Sweet Subsidies for Who?

What is extremely intriguing however, was that global sugar prices over the past 6 months since the last price hike in May 2011 had in fact declined significantly, and not the purported “skyrocket”.
By Tony Pua
The Star published on its front page news yesterday with the headline “Sweet Subsidies”. It reported that the Domestic Trade, Cooperatives and Consumerism Minister, Dato’ Seri lsmail Sabri Yaakob said that the government has increased subsidies from 20 sen to 54 sen per kilogramme of sugar in order to maintain the price of sugar at RM2.30 because the “global price of sugar is skyrocketing”.

One would almost feel deeply moved by the Minister’s kindness when he said “world prices have increased but we have decided not to raise the price here… We are doing what we can to reduce the people's burden.”

The price of sugar was last increased by 20 sen in May 2011 to RM2.30 per kilogramme. However it has increased from RM1.45 since January 2010 when translated to a 58.6% increase in the price of sugar within just 18 months as part of the government’s subsidy reduction exercise.

What is extremely intriguing however, was that global sugar prices over the past 6 months since the last price hike in May 2011 had in fact declined significantly, and not the purported “skyrocket”.

In fact, after hitting a peak of US$29.47 per hundred pounds in July 2011, the price of sugar has fallen consistently every month – US$28.88 (August), US$26.64 (September), US$26.30 (October), US$24.52 (November) to US$23.42 (December) per hundred pounds. This meant that global sugar prices traded on the Sugar, Free Market, Coffee Sugar and Cocoa Exchange (CSCE) has fallen by 20.5% since July last year.

Even after taking into account the fact that the Malaysian Ringgit has depreciated against the US Dollar by 7% between July 2011 and December 2011, the global price of sugar would still have declined by 13.5% in Ringgit terms.

Therefore by maintaining sugar prices at RM2.30, the Government should in actual fact have to subsidise less, and not more, as proudly boasted by Datuk Seri Ismail Sabri. What is more perplexing is the fact that our subsidy had to increase by 170% to cope with the non-existent “skyrocketing” global price of sugar.

Today, 99% of Malaysia’s raw sugar requirements are imported. However the sugar market is monopolised by only 2 refineries – Malayan Sugar Manufacturing Holdings (MSM Holdings) and Tradewinds Corporation Bhd. These companies import Malaysia’s raw sugar requirements. MSM Holdings is a 71% subsidiary of FELDA-related entities while Tradewinds is 43% controlled by Tan Sri Syed Mokhtar Al-Bukhary with another 20% owned by FELDA Global Ventures Holdings Sdn Bhd.

The question then is - whether the 170% increase in sugar subsidy or approximately RM198 million a year payable to MSM Holdings and Tradewinds, is in fact a thinly disguised attempt to fatten the profits of these two politically-connected companies?

The Minister must hence clarify why there was a need to increase subsidies when the global sugar price is falling while at the same time explain who are the real beneficiaries from the extra RM198 million of supposed “subsidy”.