A fowl up that led to egg on the govt’s face

 

From Doris Liew

As Malaysians grapple with the rise in the cost of living, poor policy planning is something we don’t need. In the past few weeks, we were whiplashed with multiple policies concerning the chicken market that were not well-thought-out. The myopic ban and chicken subsidies have hurt both consumers and businesses.

How do businesses and consumers fare?

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The immediate effects on businesses are apparent. The poultry farmers were hit by a triple whammy of high feed costs amid the Ukraine war, the price ceiling, and the export ban. With unclear policy action, traders in the field struggled to cope with the current crisis.

Ultimately, businesses needed to make a trade-off: if the current predicament is only momentary, firms can take some losses in the short run with expectations that the situation will improve soon. However, should the crisis lasts longer, firms may have to risk enraging policymakers by disregarding the price ceiling or be forced to shut down.

Business decisions are extremely sensitive to government policies. While our government made bad policy after bad policy, some businesses have decided to ignore government policies like the price ceiling. The failure of the government to consider business perspectives has not only shattered business confidence but created a great diversion between the government’s priorities and business goals, making any form of future policies less effective than it otherwise would be.

The war between businesses and governments hurt consumers. The effect is not only contained within the chicken industry but has spillover effects to the entire domestic market.

The most immediate impact can be seen in the direct supply line: in restaurants, the increased food cost was reflected in the menu, a form of business strategy to pass these additional costs to consumers.

The indirect effect is more detrimental. The expectation of price inflation propels firms to take pre-emptive measures by increasing the prices of goods and services, even if the businesses in question are unrelated to the chicken market. These collective business actions caused inflation to rise to 2.8% in May, the highest monthly record since July 2017.

The ramifications on exports and global trade reputation

All of this takes a toll on our foreign trade. While our politicians flip-flop over policies that don’t make sense, our trade partners have been observing us with keen eyes.

Singapore, especially, is the most impacted by our export ban. The import-reliant country is suddenly cut off from Malaysia’s 3.6 million monthly fresh chicken supply, about 34% of its total chicken imports.

By banning fresh chicken supply to Singapore, our politicians must be proud to prioritise domestic supply over foreign exports. However, this view is highly myopic and will cost us dearly long into the future.

This episode presents our country in an extremely bad light. We portrayed ourselves as an unreliable trade partner who would not hesitate to cut supply under short notice. Our policy has deeply hurt Singaporeans, and as a country that attempts to future-proof its food security, Singapore has already taken action in the past few weeks to diversify away from the Malaysian market.

Recently, Singapore announced that it had approved Indonesia as a new source of chicken imports, on top of Thailand and Vietnam.

As the ban is prolonged, Singapore’s diversification strategy will further cut Malaysia’s export market. Of the 3.6 million monthly exports, how much of it will remain after we lift the ban? How many chicken farms will shut down for good due to decreased demand and increased cost? How many jobs will be lost?

Even though we cannot put a definite number to these questions, one thing is clear. We will have less than we had the longer our government struggles to get its act together.

So, if the chicken market is the only one affected, do we just need to diversify? Global trade is based on mutual trust, understanding and cooperation. Our country has shown neither of the three.

In other words, our trade partners have no reason to trust that we will uphold our end of the deal. Of course, this is not an isolated incident. Malaysia has a history of breaking trade agreements and business contracts when it suits our immediate needs.

Our notorious reputation is not new but has been aggravated with the current saga. Our track record has already hurt us in many ways. Investors are increasingly bypassing Malaysia and seeking more dependable regional markets; up and rising are Indonesia and Vietnam, two of the hottest investment destinations in Asean in recent years.

If the current trend persists, we will continue to miss opportunities in the best-case scenario and lose market share in multiple sectors in the worst-case scenario.

What can we do?

With reality so grim, the next logical question is if there is anything we can do? While damage has been inflicted, a complete reversal of the status quo is impossible.

That said, it is possible to start taking positive actions and salvage our reputation. We still have a competitive edge.

For instance, even as Singapore diversified its chicken imports, most new exporters are only granted a license for frozen poultry. Malaysia remains one of the largest sources of fresh chicken supply to Singapore.

Our competitive edge is difficult to surpass since the shipping of raw food products is subjected to very stringent criteria that most countries simply cannot meet. Before Singapore finds alternative long-term solutions, we need to reinstate the good relations with our neighbour and reassure it of our good intentions.

The first step is to lift the ban and reopen the poultry trade between our two countries. Following that, we should put in place a memorandum of understanding, or an agreement of similar nature, to reiterate our commitment as a reliable supplier. We need these actions to be carried out fast and efficiently to minimise whatever damage we have caused. - FMT

Doris Liew is a project lead and research analyst at the Lee Kuan Yew School of Public Policy.

The views expressed are those of the writer and do not necessarily reflect those of MMKtT.