Behind the transformation of economic restructuring that Malaysia experienced in the 90's until 2000's, the agricultural sector is still being regarded as the most important sector due to its role as the sole food provider and act as the inputs for manufacturing sector. The agricultural sector in Malaysia can be categorized into two categories. The first category is the primary production field, while the second is the agro-based industry. The primary production on the other hand is divided into two; plantation and estate sector, as well as small holder (Hirnissa & Muzafar, 2007). All crop production can be processed into food or used for industrial purpose. Meanwhile, the agro-based industry is made up from food processing activities, support services, logistic marketing and agro-tourism. With that, the agricultural sector and agro-based sector in Malaysia cover a big proportion of economic sector where the operator or sole proprietor in the agricultural field or corporate entity which has upstream and downstream activities are consolidated under one roof. In this case, it refers to the Malaysian agricultural entity (Mat Nasir & Ghazali, 2007). Following to this consequence, the National Agricultural Policy (NAP) was launched by the government in 1984, with an objective to maximize income through intensification in the agricultural sector and efficient use of resources. The core of this policy is to boost up the productivity, efficiency and competitiveness through the process of modernization and commercialization in every agricultural segment (Mahfoor et al., 2007).
Between the years of 1984 to 1991, there has been a rapid development by manufacturing sector due to the pressure from government that wants Malaysia to achieve advanced economic status by 2020. The situation has led to the transition of policies and development programs which have slightly changed the landscape of nation's agricultural sector. Thus, in order to ensure that the interest of agricultural sector is preserved, the NAP has been revised in 1992 and further in 1998, when the world's largest economic crisis hit (Muzafar, 2006).
The role of agricultural sector in strengthening the economic development has been evident even though sometimes it was overshadowed by the manufacturing sector. However, this sector is still relevant because almost all of the products generated require raw material resources, which has to be obtained from the agricultural sector. Hence, monitoring performance of this industry from time to time through sustaining efficiency and productivity should be carried out to find out the potential sub-sectors in the future, as well as to indicate the sub-sectors that need more attention. Sub-sectors with high efficiency and productivity will not only generate income, but also act as catalyse in national economic development.
Although many studies on the agricultural sector have been carried out, most of them were seen as paying more attention towards the field of primary production, with less focus given on agricultural-based processing industries. A study done by David et al. (2011) examines the efficiencies of key crops in the United States while Martin (1997) reviews changes in productivity in agricultural sector in China. In addition, Lilyan & Richard (1994) examines the planting productivity in developing countries. Besides, the use of the Malmquist Index as a source of productivity calculation in agricultural studies in Malaysia was also scarce, if not limited. A few studies done for example, by Yusof et al. (2006) who incorporated input and output model analysis, Ahmad & Rohana (2006) on the other hand had implemented forward and backward analysis, while Muzafar (2006) reviewed the role of the agricultural sector in Malaysian economic growth using location quotient analysis.
On conceptual approach, a quantitative method to measure productivity changes is done by comparing changes in output to changes in inputs. This relationship is based on the set of possible outputs either in the current or in future time. Given a large number of outputs with several lot of inputs however, the concept of production function is not implemented in such comparison. Taking an example, Caves et al. (1982) had proposed the use of ratio of two distance functions to implement the determination of productivity changes. They pointed out that under some circumstances, the Malmquist ratio can be as almost equal as the Tornqvist index, while showing an impression that Tornqvist index was more accurate for technical use because of its "translog nature", which is...