updated information will be shared with industry
such as new products, process technology, and trade shows featuring labour-saving technologies.
There are already incentives in place to assist the industry to invest in technology for productivity
improvement, such as the DISF, and they will be further promoted for greater utilisation.
Human Capital Management and Development

Collaboration between industry, agencies, universities and TVET institutions will be continued to
develop skills and talent for production, design and branding, venturing into large scale trading and
merchandising, as well as supply chain management.

The TANGGAM @MTIB programme has brought local and international designers onto the factory
floor to work on innovative designs. Going forward, a scholarship programme will complement
this to support and train talented Malaysians in international design institutions. This will provide
opportunities for them to learn from the best in the design forming the basis of well-designed
Malaysian furniture or timber products.

Policy Document 127

128 National Agricommodity Policy 2021-2030 (DAKN2030)

Policy Document 129

Chapter

Driving The
Development Of The

Cocoa Industry

6

130 National Agricommodity Policy 2021-2030 (DAKN2030)

Policy Document 131

Way Forward 2021-2030

15 13

Indicators Strategies
& Targets

1 2 3 5

SUSTAINABILITY PRODUCTIVITY VALUE-CREATION INCLUSIVENESS
Secure consistent Increase smallholder Focus on niche cocoa Increase smallholder
supply of certified, beans and expand the
traceable cocoa beans productivity and incomes while
S1. Establish strategic application of R&D and downstream developing
partnerships to expand segment
domestic production of digital technologies entrepreneurs
certified and traceable S4. Expand extension S8. Focus on niche, high S13. Advance
cocoa beans through quality specialty beans
cluster farming, programmes to coach towards production of income-generation
cooperatives, crop and build capacity of organic and fine or opportunities for
integration and smallholders flavour cocoa (FFC) smallholders and
plantation S5. Strengthen plantation entrepreneurs/ MSMEs,
development management practices S9. Develop downstream e.g., chocolate
S2. Set up a traceability by upskilling and industries through entrepreneur,
system to track quality certifying manpower strategic partnerships integrated cocoa and
and origins of cocoa S6. Set the standard for to widen the range of agro-tourism clusters,
beans quality, productivity cocoa-based products, nurseries by adopting
S3. Secure consistent and sustainability including non-food the “Farm to Table”
imports of certified through R&D and products model
sustainable cocoa technical standards
beans to meet S7. Enhance technology 4
downstream industry development and
needs adoption, e.g., IoT, IR MARKET DEVELOPMENT
4.0, data analytics, Position Malaysia as a
digital marketing and regional hub and
e-commerce increase exports
to developing markets

S10. Position Malaysia as a

3regional cocoa hub by

attracting global cocoa
and chocolate players
to make Malaysia their
regional hub
S11. Brand and promote
Malaysian cocoa and
cocoa products locally
and internationally
S12. Develop new markets
for Malaysian cocoa
products by enhancing
trade with other
countries

132 National Agricommodity Policy 2021-2030 (DAKN2030)

1 CURRENT
STATUS

Declining upstream, thriving downstream

Sabah is the main cocoa-growing region, accounting for 56.1% of planted area, while Sarawak
accounts for 22.4% and the remaining planted area 21.5% is in Peninsular Malaysia – mainly in
Pahang. Cocoa planting in Malaysia is dominated by smallholders who cultivated 85% of the planted
area and contributed 94% of total cocoa production in 2020.
The cocoa industry in Malaysia is diverging widely. In the upstream segment, the planted area has
declined significantly since its massive boom in the 1970s and 1980s. The downstream segment
however is thriving - Malaysia is among the Top 10 grinders in the world, currently at 6th place, with a
total grinding capacity of 362,000 tonnes. Domestic cocoa production is unable to meet the needs of
the downstream segment, creating a heavy reliance on imported cocoa beans from countries such
as Cote d’Ivoire, Ghana and Indonesia.
Cocoa planted area has declined significantly, from a peak of 414,236 ha in 1989 driven by the
plantation sector which accounted for almost half of the planted area68. This reduced to 20,083
ha in 2010 and even further to 5,898 ha in 2020, as plantations exited the sector, leaving ageing
smallholders, who are also retiring or switching to more profitable crops such as oil palm. Major
factors for this shift away from planting cocoa include the fall in global cocoa prices in the late 1980s,
and the infestation of the cocoa pod borer pest in the early 1990s.

Exhibit 6.1: Cocoa Planted Area (2010-2020)

68 Khazanah Research Institute (2018), A Monograph of a Malaysian Cocoa Smallholder

Policy Document 133

Productivity continues to decline

Cocoa yield was just 0.14 tonnes per ha in 2020 as compared to 1.27 tonnes per ha in 2010.
Productivity decreased due to threats from pests and diseases as well as other contributing factors,
either individually or in combination – for example, type of planting materials, age of planting, soil
type and the presence of shade trees69. In addition, cocoa farmers in Malaysia also have to contend
with ageing trees, many of which were planted during the 1990s.

Exhibit 6.2: Cocoa Production and Productivity (2010-2020)

GDP contribution is increasing, driven by the
downstream segment

GDP contribution from the cocoa industry is increasing, from RM 0.97 billion in 2010 to RM 1.64
billion in 2020. Almost all of it was from the downstream segment which grew at a CAGR of 6.5%
over 2010-2020, compared to upstream which reported a CAGR of -26.1% over the same period. The
decline in upstream is attributed to a significant drop in planted area due to plantations exiting
cocoa planting and cocoa farmers shifting to other more profitable crops.

Exhibit 6.3: GDP contribution from Cocoa (2010-2020)

69 ibid

134 National Agricommodity Policy 2021-2030 (DAKN2030)

More cocoa products with increased value-add
are being exported

Exports of cocoa products have increased progressively from RM 4.2 billion in 2010 to RM 6.2 billion
in 2020. Cocoa butter forms the bulk of exports at 40.4%. Cocoa powder and chocolate made up
21.6% and 15% of exports, respectively.

Exhibit 6.4: Cocoa Export Values and Primary Exports (2010-2020)

COCOA PROCESSING REQUIRES PRECISION AND CARE

Cocoa beans processing involves primary and secondary processing to produce cocoa liquor, cocoa butter,
cocoa powder and chocolate.

Policy Document 135

2 KEY
ISSUES

The Malaysian cocoa industry faces a number of challenges that need to be addressed for it to
remain competitive and become more sustainable.

Upstream

Cocoa is a “high-maintenance” crop, making it less attractive

Cocoa is a commodity that needs consistent application of good agricultural practices as it is highly
susceptible to pests and diseases, and requires a lot of care to produce high-quality pods and beans.
Cocoa grows best under shade trees, where cocoa farmers must prune the trees well to ensure
sunlight penetration through the canopy, and ensure suitable air circulation. This can prevent or
reduce the Black Pod disease.

Cocoa trees also require regular and correct application of fertilisers to increase soil fertility. As some
fertilisers are imported, cocoa farmers have to bear variable and sometimes high production costs
(due to fluctuations in currency exchange rates). Furthermore, high labour costs are incurred when
conventional farming approaches are practised.

These factors contribute towards declining interest in cocoa planting, whether at the plantation level
or by smallholders. Plantations have generally exited cocoa planting, in favour of oil palm or other
crops which require less maintenance. Smallholders on the other hand also struggle to find reliable
labour supply who can be trained to manage the cocoa plants.

Smallholders’ incomes are very low

Despite the effort involved in caring for their cocoa plants (opportunity cost of labour), cocoa prices
have declined 17% over the past five years, from an average of RM8,000 per tonne in 2015 to RM6,630
per tonne in 2020. Smallholders’ margins are thus squeezed. The average net income for cocoa
smallholders is estimated at RM 368 per month70 - this is far below Malaysia’s minimum wage and
poverty line income (RM 1,200 per month and RM 2,208 per month respectively71). As a result, most
cocoa farmers seek alternative income sources to sustain their livelihoods – which diverts their
attention from caring for their cocoa plants, resulting in lower output and yield.

70 MCB (FEB 2021)
71 Department of Statistics Malaysia (DOSM) Household Income & Basic Amenities Survey Report 2019, published July 2020

136 National Agricommodity Policy 2021-2030 (DAKN2030)

Limited adoption of technologies to improve yield

Cocoa yields can be increased with quality planting materials, better planting and maintenance
techniques, as well as more effective pest and disease management practices. While research has
been conducted to produce new technologies to improve yield, the technologies are often not fully
adopted as recommended. It is believed that this limitation in adopting new practices is due to
the ageing population of cocoa farmers (primarily above 65 years) who are more comfortable with
traditional practices. This is further compounded by small land areas resulting in limited economies
of scale, and limited resources to provide extension services and technology transfer.

Downstream

High dependence on imported cocoa beans

The continued decline in local production of cocoa beans does not match with the increasing
demand of local grinders, which was estimated at 315,911 tonnes in 2020. Local grinders have had to
resort to the importation of cocoa beans to meet their needs. Imports of cocoa beans have shown an
increasing trend – Malaysia imported 384,682 tonnes of cocoa beans for grinding and processing in
2020.

Imported cocoa beans are subject to stringent quality regulations enforced by the relevant
agencies to prevent the importation and spreading of pests and diseases to domestic crops. These
requirements result in higher operating costs for importers and grinders, contributing to a higher
overall cost of production in Malaysia. There is also a risk of supply chain disruptions if global supply
is affected by shocks such as the ongoing COVID-19 pandemic, or export bans imposed by cocoa-
producing countries.

Increasing competition from source countries

Malaysia has a comparative advantage in grinding and the subsequent production of cocoa butter
and cocoa powder for exports. However, increasing competition from the source countries who want
to develop downstream activities may put Malaysia’s downstream cocoa industry at risk. Grinders
may also resort to moving their activities closer to the source of beans if the cost of doing business in
those countries becomes more competitive.

Policy Document 137
Exhibit 6.5: Import of Cocoa Beans (2010-2020)

138 National Agricommodity Policy 2021-2030 (DAKN2030)

3 WAY FORWARD
FOR COCOA

The upstream segment of the cocoa industry is in need of a revival if Malaysia is to support the
downstream industry’s growth towards becoming a regional cocoa hub. Given the expertise
developed in upstream, and the relative maturity of the downstream segment, Malaysia is in a good
position to command greater market share. The following content covers key indicators and targets
for the cocoa industry to 2030, related strategies and enablers needed.

COCOA: INDICATORS, TARGETS
AND STRATEGIES 2021-2030

Policy Thrust Indicators Baseline Target Target Strategies
2020 2025 2030
SUSTAINABILITY 1. Compliance with 98% 100% 100% Establish strategic
Secure consistent MS 2672:2017 on 80% partnerships to
supply of Dry Cocoa Beans 5% 40% expand domestic
certif ied, Standards 4.25 production of certified
traceable cocoa 0.56 and traceable cocoa
beans 2. Traceability of 4:1 beans through cluster
locally produced 15% farming, cooperatives,
cocoa beans crop integration
and plantation
PRODUCTIVITY 3. Total Production 0.71 3.18 development
Increase (‘000 tonnes)
smallholder 0.14 0.50 Set up a traceability
productivity and 4. Yield (Tonnes/Ha) 4:1 4:1 system to track
application of quality and origins of
R&D and digital 5. Labour Intensity 10% 13% locally produced and
technologies (Land:Labour ratio) imported cocoa beans

6. Transfer/ Secure consistent
licensing and imports of certified
commercialisation sustainable cocoa
rate of R&D beans to meet
projects downstream industry
needs

Expand extension
programmes to coach
and build capacity of
smallholders

Strengthen plantation
management practices
by upskilling and
certifying manpower

Set the standard for
quality, productivity
and sustainability
through R&D and
technical standards

Enhance technology
development and
adoption, e.g., IoT, IR
4.0, data analytics,
digital marketing and
e-commerce

Policy Document 139

Policy Thrust Indicators Baseline Target Target Strategies
2020 2025 2030
VALUE-CREATION 7. Contribution to 1,638 2,582 4,149 Focus on niche, high
Focus on niche GDP (RM million) 5 158 quality specialty beans
cocoa beans 1,633 55 3,991 towards production
and expand the Upstream GDP 1:1 2,528 of organic and fine or
downstream (RM million) 1:1 flavour cocoa (FFC)
segment 6,229 1:1
Downstream GDP 16:84 15,000 Develop downstream
MARKET (RM million) 10,000 9 : 91 industries through
DEVELOPMENT 1,100 10 : 90 strategic partnerships
Position Malaysia 8. Utilisation 8,800 to widen the range of
as a regional hub rate (Ratio of 4,300 cocoa-based products,
and increase Production: including non-food
exports to Domestic products
developing Utilisation)
markets Position Malaysia as a
9. Total Exports regional cocoa hub by
(RM million) attracting global cocoa
and chocolate players
10. Ratio of Upstream to make Malaysia their
to Downstream regional hub
Exports
Brand and promote
11. Balance of Trade Malaysian cocoa and
(RM million) cocoa products locally
and internationally
12. Smallholders Income (RM) - Average income per month per
smallholding Develop new markets
for Malaysian cocoa
Net Income 368 440 530 products by enhancing
(MONOCROP) (MONOCROP) (MONOCROP) trade with other
countries
INCLUSIVENESS 1,520 1,830
Increase (INTEGRATED) (INTEGRATED) Advance income-
smallholder generation
incomes while Gross Income 640 710 800 opportunities for
developing (MONOCROP) (MONOCROP) (MONOCROP) smallholders and
entrepreneurs entrepreneurs/
1,790 2,100 MSMEs, e.g., chocolate
(INTEGRATED) (INTEGRATED) entrepreneur,
integrated cocoa and
13. Total Income 5.0 12.5 25.0 agro-tourism clusters,
of MSMEs/ nursery and farm visits,
Entrepreneurs (RM and adopting a “Farm-
million) to-Table” model

14. Contribution of RM5.8 Milion RM 12.5 Million RM 25 Million
Agricommodity-
based MSMEs
to overall
Agricommodity-
based Output (RM)

15. Percentage of 93% 90% 80%
Bumiputera (216/232) (254/282) (257/321)
MSMEs in
Midstream &
Downstream
segments –
especially “Next
Gen” Bumiputera
Entrepreneurs

Source: MCB – TOTe Division; MPIC

140 National Agricommodity Policy 2021-2030 (DAKN2030)

STRATEGIES TO

DRIVE THE
DEVELOPMENT

OF THE COCOA INDUSTRY

Fourteen strategies will be implemented along
the five policy thrusts, with the objective of
reviving the upstream segment and supporting
the growth of the downstream segment.

1
Sustainability: Secure consistent
supply of certified, traceable
cocoa beans

Secure sustainable upstream production
Strategic partnerships with downstream players and mid-sized plantations will be encouraged to
expand production of certified sustainable and traceable cocoa beans. Integration of cocoa with
more economically viable crops such as coconut, rubber and oil palm will also be encouraged.
Smallholders will continue to be supported through cluster farming or modernised cooperatives.

Set up a traceability system
There is increasing consumer and buyer pressure to ensure sustainability practices are employed
across the supply chain, including traceability of cocoa beans. Setting up a traceability system for
locally produced and imported cocoa beans is vital to ensure the marketability of cocoa products.
The end-to-end value chain needs to be supported through education on sustainability and
traceability and know-how on the implementation of key processes for certification and tracing.

Policy Document 141

DEVELOPING A TRACEABILITY SYSTEM FOR THE MALAYSIAN COCOA
INDUSTRY

A traceability system for the Malaysian cocoa industry is needed to ensure the long term credibility and
sustainability of the cocoa industry. This multi-functional system enables many parameters along the cocoa
supply chain to be tracked. The MyCocoaBEST (Beans of Excellence - Special Trait) system will be the basis
for the implementation of a Malaysian certification of single-origin dry cocoa beans.
This certification looks into the physical and chemical aspects of specialty cocoa beans that includes fine
or flavour cocoa, and also considers food safety and sensory qualities of the dry cocoa beans. Quality
parameters of dry cocoa beans which will be validated include: free from pesticide residues and heavy metal
contamination; minimum fermentation level of 60%; bean grade according to Malaysian Standard (MS);
moisture content; and the flavour of the cocoa beans.

Draft of the MyCocoaBest Certificate of Authentication – to be developed further during this policy period

This system will trace the origins of cocoa beans used for end products by grinders or chocolate artisans
through the MyCocoaBEST logo on their products’ packaging. Consumers would be able to get information
about the origin of the cocoa beans used for producing the end products through this tag. Other information
provided includes the plantation’s location, planting materials used and premium qualities of the cocoa
beans.
As a result, farmers and cocoa entrepreneurs will be recognised for their single-origin cocoa beans. This
should result in increased revenues for them through the marketing of certified-premium cocoa products at
higher prices.

Secure consistent import volumes of certified sustainable cocoa beans

Consistent import volumes from certified source countries or plantations will help meet the needs
of the downstream segment. This may require Government-to-Government (G2G) support to
ensure that there are no sudden tariffs or other trade barriers imposed, and alignment on standards
for sustainability and traceability. On the domestic front, streamlining import requirements and
processes will help grinders to manage production schedules and cost better.

142 National Agricommodity Policy 2021-2030 (DAKN2030)

2
Productivity: Increase smallholder
productivity and application of R&D
and digital technologies

Expand extension programmes

MCB will continue to expand extension programmes through on-the-job coaching to support
smallholders to better implement improved planting methods, pest management and disease
control, as well as post-harvest processing to meet buyers’ specifications. A structured programme
will be implemented, involving an assessment or diagnostic of each farmer’s needs, followed
by coaching and guidance through the planning of activities as well as monitoring of adoption
and outcomes. An example of this programme is the Cocoa Farmer Field School (FFS), a training
programme started in 2016. Successful smallholders are trained to become mentors who coach
other farmers in their clusters.

Another avenue that will be pursued is collaboration with cocoa farmer cooperatives or social
enterprises to support similar extension programmes. Opportunities include a “bean-to-bar” concept
where farmers are trained to complete primary processing in line with artisan chocolate producers’
requirements with guaranteed off-takes at better pricing, or even to produce their own chocolate
products.

Strengthen plantation management practices

Efforts to upskill manpower at all levels, including supervisors and executives will enable better
adoption of technology and improved farm management practices. MCB will collaborate with
certified professional bodies, e.g., the Incorporated Society of Planters (ISP) and the International
Institute of Plantation Management (IIPM) to strengthen plantation management capacity through
upskilling and certification programmes.

Set standards through R&D&C

Productivity can be increased by intensifying R&D&C and setting technical standards for productivity,
quality and sustainability in cocoa planting. This will help develop superior, more resilient plants and
beans through agrotechnology and biotechnology approaches and improve agricultural practices
to increase yield. Given Malaysia’s experience and expertise in cocoa research, such knowledge and
technical skills could also be shared globally as a reference.

Policy Document 143

Enhance technology adoption

Development and adoption of relevant technology including Good Agricultural Practices (GAP),
IR 4.0, IoT and data analytics in plantation management, automation and mechanisation will be
encouraged for the upstream segment. For downstream, more efficient processing practices will be
implemented to produce fine or flavour beans and diversify production of cocoa-based products.
Improved marketing strategies including through digital marketing and e-commerce will also be
encouraged.

3
Value-creation: Focus on niche cocoa
beans and expand the downstream
segment

Focus on niche, specialty cocoa beans

Malaysia will emphasise niche, specialty cocoa beans that command higher prices, as competing on
volume and cost is becoming more challenging. Smallholders will be encouraged to shift towards
organic farming practices and to produce fine or flavour cocoa (FFC). There is increasing market and
consumer demand for organic chocolate, triggered by concerns over the health effects of pesticides
or chemical fertilisers. Fine or flavour cocoa such as nutty, spicy, fruity or floral also typically
command premium prices on the London and New York cocoa futures markets72. Indonesia and Viet
Nam are the only ASEAN countries among the 23 countries recognised by the International Cocoa
Organisation (ICCO) for the exports of fine or flavour cocoa, comprising 1% and 40% of their total
cocoa bean exports respectively73.

Further develop downstream industries

Downstream industry development will continue to be a priority, with expansion of their product
range into premium segments including organic, fine or flavour chocolate products, and single-
origin chocolates. Product development in non-food segments such as skincare, cosmetics and
nutraceuticals will also be encouraged. Cocoa entrepreneur development programmes will be
enhanced with programmes certified in collaboration with technical and vocational training
institutions.

72 International Cocoa Organisation (ICCO) https://www.icco.org/fine-or-flavor-cocoa/ (accessed on 30 NOV 2020)
73 ibid

144 National Agricommodity Policy 2021-2030 (DAKN2030)

FROM LAB TO MARKET – COMMERCIALISING NON-FOOD COCOA
PRODUCTS

Consumption of cocoa has many proven health benefits, notably in helping to reduce low-density
lipoprotein (LDL) cholesterol levels (often termed as “bad cholesterol”)74. Cocoa contains polyphenols which
contribute to high anti-oxidant capacity. Cocoa butter in particular has long been used to produce various
skin care and beauty products.
The application of cocoa extracts in oral care and skincare appears promising, with two sets of products
being commercialised in Malaysia. The Government allocated a total of RM 4.77 million to MCB for R&D&C
on cocoa-based food and non-food products over 25 years from the 7th Malaysia Plan to the 11th Malaysia
Plan (1996 – 2020).
In 2004, MCB developed a cocoa-based toothpaste formula that utilises anti-microbial properties from
cocoa extracts (polyphenol and tannin) to reduce tooth decay. These products were commercialised
through a joint-venture arrangement with a private company, and funding from the Malaysian Technology
Development Corporation (MTDC). The successful commercialisation of these products in 2019 resulted in
sales of up to RM 400,000 in the first year.

Commercialised and branded oral care products (left) and pre-commercialised skincare products (right)

MCB also developed skin care products using cocoa butter, cocoa pod husks (as a scrub) and cocoa extracts
which are beneficial for skin hydration and conditioning. Bath products such as shower gel, shower cream
and body scrub were also pre-commercialised in a joint venture with another private company.
The successful commercialisation of these products indicates the potential for further development of cocoa-
based toiletries, cosmetics, and potentially nutraceuticals in future. Towards this end, the Government
will continue to support product development and commercialisation through domestic and international
promotional activities.

74 Health benefits and risks of chocolate. Retrieved from https://www.medicalnewstoday.com/articles/270272