Malaysia's grain imports to grow marginally through 2016/17 March 18, 2016

Report Highlights:

With the exception of corn, imports for wheat and rice are expected to grow marginally through 2016/17. The implementation of the Goods and Services Tax in April 2015 and depreciation of Malaysian currency serve to curb demand in 2015/16. Growth in pork and poultry which already exceeded self sufficiency levels is slow, thus it limits growth in compound feed demand and therefore corn imports. The expected pace of increase in wheat and rice imports are functions of population growth while limited land constrains increases in rice area and production. In 2014/15, the U.S exported 30,000 tons of corn valued at US$5.7 million, 195,000 tons of wheat valued at US$47.5 million and no rice to Malaysia.

Executive Summary

As consumers adjusted to new buying patterns with the implementation of a six percent Goods and Services Tax (GST), demand for poultry, pork and bread started to pick up, but at a slower pace. This, however, was dampened by the depreciated Malaysian currency. Import prices of corn for poultry and swine got more expensive, causing industries to become less competitive and eroded profit margins for farmers. Nevertheless, poultry and swine industries are still recording some growth although at a slower pace.

Wheat imports are forecast to grow by 1.6 million tons in 2016/17. Australia remains the largest exporter of wheat exporting US$242 million in 2014/15, while U.S. wheat is still preferred by some Malaysian millers as it provides high protein content and other unique quality characteristics unavailable in other imported wheats, particularly texture and unique taste. The U.S exported 194,000 tons of wheat valued at US$47.5 million in 2014/15.

Argentina and Brazil remain the major suppliers of corn controlling over 80 percent, with export value of US$417 million and US$321 million respectively, while Southeast Asian countries such as Thailand and Vietnam supply most of the imported rice in Malaysia valued at US$169 million and US$156 million respectively. Imports of Distiller's Dried Grains with Solubles (DDGS) (the nutrient rich co-product of dry-milled ethanol production) and Corn Gluten Meal (CGM) from the United States were 35,800 tons and 22,000 tons respectively in 2015 valued at US$8.3 million and US$14.7 million

Beginning January 1, 2015, corn importers were required to obtain import approvals from both the Department of Veterinary Services and Department of Agriculture as well as provide a phytosanitary certificate from the exporting country.

Under the Feed Law, importers are required to apply for an import license from the Department of Veterinary Services. The import license required the importers to provide:

1. Certificate of Origin
2. Certified composition by a competent agency of exporting country.
3. Relevant packaging, manufacturing and labelling requirement.

Import registration.

In addition to the feed law, corn imports are also subject to the Agriculture Quarantine Law, which requires registration with the Department of Agriculture for an import license and a Phytosanitary Certificate for every consignment.

Corn

Weak Malaysian currency and gloomy outlook of the Malaysian economy reduced the potential growth of corn imports to 3.45 million tons in 2015/16 from 3.22 million tons in 2014/15. The trend was visible for marketing year 2014/15, when imports of corn dropped by 7.6 percent to 3.2 million tons from 3.4 million tons in 2013/14. For 2014/15 total value of import was US$779 million.

Although demand for poultry and pork remains firm, consumers are cautious as the price of pork and chicken parts are subject to GST. Only dressed whole chicken is exempt from GST.

Both Argentina and Brazil controlled more than 80 procent of corn imported into Malaysia with export value of US$417 million and US$321 million respectively. India remained the third largest exporter of corn with market shares hovering five to ten percent. In 2014/15, India exported 129,000 tons valued at US$29 million.

Even though local importers often cite quality concerns for Indian corn, local importers still opt to buy it due to low price. For U.S. corn, most local importers continue to assert that U.S. corn's high moisture prevents imports.

To address this perception, in 2015 Post recruited grain storage personnel, including five from two major feed importers, to take a grain storage management course in the United States under the FAS Cochran Fellowship Program.

In terms of import requirements, in addition to an import permit and phytosanitary certificate, and registration under the Feed Act, genetically engineered imported corn for feed and industrial use is supposed to be approved by the National Biosafety Committee in the Ministry of Natural Resources and Environment. However, only a few corn events have been approved.

Wheat

Wheat imports are forecast to grow marginally to 1.62 million tons in 2016/17 from 1.6 million tons in 2015/16. Consumption is forecast to remain stable. The government controls the price of general all purpose flour, setting it at RM1.35 (US$0.38) per kilo, and there is no GST. By contrast, prices for high quality specialty flours are not controlled and are subject to Good and Services Tax (GST). Demand for flour is expected to be in line with population and economic growth. For 2014/15, total value of import was US$403 million.

Australia remains the biggest exporter to Malaysia, holding 60 percent market share. In 2014/15, Australia exported 905,000 tons of wheat valued at US$242 million, the U.S exported 195,000 tons of wheat valued at US$47.5 million to Malaysia and is forecast to export 200,000 tons in 2015/16.

Rice

With dry weather expected throughout 2015, production is forecast to stagnate at 1.8 million tons in 2015/16. Although there are increases in planted areas in East Malaysia, dry weather is expected to reduce yield. To encourage paddy plantation, GOM provides various incentives to produce, such as subsidized seeds, fertilizer, pesticides, and irrigation. The GOM set the support price for paddy at RM1,200 per ton. For year 2015, total import was US$515 million.

Domestic consumption is relatively stable and is forecast at 2.85 to 2.9 million tons in 2015/16 and 2016/17 respectively. Any growth can be attributed to the immigrant labor population whereby in February 2016, the GOM had announced the possible recruitment of 1.5 million manual labor from Bangladesh to work in Malaysia.

Premium rice, such as basmati rice and fragrant rice, are non-controlled items. Prices for ST15-grade rice (15 percent broken), which is mainly produced domestically, and controlled at RM1.65 (US0.42) targeting low income group has been abolished, and, instead, the price has been floated to reflect market deamnds. To assist low income groups, GOM instead provides food coupons for purchases of ST15-grade rice. Both premium and ST15-grade rice are not subject to GST.

In 2015, Thailand and Vietnam controlled more than 60 percentof rice imported into Malaysia with total volume of 717,000 tons and valued at US$169 million and US$156 million respectively. Other major exporters of rice to Malaysia in 2015 were Pakistan, India and Cambodia valued at US$88 million, US$53 million and US$44 million respectively