THE current high prices of eggs, poultry, vegetables and other food items may well exemplify the phenomenon of price gouging.

Price gouging means the excessive or exorbitant raising of prices set against the backdrop of demand-side (escalation) or supply-side (contraction) shock beyond what is reasonable, common or fair, especially for the ordinary consumer.

Not to deny that there are real-world factors at play.

Shipping or freight charges are at an all-time high. A Malaysian National Shippers’ Council survey from October 7 to 10 showed that “…sea freight is now at an all-time high, having increased between 100% and 700% of pre-pandemic levels”.

MIDF Research vice-president and research head Imran Yassin Md Yusof said rates are expected to normalise only by next year.

If so, what we are seeing can be a situation in which “…(from) at least 80% of the increase (that is passed on) to consumers to protect margins, (we now have businesses passing) all of the increased costs”.

Weather vicissitudes embody another whammy hitting hard at vegetable production levels. Torrential rain will damage leafy greens making them easily susceptible to rotting and wilting. Flooding, caused by deforestation, will also destroy crops.

China, a main source of vegetable imports, has also been affected by extreme weather patterns in what is been dubbed as the “winter monsoon”.

Higher costs for fertilisers and other intermediate inputs are the results of the continuing supply-side shocks in turn due to the ongoing impact of Covid-19.

For example, in terms of imports, the shortage of phosphate fertilisers is caused by higher energy, i.e. natural gas, prices. In terms of local production, average natural gas prices have increased by 21%, as reported by The Edge on October 11.

According to the World Bank, fertiliser prices are expected to ease only in next year.

Price gouging will mean that certain stakeholders/players in the supply chain may exploit and take advantage of the situation to increase prices, so as to enjoy higher profit margins, i.e. profiteering.

The Domestic Trade and Consumer Affairs Ministry must deploy the Price Control and Anti-Profiteering Act 2011 in full force.

Under the Price Control and Anti-Profiteering (Mechanism to Determine Unreasonably High Profit for Goods) Regulations (2018), the “…determinant of profiteering (unreasonably high profit) is formulated using the measurement of one financial year (FY) period or calendar year (CY) period of business. Profiteering occurs when the mark-up percentage (MUP) or margin percentage (MP) of the current year exceeds the percentage of basic profit for that year”.

The current MUP/MP is based on the MUP/MP on the first day of the previous year and the trend difference of MUP/MP for the previous three years.

For example, MUP/MP was 18% for FY2018, 20% for FY2019 and 22% for FY2020, and then one must look at the marginal difference between the succeeding (current) and preceding (previous) year for a total of the three years.

It will be considered as profiteering if MUP/MP exceeds 18%, i.e. 22% + 2% – the 2% being the basic profit in the form of the average trend difference for the three years.

Covid-19’s unprecedented impact cannot be used as justification for excessive mark-ups.

Across the supply chain, there have been instances of wage cuts coupled with the Wage Subsidy Programme, electricity discounts, loan moratoriums, etc. together with the Temporary Measures for Reducing the Impact of Coronavirus Disease 2019 (Covid-19) Act 2020, which provides for contractual reliefs until December 31.

EMIR Research would like to propose the following strategies to deal with the issue of high food inflation – emanating from internal and external factors:

Cooperatives

The government should muster cooperatives to be at the forefront of combatting “middlemen” and wholesalers who exploit bargaining power to short-change farmers and producers.

The Agriculture and Food Industry Ministry and Federal Agricultural Marketing Agency (Fama) should work with Pertubuhan Peladang Kawasan (PPK) – agricultural cooperative re-organised under the Farmers Organisation Act (1973) to ensure that reliance on middlemen throughout the food crop supply chain is reduced or weakened altogether.

The recent rebranding of the Agricultural Product Collection Centre to Peladang Outlet, of which the Kuala Langat PPK is an eminent example, should be accelerated and expanded.

In addition, agricultural cooperatives should synergise with other wholesalers and retail cooperatives as part of the next stage of the supply chain to ensure bulk purchasing power is maximised for the benefit of consumers.

At the same time, Fama should increase and augment its storage and warehousing capacities, either for its own use or by renting it out – on a nominal fee – to the cooperatives.

Price controls

The Domestic Trade and Consumer Affairs Ministry must apply section 4 of the 2011 Act – with respect to the determination of prices – to the middlemen or the mid-stream of the supply chain and not merely focus on wet markets, supermarkets, hypermarkets, retailers and end-distributors.

The state must proactively interfere in the supply chain by enforcing and imposing heavy penalties.

The ministry should employ more enforcement and surveillance officers to feed real-time information and data into an Economic Stimulus Implementation and Coordination Unit between National Agencies-type e-system. This is so that the real-time digital dashboard can be the repository of the Big Data for monitoring and surveillance of prices from all the states on a 24-hour basis.

The Malaysian Anti-Competition Commission must come out with a regulatory through the Competition Act (2010) to enforce anti-competition laws against horizontal (i.e. among competitors) and vertical (e.g. between upstream, i.e. producer and mid-stream) price fixing.

E-commerce

Farmers should be encouraged to join e-commerce programmes that eliminate the use of middlemen in the agribusiness supply chain.

Entities such as Our Farm, which “leverages AirAsia’s robust all-encompassing ecosystem, which includes cargo, logistics and payment capabilities”, enables small businesses to reduce the cost of fresh produce procurement by up to 25%.

There should be a common digital platform (under the auspices of e.g., Fama) that can build upon the pre-existing AgriData, for example, to link other farmers and producers to the business-to-business marketplace. This comprehensive centralised database should contain the listing of every locally grown produce.

Smart farming

Previous EMIR Research articles also mention that smart farming, precision farming and agriculture digitalisation can help reduce costs, including labour, and increase both yield and income.

The use of automation and the Internet-of-Things to control and monitor the farming process, from fertilisation and irrigation to pesticide spraying and harvesting, will reduce leakages and wastage, while enhancing the output quality.

In the long run, Big Data will allow for crop rotation based on fluctuations of demand and price stability.

Subsidies

The government should consider providing subsidies across the supply chain (excluding the middlemen).

For example, Malaysian National Shippers’ Council chairman Andy Seo has called for more grants to cover logistics costs.

Intermediate inputs such as fertilisers and production feed should be subsidised for a time-limited period by the government. The subsidies can come from an Inflation Stabilisation Fund.

Forwards and futures contracts

The International Trade and Industries Ministry should collaborate with Bursa Malaysia and the Securities Commission to induce the use of futures contracts for fish, meat, rice and vegetable importers currently limited to commodities.

This will help lock in the future price of food imports.

The futures can be sold to a government-linked company set up by the Finance Ministry on the secondary market.

Shortening the supply chain

The government should come up with a food security action plan that promotes urban farming and imports from within Asean.

Cartels

The government must clamp down hard on cartels, including those related to law enforcement agencies, and monopolies.

There is no doubt that corruption, i.e. kickbacks or graft given to law enforcement officials by middlemen, play a crucial role, too.

Like Lee Kuan Yew in facing down errant pilots of the Singapore Airlines Pilots’ Association in 1980, the government must read the riot act and address the perennial problem of cartels and middlemen, and take a decisive action.

In short, the state should ensure tighter supervision and management of the entire supply chain. – December 2, 2021.

* Rais Hussin and Jason Loh are part of EMIR Research, an independent think tank that focuses on strategic policy recommendations based on rigorous research.

* 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.