Topics: Economics, Palm oil, Supply and demand Pages: 11 (1759 words) Published: May 17, 2015

Commodities industry is one of the main contributors to the national economy. Oil palm, rubber and timber industry has been generating employment, source of income for smallholders and contributes 14.9% of total export earnings. The government recognised the importance of palm oil and rubber industries in 2013 as one of the National Key Economic Area (NKEA) which is under Economic Transformation Programme (ETP). Government Transformation Plan (GTP) and Economic Transformation Programme (ETP) are national transformation to drive vision 2020 towards high income and advanced economy. I had assigned to figure out the issues and challenges that will be facing by commodities industry on the way towards the year 2020. To go over, economics analysis attempts to play its role.

Economics is the science that deals with the allocation of limited resources to satisfy unlimited human wants. Think of human wants as being all the goods and services that individuals desire. However, to produce goods and services, we need resources, including labour, land, entrepreneur, capital and technology. Resources are said to be scarce because their supply is limited. In the next five years, the challenges faced by the commodities industry are not only from the industry itself but also threat from other industries.

3.2.1Land use
Concept of land in economy refers to natural resources in this world. Land supply is constant. Commodity is a land and labour incentive sector. The expansion of commodity plantation will affect other economic activities such as the development of residential and commercial areas and agriculture. However, the growth of population requires more land for residential and commercial area. Moreover, the total land area which is suitable for agriculture is reaching its saturation point. To figure out issues of land, I am using theory of production which is production possibility curve to explain land-use constraints on expansion of commodity plantation. Production possibility curve is a graph showing the maximum output that can be produced by using the economic factors of production that available.

Production by plantation

Graph 1: Changes in technology, indifference curve switch to the right Graph 1 shows combinations of output that can be produced by the country efficiently by using the economic resources available. Land available permits country to produces combination between production by plantation and residential/commercial area along point (a) to point (c) at IC line. Point (d) is a combination that country cannot produce. In long term, IC line can switch to IC” when level of technology changes. To shift right the IC line, our country must go by research and development (R&D) in order to develop a new technology.

3.2.2Sustainability issue
Malaysia needs to develop a special brand for commodities that reflects the quality of high value added products which are sustainable at a competitive price. I am using theory of product differentiation to figure out the sustainability issue. In international market, firms from each country compete against each other by produces differentiated products. It is because to ensures sustainability of their products.

Economists distinguish between two types of product differentiation: vertical and horizontal. Vertical differentiation is about inferiority or superiority. Two products are vertically differentiated when consumers consider one product better or worse than the other. Horizontal differentiation is a situation involving two products such that some consumers view one as a poor substitute for the other and thus will buy the one even if its price is higher than the other’s. The challenges will be facing in future is horizontal differentiation which is a part of barrier to entry. Without the quality of high value added product, our country cannot compete in...
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