Anil Netto suggests seven reasons why Malaysians are struggling to put food on the table – which could have a bearing on the outcome of the Kajang by-election.
A visit to the local wet market is enough to give you palpitations. Prices of vegetables and fruit have soared, perhaps by as much as a third over the last few years. One news report even said that the price of kangkung rose in December 2013.
The higher prices of basic foodstuff, along with the overall higher cost of living, is a major issue in the Kajang by-election. In an Umcedel survey, 69 per cent of respondents in Kajang reportedly felt that the increasing cost of living would raise support for Pakatan Rakyat.
This may be a fair reflection of sentiment across the country and could favour opposition parties. The soaring price of produce, along with higher property and motor vehicle prices, has emptied the pockets of low-income and even middle-class households. In coffee-shops and private homes, friends and relatives huddle together and grumble about the latest price increases in the local wet market.
Soaring food prices are a symptom of something deeper at work and signals that all is not well with the economy, which is also exposed to global forces.
This article will discuss some possible reasons why people are feeling burdened despite fairly rosy GDP growth figures.
Removal of subsidies
The removal of subsidies for oil and higher electricity and gas tariffs will result in higher costs (shipping, lorry transport, refrigeration etc) incurred in bringing fruit and vegetables to the public. These charges will invariably be passed on by food vendors and suppliers through higher prices.
The removal of subsidies followed concerns expressed by an international rating agencies, which downgraded Malaysia’s credit rating from stable to negative. Fitch Ratings cited concerns over public finance as a key issue.
But instead of cracking down on wasteful spending and rampant corruption, the government adopted a neoliberal approach by slashing subsidies. While some subsidies like those on petrol may also benefit the rich, the government has not invested enough in public transport across the country to ease the burden of the lower-income group who will find the higher fuel prices a burden.
The removal of subsidies has had the effect of reducing disposable income among the ordinary people, making it more difficult for them to afford higher food prices.
Monopolies and cartels
When basic food supplies such as rice and sugar are controlled by well-connected monopolies or cartels then the public is at the mercy of these companies when prices are set.
For example, the Padiberas Nasional Berhad (Bernas) group of companies, owned by Syed Mokhtar Al-Bukhary, is involved in the procurement and processing of paddy along with the importation, warehousing, distribution and marketing of rice in Malaysia. The firm controls about 24 per cent of the paddy market and 45 per cent of local rice demand.
With the removal of rice subsidies in Thailand, more Thai rice could reportedly be made available on the international market and with the increased supply in the regional market, the price of rice imports into Malaysia could fall. Concern has been expressed that the benefit of this lower-priced rice could be reaped by Bernas while the public and the 142,000 local rice farmers may not be any better off.
Or take the sugar market, which is controlled by the well-connected Malaysian Sugar Manufacturing Bhd and Tradewinds Bhd. Opposition politicians have claimed that the removal of the sugar subsidy at the last Budget would result in higher profits of up to 100 per cent.
In addition, MP Tony Pua claimed that the government had committed to a three-year raw sugar import deal at US$26 (RM78.54) per 100lbs (45.3kg) in January 2012, when the global market price for raw sugar then was at US$23.42 (RM73.57). But by January 2014, the global price had dipped to below US$16.
Shrinking agriculture land
Increasingly, as agricultural land in urban centres and their fringes is converted to ‘mixed development’, high-rise condos have sprouted on former farm lands. Elsewhere, priority has been given to monocropping and cash crops, which can damage the overall environment and reduce biodiversity.
Urban vegetable farms are vanishing as they make way for high-rise super condos. Unfortunately, we do not have community organic gardens to make up for the loss of local supply. Where once it was common to see banana trees growing in our neighbourhood, that is not so anymore. Local bananas, which used to cost RM3.50 per kg, are now sold at RM5.
This means more food has to be transported from a longer distance, usually Cameron Highlands or even imported. It is not uncommon to see people waiting at a vegetable stall for the lorry from Cameron Highlands to arrive.
As petrol prices inch upwards, the cost of transporting food follows suit, what more when food has to be transported from farther away, and this invariably pushes up the price of food.
Food imports and depreciation of the ringgit
If you visit a stall selling vegetables and fruit, chances are half the produce is likely to be imported from countries such as the United States, China, Australia, New Zealand, India and South Africa. Imported fruit may even be displayed more prominently than their local counterparts in such stalls. Moreover, a significant portion of our rice requirements is also imported. We may be self-sufficient in poultry, eggs and fisheries – but we are also importing beef, mutton and milk.
This makes us highly dependent on imports for our food security. No wonder our food trade deficit has soared from RM1bn in 1990 to RM13bn in 2013.
Along with this external dependency comes vulnerability to fluctuations in the exchange rate of the ringgit against the US dollar. Over the last year, the ringgit has steadily weakened against the US dollar from about 3.00 last May to about 3.30 now. That is a weakening of about 10 per cent and it is bound to be reflected in the rising price of imported produce.
Property development and higher business costs
Over time, as interest rates were kept low and as cheap money flooded this region, speculation in property development intensified as people tried to maximise their returns. This has driven up property prices and rentals in the country. In turn, the cost of doing business has risen.
As property prices and rentals go up, two things happen.
These higher business costs have cut into business profits, thus putting downward pressure on workers’ wages, which in turn reduces the purchasing power of ordinary people.
They also translate into higher prices of foodstuff as fruit and vegetable wholesalers and retailers, who themselves are confronted with higher property prices and rentals, pass on their costs to customers. Even the price of food and drinks at hawker stalls and food courts has escalated.
Case study: Eating out becomes more expensive too
Let’s take a look at why eating out is no longer as affordable as it once was and how this could be linked to higher property prices.
As property prices soar, those who have invested their funds in property expect higher returns from the property they already have. Thus rentals are increased. In one case in Penang, a property owner was said to have asked his tenant, a food court operator, to cough up a whopping 66 per cent increase in monthly rental for the food court premises. The food court operator, who had sub-let stalls to about two dozen hawkers, felt the higher rental would reduce his profits substantially.
Unwilling to pay such a high rental, the food court operator decided to shut down the food court he was operating and moved out. The hawkers – many of whom were selling low-priced meals (below RM5) to students, nearby residents and working adults on a tight budget – were relocated by the operator to another food court he was operating, much further away.
Meanwhile, the landlord of the food court, now closed down, found a new tenant, believed to be an upmarket ‘kopitiam’ operator or a car showroom business, willing to pay the higher rental.
For the local residents and students, what this means is that a food court that they had patronised for the affordable meals it offered has disappeared, leaving behind more upmarket restaurants and kopitiams in their area. These eateries charge 50-100 per cent more for the meals they serve in order for their owners to meet the steeper property loan repayments or rentals arising from higher property prices.
Stagnant real wages
Despite years of economic growth as indicated by positive GDP growth figure, many people do not feel better off.
For one thing, in many households, real wages have not kept pace with the cost of living and productivity increases.
The share of wages compared to the overall income of the country has fallen. Wages make up only 28 per cent of Malaysian GDP (based on the income method) while business profits account for a whopping 67 per cent. And 78 per cent of EPF contributors earn less than RM3000 per month.
This suggests that many workers are being underpaid relative to productivity increases while firms and banks post large profits. This disconnect is being aided by the existing policy of using (exploiting?) migrant workers to depress local wages while workers’ and trade union rights are suppressed.
This unhappy situation is masked by unrealistic official household poverty line income levels of RM830 in the peninsula, RM1090 in Sabah and RM920 in Sarawak. These figures are unrealistically low and seriously understate the real poverty rates.
The real poverty line threshold for a household should be closer to RM2000 while even the BR1M handouts recognise that households earning below RM4,000 per month need assistance.
As for the official minimum wage of RM900 (RM800 for Sabah and Sarawak), that is hardly enough for a household of four or five people to meet food, rental, transport, education, and health care expenses. Why food expenditure alone would swallow a huge chunk of that RM900!
GST will make things worse
The neoliberal system of privatisation that favours Big Business – reducing corporate tax rates for the wealthy, cutting subsidies, and privatisation of essential services – has resulted in higher tariffs that have weighed down on the people.
Moreover, speculation in housing and poor public transport have forced many Malaysians to take up burdensome housing and car loans. The removal of subsidies for higher education and the corporatisation of state-run universities have led to higher university fees, forcing many students to take up study loans.
Taken together, these loans have driven up household debt. Loan instalments and debt servicing have whittled away the disposal income of many households.
Meanwhile, doctors’ fees, pharmaceutical charges and even health supplements have soared. And now, the Ministry of Health has approved higher consultation fees for doctors – which adds to the people misery. These higher medical charges have further shrunk the disposable income of many Malaysians, making it difficult for them to cope with the higher prices of fruit and vegetables.
As the government introduces a regressive taxation system, (GST), available disposable income in many households will shrink even further, adding to the burden of the lower-income group.
It is obvious that rising food prices are a major issue among the folks in Kajang and elsewhere in Malaysia.
Unfortunately, the BN government does not appear to have zeroed in on the real factors behind these significant price increases. Without accurately identifying the root causes of the price increases, how is it going to lighten the people’s burden, other than by the occasional BR1M payments, which are like band-aids too small to plaster over festering gashes?
Meanwhile, Malaysians are being hit by a triple whammy: as household debts soar following the sharp increase in property prices; as disposable income shrinks following the removal of subsidies and the suppression of real wage (and with GST looming), the rising food prices come at the worst possible time.
In such a situation, news that GDP is rising and FDI is doing fine means very little to the person on the street, struggling to put food on the table.
For this, the BN federal govern-ment’s misplaced economic policies and priorities (including property-centric development and cash crop cultivation) and its inability to remove crony cartels and wipe out corruption must take the blame. The various state governments’ failure to protect farmland and prioritise food security is also disappointing and worrying.