The agricultural sector has contributed substantially to the growth and development of the Malaysian economy. This has created a rich economic base to promote the rapid development of the industrial and manufacturing sectors, which has taken place since the mid 1980s. Structural change in the economy between l985 and l995 have seen the relative contribution of the agriculture sector to employment generation decline from 31.3 percent to 19 percent and export earnings from 36.7 percent to 19.2 percent. Concomitantly, the sector has been confounded by new issues and challenges, in particular an acute labor shortage leading to the employment of immigrant workers, limited availability of suitable land, and an ever-increasing cost of production from intersectoral competition for resources. Compounding all these issues is the intense competition in the global market resulting from trade liberalization.

The recent financial crisis in the country and the region has also exposed the country's vulnerability to a possible food crisis as the cost of food has risen under depreciation of the Ringgit (RM). Food import bills have steadily escalated from RM3.5 billion in 1985 to RM7.7 billion in 1995 to RM10 billion by 1997. The RM was pegged at the rate of RM3.80 to the $ in mid 1998. Meanwhile, the population has increased from 17.6 million in 1991 to a current level of 22 million (National Census 2000). The higher demand for food has led to an increase in food prices.

With competition for land use, the rural sector continues to experience problems of low productivity and holdings too small to be economically viable. Labor shortages and low commodity prices have further led to substantial idle or abandoned agricultural holdings away from the urban centers. It is estimated that there are about 400,000 ha of idle agricultural land in Malaysia.

Malaysian agriculture is also faced with greater competition with full implementation of agreements under the World Trade Organization and the Common Effective Preferential Tariff (CEPT) scheme of the

Association of Southeast Asian Nations (ASEAN) Free Trade Area. Main export commodities such as rubber and oil palm face increasing competition from emerging lower-cost products and continue to face discriminatory tariff and nontariff barriers.

The Third National Agricultural Policy (NAP3), launched in December 1999 for the period 1998-2010, addresses the issues and challenges mentioned above. The overriding objective is to maximize income through efficient and optimal use of resources. it formulates new strategic approaches and policies to enhance the economic contribution and growth of the agricultural sector. Among the major developments are the following:

(i) To integrate agriculture and forestry development using an agroforestry approach to provide a large, productive base to both sectors while optimizing resource usage.

(ii) To encompass a product-based approach for commodity development based on market demand, preferences, and potential.

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