RICE SHORTAGE WILL NOT BE SOLVED, NEXT ARE FLOUR AND SUGAR. RESTAURANTS BEGINNING TO CLOSE. TROUBLE AHEAD

 I had a long discussion with Dato Ameer Ali Mydin yesterday. My takeaway from the discussion is that the rice shortage is not going to go away anytime soon.

Here is the situation. The rice harvest is now sold by the farmers ex-farm at RM1,850 per mt (metric tonne).  The ex-farm price used to be RM1,250 per mt. This means the ex-farm price has gone up by RM600 per mt or 48%.

I put the price increase to higher fertiliser costs, higher seed costs, higher Minimum Wage costs (thank you to the gomen), higher electricity tariffs (thank you very much to the gomen) and so many other costs that have gone up or are going up.  

But the controlled retail price for milled rice (beras local) is still at RM2.60 per kg. So the people in between ie the rice millers, wholesalers, stockists, retailers etc are facing a big squeeze in their profit margins between the higher ex-farm price and the price controlled RM2.60 per kg for local rice. 

So the people in between ie the rice millers, wholesalers are suffering potential losses. When they open for business in the morning they already suffer losses or are running at very thin margins. 

Complicating the matter is the fact that local rice quality is as good as the imported variety. So a bunch of rice is inevitably being repackaged as "imported rice" and sold at the higher "imported rice" prices of up to over RM40+ per 10 kg.

Some folks are suggesting that a large portion of the local rice is now being repackaged and sold as more expensive imported rice with only a smaller portion being sold as price controlled beras local (at RM2.60 per kg). The figure suggested was 80:20 but I cannot confirm.

Now if I can get all this information surely you can also get the same information. And the gomen too. Hello Bang Mat.

There is also something else going on which is causing shortages in the local rice. With the increase in prices for imported rice, many M40 folks are becoming B40 in that they too are shifting their purchases and buying price controlled local rice at RM2.60 per kg. Plus the local rice is of the same quality as the imported rice. So why pay more for less?

One more problem is smuggling out. In Thailand rice is sold at not less than RM38 per kg. So if our local rice is smuggled out to Thailand that is a profit of RM38 - RM26 = RM12 per 10kg bag. So it is not stretching it to say that a lot of rice is being smuggled out.

Dato Ameer says that up next there will also be issues with the supply of wheat flour and sugar. This has already been highlighted in the media. The world prices for flour and sugar have literally gone to the sky. Both are price controlled items in Malaysia.

For example here is the price of sugar per kg in ASEAN countries:

 

In the Philippines (which also produces sugar) it is RM8.53 per kg. 
In Malaysia the price controlled sugar is RM2.85 per kg.
In Indonesia it is RM4.30 per kg.
In Thailand it is RM3.50 per kg.
There will likely be smuggling out of sugar along the Indonesian and Philippine borders.

The internationally traded sugar price now is about USD770/mt (RM3,600/mt) In 50kg bags.

That works out to RM3.60 per kg. But the controlled price in Malaysia is RM2.85 per kg. So when they open for business in the morning the sugar traders can make losses.

THE SOLUTION :   So folks these are the issues on the horizon. The rice problem will not go away unless the price control is fully removed.  

Right now the price of rice is controlled but the farmers are given various assistance - subsidies, seed subsidies, cash assistance etc. (What happened to that RM60 million that Madani promised last December?) 

If you and your wife can go directly to the paddy field in Kedah or Sekinchan twice a year (when they harvest the rice) and buy a few 50kg bags of paddy directly from the farmers and take it back and mill it yourself, then this rice problem can be solved.  But it does not work that way. The paddy must go to the rice mill first where they remove the husk and make white rice. Then the white rice will have to go to the wholesalers, stockists, retailers  etc where you and your wife can buy it. That is how the system has worked super efficiently for a long, long time.

If the price control is removed entirely then the market will return to its efficiency. The market will find an equilibrium. Prof Adam Smith's Faculty of the Invisible Hand will take over. 

Some estimates say if the price control for rice is removed, the market price for rice in Malaysia will be about RM34.00 per 10 kg. With no more shortages. 

Why RM34 per 10 kg? Because the cost to smuggle rice to Thailand is about RM2.00 per 10 kg. So smuggled cost into Thailand is RM34.00 + RM2.00 = RM36.00 (10 kg). Add say RM2.00 profit and you get the Thai selling price of RM38.00 per 10 kg.

Without price controls, the farmers will get a better price, hence they will plant more paddy. (Thousands of acres of paddy land is not planted - it lies fallow). Among the reasons is because it is not worth the effort for the farmers to plant paddy when the controlled price is so low. It is gomen policy that makes the farmers poor. (However Bernas still makes about RM300 Million profits a year). 

So just remove the price control. Everything will be fine.  

If you want to keep the price controls go ahead lah. There will be rice shortages and then people end up paying RM40+ per 10 kg of rice. Very clever. 

 

Now here is more trouble ahead - restaurants are closing down.

 

• restaurant might close down if increase in price continues.
• Malay Association said some already closed shop 
• unable to absorb the impact of the increase

• In Ampang, three restaurants closed
• not just price hikes, have to pay rent 
• costs too high, better to just shut down
• customers on decline 
• more people eat at home due to rising prices
• Traders raised prices by 30%
• last five months customers decreased 40%
• When rice more expensive we lost another 10%.

• industry players predict food will rise 20% by this month 
• due to inflation and increase in operational costs
• most at risk are eateries in housing areas
• regular customers have declined

My Comments:

This is what happens when the gomen creates monopolies and oligopolies in the country.

There is a rice import monopoly licensed by the gomen. You licensed the rice import monopoly. Now you deal with the rice shortage problems. Serves you right.

Then you raised the Minimum Wage to RM1,500 per month. The cost of doing business went up again.

Then you increased the electricity tariffs when the electric company never asked for the higher tariff. Who asked you to raise the electricity tariff? 

So now all the costs in the economy are going up. 

And the restaurants are facing serious problems too. 

The Okonomi fellow will be happy. He says we should not eat in restaurants.

Eloklah tu. That is how you kill the economy.

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