MONOPOLY, a weak ringgit, and consumption tax will further push food prices above Malaysia’s inflation rate in the coming years, a think tank said, despite better economic data. 

According to the Food Policy Institute (IDKM), the country’s high food prices were due to several factors, with the monopolies over food imports and supply of locally sourced fresh produce having the greatest impact.

IDKM laboratory chief Dr Yusof Saari, who has advised the government on food policy, said as the rise in prices did not match the slower rise in wages, consumers would continue to be burdened by higher living costs.

Yusof added that dearer food next year would most affect the the middle class, or the M40 income group, and the effects were already visible.

For instance, consumers were unable to buy in large quantities or they are skimping on quantity and quality to stretch their ringgit, said the Universiti Putra Malaysia lecturer.

“People can’t buy 10 or 15kg bags of rice anymore. So they are buying smaller bags of 1 or 2kg while waiting for the next salary,” he told The Malaysian Insight.

Yusof said before the subsidy was abolished, there was high demand especially in urban areas for low-grade 15% broken rice known as “ST15” that was usually reserved for the poor.

The price of ST15 was subsidised at RM7.50 per kg but the programme was stopped in 2015 due to leakages.

Food prices have been a perennial complaint in The Malaysian Insight’s series of reports on cost of living.

Data from the Statistics Department show that food and non-alcoholic beverages are the highest rising components in the Consumer Price Index – a measure of inflation.

In September, food and non-alcoholic beverages went up by 4.3% compared with the same period last year.

Break the monopolies 

Monopolies in the supply chain were aggravating the price increases and in some cases, causing food costs to spike, said Yusof.

They also distorted the market by inhibiting competition and giving consumers fewer choices in price and quality, he said.

“One form of monopoly is the Approved Permit (AP) to import food which is given to large companies, and this allows them to set the prices.”

Large food companies also affect the price of processed foods such as canned and frozen foods, as well as instant food like Milo which are in high demand in Malaysia.

According to the 2015 Economic Census, Malaysian households consume more processed foods and beverages than primary agricultural products.

Processed foods and beverages make up 74.3% of the total foods a Malaysia household consumes.

“There are also monopolies over local food production, such as of rice which is controlled by Bernas. There are other companies that sell rice but they source the rice from Bernas,” said Yusof.

The result of all this is that consumers have fewer choices and food producers have little incentive to offer better quality and prices.

“For example, in Europe, they get products of the same quality but at differing prices. The branded product is priced higher and the non-branded one lower. But the quality is the same.”

“In Malaysia the opposite happens.

“The quality of the non-branded product is lower than the branded one. But there is very little difference in price.”

Cheaper to import

Yusof dismissed the popular notion that Malaysians paid more for food because much of it was imported.

The country imported RM38 billion worth of food between January and October last year.

Singapore also imports almost all of its food but prices are not a problem in the island republic, he said.

“Our problem is the monopoly of certain companies, which makes things worse when our ringgit weakens and petrol prices increase.

“It is also not because our farms don’t produce enough. Even if they do produce a lot it is pointless if consumers cannot afford it.”

Malaysia imported food because it made more economic sense given that the imports cost less than local produce, he said.

“But if you have monopolies then this is counter productive because you are restricting choices for consumers.”

Although the government has increased aid to low income groups, such as through the 1Malaysia People’s Aid scheme, it does little to make food more affordable.

The better solution was to get rid of monopolies that were distorting market prices, he said.

“You won’t stabilise food prices even if you increase wages. We have to change our food supply chain, our institutions must be transparent so that our market can work the way it is supposed to.” – November 17, 2017.