News

Novelle and the World Bank in Malaysia

Malaysia is a country that has been blessed with extensive natural resources. It has substantial holdings of oil and natural gas, as well as rich timber and logging reserves in the outer islands of Sabah and Sarawak. It has developed an active electronic and light manufacturing sector as well.

Malaysia is also the world leader in two of the more important plantation crops – palm oil and rubber. But while Malaysia has been very successful in these large scale enterprises, it has lagged markedly behind its close southeastern Asia neighbors in the fruit and vegetable sector (particularly the Philippines, Thailand, and Indonesia), as well as smaller scale farming. To this end, Malaysia, through its sovereign investment company, Khazana, created the Malaysian Agrifood Corporation (MAFC), (and – delete) charged with stimulating and modernizing the fruit and vegetable sector of the economy.

Within a relatively short time, the leaders of MAFC realized that they did not have the expertise to adequately carry out their charter. They requested assistance, from the World Bank, and Novelle principal, Henry Winogrond, joined the World Bank team assisting MAFC.

The initial work carried out by Mr. Winogrond and the other members of the team made it quickly evident that (they – change to MAFC) had established a very large team (e.g., a large overhead) of bright and eager folks, who had zero experience in the produce business. In addition, they were attempting to enter into highly competitive areas of the sector (tomatoes, cucumbers, peppers, cabbage, etc.) that were dominated by Chinese families and traders that had been in the business for generations. They were also committing themselves to the very large scale development of a new papaya variety, without adequate testing, including the testing of production, distribution, and marketing.

The World Bank team tried to steer MAFC as rapidly as was possible in three directions. The first was to cut back on the low margin vegetable products until some clear form of competitive advantage could be established. The second was to move into higher margin, higher volume items that could support the high overhead of MAFC. Bananas, fresh cut fruit, and organic production have all now been explored. And the other effort was in the area of food safety. MAFC is working with the government and local trade associations to raise the standards of food safety in the country, which should allow the modern operations of MAFC to compete more effectively. This project is still being executed, as the government of Malaysia has made a long term commitment to the improvement of this sector.