THE recent rise in the price of chicken, with some markets registering over RM10 per kg, was some of the highest recorded in recent memory. Given that poultry is the most widely consumed protein in the country, with the average Malaysian eating 50.9kg of poultry meat per year, price stability and a steady supply is crucial to fill the bellies of millions of our countrymen.

Unfortunately, although Malaysia produces the vast majority of our poultry needs domestically, we rely almost entirely on imports from the international market for chicken feed, with 80% of our feed mix consisting of corn and soymeal. This leaves our poultry industry extremely vulnerable to global swings in the international prices of those commodities, which over the past few months has risen dramatically.

Anecdotally, poultry farmers have complained that the price of imported corn and soymeal had increased 41.3% and 57.6% respectively since last year, due much in part to increasing demand from China amid a looming drought in Latin America. Additionally, as the Hari Raya festivities are set to begin in a fortnight, there is now a perfect storm of both cost-push and demand-pull factors that place strong upward pressure on the price of poultry at the counter.

While such cost factors remain high, Malaysian farmers are reluctant to substitute these components with locally produced foodstuffs as it would severely lengthen the time frame at which the chickens grow into suitable market size, being less nutrient-dense than imported feed. This is important as many market suppliers tend to avoid older chickens, as they tend to have tougher meat in comparison to younger ones.

Meanwhile, producing corn and soymeal domestically is simply not commercially viable, as its commercial benefits are unable to offset the heavy investment costs in time and money. This leaves most – if not all – poultry farmers at the mercy of international markets.

Despite these problems, there are also structural issues within the poultry farming industry that authorities have inadequately addressed. The chicken begins its long journey from farm to table through a series of intermediaries and transactions unbeknownst to the consumer. It is unfortunate that within this transaction chain, many unscrupulous traders exist that exert enormous economic influence over the price faced by the consumer.

Poultry farmers have long complained of bullying tactics by unscrupulous individuals who often flout government price regulations and push for the lowest possible price, at times even selling at a loss and keeping mum for fear of becoming blacklisted.

It should be made amply clear however that not all traders exhibit such behaviour and many are honest businessmen who ensure the efficient supply of poultry meat to the market at reasonable profit margins. However, there are such groups who are prone to abusing the market system and these individuals must be adequately addressed by the authorities.

In response to the steep climb in retail chicken prices, the government has implemented strict price controls to regulate the maximum purchasing price to ensure that consumers are not overburdened during the festive season, with the maximum price of poultry meat capped at RM7.90 per kg at the retail level. Failure to adhere to these regulations will result in charges of profiteering and may be fined up to RM100,000 and a possible jail sentence of up to three years.

Despite such price controls, economic history tells us that these measures are effective only in the immediate short-term and will produce inefficiency in both the medium and long-term. A prolonged period of price control will disrupt the efficiency of the supply chain, where price signals fail to encourage production at the producer level, thus keeping supply non-commensurate with market demand.

Moreover, it acts as a major signal for producers to cut production if the cost per chicken is higher than its allowed selling price. In addition, such control gives sufficient incentive to delay shipments and the hoarding of available supplies until after such measures are lifted, resulting in shortages in the near-term. Making matters worse, once available supplies are used up, there is always the possibility of a black market forming and operating outside of official market channels, with no guarantee on production quality.

Even more problematic, such price controls leave honest wholesalers with smaller margins, resulting in lower market coverage and a reluctance to supply retailers. According to several wholesalers, due to the higher costs faced in procuring broiler chickens, some endure a loss of RM1 for every chicken sold, forcing them to either limit their selling or renegotiate trading terms with poultry farmers.

In light of such problems, there are several suggestions and recommendations in both the short- and long-term to better achieve the aims sought after by society. Importantly, in the short-term, authorities must ensure that the integrity of the market system remains intact.

Therefore, instead of a strict single-price control, authorities could instead opt for a regulated profit margin for each player along the supply chain, this would allow price mechanisms to still function as purposed and allow market players to remain profitable. As it may not be possible to physically inspect all players at each level of transaction, a secure complaint hotline may be established where ministerial investigations can be performed as needed.

In addition, authorities should limit the practice of hoarding poultry meat supply to the market, invoking section 21 of the Price Control and Anti-Profiteering Act 2011, authorities should request documents and statistics pertaining to the supply and storage of goods to ensure that available supplies are not being unfairly restricted to the market without valid reason.

In the long-term, effort should be made in improving the degree of public transparency and awareness of frequently purchased food items such as poultry. In this regard, government authorities should aim to produce a bi-weekly list of prices in both urban and rural areas that detail the highest, lowest, average and median prices of such goods along the supply chain, from the farmer to retailer.

Moreover, a long-term plan should include a full ministerial audit into the poultry industry, including qualitative interviews with farmer, wholesaler and retailer groups to determine the extent of anti-competitive behaviour within the industry, while taking the appropriate action against unscrupulous market players and promoting healthy market competition.

Lastly, at the federal level, the government should aim to ensure an adequate supply of livestock feed. In this regard, a government-allocated fund could be established to subsidise farmers in times of high international price inflation. Such a fund should only be tapped into during times of distress amid sharp increases in international prices and not be abused as a means to stockpile animal feed in anticipation of higher resale prices.

While price controls are necessary in the immediate term, they are nonetheless powerless to stop inefficiencies from occurring being only a temporary solution to a larger problem. Ultimately, the role of the government is to balance the needs of both the market and consumers in a thoughtful and efficient way, ensuring that none are left behind. As the famous promise goes, “a car in every garage and a chicken in every pot”. – April 30, 2021.

* Qarrem Kassim is Senior Economist at the Institute of Strategic Analysis and Policy Research, an independent think-tank committed to furthering its nation-building agenda through constructive views and advocacy.

* This is the opinion of the writer or publication and does not necessarily represent the views of The Malaysian Insight. Article may be edited for brevity and clarity.