A LITTLE INFLATION IS NOT SUCH A BAD THING

By : SELVARAJA SOMIAH

LOPSIDEDNESS is a matter of perspective. Consider this: 35% of Malaysia’s disposable income comes from the top six cities. The bottom 1000+ kampongs account for 35% of income. Of the rest of the income, 30% is in the remaining hundreds of towns.

These are what some marketing pundits euphorically call the Tier-2 towns, places with perceived potential for immense growth. Does this Tier-2 layer really exist?

This must be judged from the headline news “Malaysia’s August inflation seen steady at 1.4%”, “Falling Inflation”, “Bank Negara and the Malaysian economists celebrate volubly”. Is this really worth celebrating for all?

I was recently touring Kundasang, home to South East Asia’s highest mountain – Mount Kinabalu, also South East Asia’s largest cabbage and broccoli market which I’m very familiar with, as I was one of the pioneers years ago doing experiments on pesticides and introducing hybrid cabbage and highland vegetable seeds from Taiwan and Japan some twenty years ago.

I can’t say people of Kundasang would celebrate a fall in highland vegetables i.e. cabbage, cauliflower and broccoli prices. Hundreds of farmers are mourning the crash of prices, sometimes to even below the cost of production.

The cost of cabbages has fallen at the farm gate by over 50% over just 6 months! Overall, prices have deflated over 30%. But it will take years before they could go up again.

Unfortunately, the farmer is not treated like an investor whose money commands the headlines, and who reports farm level profitability. No farmer ever computes his ROI (return on investment) on the land that he owns. It is inherited and comes for free to cultivate.

If we were to cost up all farm level production based on the cost of fertilizers, insecticides, fungicides, weedicides, labour and land, everything will be ten times more expensive! Not many recognise this, but Malaysian agriculture is highly subsidised by the farmer who treats the cost of land as free.

Think about the positives of inflation for a moment. How many people know how inflation is computed actually? There are 435 articles or commodities across three major groups that are taken into consideration and given different weights. Milk has the highest weight (4.4), rice is (2.44), weights for all fruits and vegetables are less than that of milk.

This raises another question: how many times do the media complain about the cost of milk? Cabbages and most highland vegetables have a collective weight of 0.54, jagung (corn) even less (0.09).

Then, why are corn prices more of an issue than cabbages? The Malaysian farmer would say that vegetables and fruits get unfairly low attention in the context of the perceived causes of inflation. I want to argue that farmers need inflation for a better living.

When I did economics as one of my first year papers in uni, as a student, I was taught that “a little inflation is not such a bad thing”. But how ‘little’ is little? The bigger issue is, 65% of Malaysia that lives off agriculture, will have to suffer from curtailed income due to deflation. And this clearly takes money out of the hands of semi-urban and rural people.

Would the Tier-2 story stand then with just 2% inflation? I would think not.

One also begins to wonder about the policy-making process and about those who are entrusted with the hallowed job of policy-making as well. Time and again, we have seen that Parliament is not where policy is made; it seems as though it is an arena where political parties stage their differences in acts of one-upmanship.

Policymakers are influenced heavily by three kinds of people: the man in the street types who just look at day-to-day gains and valuation; the politicians who do not understand economics when it is separated from politics; and the global investors who are at best opportunists and who treat Malaysia like a cell in a game of snakes-and-ladders.

The point is, good intentions of a few policymakers are not getting translated into ground reality at the farm level. There is too much media glare on produce prices than is required.

There is an urgent need for a fresh look at the needs of specific businesses in rural Malaysia, in terms of supply chain infrastructure, training and financial support. One size does not fit all. Individual ministries must debate thoughts and ideas with commercial businesses at the grassroots level, to understand the travails and opportunities.

Meantime, surely the dreams of Fast Moving Consumer Goods (FMCG) companies and other categories must be put on hold till the work performed by farmers in smaller towns and kampongs for their livelihood becomes profitable again. Some inflation is surely good.