FOOD inflation and food security are currently, and will continue to be, major challenges for the unity government.

The great challenge is that simply producing enough food domestically will not solve the problem.

It may address the food security issue, but it may not necessarily bring down food prices (and hence inflation).

These prices are dependent on other factors such as economic scale, domestic and external demands, high investment costs, and technical barriers leading to low efficiency of production.

Even large-scale food production will invite the concerns about certain environmental and labour issues.

Key macro issues that have been neglected

A few issues have been consistently neglected by the government over the last decade:

1. Changes in consumption demand. Food security has always been narrowed down to rice self-sufficiency, but the Household Expenditure Survey Report 2019 revealed that food consumption patterns have gradually shifted from rice to protein and cereals.

2. Too much concentrated resources and effort has been put into producing commodities and rice. By 2018, oil palm and paddy rice each accounted for 5 million hectares, while other crops accounted for less than 5 million hectares. Other southeast Asian countries have gradually diversified their food supply in recent decades.

3. Low spending on agricultural research and development (R&D). Despite the emphasis on domestic rice production, rice self-sufficiency has only increased from 62% (2011) to 69% (2020). By 2018, our paddy yields were lower than Indonesia and Vietnam, and just slightly higher than the Philippines.

Food security could be much easier to address, because the gap of self-sufficiency can be met through imports and import sources can be diversified.

The more challenging part is the trade-off between meeting the domestic demand (food security) and exporting high value crops.

These two may conflict, for example when you export the commodities product, which would mean fewer resources to meet domestic demand.

Land issues are one of the big challenges in this trade-off. It is important to understand that the agricultural sector also needs more land to grow, so it will demand and compete for land used for manufacturing, services and housing.

Even with the available land, is the land granted for a long period of time to encourage technology investment or just for a few years as a condition stated in the temporary occupation licence (TOL)?

Another challenge is that consumption patterns of different food crops have diversified due to the rise in socio-economic status of the residents since independence and rapid urbanisation.

Thus, economic scale remains a major constraint to reducing food prices, as diverse demands break up the aggregate demand for a single product.

Not to forget that the compliance costs – such as avoiding negative environmental externalities and good labour practices as stipulated in national laws – cannot be compromised but these will add to the overall cost of production.

The government should encourage investment in agricultural R&D and promote the use of agri-tech, which is believed to benefit the agricultural sector by increasing their productivity and yields.

However, reducing food prices still remains a challenge from a macro-agricultural perspective.

Consistently monitoring price transmission

Effective mechanisms are required to monitor price transmission consistently across different levels of production.

This should begin from the producers, through to the processors, wholesaler distributors, retailers and consumers.

Data should be collected regularly and made more transparent to the public. It will certainly benefit the government in making policy decisions, while reducing information asymmetry to make prices more transparent for the food producers and traders.

Take the surge of chicken prices in 2022 as an example. The increase of global grain and soybean meal prices as well as coal have ultimately affected the local chicken feed cost and utility, which account for a 70.7% and a 2.9% increase, respectively.

More research such as studies on market concentration, cost analysis, business situations, is needed for different food crops more regularly, especially from the Malaysian Competition Commission. – February 6, 2023.

* Nick Tan Beng Teong graduated with Bachelor of Economics at University of Malaya. A member of Agora Society, Tan believes in policy reforms in order to build a better nation.

* 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.