Impact of government procurement policies on farm gate prices of staple cereals

Abstract:

Imagine a rice farmer who harvests 4 tonnes per hectare but receives 25 percent less than the cost of production because no buyer is willing to offer a fair price at the farm gate. Government procurement policies are designed to prevent exactly this scenario. This research examined the impact of Malaysia's cereal procurement programs on farm gate prices of rice, wheat, maize, and sorghum across four major producing states—Johor, Kedah, Perak, and Kelantan—over the period 2018-2023. Secondary data from the Federal Agricultural Marketing Authority (FAMA) and the Department of Statistics Malaysia were analysed using a difference-in-differences framework. Results showed that procurement-covered cereals fetched 18.7 percent higher farm gate prices on average than non-covered cereals in the same districts. Rice benefited most (32.2% price premium), while sorghum showed the smallest gain (11.8%). A spillover effect was detected: even private traders in procurement districts raised their offered prices by 8.4 percent compared to traders in non-procurement areas. However, smallholders with less than 2 hectares captured only 61 percent of the price premium available to medium-scale farmers (2-10 ha), indicating unequal benefit distribution. These findings support continuing procurement interventions but call for targeted reforms to improve smallholder access.