By Sharifah Azzahra, Certified Risk Advisory, Beranang, Selangor
Recently, the government has announced that they will be terminating subsidies for cooking oil, eggs and chicken products.
Government will be bearing only for cooking oil in 1kg polybag packages. The subsidy granted for cooking oil in bottles of 1kg, 2kg, 3kg and 5kg was only a temporary measure introduced to help Malaysians cope with the impacts of Covid-19 pandemic.
The government believes that the subsidies had been widely abused by industrial and commercial parties, and smugglers. Hence, it was decided that it is best to abolish the subsidies for bottled cooking oil from July 1, as well as to lift the ceiling price for chicken and chicken eggs, to ensure adequate food supplies to the market and to stabilise prices in the long term.
The problem in the market
- Cooking oils, subsidy to be abolished due to smuggling of oils to our neighbouring countries.
It is worth noting that the Enforcement Agency Integrity Commission reported in 2016 that, in response to allegations that large quantities of Malaysian cooking oil were being smuggled into Thailand at a time when Malaysians were in desperate need of cooking oil, the relevant authorities involved in border operations increased their surveillance.
Among the restrictions imposed is the transport of any quantity of cooking oil, even for domestic purposes, into Thailand by the Royal Malaysian Customs Department. Hence it can be concluded that smuggling should not be the main reason for removing subsidies on smuggling oil and it is not a new issue in the industry. By removing the subsidies this has indirectly indicated a failure on the enforcement agencies.
- Chickens and eggs: According to reports, the main issue affecting chicken production is labour issues, which have become very critical due to a lack of foreign labour, as well as more expensive but poor quality chicken feed, which has contributed to a supply shortage.
It is crucial to understand that lower employment and quality of chicken feed are affecting not only productivity but also the life expectancy of chickens. Although it was previously announced that the maximum retail price of standard chicken in Malaysia is currently RM8.90 per kg for chickens that have been processed, and are sold with head, feet and organs, and maximum retail price for super whole chicken - which is slaughtered and cleaned, and then sold without feet, head, and organs - is presently set at RM9.90 per kg.
The government should have realised the retail price of chicken on the market was between RM9.50 and RM10.50 per kg, exceeding the ceiling price set, since the fifth day of Hari Raya Aidilfitri. As supply of chicken continued to decline, price continued to increase due to the demand for chicken which has exceeded supply.
Removing subsidies a remedy?
The government should have been aware that the problem we are facing today was know years before and it is part of the economic cycle. However, removing subsidies is definitely not the best move given the failure we have in addressing our income gap. People in the lower and middle income brackets, can be very vulnerable to these given that they are still recovering from the pandemic effect.
As the government had addressed the smugglers (as mentioned above) and chicken supply issue by imposing a ban on Jun 1 on the export of up to 3.6 million chickens a month, hence price should be stabilised despite having subsidies.
If the government is really concerned and prioritises the people, subsidies should be maintained and one-off cash payout or “bantuan” should not be encouraged as this will further increase inflation.
It is time for the government to stop encouraging spending by cash transfer programmes, Employees Provident Fund withdrawal facilities and etc., as we are currently mowing towards a food and financial crisis.
It is time for the government help reduce price, encourage savings and emphasize agriculture among youngsters as one of the preparations for the future.