Price support and stabilization measures for padi/rice in Peninsular Malaysia

Abstract

Institutional and price measures are the two components of government policy applicable to the Malaysian rice economy. This study analyses the operation of price support measures employed to uphold producer prices (the Guaranteed Minimum Price) and the price stabilization devices. The effectiveness of producer price supports, as a production incentive is first measured. The study utilises an acreage response analysis for both main season and off season wet padi in selected commercially oriented states. The analysis points out that the present price incentive is weak in stimulating rice supply. What appears to be more important to the Malaysian rice farmers is real income. Differences between the buying price of rice at the retail level and the selling price of padi at the farm gate seem to be more significant in generating producer responses than the Guaranteed Minimum Price (GMP) as such. The elasticity of supply with respect to price difference is fairly inelastic in the main season and varies from 0.8 to 2.5 in the off season. The study next deals with the second element of the rice policy - the price stabilization apparatus.