EVEN before Prime Minister Datuk Seri Ismail Sabri Yaakob said on June 1 that the government would no longer subsidize chicken farmers from July 1, but would instead funnel money directly to people in need of help so they could continue to afford to buy chicken, it was already clear that the existing system was far from perfect and needed an overhaul.
“As expected, the grant approach with herders was not working. So they are now diverting subsidies to consumers,” says Julia Goh, senior economist at UOB Malaysia.
Indeed, if nothing else, the fact that calls for a month-long chicken boycott made the front page of a mainstream newspaper shows that supply was clearly not meeting demand at the determined retail price cap. by the government for chicken and eggs. This is despite the overall increase in government subsidy allocation to RM729.43 million from RM528.52 million to help chicken farmers meet the maximum retail price for live and standard chicken of 5 RM.60 per kg and RM8.90 per kg. respectively, between February 5 and June 5. The retail price cap has since been extended until June 30, according to a statement from the Ministry of Domestic Trade and Consumer Affairs dated June 2.
Images of undersized birds appearing on dinner plates – and across social media – also lend credence to reports of chicken being undernourished by farmers struggling with soaring feed prices in corn and soybeans, which account for around 70% of the costs.
Obviously, in addition to a size and supply mismatch, there was also a bottleneck in disbursements, as Ismail Sabri told reporters on June 1 that less than 10% more than RM700 million of subsidies made available to chicken farmers had been claimed as well. far.
“Wouldn’t you ask for subsidies if you are struggling with high costs? laments an industry insider who believes that basic information on claims filed at the district level may have taken some time to reach state offices and Putrajaya.
While awaiting the official announcement of the removal of the chicken price cap on July 1, industry players contacted by The Edge are still waiting impatiently. As they say, “A lot can happen by July 1st.”
What is certain is that the rise in the cost price of whole chicken in recent months is reflected in government statements.
Domestic Trade and Consumer Affairs Minister Datuk Seri Alexander Nanta Linggi had said in a statement dated February 2 that whole chicken would sell above RM10 per kg without intervention, when the price cap was announced. price cap of RM8.90 per kg which was initially applicable from February 5 to June 5 this year – a third reduction in the price cap of RM9.50 per kg for Deepavali (from November 1 to 7, 2021) as well as 9, RM30 per kg (December 7 to 31, 2021) and RM9.10 per kg (January 1 to February 4, 2022) under the Keluarga Malaysia Maximum Price Scheme (SHMKM).
Just four months later, Ismail Sabri said chicken prices could have reached RM12 per kg without the cap and subsidy, but many, including smallholders and traders, had sold the birds at 8.90 RM per kg despite no subsidies (which were raised from 60 sen per kg for Feb and March to RM 1.40 per kg in April and May) to comply with the retail price cap lest the ministry take action against them.
Even as Russia’s invasion of Ukraine hits the 100-day mark on June 3, it remains unclear when the global supply disruptions will end, heightening awareness of the need to strengthen the food security in the context of growing global food protectionism (see the poultry on the plates say about food security”).
Rising food prices and shrinking supplies in the wake of the Russian-Ukrainian war are expected to “last through 2024 and possibly beyond,” S&P Global Rating analysts wrote in a note dated Monday. June 2, entitled “The global food shock will last for years, not months”.
As there is no way to predict how long the supply chain disruptions will last and the country’s subsidy bill is already expected to reach RM71 billion this year – of which some RM30 billion comes from subsidies alone. to fuels – Socio-Economic Research Center (SERC) executive director Lee Heng Guie says offering consumers who need help targeted subsidies and/or food stamps is “a more viable approach” for most decision makers.
This is given limited fiscal resources and possible trade-offs that need to be considered if a lot of resources are to be spent to keep prices artificially low for everyone instead of just targeted groups, another economist agrees.
In France, for example, where inflation was 4.8% in April, recently re-elected President Emmanuel Macron pledged to increase social protection and issue food stamps to help the country’s poorest households cope with rising prices instead of controlling inflation.
It is also the most vulnerable who are receiving extra help under the £15billion (RM82.7billion) support package announced in May in the UK, where inflation has peaked at 40 years by 9% in April and 10 million Britons are estimated to have reduced their diets amid rising food and energy prices.
Higher prices to come
Similarly, economists say targeting subsidies to help low-income groups in Malaysia maintain a good amount of animal protein as part of their daily nutritional intake, even though chicken and eggs are allowed to be sold at retail at market prices, would also be “good round practice”. for policymakers, given that the removal of general subsidies in favor of targeted subsidies for fiscal sustainability is long overdue.
“Just like with global monetary policy, we can’t have years and years of [price] distortions and assuming that we will always have the money. No matter how noble the goal [for price distortions/subsidies]there are consequences too and at some point we will have to pay,” says Nicholas Khaw, research director of Khazanah Nasional Bhd.
“With items like gasoline, where the distortion is huge [the rich benefits far more than the rest]targeting [subsidies] makes sense even when you factor in the risks of compromise [possible exclusion/inclusion errors].”
Overall, UOB’s Goh believes Malaysia is likely to see “more upside risk to prices until the reopening effect wears off and rising prices weigh on spending and demand. “. There is also a “moderating effect” of higher interest rates, she adds.
Most experts expect a gradual rationalization of subsidies in Malaysia, where food inflation rose slightly to 4.1% in April, although headline inflation remains relatively low at 2.3%, helped by large grants.
“[Subsidy rationalisation] must be done in order. It can’t be a big bang – chicken, cooking oil, fuel, electricity, gas, public transport [and so on] all of a sudden. [A rise in] inflation is inevitable,” says SERC’s Lee, who expects “at least one more” rise in the prices of goods and services. In addition to supply chain disruptions, prices were already slowly rising due to labour-related adjustments, including a higher minimum wage, as well as the normalization of interest rates.
Lee – who, like most economists, supports the introduction of a large-scale consumption tax – believes that the timing of the reintroduction of the goods and services tax (GST) and how policymakers can help the most vulnerable in society and businesses cope with higher prices would be key determinants of the impact of the decision considered by policymakers for fiscal sustainability. While there “will definitely be a one-time impact on inflation” when the GST is reintroduced, some of the extra revenue could be used to expand targeted relief, he says.
Whether there is a gain or spillover from policy changes that affect consumer prices and the cost of doing business will also depend on “execution and the ability of policymakers to manage the impact” , adds Lee.
In addition to targeted cash transfers, effective surveillance against profits is another way for the government to ensure companies don’t pass 100% or more of higher costs onto consumers, he says.
Sustainable development efforts could also be boosted, as consumption patterns could change when people have to pay prices that are real (unsubsidized) or close to market prices, thus helping to balance the dynamics of supply and Requirement.
“At the end of the day, prices will go up even further [with targeted aid]. But it’s a decision to let market forces dictate price and suppliers to adapt. [and reach a new equilibrium]“, said Goh.
Rather than being overly concerned about what the short-term numbers might look like, the country will reap a net benefit from the structural changes needed for sustainable growth if the most vulnerable groups in society, who receive timely and adequate assistance , are also progressing.
See also “The slow disbursement of subsidies harms the cash flow of poultry actors”