Deforestation

Improving Malaysia’s Ecological Fiscal Transfers: Key Takeaways from Macaranga Media's Webinar

On 23 April 2024, Samantha Ho (Eco Business), Surin Suksuwan and Teckwyn Lim, moderated by Yao-Hua Law of Macaranga Media, gathered to discuss Malaysia’s Ecological Fiscal Transfer (EFT) policy, a federal initiative aimed at incentivizing state governments to conserve forests and protected areas. The webinar shed light on the program’s challenges, transparency gaps, and potential improvements. Here were the key takeaways:
1. Limited Funds Disbursed, Lack of Transparency

Since its introduction in 2019, the federal government has allocated RM800 million under the EFT scheme. However:

  • Less than 5% of the funds have been disbursed.

  • In some years, the amounts given to state governments were lower than publicly stated.

  • The Ministry of Natural Resources and Environmental Sustainability (NRES) did not disburse funds in certain years, raising questions about oversight.

While some projects—such as Tasik Chini’s conservation and an artificial reef in Kelantan—were highlighted, most states provided little detail on how funds were used. Johor was the most transparent but only shared data from 2021, leaving earlier allocations unaccounted for.

2. Why Does the Federal Government Need States’ Cooperation?

  • States control land, while the federal government has international commitments (e.g., protecting 20% of Malaysia’s land).

  • Without state cooperation, federal conservation goals (such as maintaining 50% forest cover) may fail—especially as states like Sarawak continue converting forests for agriculture.

  • Currently, there is no penalty for states that reduce forest cover, and little compensationfor states like Pahang and Sabah, which already maintain high forest coverage.

3. Ambiguity in Definitions and Monitoring

  • The federal government retracted a list of protected areas from MyBIS, claiming it was a temporary delay—but five and a half years later, clarity is still lacking.

  • Without clear definitions, it’s difficult to determine what qualifies as a protected forest or how much forest cover exists.

  • No strict monitoring ensures funds are used for conservation. Some states reportedly spent EFT money on roads and other non-conservation projects. However, some panellists agreed that for EFTs to work, state governments should have freedom to choose as to what they define as constituting ‘conservation’.

4. Should EFTs Be Tied to Conservation Outcomes?

  • Teckwyn argued that EFTs should increase protected areas and maintain forest cover, not just fund existing state activities.

  • Surin suggested that states failing to protect forests should lose funding, turning EFTs into a performance-based incentive.

  • Samantha emphasized transparency—even if funds aren’t spent on conservation, the public deserves to know how they’re used.

5. Rethinking EFTs: Opportunity Cost, Not Just Conservation Funds

  • Since federal transfers to states are constitutionally mandated, EFTs could be structured as compensation for lost economic opportunities (e.g., logging or mining bans).

  • Surin proposed: “If you have X amount of forests, you get X amount of money.”

  • Others questioned whether framing EFTs as “conservation funds” is effective—perhaps they should be seen as payments for ecosystem services.

Conclusion
Malaysia’s EFT policy has the powerful potential to safeguard Malaysia’s natural heritage as well as being a legitimate tool to back up the Malaysian government’s pledge of maintaining 50% forest cover. Notwithstanding, the general consensus was concern over the lack of transparency at how public funds were being spent.

Part 1 of Macaranga Media’s coverage of EFTs can be found here. Part 2 may be found here.
MyBIS’ list of protected areas may be found here.

Catch up on interviews with BFM

By Claudia Nyon, Research Associate, research@segi-enam.com 

Here’s a belated update on two BFM interviews back in August.

Yu Leng was on BFM’s Morning Run on 26 August 2024 to provide her insights on the increase of rubber prices against the impending implementation of the European Union’s Deforestation Regulation (EUDR). Yu Leng also considered the present challenges of smallholder producers of palm oil and rubber. The full podcast may be found here

Key points included: 

  • Malaysia’s rubber yield may sound low but specialists think that trees are overcounted. Thailand has faced challenging wet weather conditions and output is down but on the other hand Malaysia’s output is up. Malaysia’s ranking in global production is below.

  • Commodities are handled by different government agencies or statutory boards in Malaysia. There is one for palm oil, rubber, pepper and so forth. (Agronomists seem to complain about these as “silos”). Another complexity in rubber is that different zones have different farmer income models, notably for profit sharing or share cropping. 

  • Rubber is largely produced in the northern states, where palm oil has not taken over these dryer regions. Smallholder experts think that (the true) rubber farmers needing help are individuals in remote areas. But domestically, there has been an understandable push for group farming (with hired/migrant labour) near towns. Perhaps a majority of rubber is produced under profit sharing, and this may need more consideration in current policy. 

A few extra points that didn’t make it, owing to time constraints:

  • A near geographical monopoly concept exists and persists in Malaysian regulations. The ideal is a farmer having multiple mills to sell for then will there be better prices for a standard product. But mills have a clear incentive to partner with their smallholders for product quality and international ESG standards. 

  • A lot can be gained from having information on the location of ultra low-yielding oil palms (“dura contamination” in industry parlance, where yields are -56% of normal yield). The Malaysian Palm Oil Board (MPOB) has invested a lot in detecting via genomic testing. Seeds can be verified for normal yield. There is a marginal cost increase for a major gain in production. One in eight oil palms in Malaysia are ultra low-yield, i.e., financially impaired. This is pretty surprising. 

  • However, the industry needs to reconsider how they can expand these good practices from planting material all the way to harvesting and field logistics, and fairer prices. 

Yu Leng was also invited to give her take on Malaysia’s latest pledge to halt new palm oil plantations in forested areas on BFM’s Top 5 at 5, on 19 August 2024. Deforestation regulations such as the EUDR were raised and how its shaking up global commodity supply chains with origins competing against each other to sell high value add products, however limiting land might cause liberal state development policies to clash against federal powers over exporting and licensing via the MPOB. The full podcast may be found here

Editor’s Note: this clash between state and federal powers over the ban on new palm oil plantations in forested areas has recently materialised in the Kuala Nerus district, Terengganu. As reported by Malaysiakini in September (paywalled), Pure Green Development Sdn Bhd submitted an environmental impact assessment (EIA) to clear a state-owned peat swamp forest to develop a palm oil plantation. Following reports, the Department of Environment rejected Pure Green’s EIA (paywalled) and the Plantation and Commodities Minister, Johari Abdul Ghani, issued a statement (Bahasa Malaysia only) that the government’s bar against new palm oil plantations in forested areas still remains in force and referred to the Malaysian Sustainable Palm Oil (MSPO) certification policy.