A New Beginning for the
Pig Farming Industry
A Summary of the Sunflower Project
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 The
Ten Major Benefits
The concept proposed in the Sunflower Project to reorganize and rebuild the pig farming industry, if well executed, will take the Malaysian Pork Industry into the 21st Century. It not only assures the smaller farmers a chance to regain their means of livelihood, it will transform them into proud owners of a billion dollar modern industry, if left on their own is beyond their wildest dreams. Pork consumers will benefit by enjoying better and safer products at affordable prices resulting from improved efficiency of the industry. The government too will be relieved of the burden of managing the fallout of an unregulated and fragmented industry, vulnerable to disease outbreak, as well as posing as a threat to the environment and hazard to public health. Finally, after 35 days of intensive research, discussion, debate, arguments, and extensive consultation with Malaysian, US, Danish and Dutch swine farming experts, feed meal suppliers, bankers, management consultants and government officials, the Federation of Livestock Farmers Association of Malaysia presented the government with the SunFlower Project to reorganize and rebuild the pig farming industry affected by the Nipah Viral Encephalitis epidemic. If accepted by the government, and well implemented, this proposal could represent a major milestone in the reorganizing of an important livestock industry in the country. The spirit of the project captures the overdue imperative of reforming and reorganizing an industry, which is unprepared for major risks of disease outbreak. The self-compensating mechanism proposed, the setting up of the National Swine Producers Council (NSPC), is intended to make the industry more resilient to crisis, be it outbreak of diseases, coping with an over supply situation leading to slumping prices or excessive stress on the physical environment arising from unmanaged growth. The scheme also provides an opportunity for growth, not only a “soft-landing” for a brutal shakeout of the smaller players, which if let nature takes its course, will be left high and dry to fend for themselves. Among other things, the project proposes that the NSPC be the self-regulatory authority for the industry. NSPC will
To help the NSPC get off the ground, the industry asks the government to back a consortium of commercial banks to make a ten year loan at 4% interest, similar to the terms of the fund for food loan currently promoted by the government. Out of the RM180 million requested, some RM60 million will be paid out to the affected farmers in cash, while RM120 million will be kept as capital for rebuilding of integrated Pig farm via a new holding company owned by the pig farmers. The industry will raise on its own a further RM30 million from existing farmers who need to be resettled and leverage the paid up capital of RM150 for further loan of RM150 to obtain a total capitalization of RM300 million. The first part of the repayment for the RM180 million is going to come from the levy of RM10 per porker, at 2 million porkers a year, the amount is RM20 million. The second part of the repayment is going to come from the profits of the new holding company. Given a developed and substantial home and nearby market for warm pork, the proposal stands on its own as a commercially viable and operationally efficient scheme. Fragmented Industry The pig farming industry, in spite of its high growth and consolidation in the past two decades remains fragmented, thus vulnerable to major crises. To date, there isn’t a major single industry player that commands more than 5% of total supply in the market. Although one can argue that this makes the industry dynamic in its competition, on the other hand this fragmentation also makes for low operating efficiency and wasteful competition. Apart from the helplessness of the farmers in the face of a major disease outbreak, like the recent Nipah Virus epidemic, the industry’s unmanaged growth in the last few years has also lead to slumping prices. Uncertain of land use and short tenure of licenses has also made planning horizons extremely short for the eager players. This is perhaps a good time and a perfect occasion for the industry to review and resolve many of the issues and challenges the industry faced in the past. It must be noted from the beginning that while the current crisis presents an opportunity for the industry’s re-organization, it must be pointed out that it takes tremendous will and leadership from all sides, the pig farmers, government officials and the pork consuming community at large. The Sunflower Project’s most outstanding benefit feature is its self-help, self-regulating feature, where the industry takes full responsibility towards its own self-organizing and self-regulation. Like elsewhere in the world, farmer’s welfare and returns will be enhanced by self-organization towards sharing of information and efficiency gains. Thus the setting of the National Swine Producers Council (NSPC), in addition to farmers representatives, it invites participation from the community and the government. At this juncture of development of the industry, active government leadership and direction is crucial to its reorganization. The proposal also changes the relationship between the industry and the government, from one of a regulatory authority, to seeking its support and collaboration as partners to guide the industry towards a sustainable and profitable path.
To relieve the government of managing the fall-out of the losses resulting from the culling of the herd in Negeri Sembilan and Perak, NSPC proposes to take upon itself to make up for the shortfall between the government’s financial assistance (RM50) and the request of the farmers (RM200). This amounts to RM135 million. Some concerned parties pointed out that the industry might have over-burdened itself with compensating the 900,000 animals that have already been culled. This concerns while valid, overlooks one important point -- The key reason for the industry to take on the responsibility to compensate the farmers who have surrendered the pigs is to avoid a systematic collapse of the pig farming, and perhaps the entire livestock industry. A web of credit, downstream suppliers finances the whole livestock industry, including feed meal raw material suppliers, pharmaceuticals and equipment suppliers finance the pig farmers, and banks in turn finance them. And depositors fund banks. If any one end of this chain has to default, it will set off a chain reaction. According to industry sources, given the industry’s average credit period of 60 days, and average cost of mixed feed per pig is $1 per day, various downstream suppliers have at risk some RM60 million for 900,000 pigs culled. If pig farmers do not receive adequate financial assistance, it will lead to raw materials suppliers being hit by the risk of having to write off this huge amount. Having to cover their positions, it is only natural to expect suppliers further contract credit for the existing pig farmers and possibly other livestock producers in the country. When this happens, especially in a soft demand condition for porker, it will further aggravate the risk of financial collapse of the remaining farmers. The arrival of NSPC will give certainty to the collectible of this amount outstanding, even though it may have to be rescheduled, but reduce the risk of a systemic credit crunch of the entire livestock industry and avert a possible contraction on the entire economy. The culling of 900,000 animals will cut the supply of porker from pre-crisis 4 million per annum to some 2 million. Given the assumption that the contaminated areas cannot get back into production for some time and the annual demand for porkers’ return to pre-crisis level of 3 million when situation stabilizes, prices are expected to rise as a result of reduced production. The pig farmers’ leaders are of the view that the good fortune of the remaining farms is a result of the tragedy of the people in the affected areas, and hence they have a moral obligation to help them rebuild. Thus it is proposed that the industry takes over the responsibility of making up for the shortfall between what the government could support and what the farmers need.  If left to natural reorganization, small farmers will one day become contract farmers for big corporate players who will own integrated modern pig farms. While this may not be undesirable, but if the smaller farmers can be organized in such way that those who farms can benefit from the collective growth of the industry, it would be win-win for all. This is the model practiced in Denmark where there are very few large players, and the owner farms reap the greatest benefit of their labor. The farmers themselves own the industry and are responsible for its growth. 4.
An Industry Strategic Brain Thrust
It relieves the government of a heavy burden to resettle the affected farmers. It is a totally self-help self-funded program. NSPC also set the example for other livestock and food producing industries in the country where producers must accept and prepare to face disease outbreaks as part of business risk and maturing industry must have a cushion created to manage the fall-out. Collective effort to reorganize brings the industry forward to world standard, takes the industry a big leap forward, improve efficiency and reduce the risks of being a public health and environmental hazard. Out of the balance 1.5 million pigs, some 600,000 are still reared in substandard farms (40% of the reaming Standing pig population), these need to be upgraded. On their own, it is difficult for the smaller farmers to afford the investment in infrastructure to bring pollution control and water treatment plants to industry standard. An industry wide reorganization and resettling program will make this possible. The reorganization proposed by NSPC will also permanently put to rest the controversy and sensitivities associated with pig farming. Constant threat of closure due to pollution issues and haphazard growth were faced by the substandard farms. Once reorganized, these problems will be history. Successful implementation of the Sunflower scheme will move the Malaysian multi-racial model, one of harmony and mutual respect to a new level. Furthermore, NSPC does not ask the government for hand-outs, it will buy land at commercial rates, but ask the various state governments to grant perpetual license for pig farming in order to allow for certainty of tenure and allow for reasonable returns on heavy capital outlay. Additional land use sought for this exercise is only about 4000 acres, which can be divided into some four separate areas away from strategic infrastructure, residential and water catchment areas. In the new scheme, farmers get to become specialist farmers, supported by essential services at affordable prices. They then can do what they do best and at higher efficiency. The new arrangement will be vast improvement from their present-day predicament where they have to do everything with minimal and expensive support. In addition to that, they have to face the uncertainty of prices and when their products are ready for the market. Some of the reforms recommended by NSPC such as supply regulation and levy are NOT new. The Malaysian Swine Exporters Association has been operating on those arrangements in the last four years and has brought real and tangible gain to all their members. Such self-regulatory schemes again is not revolutionary, elsewhere in the world, they have been implemented with remarkable results. For example, in New Zealand, the farmers got together to cut sheep production, and removed government subsidies. They cut their herd from 77 million sheep to 44 million; the result is happier farmers, better income and less stress on the environment. Consumers are going to have cheaper, safer and healthier pork products. With modernization, better animal health care and higher veterinary standards will upgrade the standard of pork production. Moreover, in order to satisfy local consumers’ demand for warm pork, producing them domestically is the only viable and safe option. NSPC with close collaboration of the Department of Veterinary Services would work on better surveillance programs to avert losses in future outbreaks of diseases. With better organization and stronger alert awareness, the management of disease control can be carried out. The concept of the Sunflower Project in its current state may still contain many imperfections. After consultation with the government and various community leaders and further debates among the various parties, refinement and innovation will definitely be added. As in all good schemes, its merit lies in its execution. Having arrived at a consensus, the will and leadership from all involved parties are critical. Regrettably, the devastating Nipah Virus episode has generated tremendous divisive and ill feelings among many parties concerned. Perhaps this is an opportunity for a happy ending for a grave tragedy if all of us can be clear on our objectives and priorities. Our real enemy is the Nipah
Virus. Lets work to find a win-win working solution for all, putting the
true spirit of MALAYSIA BOLEH to another milestone.
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The Malaysian Economy: A Perspective on Competitiveness