Executive Summary

Singapore’s present status of importing over 90 per cent of its domestic food consumption needs is a result of the city-state’s deliberate industrialisation policy to transform from third world to first over the past decades, reducing the farmlands for food production from about 15,000 hectares in the 1960s to about 600 hectares today to make room for higher value-adding industries.

However, during the March 2019 Parliament Debate, Minister Masagos Zuklifli of the Ministry of Environment and Water Resources (MEWR) had aptly observed that “climate change brings new existential threats.” The Singapore Food Agency’s website notes the risk that Singapore may not have stable food imports from its food sources. Challenges (droughts, storms, pests and diseases, and climate change) faced by food producing countries could quickly spill-over to importing countries when they put their own domestic food security interests first. This makes food security a transboundary issue, which is beyond the state’s direct control.

To guard against these threats, Singapore is now aspiring to increase its food self-sufficiency from less than 10 per cent today to 30 per cent by 2030, also known as the “30-by-30” target. Given the high opportunity cost of land, the direction Minister Masagos proposed is to follow the water sector’s example whereby self-sufficiency and economic goals are achieved conjointly. Singapore’s “Water Story” is about its use of new technologies such as desalination and water recycling to contribute to its 70 per cent water self-sufficiency, while also creating approximately 14,400 jobs and contributing SGD 2.5 billion to GDP.

The newly established Singapore Food Agency (SFA) will thus seek to apply this “Water Story” to food, and develop Singapore’s unique technology-enabled “Food Story”. A key technology involved, in the case of leafy vegetables, is the use of indoor vertical farms, also known as plant factories with artificial lighting (PFALs). PFALs allow for increasing yields per hectare several times beyond present levels, by farming on multiple levels (up to six levels per storey), increasing the number of cropping cycles per year, increasing the yields of crops through automated nutrition control, and also replicating plant growing environments to produce even the crops that are not indigenous to Singapore.

To scale the adoption of PFAL technologies in Singapore, investors and entrepreneurs will need to be convinced that these are viable investment opportunities. However, a potential barrier to this is the property tax on fixed machineries under the Property Tax Act, which links property tax rates to the cost of acquiring expensive PFAL technologies. This is especially harmful as close to two-thirds of capital expenditures for putting up PFALs goes to vertical farming and environmental control machineries. This tax makes it less economical for companies to adopt these technologies, thereby discouraging their adoption. As the alternative to yield-improving technologies, which is to allocate more land for agriculture, is not a viable option in Singapore, this tax could potentially delay or hinder the achievement of the “30-by-30” target.

One way to address this is to consider that the Property Tax Act exempts manufacturing machinery. This exemption is not presently extended to the upstream agricultural production sector. Removing the tax is not simple, as it implies trade-offs and affects multiple government functions, such as the need to collect sufficient tax revenues to meet expenditure targets. This report thus recommends:

1. to launch a comprehensive analysis on property tax exemption for high-tech fixed machineries in upstream agricultural production in support of the “30-by-30 food security target”;
2. to consider joint governance of this exemption scheme under both the SFA (under MEWR) and the Economic Development Board (under the Ministry of Trade and Industry), so as to limit tax exemption to companies that truly leverage high-technology fixed machineries for boosting food production; and,
3. to launch a technical enquiry on calibrating and finding the “sweet spot” in taxation policy, that (i) increases self-sufficiency; (ii) while maintaining affordable food prices; (iii) increasing investments; (iv) having competitive rates of returns; and (v) drawing sufficient tax revenues from business activities. This will need to be complemented by an assessment of other barriers to upgrading technologies in upstream agricultural production.