Dumb idea to lift price control on 3 essential items

 

If there are three items that are very important for the poor to get adequate nutrition, chicken, eggs and cooking oil have to be at the top of that list, along with rice and vegetables.

Cheap supplies of such food will help ensure the health of a large proportion of the rakyat. But the puzzling, perplexing removal of years-old price controls on chicken, eggs and cooking oil threatens to further impoverish a huge swathe of the population.

The removal of chicken price controls, according to the Domestic Trade and Consumer Affairs Ministry, could raise prices to as much as RM12 per kg from the current RM8.90, an increase of some 35 percent. However, if there is no ceiling price, it could rise even more than that.

Incredibly, the prices of petrol and diesel remain controlled and heavily subsidised while the subsidies for chicken, eggs and cooking oil are not reduced but removed completely and price ceilings abolished!

Fuel subsidies are estimated by the finance minister to reach a massive RM30 billion this year and current subsidies on the three essential food items are a fraction of this.

Chicken producers currently get a subsidy of RM720 million a year, according to the prime minister, while cooking oil subsidies amount to RM20 million a month or RM240 million a year according to the announcement by the domestic trade and industry minister to remove price controls.

The grand total of subsidies for chicken breeders and cooking oil is a mere RM960 million a year or a minuscule 3.2 percent of the RM30 billion fuel subsidies.

So why remove price controls and subsidies on chicken, eggs and cooking oil but keep oil prices so heavily subsidised? This is yet another bad, highly questionable decision by this backdoor government.

Wide disparity

It is a very major problem indeed. Look at the following extract from a Unicef report in 2019.

Just look at the figures, one in five children under five suffers from stunting, more than one out of 10 from wasting, while conversely close to 13 out of 100 children in the 5 to 19-year-old group are obese. Those are disgraceful figures for a country which claims it is on the threshold of becoming developed. They show a wide disparity in living standards.

We should be doing something very meaningful to reduce these figures and close the disparity by ensuring that prices of essential items are kept low so that the lower-income group has adequate, reasonable access to cheap, nutritious food. In the longer term, moves to improve incomes must be made as well.

Instead, we make a hasty, unthoughtful decision to withdraw price controls on chicken, eggs and cooking oil which is bound to exacerbate the situation because chicken and eggs are the cheapest sources of protein for most people, and cooking oil is a medium in which they are cooked.

Other sources of protein, especially fish and other meat, have seen their prices balloon way past affordability levels for most people. The consumption of such food has become luxuries which they partake of only rarely.

Bear in mind that this situation will most benefit chicken breeders who have long been agitating for the removal of price controls and may even have engineered the current chicken shortage to force prices up.

In fact, the deputy domestic trade and consumer affairs minister actually announced the Malaysia Competition Commission (MyCC) is in the final stages of completing its investigation into the alleged existence of a cartel that controls the price and production of chicken in the country.

“Thus far, the MyCC is investigating the cartel’s involvement in the price of chicken, and a full report is expected to be tabled this month (June), whether it is true or otherwise, we will see based on the findings,” he said.

Surely, we should have waited at least until these investigations were completed.

What is most appalling is that if the backdoor government had put some thought into the process, it could have been so easily avoided. Maintaining the current subsidy or even increasing it would have been so easy.

Oil subsidies

Look at the oil subsidies - RM30 billion a year. If the prices are allowed to increase by a mere one to two percent, probably more than RM1 billion would be raised with no significant impact on inflation, and the subsidies on chicken, eggs and cooking oil can be continued.

This is sustainable because Malaysia is a net exporter of oil. Any increase in oil prices, therefore, provides a net benefit to Malaysia through an increase in national oil corporation Petronas’ revenues and profits, and higher oil tax collections.

Similarly, the rise in palm oil prices produces huge profits for palm oil and fruit producers. This is reflected both in higher income tax payments as well as the windfall tax on palm oil, once the oil exceeds a certain price.

According to the relevant minister, the windfall tax on palm oil alone will garner over RM1 billion this year, based on a projected price of RM4,250 per tonne and a production level of 19 million tonnes.

Plantation Industries and Commodities Minister Zuraida Kamaruddin said the palm oil industry is also estimated to generate another RM2 billion in revenue from export tax this year. So, government revenues from palm oil are fine and will be even higher next year given higher palm oil prices to keep the subsidies on cooking oil.

Under the circumstances, the decision by the government to remove price controls is impossible to understand and may well reflect an undue bowing to the pressures of chicken and cooking oil producers needlessly.

Malaysia, rightly or wrongly, has built a system of price controls over the years. The hasty removal of these can cause huge price pressures which may become uncontrollable as happened when fuel subsidies were hastily lowered by huge amounts in 2008 causing massive inflationary pressures.

Any sudden removal of long-standing subsidies must be carefully considered and implemented, preferably in stages. A 35 percent or more increase in prices of chicken, and God alone knows how much more for eggs and cooking oil, is simply way too much! These are commodities we produce enough of.

Whatever caused this backdoor government to come up with such a dumb idea? Incompetence and arrogance combined with inducement to serve the interests of a select, privileged few is a powerful force which can damage the economy and cause untold suffering to millions of people, as this ill-considered move surely will.

This illegal regime shows yet again that it does not at all deserve to be legitimised through the polls. - Mkini

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P GUNASEGARAM, a former editor at online and print news publications, and head of equity research, is an independent writer and analyst.

The views expressed here are those of the author/contributor and do not necessarily represent the views of MMKtT.