EFFECT OF SELECTED INSECTICIDE ON WHITEFLY (Bemisia tabaci) INFESTING BRINJAL PLANTS Β© 2015 Asian Economic and Social Society. All rights reserved ISSN(P): 2304-1455/ ISSN(E): 2224-4433 Volume 5(5), 124-136 124 THE TOTAL FACTOR PRODUCTIVITY IN STRATEGIC FOOD CROPS INDUSTRY OF MALAYSIA Kamarudin Othman Falcuty of Business, Universiti Teknologi MARA Kedah, Merbok, Kedah, Malaysia Amir Hussin Baharuddin School of Economics, Finance and Banking, College of Business (COB), Universiti Utara Malaysia, Sintok, Kedah, Malaysia Abstract Total Factor Productivity (TFP) may indicate the long-term economic growth of a country. In addition, it is also a comprehensive measure of the level of productivity in the economy. Therefore, these study attempts to investigate the TFP for Malaysia paddy sub-sector. The study was conducted in four Muda Agricultural Development Authorities (MADA) regions and employed a seasonal the series of data from 1996 to 2011. Result has found that the actual TFP growth is below than 5 percent for each season. The study also found that the actual TFP trend has been volatile over time. Study has further investigated the factors affecting TFP growth in the Malaysian paddy industry for the entire period. Seven selected factors are found to be associated with striking TFP growth. The result has discovered that all the selected factors are important in influencing the paddy production in Malaysia. However, the magnitude is different for each region. Keywords: Total factor productivity, paddy, MADA, self-sufficiency level (SSL) 1. INTRODUCTION 1 Nowadays, the contribution of the Malaysian agricultural sector to economic growth is getting smaller compared to that of 1960s. Although the contribution of this sector declined but it stay played an important role in economic growth. Based on figure 1, we discovered that agricultural sector becomes the third most important engine of the economic growth in Malaysia. One of the main crops in Malaysia agricultural sector is a paddy. Since Malaysia was independent in 1957, until now, the paddy sub-sector plays a crucial role in affecting economic, politics, and social landscape of the country (Mutert & Fairhurst, 2002). In addition, this sector is very important especially in terms of the national food security. Therefore, paddy has become the essential food crop in Malaysia. It is also known as a single strategic crop. Hence, because of the importance of this crop, all efforts have been made by the government to ensure that local paddy production can meet the demand of the country. Corresponding author’s Name: Kamarudin Othman Email address: kbo176617@kedah.uitm.edu.my Asian Journal of Agriculture and Rural Development journal homepage: http://aessweb.com/journal-detail.php?id=5005 mailto:kbo176617@kedah.uitm.edu.my Asian Journal of Agriculture and Rural Development, 5(5)2015: 124-136 125 Figure 1: Malaysia gross domestic product by economics sectors in 2014 (%) Sources: Economic Planning Unit, 2015 However, the competition to be a fully developed country has resulted the paddy sub-sector to face many challenges such as the downsizing of the agricultural land, the dumping of elderly farmers, the migration of young labours to urban areas, poverty, etc. (Najim et al., 2007). These factors in directly cause the reduction in Malaysia's paddy production. Therefore, a new approach to economic growth that is based on Total Factor Productivity (TFP) is necessary to sustain the growth of this sector. In addition, through TFP, the sector can be transformed into a sector that is capable of generating a lucrative source of income for small farmers. TFP growth reflects the increase in the level of productivity as a result of the existence of technical efficiency in the use of production inputs. Most of the time, the efficiency of agricultural inputs arises from the presence of technology and overall economic efficiency. Moreover, TFP is also a measure of the efficiency of labour and capital. The increase in output may occur if the combination of labours and capital inputs is effectively used. The high level of TFP growth in the paddy sector is an important benchmark for improving the farmers’ standard of living. The problem of paddy sub-sector in Malaysia is that the growth of local paddy production is still low. In 2009 to 2010, paddy production growth was only about 1.48 per cent, while the growth of the domestic demand rose by an average 5.2 percent in the same year. Based on these facts, it indicates that the yield of paddy in Malaysia is lower than the national paddy production target at 5 percent annually (FOA, 2002; Othman, 2008; Department of Agriculture, 2011). In 2010, Malaysia has experienced a shortage of production approximately 125,552.15 metric tonnes of paddy. In terms of consumption, Malaysia increased the use of paddy or rice from 2.49 million metric tonnes in 2009 to 2.60 million metric tonnes in 2010 (USDA Foreign Agricultural Service, 2012). To meet the domestic demand, the government had to import paddy or rice from abroad. Malaysia has been importing rice worth about RM1.0 to RM 1.3 million per year, which represents roughly 30 percent of its rice imports. Therefore, the increase of TFP paddy production is very important, especially to enhance the paddy self-sufficiency level (SSL). This may ensure that paddy stocks are adequate to fulfil the local demand. In addition, the increased levels of TFP have shown the existence of technical efficiency in inputs used. Besides, the increase in TFP levels has also reduced the dependence of import. This will, in turn, increase the small-scaled farmers' income as well as improving their standard of living. Hence, the first objective of this study is to examine the growth of TFP in the paddy sub-sector in Malaysia. The second objective is to identify the factors that affect the TFP in the paddy sub-sector. For this study, a number of inputs have been selected. Among the variables are average paddy yield, labours, lands, capital, fertiliser, and paddy prices. In general, this paper is divided into five parts. The first part is the introduction. The second part is a literature review related to the TFP. 7 24.6 3.9 55.3 Agriculture Manufacturing Construction Services Asian Journal of Agriculture and Rural Development, 5(5)2015: 124-136 126 The third and fourth parts concern about the methodology and results while the last part is the conclusion of the study. 2. LITERATURE REVIEW The neoclassical concept of TFP has been widely used in agricultural studies until now. There are two main functions of TFP. Firstly, TFP is used to measure the productivity of all factors, and secondly, it is used to associate with the aggregate production function. According to Jesus (2007), TFP is a measure by how output changes and time passes with the input bundle held constant. As in other sectors, TFP is used to measure the performance of the agricultural sector and in the same way, it provides a guide to the efficiency of the sector (Kirsten & Vink, 2003; Thirtle et al., 2005; Conradie et al., 2009). Increased productivity shows that there is an element of efficiency in the use of production inputs. This means that there is no wastage of inputs in the production process. Technically, productivity is the ratio between the quantities of output produced on inputs used in a production process. In the meantime, increased productivity also means that the use of the same number of inputs can increase the amount of production. This means that operating costs, especially the cost of production, can be reduced. Hayami & Ruttan in the 1970s are the earliest group of researchers who have conducted a study on measuring of the productivity level in the agricultural sector. The increase in productivity means that the supply of food and basic materials may increase. This in turn may increase the level of welfare of the society and the state. Hayami and Ruttan have concluded that the productivity growth in the agriculture is essential to the economic growth. Besides Hayami and Ruttan, Stefan (2002) also believed that productivity is one of the basic variables that drive economic activities. In addition, the increased levels of productivity are also related to the creation of value-added products. Basically, the increased productivity means increasing the efficiency of resource used.This may help to decrease the wastage of material resources in production. According to Katrz (1964) and Rahman (1999), Total Factor Productivity (TFP) occurs from the advance of technology used in the production process. According to them, the advancement in technology may drive the growth of output and labour. Therefore, the use of technology becomes a key determinant for the labour productivity. In addition to technology, capital-labour ratio can also be used as a tool to measure the level of productivity. Meanwhile, the capital-labour ratio can also be used as a variable to represent the level of technology. In general, an increase in the level of technology occurs when the ratio between capital and labour increases. In a study conducted by Hishashi (1991), it is shown that technological advances have a direct relationship with the capital input. If the firm is capital-intensive, it may potentially create the higher levels of productivity compared to labour-intensive firm. However, the increase in the level of productivity is not affected by the level of technology alone. The quality of the inputs used is also very significant in influencing the productivity growth. If the quality of input increases, the same amount of input can produce more output. Improvement in the quality of input may indirectly reduce the production costs. In addition, there are also other factors affecting the productivity growth such as human resource management, change in socio- demographic, employment and working facilities, human resources and institutional restructuring, socio-economic, and socio-political impact. Every economic transformation process may involve labour, capital, materials, and energy act as a production input. Basically, the process of transformation can produce more than one output either middle or end product. The agricultural sector is not exempted from this transformation process. This is because every single transformation involves a change in the level of productivity. This shows that the combination of inputs can affect the level of productivity differences. Basically, the change in the level of productivity can be measured by using two approaches such as Partial Asian Journal of Agriculture and Rural Development, 5(5)2015: 124-136 127 Productivity and Total Factor Productivity (TFP). For a single input, productivity notation is (Y / L). This notation should not cause any problems in measuring the productivity level. The ratio of output to input is called Partial Productivity. However, if the combination of various inputs is used in the agricultural production process, then there is the question of how the weight of each input should be used. Therefore, to resolve this issue, the Total Factor Productivity (TFP) is employed. 2.1. Selected variables affecting TFP There are various factors that can affect the Total Factor Productivity (TFP) in the paddy industry. All these factors have either director indirect relationship with the TFP growth. For this study, there are seven variables that have been selected such as land, capital, young farmers, old farmers, fertiliser, paddy prices, and paddy yield. 2.1.1 Capital The capital is one of the basic inputs in the production function of neoclassical and is composed of raw materials and intermediate products. In many empirical researches, many researchers have found that capital is important in determining the TFP in the production of paddy (Oniah et al., 2008). In addition, they have also found that the flexibility and return on capital for the agricultural sector is high. High elasticity and return on capital investment show that small changes in capital can lead to a higher TFP growth. This shows that capital has a huge impact on agricultural production. To increase production, farmers need to increase their investment in capital, such as purchasing or leasing a new machine. Meanwhile, Muzaffar (1988) has also stated that capital is an important input in the production of paddy in Malaysia. According to him, investment in agricultural capital is elastic. This means that the increase in paddy production is driven by the capital employed. 2.1.2 Land There are a number of studies which have found that land and labour are important factors in the production. In addition, there are some researchers such as Sachchamarga & Williams (2004) and Moses & Adebayo (2007) who stated that capital and land are substituted. But this opinion has been refuted by Oniah et al. (2008). According to them, this case may be true for a manufacturing sector. It is because they have strongly believed that land is a key input in the agricultural sector, therefore, it is very difficult to be replaced by capital. They also assume that land has a significant impact on the paddy TFP growth. Although land is significant in the agricultural sector, the degree of elasticity is relatively small. This means that land is not a major element of the TFP growth. However, for many researchers, they still do not consider land as part of the agricultural production system. Therefore, it means that if we abide land in our analysis, it will produce biased estimates. In addition, Suresh & Ready (2006) have found that the ratio of the marginal value product per marginal cost factor of land (MPV / MFC) in India is 3:04. This indicates that an increase in land may create the economies of scale. This in turn may help to increase the more sustainable productivity growth. In another study by Sherlund et al. (2002), it has been found that paddy output has a significant relationship with land. This means that, by taking into account the impact of agricultural production and the environmental, an extra one-percent increase in land may increase paddy production by about 80 percent in the Cote d `Ivoire. 2.1.3 Labour Labour refers to the number of people who are paid to work. It becomes a major tool to increase the output. Basically the wages rate paid to workers are included in the cost of production. In addition, labour also plays an important role in agricultural production. There are a few researchers such as Goni & Baba (2007), Oniah et al. (2008), Basavaraja et al. (2008), and Chaudhry et al. (2009) who have proven that labour is important in the agricultural production. Although labour is an important input, the supply of labour is inelastic. This means that the supply of labour is competitive. If the Asian Journal of Agriculture and Rural Development, 5(5)2015: 124-136 128 non-agricultural sector offers a higher pay, the labour may migrate to manufacturing and services sectors. Various proxies are used to represent the labour such as family labour, hired labour, child labour, man-days per hectare, and human hours and bullocks have been used. There are also those who use the aggregate labour force data. For those who have employed the time-series data and panel data analysis in empirical estimation, the aggregate labour data may be used due the difficulty to obtain data on details. 2.1.4 Fertiliser Fertiliser is one of the most important factors in the agricultural production. The precise amount of fertiliser use can help to improve the production. It is categorised in to two types, namely chemical and organic fertilisers. Fertiliserisan additional nutrient supplied to the plants. It is crucial especially to improve the productivity level. The use of fertiliser that complies with the specification may help to increase the soil fertility.The fertility of soil means that the soil contains enough nutrients such as nitrogen, phosphorus, potassium, and others that are important to seedlings growth.The efficient use of fertilisers may help farmers to increase their production up to more than 20 percent. Heady and Dillon were the earliest researchers who have conducted preliminary investigations on the relationship between fertiliser and output production. Through their research, Heady and Dillon have discovered that fertiliser has a direct nexus with the output. After Heady and Dillon's works, fertiliser-related literatures have become substantial. Subsequently, many researchers have concluded that fertilisers are complementary to the land input. Therefore, to increase paddy production, farmers need to ensure that they comply with proper fertilisation schedule (Suresh & Ready, 2006; Ready, 2007) 2.1.5 Paddy price Parallel to other sectors, the price of the output is also important in influencing the resources allocation for production (Liyan & Richard, 1993). According to Mundlak (1988), output prices also play an important role in influencing the level of productivity of the agricultural sector.In addition; Mundlak has also stressed the importance of price as a basis in determining the production techniques. When the output price increases, farmers’ income also increases. The increase in the income may motivate farmers to produce more output. This indirectly helps to increase the supply of agricultural output. Several studies have demonstrated that price and productivity are related. For instance, Schultz (1979) in his study in the US has indicated that the higher output prices act as a catalyst to increase the productivity in the agricultural sector. Price plays two major roles; firstly, it reflects the level of consumption especially among the poor. Secondly, the price is also affected the supply through the increased production as an incentive to producers. In fact, there are two distinct desires among consumers and producers. Consumers want low prices, but farmers expect higher prices. In the case of Malaysia, this difference is the offset of the role of the government by providing price subsidies for both consumers and agricultural producers. 2.1.6 Paddy yield Output is a final product of a production process. In the agricultural sector, output or agricultural products may vary depending on the quality of the inputs used. Output is normally associated with efficiency of a production process. Meanwhile, efficiency is often linked to the performance of a firm as efficiency reflects the ratio between the outputs to the input. In many literatures, the efficiency concept is often associated with productivity because it involves the ratio between the inputs to the output. However, the definition of these two different concepts is varied as Asian Journal of Agriculture and Rural Development, 5(5)2015: 124-136 129 productivity refers to the ratio of the input to the output mean while efficiency involves the ratio between the outputs to the input. 3. METHODOLOGY This study was to determine the contribution of labour, capital, land, fertiliser and paddy prices to the paddy TFP production in Malaysia. The information obtained is useful for all stakeholders in the paddy production. Below are some assumptions before TFP is measured: 1. The production is constant returns to scale. 2. The input market is a perfect competition. The factors of production are paid according to their marginal product. The elasticity of the output with respect to inputs equals to the value of input shares in the output. The Total Factor Productivity measurement by using the production function pioneer is a work of a few authors, such as Solow (1957), Dension (1967) and Jorgenson et al. (1987). They have assumed that production function is in the transcendental logarithms (translog). The natural logarithmic production function of paddy in Malaysia is as follows: π‘™π‘›π‘Œπ‘‘ = 𝑙𝑛𝐴 + 𝛽1𝑙𝑛𝑋1𝑑 + 𝛽2𝑙𝑛𝑋2𝑑 + +𝛽3𝑙𝑛𝑋3𝑑 + 𝛽4𝑙𝑛𝑋4𝑑 + 𝛽5𝑙𝑛𝑋5𝑑 + 𝛽6𝑙𝑛𝑋6𝑑 + πœ‡π‘‘ .......... (1) by total differentiating equation above, we obtain 𝑑𝑦𝑑 = π‘‘πœ†π‘‘ + πœ•π‘Œπ‘‘ πœ•π‘‹1𝑑 βˆ™ 𝑋1𝑑 π‘Œπ‘‘ 𝑑π‘₯1𝑑 + πœ•π‘Œπ‘‘ πœ•π‘‹2𝑑 βˆ™ 𝑋2𝑑 π‘Œπ‘‘ 𝑑π‘₯2𝑑 + πœ•π‘Œπ‘‘ πœ•π‘‹3𝑑 βˆ™ 𝑋3𝑑 π‘Œπ‘‘ 𝑑π‘₯3𝑑 + πœ•π‘Œπ‘‘ πœ•π‘‹4𝑑 βˆ™ 𝑋4𝑑 π‘Œπ‘‘ 𝑑π‘₯1𝑑 + πœ•π‘Œπ‘‘ πœ•π‘‹5𝑑 βˆ™ 𝑋5𝑑 π‘Œπ‘‘ 𝑑π‘₯1𝑑 + πœ•π‘Œπ‘‘ πœ•π‘‹6𝑑 βˆ™ 𝑋1𝑑 π‘Œπ‘‘ 𝑑π‘₯6𝑑 ................ (2) Where 𝑦𝑑 , π‘₯1𝑑 , π‘₯2𝑑 , π‘₯3𝑑 , π‘₯4𝑑 ,π‘₯5𝑑 and π‘₯6𝑑 are the logarithms for π‘Œπ‘‘ , 𝑋1𝑑 , 𝑋2𝑑 , 𝑋3𝑑 , 𝑋4𝑑 , 𝑋5𝑑 and 𝑋6𝑑 πœ•π‘Œπ‘‘ πœ•π‘‹1𝑑 βˆ™ 𝑋1𝑑 π‘Œπ‘‘ = input share of 𝑋1𝑑 in total output πœ•π‘Œπ‘‘ πœ•π‘‹2𝑑 βˆ™ 𝑋2𝑑 π‘Œπ‘‘ = input share of 𝑋2𝑑 in total output πœ•π‘Œπ‘‘ πœ•π‘‹3𝑑 βˆ™ 𝑋3𝑑 π‘Œπ‘‘ = input share of 𝑋3𝑑 in total output πœ•π‘Œπ‘‘ πœ•π‘‹4𝑑 βˆ™ 𝑋4𝑑 π‘Œπ‘‘ = input share of 𝑋4𝑑 in total output πœ•π‘Œπ‘‘ πœ•π‘‹5𝑑 βˆ™ 𝑋5𝑑 π‘Œπ‘‘ = input share of 𝑋5𝑑 in total output πœ•π‘Œπ‘‘ πœ•π‘‹6𝑑 βˆ™ 𝑋6𝑑 π‘Œπ‘‘ = input share of 𝑋6𝑑 in total output 𝑑𝑦𝑑= growth rate of paddy yield = d (log Y) 𝑑π‘₯1𝑑 = growth rate of land = d (log X1) 𝑑π‘₯2𝑑 = growth rate of capital = d (log X2) 𝑑π‘₯3𝑑 = growth rate of young farmers = d (log X3) 𝑑π‘₯4𝑑 = growth rate of old farmers= d (log X4) 𝑑π‘₯5𝑑 = growth rate of fertiliser = d (log X5) 𝑑π‘₯6𝑑 = growth rate of paddy price = d (log X6) π‘‘πœ†π‘‘ = 𝑇𝐹𝑃𝐺 = 𝑑(π‘™π‘œπ‘”π΄) Equation (2) can be rewritten as: Asian Journal of Agriculture and Rural Development, 5(5)2015: 124-136 130 𝑇𝐹𝑃𝐺𝑑 = π‘‘πœ†π‘‘ = 𝑑𝑦𝑑 βˆ’ πœ•π‘Œπ‘‘ πœ•π‘‹1𝑑 βˆ™ 𝑋1𝑑 π‘Œπ‘‘ 𝑑π‘₯1𝑑 βˆ’ πœ•π‘Œπ‘‘ πœ•π‘‹2𝑑 βˆ™ 𝑋2𝑑 π‘Œπ‘‘ 𝑑π‘₯2𝑑 βˆ’ πœ•π‘Œπ‘‘ πœ•π‘‹3𝑑 βˆ™ 𝑋3𝑑 π‘Œπ‘‘ 𝑑π‘₯3𝑑 βˆ’ πœ•π‘Œπ‘‘ πœ•π‘‹4𝑑 βˆ™ 𝑋4𝑑 π‘Œπ‘‘ 𝑑π‘₯4𝑑 βˆ’ πœ•π‘Œπ‘‘ πœ•π‘‹5𝑑 βˆ™ 𝑋5𝑑 π‘Œπ‘‘ 𝑑π‘₯5𝑑 βˆ’ πœ•π‘Œπ‘‘ πœ•π‘‹6𝑑 βˆ™ 𝑋6𝑑 π‘Œπ‘‘ 𝑑π‘₯6𝑑 ..................... (3) The above method is based on a growth accounting framework. Growth in production is due to the two-input growth and productivity growth. Finally, is the unexplained portion of the output growth, which is obtained as the residual of the output. By using Equation (4) and applying it to paddy production, we have 𝑑𝑙𝑛𝑄𝑑 = π‘‘πœ†π‘‘ + πœ•π‘Œπ‘‘ πœ•π‘‹1𝑑 βˆ™ 𝑋1𝑑 π‘Œπ‘‘ 𝑑π‘₯1𝑑 + πœ•π‘Œπ‘‘ πœ•π‘‹2𝑑 βˆ™ 𝑋2𝑑 π‘Œπ‘‘ 𝑑π‘₯2𝑑 + πœ•π‘Œπ‘‘ πœ•π‘‹3𝑑 βˆ™ 𝑋3𝑑 π‘Œπ‘‘ 𝑑π‘₯3𝑑 + πœ•π‘Œπ‘‘ πœ•π‘‹4𝑑 βˆ™ 𝑋4𝑑 π‘Œπ‘‘ 𝑑π‘₯4𝑑 + πœ•π‘Œπ‘‘ πœ•π‘‹5𝑑 βˆ™ 𝑋5𝑑 π‘Œπ‘‘ 𝑑π‘₯5𝑑 + πœ•π‘Œπ‘‘ πœ•π‘‹6𝑑 βˆ™ 𝑋6𝑑 π‘Œπ‘‘ 𝑑π‘₯6𝑑 .................... (4) where Q is paddy yield. 𝑋1𝑑 , 𝑋2𝑑 , 𝑋3𝑑 , 𝑋4𝑑 , 𝑋5𝑑 and 𝑋6𝑑 are inputs (land, capital, young farmers, old farmers, fertiliser, and paddy price). π‘‘πœ†π‘‘ is TFP growth. Using a discrete point in time and assumptions are listed above. This implies that the income of each input is the same as the elasticity of their production is stated Therefore, Equation (2) can be summarised as follows (Solow, 1957; Dension, 1967; Jorgenson et al., 1987): π‘‡πΉπ‘ƒπ‘”π‘Ÿπ‘œπ‘€π‘‘β„Ž = 𝑙𝑛𝑄𝑑 βˆ’ π‘™π‘›π‘„π‘‘βˆ’1 βˆ’ 𝐿𝑋1𝑑 𝑙𝑛𝑋1𝑑 βˆ’ 𝑙𝑛𝑋1π‘‘βˆ’1 βˆ’ 𝐿𝑋2𝑑 𝑙𝑛𝑋2𝑑 βˆ’ 𝑙𝑛𝑋2π‘‘βˆ’1 βˆ’ 𝐿𝑋3𝑑 (𝑙𝑛𝑋3𝑑 βˆ’ 𝑙𝑛𝑋3π‘‘βˆ’1 ) βˆ’ 𝐿𝑋4𝑑 (𝑙𝑛𝑋4𝑑 βˆ’ 𝑙𝑛𝑋4π‘‘βˆ’1 ) βˆ’ 𝐿𝑋5𝑑 (𝑙𝑛𝑋5𝑑 𝑙𝑛𝑋5π‘‘βˆ’1 ) βˆ’ 𝐿𝑋6𝑑 (𝑙𝑛𝑋6𝑑 βˆ’ 𝑙𝑛𝑋6π‘‘βˆ’1 ) . .................... (5) Where 𝐿𝑋1𝑑 = average share of land = 0.5(𝐿𝑋1𝑑 + 𝐿𝑋1π‘‘βˆ’1 ) 𝐿𝑋2𝑑 = average share of capital = 0.5(𝐿𝑋2𝑑 + 𝐿𝑋2π‘‘βˆ’1 ) 𝐿𝑋3𝑑 = average share of young farmers= 0.5(𝐿𝑋3𝑑 + 𝐿𝑋3π‘‘βˆ’1 ) 𝐿𝑋4𝑑 = average share of old farmers = 0.5 𝐿𝑋4𝑑 + 𝐿𝑋4π‘‘βˆ’1 𝐿𝑋5𝑑 = average share of fertiliser= 0.5 𝐿𝑋5𝑑 + 𝐿𝑋5π‘‘βˆ’1 𝐿𝑋6𝑑 = average share of paddy price = 0.5 𝐿𝑋6𝑑 + 𝐿𝑋6π‘‘βˆ’1 4. RESULTS AND DISCUSSION The results of the real TFP growth for MADA Regions 1, 2, 3, and 4 are shown in Figure 1. This study has revealed that the real TFP growth is less than 5 percent for every season. This finding is consistent with several studies conducted by Oulton & O'Mahony (1994) and Mao et al. (2003). The fluctuation of the real TFP growth is uncertain. There were times where the TFP grew in the main season and decreased in the off-season and vice versa. Based on the observation from Figure 2, the research has discovered that the increase in the real TFP growth was recorded in the main seasons. Meanwhile, the decrease in the real TFP growth often existed in the off-seasons. Asian Journal of Agriculture and Rural Development, 5(5)2015: 124-136 131 Table 1 shows the real Total Factor Productivity (TFP) of paddy production in the MADA areas. In Region 1, the average real TFP growth is 0.34 percent per season over the entire period of study. For the short-run, the real TFP average growth is 0.29 percent per season from 1996H2 to 2003H1 and 0.38 percent from 2003H2 to 2011H1. Meanwhile, in Region 2, the average real TFP growth is 0.35 percent. In the short-run, the real TFP average growth is 0.30 percent per season from 1996H2 to 2003H1 and 0.39 percent from 2003H2 to 2011H1. Furthermore, in Region 3, the average real TFP growth is 0.40 percent per season over the entire period from 1996H1 to 2011H1. For the short-run periods, the real TFP average growth is 0.34 percent per season from 1996H2 to 2003H1 and 0.45 percent from 2003H2 to 2011H1. Meanwhile, in Region 4, the average real TFP growth is 0.39 percent. For the short-run periods, the real TFP average growth is 0.33 percent per season from 1996H2 to 2003H1 and 0.44 percent from 2003H2 to 2011H1. Table 1: The real total factor productivity growth (TFPG) of paddy production in MADA (%) Years Region 1 Region 2 Region 3 Region 4 H11996 - - - - H21996 0.20 0.05 0.06 0.06 H11997 3.25 0.65 0.69 0.70 H21997 -1.47 1.38 1.64 1.59 H11998 0.19 0.20 0.27 0.19 H21998 -0.94 -1.02 -1.15 -1.11 H11999 0.47 0.53 0.59 0.59 H21999 -0.09 -0.14 -0.17 -0.18 H12000 1.10 1.19 1.40 1.30 Figure 2: The Real Total Factor Productivity (TFP) Growth of Paddy Production in MADA (%) Notes: H1 is main-season, H2 is off-season -2 0 2 4 1 9 9 6 H 1 1 9 9 7 H 2 1 9 9 9 H 1 2 0 0 0 H 2 2 0 0 2 H 1 2 0 0 3 H 2 2 0 0 5 H 1 2 0 0 6 H 2 2 0 0 8 H 1 2 0 0 9 H 2 2 0 1 1 H 1 MADA Region 1 -2 -1 0 1 2 1 9 9 6 H 1 1 9 9 7 H 2 1 9 9 9 H 1 2 0 0 0 H 2 2 0 0 2 H 1 2 0 0 3 H 2 2 0 0 5 H 1 2 0 0 6 H 2 2 0 0 8 H 1 2 0 0 9 H 2 2 0 1 1 H 1 MADA Region 2 -2 -1 0 1 2 1 9 9 6 H 1 1 9 9 7 H 2 1 9 9 9 H 1 2 0 0 0 H 2 2 0 0 2 H 1 2 0 0 3 H 2 2 0 0 5 H 1 2 0 0 6 H 2 2 0 0 8 H 1 2 0 0 9 H 2 2 0 1 1 H 1 MADA Region 3 -2 -1 0 1 2 1 9 9 6 H 1 1 9 9 7 H 2 1 9 9 9 H 1 2 0 0 0 H 2 2 0 0 2 H 1 2 0 0 3 H 2 2 0 0 5 H 1 2 0 0 6 H 2 2 0 0 8 H 1 2 0 0 9 H 2 2 0 1 1 H 1 MADA Region 4 Asian Journal of Agriculture and Rural Development, 5(5)2015: 124-136 132 H22000 0.56 0.52 0.51 0.58 H12001 0.01 0.05 0.06 0.01 H22001 0.10 0.10 0.11 0.14 H12002 0.24 0.22 0.25 0.27 H22002 1.21 1.25 1.48 1.46 H12003 -0.82 -0.85 -0.97 -1.01 H22003 0.07 0.06 0.02 0.07 H12004 1.12 1.18 1.40 1.32 H22004 -0.27 -0.32 -0.36 -0.33 H12005 0.76 0.83 1.03 0.95 H22005 0.19 0.18 0.14 0.20 H12006 1.41 1.47 1.79 1.68 H22006 -0.08 -0.17 -0.27 -0.20 H12007 -0.33 -0.32 -0.39 -0.46 H22007 1.48 1.55 1.75 1.80 H12008 1.46 1.55 1.84 1.69 H22008 -0.05 -0.09 -0.13 -0.04 H12009 0.35 0.35 0.34 0.34 H22009 -0.68 -0.70 -0.78 -0.74 H12010 0.90 0.92 1.03 1.01 H22010 -0.21 -0.23 -0.26 -0.26 H12011 0.03 0.01 0.02 0.03 Notes: All the values are computed by the researchers Statistical information in Table 1above is meaningless if we do not know what the real causes are that affect the TFP growth. Therefore, to understand the real causes that affect the growth of the productivity, we have employed the Fabricant’s Law (1942). In the Fabricant's Law, there are several connotations of the relationship between productivity and production. Firstly, the Fabricant Law has stated that there is a sign if cant and positive relationship between labour productivity and output growth. Secondly, there is also a significant and positive relationship between the TFP growth and output in the short or long term. Normally, the TFP growth tends to be higher if the output growth is high. Table 2 shows the correlation coefficients and t-statistic between the TFP growth, output growth, capital growth, labour growth, and the other growth factors such as land, fertiliser, and paddy price. The long-run TFP growth in Regions 2 and 4 is significant and positively correlated with the output growth. It shows that the TFP growths are likely to move together with the output growth. Thus, the cycle of the TFP growth is due to the growth of paddy production, which is heavily influenced by the amount of the current paddy production. However, for MADA Regions 1 and 3, this study has shown that TFP has an insignificant relationship with the paddy yield in the long-run. Table 2: Total factors productivity growth (TFPG) correlation coefficients MADA Period Ξ”ly Ξ”ln Ξ”lk Ξ”ll40 Ξ”ll41 Ξ”lf Ξ”lp 1 Long-run 1996H1 -2011H1 -0.22 0.16 0.38* 0.44* 0.49* 0.24 0.2 (-1.18) -0.84 -2.2 -2.59 -3.01 -1.32 -1.08 Short-run 1996H1 -2003H1 -0.31 0.27 -0.05 0.73* 0.72* 0.70* -0.11 (-1.17) -1.01 (-0.17) -3.81 -3.78 -3.54 (-0.39) 2003H2- 2011H1 0.51* -0.07 0.73* 0.12 0.11 0.23 0.41 -2.12 (-0.26) -3.84 -0.42 -0.4 -0.86 -1.61 2 Long-run Asian Journal of Agriculture and Rural Development, 5(5)2015: 124-136 133 1996H1 -2011H1 0.34** 0.2 0.51** 0.19 0.19 0.73** 0.28 -1.94 -1.08 -3.17 -1.05 -1.03 -5.63 -1.52 Short-run 1996H1 -2003H1 0.005 0.0002 -0.001 0.002 0.002 0.05* -0.003 -0.27 -1.29 (-0.32) -1.16 -1.16 -5.61 (-0.57) 2003H2- 2011H1 0.51* -0.07 0.73* 0.12 0.11 0.23 0.41 -2.12 (-0.26) -3.84 -0.42 -0.4 -0.86 -1.61 3 Long-run 1996H1 -2011H1 0.29 0.03 0.53* 0.17 0.18 0.72* 0.29 -1.63 -0.18 -3.32 -0.93 -0.95 -5.53 -1.57 Short-run 1996H1 -2003H1 0.11 0.07 -0.09 0.28 0.3 0.85* -0.14 -0.38 -0.26 (-0.31) -1.07 -1.11 -5.71 (-0.49) 2003H2- 2011H1 0.41 -0.06 0.75* 0.09 0.09 0.67* 0.42 (1.640 (-0.20) -4.1 -0.33 -0.32 -3.25 -1.65 4 Long-run 1996H1 -2011H1 0.41* 0.02 0.52* 0.18 0.17 0.74* 0.26 -2.37 -0.13 -3.18 -0.95 -0.93 -5.83 -1.42 Short-run 1996H1 -2003H1 0.27 0.07 -0.1 0.28 0.29 0.85* -0.16 -1.01 -0.24 (-0.37) -1.07 -1.08 -5.75 (-0.60) 2003H2- 2011H1 0.55* -0.08 0.74* 0.1 0.09 0.70* 0.39 -2.39 (-0.30) -3.96 -0.35 -0.31 -3.58 -1.54 Notes: * 5 percent significant level, values in parentheses are t-statistic In other findings, there is a significant and positive correlation between TFP and fertiliser in Regions 2, 3, and 4 in the long-run. These findings are consistent with Muhammad & Qazi (2003), Nin-Pratt & Yu (2008), and Khalid & Anthony (2012). However, in Region 1, the long-run co relational study has indicated that there is no significant correlation between TFP and fertiliser. This study has also discovered that TFP and fertiliser have a positive and significant relationship in the short-run in all MADA regions. This study has also found that TFP and fertiliser have no correlation in the short-run for the period of 2003H2 to 2011H1 for both MADA Regions 1 and 2.In the meantime, this study has also found that fertiliser is significant in most of the short- and long-run in all MADA regions. Therefore, based on the findings above, we can conclude that fertiliser plays an important role in the growth of paddy TFP. On the average, the study has found that young and older farmers have a significant relationship with the TFP in the long-run in Region 1. The short-term significant relationship between TFP and the age of farmers can also be detected in Region 1. This finding has supported the Feyrer’s (2002) work, which has shown that the age structure has a significant impact on TFP. The insignificant correlation between TFP and farmers either in the short- or long-run has indicated that the paddy sub-sector has employed unskilled farmers. Furthermore, this study has also found that there is a significant long-term relationship between TFP and capital.These findings have suggested that capital and TFP have an interdependence relationship, which supports similar findings obtained by Hassan (2002) and Idris (2007). This reinforces the view that the new technology incorporated, for instance, machinery and equipment utilised in MADA regions, is generally high. 5. CONCLUSIONS This study has been conducted to examine the TFP trend in a paddy sub-sector in Malaysia. Moreover, this study has also attempted to identify the factors that affect the paddy TFP growth. Asian Journal of Agriculture and Rural Development, 5(5)2015: 124-136 134 The study was conducted in four MADA regions and it used time-series data ranging from the main seasons in 1996 to 2011. Generally, this study has discovered that all the selected factors have influenced the TFP in all MADA regions. However, the magnitude varied across the region. On top of that, the research has also found that the real TFP growth is less than 5 percent and it fluctuates over time. The fluctuation of the real TFP growth is uncertain. In the interim, this research has also discovered that the increase in the real TFP growth was recorded in the main seasons. Meanwhile, the decrease in the real TFP growth often exits in off-sessions. Therefore, to raise the TFP growth in the paddy sub-sector, the government should take a drastic action to overcome the problems that hinder the growth of TFP. Among the actions that can be taken is avoiding of waste of resources and inefficient use of resources. In addition, the government, through authorised agencies, should ensure that farmers are provided with information and the latest technology of paddy cultivation. This is because, through information and technology, farmers are able to increase the level of TFP and, thus, they can increase the paddy production. Subsequently, the government should ensure that the contribution of TFP increase at a faster rate. Besides, the government should also ensure the financial proficiency in the use of capital among farmers. This is because, in a paddy sub-sector, the witnessed trend is gradually dumping old farmers, which has a relatively slow absorption in agricultural modernisation. Ceteris paribus, if the government makes less capital investment, this will decrease the growth rate of paddy production. This is attributed by the existence of inefficiency elements among farmers. As a long-term strategy for strengthening and establishing the paddy sub-sector, it is very important for Malaysia to shift from the growth under the input stimulus to the productivity-driven one. Productivity growth that is driven by efficiency and information may ensure that the growth in a paddy sub-sector is competitive, dynamic, robust, and resilient. This, in turn, may ensure farmers to receive high income and enable them to flee the poverty problems. In addition, the increase in the paddy production may help Malaysia to achieve 90 percent of rice SSL. This, in turn, may reduce the amount of rice imports. Views and opinions expressed in this study are the views and opinions of the authors, Asian Journal of Agriculture and Rural Development shall not be responsible or answerable for any loss, damage or liability etc. caused in relation to/arising out of the use of the content. References Basavaraja, H., Mahajanashetti, S. B., & Sivanagaraju, P. (2008). Technological change in paddy production: A comparative analysis of traditional and Sri Methods of cultivation. India Journal of Agriculture Economic, 63(4), 629-640. Chaudhry, I. M., Khan, M. B., & Anwar, M. (2009). Factors affecting cotton production in Pakistan: Empirical evidence from Multan district, MPRA, 5 (2), 91-100. Conradie, B., Piesse, J., & Thirtle, C. (2009). What is the appropriate level of aggregation for productivity indices? Comparing district, regional and national measures. Agrekon, 48(1), 9- 21. Dension, E. F. (1967). Why growth rates differ. Washington, D.C.: The Brookings Institution. Department of Agriculture. (2011). Pembangunan Industri Padi. Retrieved from http://www.doa.gov.my. Economic Planning Unit. (2015). Eleven Malaysia Plan 2016-2020. Malaysia, Prime Minister’s Department. Feyrer, J. D. (2002). Demographics and productivity. Mimeo, Dartmouth College. FOA (Food and Agriculture Organization). (2002). Selected indicators of food and agriculture development in asia-pacific region 1992-2002. Food and Agriculture Organization of http://www.doa.gov.my/ Asian Journal of Agriculture and Rural Development, 5(5)2015: 124-136 135 The United Nations, Regional Office for Asia and the Pacific. Bangkok. Retrieved from ftp://ftp.fao.org/docrep/fao/004/AD452e/ad452e00.pdf. Goni, M. M. S., & Baba, B. A. (2007). Analysis of resource-use efficiency in rice production in the Lake Chad area of Borno State, Nigeria. Journal of Sustainable Development in Agriculture and Environment, 3, 31-37. Hassan, R. (2002). The impact of imported and domestic technologies on the productivity of firms: Panel data evidence from Indian manufacturing firms. Journal of Development Economics. 69, 23-49. Hayami, Y., & Ruttan, V. W. (1970). Agricultural productivity differences among countries. The American Economic Review, 60(5), 895-911. Hishashi, Y. (1991). Structural change in the 1980's: Malaysian economy in transition. Tokyo. Institute of Developing Economies. Idris, J. (2007). Determinants of total factor productivity growth in Malaysia. Journal of Economic Cooperation, 28(3), 41-58. (Report Series No. 65) Economic and Development Resource Center, Asian Development Bank. Jesus, F. (2007). Total factor productivity growth in east Asia: A critical survey, Economic and Development Resource Center, Report Series No. 65, Asian Development Bank. Jorgenson, D. W., Gollop, F., & Fraumeni, B. (1987). Productivity and US economic growth. Cambridge (Mass): Harvard University Press. Katrz, J. M. (1964). Production functions, foreign investment and growth: A study based on the manufacturing sector 1946 – 1961. North Holland Publishing Company. Amsterdam. Khalid, l. A., & Anthony, C. T. H. (2012). Determinants of agriculture productivity growth in Pakistan, International Research Journal of Finance and Economics. 95, 165-172. Kirsten, J., & Vink, N. (2003). Policy Module South Africa. In the roles of agriculture project. International Conference on the 20-22 October 2003 Rome, Italy. Agricultural and development economics division, Food and agriculture organization of the united Nations. Liyan, E. F., & Richard K. P. (1993). Prices and productivity in agriculture. The Review of Economics and Statistics. 75(3), 471-482. Mao, Z., Goh B. H., Wang, S., & George, O. (2003). Total factor productivity growth accounting in the construction industry of Singapore. Construction management and economics, 21(7), 1- 12. Moses, J., & Adebayo, E. F. (2007). Efficiency of factors determining rain fed rice production in Ganya local government area, Adamawa State. Journal of Sustainable Development in Agriculture and Environment. 3, 20-30. Muhammad, S., & Qazi, M. A. (2003). Macroeconomic reforms and total factor productivity growth in Pakistan: An empirical analysis. In the 56th international Atlantic economic conference. Quebec City, Canada during 16 – 19, October 2003. Retrieved from www.spdc.org.pk/Publications/Conference%20Papers/CP-55.pdf. Mundlak, Y. (1988). Endogenous Technology and measurement of productivity. In S.M. Capalbo and J.M. Antle (Ed.), Agricultural Productivity: Measurement and Explanation, Washington D. C. Mutert, E., & Fairhurst, T. H. (2002). Development in rice production in Southeast Asia. In Rice Production Special Supplement Publication, Better Crops International, 16, 12-17. Muzaffar, S. H. (1988). Real money balances in the production function of developing economy: A preliminary study of the Malaysia agricultural sector. PERTAMINA. 11(3), 451-460. Najim, M. M. M., Lee, T. S., Haque, M. A., & Esham, M. (2007). Sustainability of rice production: A Malaysian perspective. The Journal of Agricultural Sciences, 3(1), 1-12. Nin-Pratt, A., & Yu, B. (2008). Agricultural Productivity and Policies in Sub-Saharan Africa. Development Strategy and Governance Division, IFPRI Discussion Paper 01150. Oniah, M. O., Kuye, O. O. & Idiong, I. C. (2008). Efficiency of resource use in small scale seamp rice production in Obubra local government area of cross river State, Nigeria. Middle-East Journal of Scientific Research. 3(3), 145-148. ftp://ftp.fao.org/docrep/fao/004/AD452e/ad452e00.pdf http://www.spdc.org.pk/Publications/Conference%20Papers/CP-55.pdf Asian Journal of Agriculture and Rural Development, 5(5)2015: 124-136 136 Oulton, N., & O'Mahony, M. (1994). Productivity and growth. A study of British industry, 1954- 1986. Cambridge: Cambridge University Press, Othman, O. (2008). Rice production and potential for hybrid rice in Malaysia. In International Plantation Industry Conference and Expo – IPiCEX. Shah Alam. Malaysia. Rahman, I. (1999). Human resources development industry and small and medium scale manufacturing in Malaysia. Bangi, Research Report, a female Economics, National University. Malaysia. Ready, G. P. (2007). Impact of water management on production of rice in balipatna command area or orissa, India. Sabaragamnwa University Journal, 1(2), 15-20. Sachchamarga, K., & Williams, G. W. (2004). Economic factors affecting rice production in Thailand, TAMRC International research, Report No. IM-033-04. Retrieved from http//afcerc.tamu.edu/publications/Publication- PDFs/IM%2003%2004%20Thai%20Rice.pdf. Schultz, T. W. (1979). Distortions of Agricultural Incentive, Indiana University Press. Sherlund, S. M., Christopher, B. B., & Akinwumi, A. A. (2002). Smallholder technical controlling for environmental production conditions, Journal of Development Economics. 69, 85-101. Stefan, T. (2002). Understanding the concept of productivity. Paper presented at the 7th Asia- Pacific Industrial Engineering and Management Systems Conference, Taipei. Suresh, A., & Ready, T. R. K. (2006). Resource-use efficiency of paddy cultivation in peechi command area of thrissur distric of Kerala: An economic analysis. Agricultural Economics Research Review. 19, 159-171. Solow, R. M. (1957). Technical change and the aggregate production function. Review of Economics and Statistics. 39, 312-320. Thirtle, C., Piesse, J., & Gousse, M. (2005). Agricultural technology, productivity and employment: policies for poverty reduction. Agrekon, 44(1), 41-44. USDA Foreign Agricultural Service. (2012, October). Global Agricultural Information Network Report. Retrieved from http://static.globaltrade.net/files/pdf/20110406115103794.pdf. http://static.globaltrade.net/files/pdf/20110406115103794.pdf