Implication of Fertiliser Subsidy Withdrawal on Societal Welfare, Rice Output and Imports in Malaysia’s Rice Sector

The study analysed the effects of de-subsidised fertiliser input, as an alternative policy, in the rice sector in Malaysia. Time series data (1980-2012) were collected and analysed through different stages of analyses. The first stage of analysis involved time series econometric model, namely Auto Regressive Distributed Lag (ARDL) which was used for coefficients estimation. Estimated elasticities were subjected to and passed the relevant diagnostic tests. The estimated elasticities were then used for the second stage of analysis - that is scenario simulation (removal of fertiliser subsidy while retaining any other rice production subsidy and support) and forecast. Finally, the generated simulation results were further used in estimating societal welfare through the producer surplus change estimation technique. Results showed, on the average and by 2020, yields declined by 10%, national output contracted by 10% and net import increased by 19.1%. Producer welfare loss stood at RM839 million, revenue saved was RM183 million and the net loss or societal welfare loss was about RM655 million. Thus, the policy option should not be on the decision table of policy makers because of net lost to society in general.