The sugar industry in Malaysia is characterized by rapidly increasing direct domestic consumption supported by an equally fast growing food processing industry, and on the supply side by a small domestic production base that is unlikely to expand. To meet the growth in demand, imports have expanded steadily to record levels in recent years. With excess refining capacity, some of the imports of raw cane sugar are refined and re-exported to regional markets.

The cultivation of sugarcane in Malaysia is surprisingly small. Production is concentrated in the Northwest extremity of peninsular Malaysia in the states of Perlis and Kedah (Figure 1). This area has a distinct dry season needed for cost-efficient sugarcane production. Plantings in the states of Perak and Negri Sembilan were unsuccessful due to high unit costs as producing conditions were less suitable. Areas for potential expansion have been identified in the state of Johore and in Sarawak, but no projects have yet been undertaken.

In recent years the sugarcane harvested area has averaged between 20 000 and 24 000 hectares (Table 1). Most of the cane areas is under the management of three sugarcane plantations, two in the State of Perlis and one in the state of Kedah, with smallholders contributing only about 15 percent of the total. The lack of growth in cane areas largely reflects the higher remuneration received by farmers for other crops, especially oil palm. Over the past 20 years while the sugarcane area has remained at around 20 000 hectares, that planted to oil palm has expanded from 600 000 hectares to 2.2 million hectares. Other leading crops in terms of planted areas are rubber with 1.8 million hectares, rice with 670 000 hectares and cocoa with 380 000 hectares.

Sugarcane yields have increased steadily over the years. They rose from 40 tonnes per hectare in 1980 to 65 tonnes per hectare in 1990 and reached 68 tonnes per hectare in 1996. The increase in yields can be attributed to the planting of improved varieties and greater input use. There are some annual fluctuations, but in recent years yields have remained relatively constant. Differences in yields also exist between plantations and smallholders with the latter's yields averaging generally around 40 tonnes per hectare owing to reduced access to irrigation water.

Production of sugarcane generally ranges between 1.3 to 1.6 million tonnes annually depending largely on yields. Sugar content has been around 7 percent. The harvest takes place between January and April. Labour availability for harvesting is a serious problem for the industry because of increasing employment in the country's manufacturing sector. As the domestic producing area is near the border with Thailand, the sugar industry has come to depend heavily on labour from this country, particularly during the harvesting season. If the harvest is delayed, (e.g. by extended rain) into May or June, labour shortages develop as these workers begin to return home to plant paddy rice in southern Thailand. Because of labour constraints, the industry is planning a gradual shift to mechanical harvesting.

PROCESSING

Malaysia has four sugarcane processing facilities, one each in the states of Perlis, Kedah, Penang, and Selangor. Two of the facilities, Gula Padang in the state of Kedah, and Perlis Plantations in the state of Perlis, are integrated mills processing cane into raw and refined sugar with the added capability of refining imported raw cane sugar. The other two facilities are refineries handling imported raw cane sugar. One is the port-side refinery on peninsular Malaysia across from Penang island owned by the Malayan Sugar Manufacturing Company (MSM). The other is the Central Sugar Refinery (CSR) located near Kuala Lumpur in the state of Selangor. Malaysia's sugar processing industry depends on imports for about 90 percent of its raw materials. With a total annual refining capacity of over 1.0 million tonnes, all of the imported sugar is raw, with the bulk being processed at the MSM and CSR refineries.

CONSUMPTION

Domestic consumption of sugar in Malaysia has increased rapidly in recent years (Table 2). During the first half of the nineties, sugar consumption averaged about 800 000 tonnes annually, compared with about 500 000 during the first-half of the eighties, a 57 percent increase. In 1995, a record 1.03 million tonnes was consumed and the provisional estimate for 1996 places consumption at 1.16 million tonnes. Population and income growth account for most of the gains, as 66 percent of total sugar consumption in Malaysia occurs in the household. However, the country’s buoyant economy has also led to a particularly strong growth in the food processing industry. Ice cream, chocolates, sweetened condensed milk, and soft drinks are some of the items that have created new demand for sugar. On a per caput basis, the level of sugar consumption in Malaysia at about 50 kilograms (raw equivalent) is among the highest of the region. However, some of the sugar-containing products manufactured in the country are exported.

Substitute sweeteners have not made a big impact on the Malaysian market. Apart from limited production of palm sugar which is required for cooking traditional desserts, there is a corn wet-milling plant producing HFCS 42 which is used in the manufacture of tomato and soy sauces. There are no statistics on these sweeteners, but industry sources believe that the quantities involved are insignificant compared to the total sweetener supply.

Non-nutritive sweeteners are making inroads in the Malaysian market. However, the Ministry of Health closely regulates the use of these sugar substitutes. A license is required to import, use, manufacture or sell non-nutritive sweeteners, and detailed records of all transactions must be maintained. These products are limited to use in low-energy or dietary foods and beverages, and all such products must be clearly labelled as containing non-nutritive sweeteners. Relatively few dietary products are manufactured in Malaysia, although diet soft drinks seem to be gaining in popularity. Table sugar substitutes are also becoming more common. However, non-nutritive sweeteners still make up only a small portion of the total sweetener market.

The Malaysian Government estimates domestic requirements each year and sets a quota allocation for refiners and millers to supply the domestic market. Based upon this estimate the refiners and millers are issued licenses to import raw sugar. Quantities imported above these quotas require prior approval. The level of imports permitted is dependent upon expected domestic production and may be adjusted according to the progress of the crop. Tariffs on raw sugar imports are waived for the refiners and mills. Raw sugar imported for re-export as refined sugar is also covered by licenses.

TRADE

Malaysia is a net sugar importing country. In 1995, imports of raw sugar reached a record 1.0 million tonnes, while exports were 101 000 tonnes (Table 2). Increasing quantities of sugar have had to be imported to meet rising demand and compensate for the stagnant domestic production. For example, imports for the first 5 years of the 1990s averaged 885 000 tonnes per year, compared with 494 000 tonnes for the first-half of the 1980s, a 79 percent increase. In recent years, sugar and corn have been Malaysia's largest agricultural imports, with annual sugar imports valued at between US$200 to 300 million.

The main suppliers of raw sugar to Malaysia are Australia, Thailand and Fiji which account for 98 percent of total imports. For a number of years, Malaysia has maintained long term agreements (LTA's) with Australia and Fiji for its sugar supplies. Shipments under these LTA's have accounted for between 40 to 60 percent of annual import requirements. Other import origins have been Cuba and the Philippines, but both have faded in importance since the mid-1980s. Import licensing, administered by the Ministry of Trade and Industry, has replaced the duty levied on imports of refined sugar.

The sugar industry also utilizes its excess refining capacity to produce refined sugar for export. The key markets for that refined sugar have been nearby Singapore and Indonesia, New Zealand and periodically South Asia and Middle Eastern countries, especially Saudi Arabia. The Philippines have also imported refined sugar from Malaysia in 1994 and

PRICES

Wholesale and retail prices for refined sugar in Malaysia are regulated under the Supplies Regulation Act of 1974 and have remained at M$1 145 (US$452) per tonne and M$1.20 per kilogram (US 47 cents a kilogram), respectively, since November 1989.

FUTURE PROSPECTS

The National Agricultural Policy Plan (NAP) for the period 1992 to 2010 gives minimal attention to sugar compared with oil palm and fruits and vegetables. Apart from encouraging improvement in the productivity of existing areas and milling efficiency, the Government is reportedly not anxious to foster expansion of sugarcane cultivation in the country. However, support is extended to the industry through sugar import quotas and relatively high domestic retail prices. According to the NAP, more research and development efforts are to be channelled to the development of alternative sources for sugar.

Sugar consumption can be expected to continue its upward trend in Malaysia reflecting population and income growth. Higher incomes also translate into growth in the consumption of processed foods containing sugar. Malaysia is likely to import increasing quantities of raw sugar to meet domestic needs. The development of re-export trade appears less certain. Unless refining capacity is expanded, a greater share of domestically processed refined sugar will be retained in Malaysia and less will be available for export. International market developments which would influence trends in exports would include increasing competition from Australia in regional refined sugar import markets and the impact of new raw sugar refineries in the Near East on import demand for refined sugar from countries such as Malaysia. On trade policy, the general view is that LTA's have served Malaysia well, and the agreements with Australia and Fiji are likely to be renewed in the near future.

Table 1 : Malaysia sugarcane area, yield and production