Document(s) 6 of 10

The haze first presented a considerable disruption to daily life in Malaysia in April 1983. The disruption continued in August 1990, from June to October 1991, and has recurred every year since 1992 to plague the months of August, September, and October. The effects of the haze reached their zenith in 1997 when the sky remained dull with pollution from August until November of that year.

In 1983 the reasons for the haze were unknown and speculation attributed the causes to suspended ash particulates from volcanic eruptions, suspended smoke particulates from large-scale forest fires, open agricultural burning in neighbouring countries, as well as local agricultural burning. But the cause of the recent haze points firmly towards forest and plantation fires in Southern Sumatra, Kalimantan, and some other islands of Indonesia.

The 1997 haze reached new levels of intensity and duration, causing much inconvenience and disruption to the Malaysian economy. The haze aggravated respiratory diseases, forced a decline in crop and fishing yields and caused disruption to transport services, manufacturing output and the tourism industry. Air Pollution Index (API) readings reached 500 for the first time and a state of emergency was declared for a ten-day period in Sarawak. The API monitors air quality by measuring fine particles (below 10 microns) and several gases—carbon monoxide, sulphur dioxide, nitrogen dioxide, and ozone—which are hazardous to health. The API can be used to ascertain the effects of air quality on health (see TABLE 3.1).

Continuous hazy conditions affect the health of all, especially high-risk groups such as children, senior citizens and people who smoke, people who work outdoors or sufferers of asthma, bronchitis, pneumonia, chronic lung diseases, cardio-vascular problems, or allergies.

TABLE 3.1
Malaysia's Air Pollution Index

COUNTING THE COST

We have used a production function approach to estimate the value of the haze. This approach links changes in air quality to changes in production relationships. An increase in air pollution causes firms (and households) either to reduce the production of goods and services or to incorporate preventive or mitigation measures to reduce the impacts of the pollution. Firms combine environmental conditions with purchased inputs to produce commodities. The production function for a firm can be represented as:

Y = f (L, K, I, Q)

Where L and K are labour and capital inputs, I is a vector of purchased inputs such as utilities and materials, Q is air quality, and Y is the output produced. Assuming that the first derivative of Y over Q (dY/dQ) is positive, then a decrease in air quality will, ceteris paribus, reduce the output levels. Put another way, to maintain a given level of Y, the amounts of other inputs must be increased. These other inputs include the preventive and mitigative measures to maintain production or societal welfare to the level prior to the change in air quality.

The change in expenditure made due to the need to substitute other inputs for the change in the air quality can be used to estimate the value of the haze. Two popular production function approaches used to estimate the change in these expenditures are avoided-cost and dose-response methods. Expenditure made to prevent the spread of forest fires and to reduce the haze belong to the avoided-cost approach, while estimations of the cost of illness and haze-related production losses belong to the dose-response approach.

The approach used to estimate the value of the haze aims to estimate incremental costs over a "normal" situation. Haze incidents occur within a domestic framework in Malaysia, even without the outbreak of forest fires in Indonesia. Therefore, we are only interested in the incremental impacts occurring in 1997 relative to domestically sourced impacts from previous years.

ILLNESS

Exposure to the haze has an impact on health. Symptoms include an itchy throat, coughing, difficulty in breathing, nasal congestion, painful and watery eyes, a runny nose, cold attacks, itchy skin, and chest pains.

We used a dose-response function (DRF) to establish quantitative health damage throughout Malaysia. This DRF provides a relationship between how much illness a given dose of haze pollution can cause. In adopting this approach a DRF has to be established first. Two DRFs were estimated; one for the impact of the haze on the number of out-patient treatments sought at public hospitals and health centres; and the other for the impact of the haze on the number of people hospitalized. Establishing the DRF requires measurement of exposure and measurement of damage. The measurement of exposure was obtained from the published daily API readings in the state of Sarawak (which experienced a range of haze incidence from a very low API of 39 to an extremely high reading of 831 during a forty-five-day period from 1 September to 15 October). Data on damage was obtained from haze-related out-patient treatment and hospitalization figures published by the Sarawak Ministry of Health. Similar data was not available publically in other Malaysian states. The regressed DRFs are reported in APPENDIX 3.1. These DRFs were then used to obtain the incremental number of out-patient treatments and incremental number of hospitalization cases arising from the haze from August to October 1997 relative to the same period in 1996 for all the haze-affected states of the country.

Haze-related medical cases comprised out-patient and in-patient treatments. Out-patient treatments are composed of the number of people seeking treatment and the number of people who did not seek treatment from qualified medical doctors but administered self-treatment by purchasing medicine. In-patient treatments refer to the number of patients hospitalized due to the haze. The number of people seeking treatment is calculated using the following equation:

NT = ∑_iCHL_i × DRC1 × HD_i × F1 × POP_i/10,000 (1)

The number of people administering self-treatment is calculated using the following equations:

NST = ∑_iCHL_i × (DRC1 + DRC2) ×HD_i × F1 × F2_i × POP_i/10,000 (2)

TCTST = NT × PT + NST × PST (3)

where:

NT = the incremental number seeking treatment in the country;

NST = the incremental number seeking self-treatment or directly buying medicine in the country;

CHL_i = the difference between the average haze index in state i and the normal haze index of 25;

DRC1 = the dose-response coefficient per 10,000 population for the number of out-patient treatment cases in public hospitals only (0.0125);

DRC2 = the dose response coefficient per 10,000 population for the number of hospitalized cases in public hospitals only (0.000055);

HD_i = the number of hazy days in state i. HD is 60 in Sarawak, 75 days in Kuala Lumpur and Selangor, and 30 days for the other at-risk states;

F1 = the factor of 2 used to reflect the summation of public and out-patient treatment cases. The ratio of public to private clinic out-patient treatments is 1:1. No breakdown by states was done owing to the unavailability of data;

F2_i = the factor of those seeking self-treatment in state i;

POP_i = the population at risk in state i. The total population at risk is 18,018,795. This figure is the entire population of Malaysia with the exception of the states of Kelantan, Terengganu, and Pahang.

TCTST = the total cost of treatment and self-treatment;

PT = the price of out-patient treatment and medication; and

PST = the shadow cost of self-treatment.

The number of people seeking self-treatment has been calculated in equation 2 and includes a dose-response coefficient to indicate the incremental number of hospital admission cases per 10,000 population.

This dose-response coefficient has been included in order to obtain the total number of incremental medical cases. This resulting figure was then multiplied by F2_i, or the factor of those seeking self-treatment in state i. Recent interviews with doctors in Sarawak suggest a factor of 1 in Sarawak and Sabah and a factor of 0.5 at the most in the states of peninsular Malaysia. It should be noted that Malaysia supports various rural medical posts, even in remote aboriginal communities. For instance, in Sarawak there are 1,718 village health representatives serving 165,000 people from 956 villages.

After determining the number of out-patient medical treatments, it is possible to estimate the incremental cost of medical treatment (TCTST). Incremental costs of out-patient treatment have been calculated using equation 3 and are reported in TABLE 3.2. It is assumed that no significant price changes have occurred with respect to medical treatment fees as a result of the 1997 haze. This assumption is supported by the fact that government clinics already had sufficient medical supplies to treat patients suffering from upper respiratory tract infection (URTI) and asthma (Sarawak Tribune, 2 October 1997). The price of out-patient treatment and medication (PT) is estimated at RM25 (US$10) per visit in private clinics. Although this price may be higher than charges at public clinics we have used the RM25 rate as a shadow price to incorporate government subsidies to public clinics. For those seeking self-treatment (derived from the purchase of medicine) the financial cost per case is less than half of PT, but in seeking self-treatment the person at risk has foregone the opportunity of obtaining the benefit of the doctor's advice. This loss of benefit is also a cost to the person at risk. Thus the shadow cost of self-treatment (PST) must include the opportunity cost of consultation. PST is thus assumed to be RM25, as in PT.

Around 18 million Malaysians were put at risk by the 1997 haze or 83.2 per cent of the total population. But the level of risk varied from state to state depending on the intensity and duration of the haze. The incremental cost incurred by the population at risk for the treatment of haze-related illnesses (at both public and private clinics and hospitals), and for self-treatment (mainly via the purchase of medicines) was estimated to be around RM5.02 million (approximately US$2 million) for the period August–October in 1996 and in 1997 (TABLE 3.2).

Apart from out-patient treatments, the haze increased the number of hospital admissions of acute asthma and bronchitis cases. The number of admitted cases and the total number of admissions per day have been

TABLE 3.2
Incremental Cost of Out-Patient Treatment and Self-Treatment Arising from the August–October Haze in 1997 Compared with the Same Period in 1996

Note: All figures in the table are rounded up and may not tally with subsequent reported figures, which are based on non-rounded up data used in the analysis proper.

NT = Sum over i CHL_i x DRC1 x HD_i x F1 x POP_i/10,000

where:

CHL_i= the difference between the average haze index in state i and the normal haze index of 2.5;

DRC1 = the DRC for the number of out-patient treatments in public hospitals;

HD_i is the number of hazy days in state i. HD is 60 days in Sarawak, 75 days in Kuala Lumpur and Selangor, and 30 days for the other states at risk;

F1 = the public and private out-patient treatment factor of 2 to reflect the 1:1 ratio of public to private clinic out-patient treatments; and

POP_i = the population at risk in state i. The total population at risk is 18,018,795, this figure is for the entire population of Malaysia with the exception of the states of Kelantan, Terengganu, and Pahang.

³ Assuming that demand for treatment and medicine is price-inelastic (close to zero), the price of out-patient treatment and medication (PT) is RM25 per visit, CT = NT x PT.

⁴ The formula used is:

CHL_i x (DRC1 + DRC2) x HD_ix F1 x F2_i x POP_i/10,000

Computed as an equation for NT but with the inclusion of another DRC (DRC2 = 0.000055), which is the coefficient for an incremental number of hospital admission cases per 10,000 population, and an additional multiplication by F2_i, which is the factor of those seeking self-treatment in state i. Recent interviews with doctors in Sarawak suggest a factor of 1 in Sarawak and Sabah, and at most 0.5 in the states of peninsular Malaysia.

⁵ Assuming that demand for treatment and medicine is price-inelastic (close to zero). The financial cost of seeking self-treatment is only RM10 (US$4) per case but in doing so the person at risk has foregone the opportunity of obtaining the benefit of a doctor's consultation and advice. This loss of benefit of consultation is also a cost to the person at risk. Thus the shadow cost of self-treatment (PST) should include the cost of the benefit of the lost consultation. PST is thus assumed at RM25 (US$10) as in PT. CST = NST x PST.

⁶ Computed as TCTST = CT + CST.

calculated using equations 4 and 5.

NA = Σ_iCHL × DRC2 × HD_i × F3 × POP_i/10,000 (4)

NDA = NA × LH (5)

CA = NDA × PH (6)

where:

NA = the number of admissions to both public and private hospitals, calculated by adding up the number of admissions and dividing it by the population at risk in all the "i" states;

CHL_i = the difference between the average haze index in state i and the normal haze index of 25;

DRC2 = the incremental dose-response coefficient for the number of hospital admission cases in public hospitals of 0.000055;

HD_i = the number of hazy days in state i;

F3 = the factor that reflects public and private hospitalization cases. We were not able to verify the breakdown between public and private hospitalization cases. A proxy factor of 1.22 was used. This ratio is based on the number of available public to private hospital beds of 1:0.22;

POP_i = the population at risk in state i;

LH = five days, the average length of stay in hospital per patient;

NDA = the total number of days of hospital admission throughout the country;

CA = the incremental cost of hospitalization; and

PH = the price of hospitalization per day, assumed to be RM125 (US$50).

The incremental cost of hospital admission is obtained from equation 6 and is reported in TABLE 3.3. Again it has been assumed that no significant price changes have taken place with respect to medical treatment fees as a result of the 1997 haze. The price of hospitalization per day (PH) is assumed to be RM125 (US$50). This figure has been obtained by using the cost of hospital admission to out-patient treatment of 5:1. The incremental cost incurred with respect to hospital admission was estimated to be RM1.2 million (approximately US$580,000).

LOSS OF PRODUCTIVITY

Malaysia suffered a loss in productivity due to haze-related illnesses, more specifically, production opportunities were missed due to a depleted work-force and productivity was reduced due to the diminished

TABLE 3.3
Incremental Cost of Hospital Admissions Arising from the
August–October Haze in 1997 Compared with the Same Period in 1996

Note: All figures in the table are rounded up and may not tally with subsequent reported figures, which are based on non-rounded up data used in the analysis proper.

¹ Dose-response coefficient (DRC) for reported number of admissions into public hospitals only. The estimated DRCs are reported in APPENDIX 3.I.

² NA is the number of admissions into both public and private hospitals. NA has been ascertained by calculating the population at risk in different states i using the following formula:

NA = Sum over i CHL_ix DRC2 x HD_ix F2 x POP_i/10,000

where:

CHL_i= the difference between the average haze index in state i and the normal haze index of 25;

DRC2 = the DRC for the number of hospital admissions in public hospitals;

HD_i= the number of hazy days in state i;

F2 = the public and private hospital admission cases factor of 1.22 to reflect the 1:0.22 ratio of available public to private hospital beds (Department of Statistics, Malaysia, Yearbook of Statistics 1997); and

POP_i= the population at risk in state i.

³ It is assumed that the average length of stay in hospital (LH) is five days. NDA = NA x LH.

⁴ The price of hospitalization per day (PH) is assumed to be RM125. This figure has been obtained by using the ratio of cost of hospital admission to out-patient treatment of 5:1 as obtained in Singapore. This daily admission cost reflects the full cost of admission to a private hospital. It is also assumed that the price elasticity of demand for hospitalization is very low (close to zero).

health of the remaining work-force. The incremental number of workdays lost during hospitalization and out-patient sick leave has been calculated using equations 7 and 8. The incremental number of workdays lost during hospitalization involves only adult patients and is calculated based on information of the incremental number of hospital admissions, the percentage of adults admitted, and the average length of stay in hospital. Apart from this, workdays were lost when workers obtained sick leave due to haze-related illnesses. The incremental number of days of sick leave obtained by adult out-patients is calculated using information on the proportion of adult out-patients (see TABLE 3.4), the incremental number of out-patients, the proportion of out-patients granted sick leave, and the average length of sick leave.

The reduced activity days experienced by the working population at risk has been calculated using equation 9. This equation requires knowledge of adult out-patients and adults who sought self-treatment, an estimate of the number of reduced activity days experienced by individuals at risk, and a factor which reflects workers' reduced productivity. Thus, adding incremental workdays lost during hospitalization and sick leave among out-patients and the reduced productivity days gives the total man-days of productivity losses of the work-force (see equation 10). The number of man-days multiplied by the average wage rate provides us with an estimate of the incremental productivity loss from haze-related illnesses (see equation 11). These sources of haze-related productivity losses are estimated to be RM4.3 million or approximately US$1.72 million (see TABLE 3.4). The total cost of all three kinds of incremental costs of illness (COI) was estimated to be RM10.51 million (approximately US$4.204 million).

NWDL = NA × AAR × LH (7)

NSL = ATR × NT × LMC × MCR (8)

NRAD = ([NT + NST] × ATR × LRA – NWDL – NSL) × F4 (9)

TNWDL = NWDL + NSL + NRAD (10)

TPLI = TNWDL ×W (11)

where:

NWDL = the incremental number of workdays lost due to hospitalization;

NA = the incremental number of patients hospitalized;

AAR = the percentage of adult patients admitted to hospital;

LH = the average length of stay in hospital, of five days;

NSL = the incremental number of days of sick leave granted to adult out-patients;

ATR = the proportion of adults seeking treatment, 49 per cent;

LMC = the average duration of a medical certificate, estimated to be two days (this figure was derived from interviews with medical practitioners);

TABLE 3.4
Productivity Losses from Haze-Related Illnesses Arising from
the August–October Haze in 1997 Compared with the Same Period in 1996

Note: All figures in the table are rounded up and may not tally with subsequent reported figures, which are based on non-rounded up data used in the analysis proper.

¹ NAA is based on information on the percentage of adults admitted (AAR). An official from the Department of Health provided the figure of 40 per cent. NAA = NA x AAR.

² It is assumed that the average length of stay in hospital (LH) is five days. NWDL = NAA x LH.

³ The proportion of adults to children seeking treatment is 0.95:1, so the proportion of adults seeking treatment (ATR) of 49 per cent is used. Interviews with medical practitioners suggest that the average length of medical certificates for sick leave (LMC) is two days and the proportion of out-patients seeking treatment who obtained sick leave (MCR) is 15 per cent. So NSL = ATR x NT x LMC x MCR.

⁴ TNWDL = NWDL + NSL.

⁵ Average wage per employee (W) is calculated using the Malaysian annual wage of RM26.50 (US$10.60) a day. Therefore, CPFWDL = TNWDL x W.

⁶ NRAD is the effective reduced activity days among adult workers at risk. F3 is the reduced activity experienced during each working day by individuals at risk. F3 is 0.3. NRAD = ([NT + NST] x ATR x LRA – TNWDL) x F3 where LRA is the length ofreduced activity days experienced by individuals at risk (five days, according to medical practitioners interviewed).

⁷ CPLRAD = NRAD x W.

⁸ TPLI = CPFWDL + CPLRAD.

MCR = the proportion of out-patients seeking treatment and obtaining sick leave, estimated to be 15 per cent (this percentage was decided upon in consultation with medical practitioners);

NRAD = the number of reduced productivity days experienced by work ers at risk;

LRA = five days, the number of reduced productivity days experienced by individuals at risk (this number was reached in consultation with medical practitioners);

F4 = the factor for reduced productivity (0.3) for individuals at risk but still working; and

W = the average wage per employee, RM26.50 per day, calculated from the annual wages and salaries of Malaysians.

The cost of illness (COI) quantifies medical costs and lost productivity (in terms of lost wages) associated with illness. But COI studies have been criticized because they do not take into account the individu-al's pain, suffering, or loss of leisure activities. Studies which incorporate the cost of the prevention of illness, pain, and discomfort indicate that adjusted COI estimates exceed current COI estimates. For asthma symptoms, the (adjusted COI:COI) ratio of affected individuals falls within a range of 1.6 to 2.3 (Asian Development Bank 1996). Therefore, in order to take into account the willingness to pay (WTP) estimates, COI figures need to be multiplied by a factor of two. This ratio adjustment is admittedly imprecise but is better than not making any adjustment at all. In summary, the adjusted incremental COI arising from the forest fires of 1997 during the months of August to October was RM21.02 million (approximately US$8.408 million; see TABLE 3.5).

The ratio of those not seeking treatment from government and private clinics in rural Malaysia is not as high as in Indonesia where it is reported that about eleven people avoid treatment for every single out-patient treatment. Dr George Chan, Deputy Chief Minister of Sarawak, has stated that rural clinics in Sarawak have sufficient medical supplies to treat patients suffering from upper respiratory tract infections (URTI) and asthma (Sarawak Tribune, 2 October 1997). A 1:1 ratio between those seeking treatment from private and public medical facilities and those practising self-treatment is used in this analysis for the states of Sabah and Sarawak while the ratio of 1:0.5 is valid for the affected states of peninsular Malaysia. The proportion of children to adults seeking treatment for haze-related diseases is given in TABLE 3.6. The overall ratio of adults to children is 0.95:1 or 49 per cent adult. Based on the above, combined with field interviews, see TABLES 3.2, 3.3, 3.4, and 3.5 to understand how the adjusted COIs in Malaysia were calculated.

TABLE 3.5
Adjusted Incremental Cost of Illness Arising from
the August–October Haze in 1997 Compared with the Same Period in 1996

Note: The figures in each cell are rounded up and may not tally with reported figures in subsequent cells, which are based on non-rounded up data used in the analysis proper.

¹ COI = CA + TCTST + TPLI.

² For illness prevention, pain, discomfort, loss in ability to enjoy leisure activities, the WTP/COI ratio of affected individuals is the range of 1.6 to 2.3 (Asian Development Bank, 1996). The estimates of COI are multiplied by a factor (F4) of 2 in this study to obtain the adjusted cost of illness or WTP to avoid the health impacts of the haze. ACOI = F4 x COI.

TABLE 3.6
Proportion of Children among Those Seeking Treatment

Source: Sarawak Tribune, 23 September 1997.

LOST WORKDAYS

When the Air Pollution Index (API) reached 500, a ten-day state of emergency was declared in Sarawak (19–28 September). During this period, only essential activities, such as food retailing, electricity and water provision, and law enforcement were allowed to operate. This clamp-down on economic activity had an impact on the economy. Employers were forced to let their employees stand idle and the state government ruled that all employees should be paid during the emergency so not only were employers deprived of the profits that they would have made during eight days (nett of Sundays) of production but they also had to meet their usual wage bill. In the majority of cases, the value of raw materials was not lost; their use was merely delayed. It should be noted that employers' loss in paid wages was a gain to employees. Therefore, as far as the country was concerned no economic loss was suffered in terms of wages, the real loss incurred being in profits foregone.

Considering the state-wide standstill in economic activity, foregone profits can be estimated using information deduced from loss of gross domestic product (GDP) during the emergency period. TABLE 3.7 illustrates the value of wage loss during the state of emergency in Sarawak and its effects on the firms' profits (returns to capital). We have calculated foregone profits by netting wages and salaries lost from the GDP during period of the emergency. Using this criteria, we have estimated foregone profits to be RM393.51 million or approximately US$157.40 million (taking the average values per day pro-rated to an eight-day period). See TABLE 3.8.

TABLE 3.7
Cost of Wage Loss during the State of Emergency in Sarawak Arising from
the August–October Haze in 1997 Compared with the Same Period in 1996

¹ The number of employees is for the whole Sarawak economy.

Source: Department of Statistics, Annual Report of Sarawak, 1996.

TABLE 3.8
Loss of Economic Activity during the State of Emergency in Sarawak:
Profits Foregone, 1 August to 31 October 1997

¹ Gross domestic product (national total of value added) foregone per day during the emergency. Not possible to disaggregate by sectors.

Source: Department of Statistics, Annual Report of Sarawak, 1996.

DECLINING TOURISM

Tourism is Malaysia's second largest foreign exchange earner (it brought US$4.5 billion into the Malaysian economy in 1996). Despite the depreciation of the ringgit, this sector is now suffering from declining numbers of visitors. Some tour group operators from Hong Kong, Britain, and Japan, to name but a few, have delayed or cancelled their tours to Malaysia.

At the end of November 1997, long after the haze had dispersed, the local tourism industry had still failed to reach pre-haze levels despite foreign exchange rates favouring foreign tourists. The Sarawak Travel Association Miri Liaison Committee Chairman stated that inbound tour volume had reduced by as much as 70 per cent as a result of the haze and has yet to recover to its normal level, despite clear skies (at the time of writing, March 1998). An interview with the State Tourism Department suggests that tourist arrivals have fallen to less than 30 per cent of previous years. The value of the decline in tourism is estimated to be RM318.55 million or approximately US$127.42 million (see TABLE 3.9).

TABLE 3.9
Tourism Losses in Malaysia during the Period 1 August to 31 October in 1997Compared with the Same Period in 1996

¹ Tourist arrivals for 1996 are calculated using data published in the Malaysian Tourism Promotion Board's Annual Tourism Statistical Report, 1996. Tourist arrivals for 1997 are calculated using feedback from hotel and restaurantoperators who indicate that there was a 30 per cent decline in arrivals compared with the same period in 1996.

² Expenditure for 1997 is estimated using the rate of increase in tourist expenditure between 1996 and 1995 provided in the Annual Tourism Statistical Report, 1996.

³ A negative increment means a decline in tourism receipts.

FLIGHT CANCELLATIONS

According to the Star newspaper (27 October 1997), the Malaysian Airline System (MAS) cancelled 1,800 domestic flights (inclusive of rural flights) and international flights during the height of the haze (September 1997). These flight cancellations resulted in sales losses of RM6.5 million (approximately US$2.6 million). Flight cancellations cost money in two ways; loss of profit opportunities from airport operations, including aero-bridge operation, parking fees, and landing fees; and direct loss of profit opportunities from flight cancellations (TABLE 3.10). The total loss was RM450,000 approximately (US$180,000) (see TABLE 3.11).

TABLE 3.10
Profits Foregone from the Operation of Airports, August–October 1997

¹ Lost economic opportunities from aero-bridge operation, parking fees, and landing fees.

² Net losses from airport closures are assumed to be 15 per cent of gross revenues.

TABLE 3.11
Profits Foregone from Airport Closures, August–October 1997

¹ It is assumed that foregone profits from cancelled airport operations are 15 per cent of gross losses.

² Reported foregone sales from flight cancellations amount to RM6.5 million (US$2.6 million). Profit before taxation is 5 per cent of turnover.

Source: MAS financial Reports, 1996/97.

REDUCED FISH LANDINGS

There was a decline in fish landings during the haze but there is no direct evidence linking the haze with this reduction in crop yield. However, reports from fishermen on the west coast of peninsular Malaysia seem to provide a link. The Star (30 September 1997) reported that fishermen complained of a 30 per cent decline in fish landings at Pulau Lumut, Perak. Field visits to the states of Sarawak, Sabah, and Kedah suggest that a decline in fish landings only occurred during the month of September, due mainly to visibility problems at sea, which discouraged fishermen from sailing. This explanation is particularly true for fishermen with small boats. The decline in fish landings was smaller in some areas thanks to the use of geographical positioning systems and radar by the owners of larger fishing vessels. After adjusting for trends in the months prior to and after the period August–October in 1996 and in 1997, we estimate the decline in fish landings to be 23 per cent lower than in September of 1996. Using these figures, fish landings were down by about 15,900 tonnes on the previous year. See TABLE 3.12.

The decline in fish landings had the opposite effect on prices. Assuming a price elasticity of demand of –0.92, the 7.7 per cent decline in landings raised fish prices by 8.3 per cent, causing a rise in the value of fish landed during the period August–October in 1996 and in 1997. Although there was a net decrease in the number of fish caught, the rise in prices ensured a net increase in revenue of RM140,000 (US$56,000). The net return can be estimated at around RM40,000 (US$16,000) (assuming a profit margin of 30 per cent, based on the average profit margin for large and small self-employed fishermen in Kedah (Franks et al. 1997). This net return only takes into account the impacts of the haze on fishermen, not society as a whole. Net welfare gain to the entire society has to take account of changes in both producer and consumer surpluses.

The rise in fish prices and decline in the availability of fish for consumption had a negative effect on consumers, particularly on changes in consumer surplus. Welfare loss to society clearly depends on the supply function, both before and after the haze. But we have no information upon which to base an analysis and so have to make certain assumptions. We have assumed that in the immediate and short term, supply curves for fish landings are very inelastic (see FIGURE 3.1). Using this assumption, fishermen and sellers would experience a gain in producer surplus (area OP₂BD – area OP₁CE) while consumers would incur a decline in consumer surplus (area AP₂B – area AP₁C). The decline in fish landings would therefore cause consumers to face a decline in consumer surplus estimated to be worth somewhere in the region of RM40.7 million (US$16.28 million). But a portion of this consumer loss was a gain for the fishermen through increased producer surplus income due to the higher prices for fish, depending on the increased effort and expense incurred in landing the fish. The amount "gained" is not clear owing to the uncertain elasticity of the supply curves. But assuming a very inelastic supply curve, the decline in landings is estimated to raise producer surplus by RM140,000 (US$56,000) only. This would lead to a net welfare loss to society of about RM40.58 million (US$16.232 million).

TABLE 3.12
Incremental Change in Quantity and Value of fish Landings during
the Period August–October in 1997 Compared with the Same Period in 1996

Note: All figures in the table are rounded up and may not tally with subsequent reported figures, which are based on non-rounded up data used in the analysis proper.

¹ Based on field visits to the states of Sarawak, Sabah, and Kedah. fish landing data and newspaper reports for Perak indicate that a haze-related decline in fish landings occurred only during the month of September. The decline rate, after adjusting for trends during the monthsprior to and after August–October 1997, was estimated to be 23 per cent lower than landings in September 1996.

² It is assumed that fish landings off the coast of east Johor, Pahang, Kelantan, and Terengganu were not affected by the haze. Reported landing figures for 1996 and 1997 are for states affected by a decline in landings in 1997 only. Data for 1996 has not been published yet but a fisheries Department Officer estimated the annual landings for 1996 to be 1.6 per cent higher than in 1995.

³ Price-elasticity of demand for fish in Malaysia is –0.92 (Nik Mustapha R.A. 1995).

⁴ Assuming that the short-run supply curve is perfectly inelastic (both immediately and in the short term), the incremental producer surpluscan be measured by the change in value of fish landings. The difference between the net producer and consumer surpluses addedtogether gives the net welfare effect of the loss of consumer surplus.

FIGURE 3.1
Welfare Effects of the Haze on the fish Market

CROP LOSS

According to Mohamad Nazli A.M., Director of the North Terengganu Agricultural Development Authority (KETARA), the haze reduced second harvest padi yields by about 10 per cent (New Straits Times, 27 October 1997). KETARA is concerned with 4,800 hectares of padi which can produce more than 21,000 tonnes of rice a season. The average production per acre is about 5 tonnes of rice, against the national average of 3.5 tonnes. The haze has affected levels of sunlight — important for photosynthesis –— thereby reducing KETARA's rice production to an average of 4.5 tonnes per acre. However, the extended period of dry weather caused by the haze enabled growers to maximize their harvest and increase the quality standards as the harvested grain contained less moisture than is usual for the time of year. Nevertheless, if there had been no haze the 10 per cent reduction in yield could have been avoided and the full quality-yield opportunity would have been realized.

The haze had additional effects on plant life. Leaden skies caused reduced flowering and fruiting in plants (Choong 1997) and crops including rice, fruit, and vegetables were also affected. With regard to the crop yield, the chain of events set into motion by the haze can best be illustrated by the following example. See TABLE 3.13 for a summary of the yield.

An oil palm smallholder in Tawau, Sabah, owns a 60-hectare plot of oil palm which is expected to give high yields of 3.7 tonnes per hectare from reasonably aged palms (older than five, but less than fifteen, years old) during the months of March, April, August, and September. A yield of 2.5 tonnes per hectare is expected from young palms (aged between three and five years). TABLE 3.13 illustrates the yields that were recorded from this smallholding. One interesting observation is that haze has a delayed effect on oil palm crops. Fruit bunches were already in place on the crop, some matured, others still young, by the time the haze descended. Therefore, between September and early December a decline in the tonnes of fresh fruit bunches (FFB) was not obvious, other than the normal decline that begins once the high-yield season of August and September is over. The low yield of January and February 1998 is due to low fertilization rates in September of 1997. The economic impact is still unclear, as income gain or loss depends on price changes in response to market forces. A declining yield brings higher FFB prices.

TABLE 3.13
Average Yield from a Smallholding in Tawau (tonnes)¹

¹ Yield is obtained from mixed age palms (young and matured). Oil palm crops are obtained from annual staggered planting, beginning 1990.

² Prices prior to October 1997 were around RM205 per tonne for fresh fruit bunches (FFB). But in January and February 1998, prices rose to RM340 per tonne for FFB. The nett effect of this price increase over the FFB yield decline is obvious when comparing the farmer's income for October 1997 to his income for January 1998—an increase of RM1,125 (US$450) for the 60-hectare smallholding.

OTHER TYPES OF DAMAGES

The haze caused poor visibility thereby increasing the chances of accidents, particularly road accidents in Sarawak and Sibu (Borneo Post, 23 September 1997).

AVERTIVE EXPENDITURE

In addition to lost income, businesses and the Malaysian government have incurred avertive expenditure.

COST TO MALAYSIAN MNCS

There are eighteen Malaysian joint ventures suspected of starting fires in Indonesia (Choong 1997). The Malaysian government is extracting a total of US$1.2 million from forty-three Malaysian corporations with plantation interests in Indonesia as a contribution towards paying for the pollution caused by the haze. Thirty-one companies have promised to pay and officials are planning to pursue the matter further with the remaining companies. By 10 December 1997, the National Disaster Fund (launched on 20 September) had collected RM2,587,870 or US$1,035,148 (Esther Tan, 10 December 1997).

FIRE-FIGHTING

In Kuala Lumpur water was sprinkled from high-rise buildings as a substitute for monsoon rains. Fifty fire-fighters sprayed water from 45metre cranes in front of Merdeka Square and from the tops of several buildings and construction sites.

At the end of September 1997, 107 firemen from Sarawak and seventy-eight from Sabah travelled to West Kalimantan to join the 1,200 firemen from peninsular Malaysia already fighting fires. These firemen tackled pre-identified hotspots in an effort to prevent the spread of the fires. These firemen received an outstation allowance of RM215 (US$86) a day for food and lodging (Anonymous, Sun, 13 November). This RM215 daily allowance had to pay for food (RM120 or US$48) and lodging (RM95 or US$38). The allowance was in addition to the RM2,000 (US$800) given to each fireman for being on duty for more than twenty-one days. Firemen who served for less than twenty-one days received RM80 (US$32) a day for each day they were on duty.

The Malaysian government is thought to have spent RM25 million on efforts to fight forest fires in Indonesia, to upgrade the Fire Services Department, and to purchase fire-fighting equipment. This figure does not include the cost of post-duty medical check-ups conducted on firemen sent to Indonesia (performed in several stages at government hospitals throughout the country). These check-ups, which included blood tests and X-rays, were undertaken in an effort to monitor serious health problems resulting from fighting the fires. Some firemen were warded for observation after they displayed symptoms such as coughing, chest pains, and sore throats. One fireman died seventeen days after returning from Indonesia.

The Malaysian government received 300 jet shooters, worth about RM443,000 (US$177,200), from the Japanese International Cooperation Agency (JICA) to aid the fight against the worsening haze situation within Malaysia. The jet shooters, portable air pressurized water extinguishers carried on the back, were also used by Malaysian fire-fighters operating in Sumatra and Kalimantan.

CLOUD SEEDING

The Malaysian government carried out 252 cloud-seeding operations during the haze period. Cloud seeding was implemented to encourage natural rain to fall, thus helping to damp down the haze. Cloud seeding uses a sodium nitrate (common salt) solution (50 kilograms of salt is dissolved into every 1,000 litres of water) which is dumped into cumulus cloud by Caribou and Charlie C130 carriers at about 5,000 metres above sea level. Each plane can carry 1,800 litres of the solution. A total of 118 trips were conducted between September and 4 November in Sarawak alone. Each trip requires about one hour and forty minutes to get from Kuching to the Batang Air Catchment Area and each flight operation costs about RM4,000 (US$1,600) an hour. Assuming that the loading of the cargo and preparation for the flight takes about two hours, each flight costs about RM8,000 (US$3,200)—so the total flight cost in Sarawak alone is in the region of RM520,000 (US$208,000). The Malaysian Meteorological Department spent about RM20,000 (US$8,000) on staff allowances, and RM6,300 (US$2,520) on creating the salt solution needed for seeding. The estimated cost of the cloud-seeding operation in Sarawak is RM970,000 (US$388,000). See TABLE 3.14. The total cost of the cloud-seeding operation to Malaysia is RM2.08 million, including an estimated thirty-nine operations in Indonesia.

TABLE 3.14
The Cost of Cloud-Seeding Operations,
8 September to 6 November 1997 versus 1996

¹ National total, value added.

MASKS

The Star and Dupont Malaysia launched a campaign to create awareness among schoolchildren for the need to wear masks during the haze period. Under the auspices of this campaign, 20,000 masks were distributed to selected schools in areas where the API was the highest on the peninsula—Gombak, Nilai, Penang, Kuala Lumpur, and Petaling Jaya. Masks were sent to Sarawak (Sarawak Tribune, 25 September 1997); 300,000 masks were donated by the Federal Government, 20,000 by the United Nations Children's Fund, and 10,000 by the Japan International Cooperation Agency (JICA). The large number of masks donated to Sarawak is a reflection of the emergency situation in the state. See TABLE 3.15 for estimates of expenditure on masks.

It is not known how many masks were actually bought by the general population affected by the haze. The groups most likely to purchase masks were schoolchildren, pedestrians, and motorists who were forced to make their way along roads to schools, offices, and business centres. Some selected industries and businesses took action to reduce the impact of the haze on their employees such as the purchase of air and water purifiers, air filters, and air-conditioning systems. A specific example once again best illustrates our point. See TABLE 3.16 for a summary.

TABLE 3.15
Estimated Expenditure on Masks, September 1997

In Kuching, Sarawak, the Hilton Hotel took two major steps to ensure that the air quality within the hotel remained high despite the haze. During September, the month with the worst haze, the hotel management closed all the hotel's doors except one. At this one entrance an electrical air curtain, costing RM7,000 (US$2,800) was installed to prevent external air from freely entering the building. To prevent particulates from entering the hotel via air-conditioning, the management invested heavily in carbonated air filters for every air intake of the central air-conditioning system. A total of RM25,000 (US$10,000) was spent on these filters. The hotel's electricity bill increased by as much as RM50,000 (US$20,000) during September due to the need for round-the-clock air-conditioning throughout the hotel. To reduce the health impacts of the haze on the staff and hotel patrons when they ventured out of the hotel, 1,000 masks were distributed.

TABLE 3.16
Occupancy Rates at the Kuching Hilton, 1997 (percentages)

Source: Interview with the General Manager.

The Kuching Hilton, which has 320 rooms, suffered further losses due to a decline in occupancy rates. In August 1997, the ho-tel's occupancy rate was unaffected as the haze had not yet reached Kuching. In September the occupancy rate was 61 per cent, far below the target rate of 86 per cent. Income from local reservations was reduced as bookings for banquets and seminars were cancelled. When the haze period ended the occupancy rates did not recover and reach normal target rates. The downward trend continued well into 1998 when the Kuching Hilton did not receive its usual package tour reservations in the first quarter of 1998.

But it should be noted that the Kuching Hilton's restaurant business did very well during the months of October and November owing to the air quality that the hotel could offer.

THE AGGREGATE VALUE OF THE HAZE

The estimated value of the haze damage to Malaysia from August to October 1997 is RM802 million or US$321 million (see TABLE 3.17). The per capita haze damage is RM37 (US$14.80) while the value of the haze damage is 0.30 per cent of the GDP (see TABLE 3.18).

The aggregate value of the cost of the haze is quite significant as various social projects could have been established within Malaysia if money had not been spent on the haze. Under the Sixth Malaysia Plan (1991–95), the total expenditure on poverty alleviation–related programmes was about RM14 billion (US$5.6 billion), which accounted for 27 per cent of the total development expenditure by Federal Government. Of the RM14 billion, RM1.2 billion (US$0.48 billion) and RM1.6 billion (US$0.64 billion) were slated for social and infrastructural programmes, respectively. The haze cost about 29 per cent of the country's annual expenditure on poverty alleviation. The haze cost 3.34 times and 2.51 times the annual expenditures on social and infrastructure programmes, respectively. In terms of budgeting for more specific programmes, it is thought that the economic loss from the haze could have financed the conservation and management of some 237 protected areas and biodiversity programmes such as the Kuala Selangor Nature Park (KSNP), which requires a total budget of RM3.4 million (US$1.36 million) for 1987–2000 (see APPENDIX 3.2).

TABLE 3.17
Aggregate Value of Haze Damage

¹ Cost to Malaysian multinational corporations of RM2.5 million (US$1 million) is not included as this amount might have been used by the government to pay for various avertive expenditures.

TABLE 3.18
Indicators of Relative Economic Value of the Haze

¹ A detailed breakdown of the KSNP project with development and maintenance costs is given in APPENDIX 3.2.

REFERENCES

Anonymous. "Haze Watch in Sibu". Borneo Post, 23 September 1997.

_____"Health Guidelines and Free Masks for Sarawak". Sarawak Tribune, 25 September 1997.

_____"Cyclone-Producing Russian Invention to Clear Haze". Sun, 13 November 1997.

_____"Haze Has Affected Padi Yields in KETARA Region". New Straits Times, 27 October 1997.

_____"Study on Air Filters for All Homes". Sun, 13 November 1997.

_____"More Allowances for Those Who Fought Indonesian Fires". Sun, 13 November 1997.

Chok Suat Ling. "Episode of Haze Is Over, Law Declares". New Straits Times, 20 No vember 1997.

Choong Tet Sieu. "Scorched Earth". Asiaweek, 10 October 1997.

Department of Statistics, Malaysia. Annual Report of Sarawak, 1996. Kuching, Sarawak: National Printers Malaysia Ltd., November 1997.

_____Yearbook of Statistics 1997. Malaysia, 1997.

Franks, T., H.O. Mohd Shahwahid, and Lim H.F. "The Wise Use of Mangrove Systems: The Social and Environmental Value of Water". In Water: Economics, Management and Demand, edited by M. Kay, T. Franks, and L. Smith. London: Chapman and Hall, 1997.

Lau N.T. "Slow Recovery for Local Tourism Industry". Sarawak Tribune, 27 November 1997.

Malaysian Tourism Promotion Board. Annual Tourism Statistical Report, 1996.

MAS Financial Reports, 1996/97. Kuala Lumpur: Malaysian Airlines, 1997.

Mohd Shahwahid H.O. "The Incremental Costs of Bio-Diversity Conservation in Kuala Selangor Wetlands, Malaysia". Paper presented at the International Conference on Wetlands and Development, 8–14 October 1995.

Nik Mustapha R.A. "Department of Natural Resource Economics Staff Paper No. 1/95". Mimeographed. Faculty of Economics and Management, Universiti Putra Malaysia, 1995.

Tan, E. "KL, Jakarta to Sign Pact on Tackling Haze". New Straits Times, 10 December 1997.

Tan, R. "Haze: 48 Rushed to Hospital". Borneo Post, 23 September 1997.

_____"Haze DAP Disappointed with Indonesian Government". Borneo Post, 23 September 1997.

APPENDIX 3.1
Results of Dose-Response Estimations for Public Hospital Out-Patient Treatment and Admission Cases, Sarawak

Public hospital out-patient treatment

Data period: 5 August–22 October 1997
Dose-response coefficient per 10,000 population (DRC1) = 0.0125 (t statistic = 8.45)

R² = 0.55
Mean number of cases per 10,000 population = 4.89
Maximum API = 831
Minimum API = 27
Average daily API = 129

Public hospital admission

Data period: 5 August–22 October 1997
Dose-response coefficient per 10,000 population (DRC2) = 0.000055 (t statistic = 3.11)

R² = 0.13
Mean number of cases per 10,000 population = 0.03
Maximum API = 831
Minimum API = 27
Average daily API = 129

APPENDIX 3.2
Development and Maintenance Cost of the Kuala Selangor Nature Park, Malaysia

The Kuala Selangor Nature Park (KSNP) is a highly modified mangrove forest site of approximately 320 hectares, situated 65 km. from Kuala Lumpur. The park was established in 1987 and, in accordance with an agreement with the State Government of Selangor, is managed by the Malayan Nature Society (MNS). The park was established with financial support from the state government. The park is currently gazetted as a public park under the Local Government Act (1976). The KSNP was established to promote the conservation of mangrove and mudflats which are of biodiverse significance and for the re-establishment of indigenous plant species that may have been lost due to human intervention. There is considerable public interest in the park which is a well-known area for the observation of mangroves, water birds and wildlife species such as the silver-leaf monkey. The site is of global importance for migratory birds as Kuala Selangor forms a link in the migratory chain across Southeast Asia for waders. There is potential for the introduction of a milky stork (a CITES I bird) population into the KSNP's extensive mangrove forest and adjoining muddy shoreline. The milky storks are known to have bred along the Selangor coast during the 1930s, but they are now extinct. In the 1980s, the National Zoo imported seven stork chicks. With a breeding base in hand and a potential managed release site at the KSNP, the National Zoo embarked on captive breeding of the milky stork with sponsorship from the Malaysian Wildlife Conservation Foundation. The captive management programme has been successful with forty-eight milky storks and about five chicks at the aviary as of September 1995 (the date of the last study).

A breakdown of the streams of development and maintenance costs from 1987 to 2000 are reported in the table below. The development costs were budgeted for in two phases. The first phase has been directed at the design and excavation of a lake (as a roosting site) and the construction of a sluice gate and pumping facility, the construction of walking trails, a boardwalk, a tower and hides for bird watching, and the construction of chalets and an office to facilitate visits by nature enthusiasts. The second phase of the development began in 1997 and is of significance to the conservation of biodiversity as long as the second phase of the milky stork programme takes place at KSNP. Investment in a breeding aviary, to transfer the zoo-bred storks to the site and breed a second (F2) generation, is planned. Another roofless enclosure adjacent to the second aviary also has to be built to facilitate the transfer of the F2 young. These costs were discounted to 1987. The total discounted expenditure needed to conserve and establish the KSNP is as follows:

Value of Development and Maintenance
of Kuala Selangor Nature Park, 1987–2000

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