October 21, 2020 7:45 AM
PETALING JAYA: Stable food prices are an important aspect in ensuring national food security, as fluctuations due to supply chain disruptions and spikes in demand, intensified during times of crisis, can cause prices to rise beyond the reach of vulnerable communities.
Research has shown how volatile the prices of certain household staples can be, with changes reflective of market instabilities.
Using data from KPMG that drew on food prices between 2010 and 2017, rice and flour were found to be the most stable commodities, with the price of seafood, cooking oil and vegetables varying wildly over the same time period.
The annual price volatility of rice was around 1%, with flour and other cereal prices fluctuating a little over 5%.
On the other hand, fish prices varied by as much as 48% over the same period, while vegetables and cooking oil saw fluctuations of over 30%.
Research also showed that prices of beef and poultry products fluctuated by up to 50% and 8%, respectively.
Fatimah Mohamed Arshad, head of the Food Security and Safety Cluster at the Academy of Professors, told FMT that price volatility can typically be chalked up to “unstable supply and inelastic, relatively stable demand”.
On why the rice industry has historically been so stable, she said the “padi and rice sector is highly protected and insulated from the world market”.
“Prices are controlled through the government setting the guaranteed minimum price for farmers and fixing the retail ceiling price.”
Bernas, the company responsible for these protections, operates as single gatekeeper and sole importer for the Malaysian rice industry in order to subsidise these protections. This role has not been without its critics however, with Fatimah arguing that it suppresses free market practices.
While this model has been said to stifle trade competition, there are some upsides. The gatekeeping mechanisms in place ensures the market is not flooded with international imports to protect local rice producers, and helps to pay for the company’s other role as a buyer of last resort, taking on padi from farmers even when demand has dried up.
In countries without sole gatekeepers in place, while competition can drive prices down, it can also lead to price hikes and shortages, most recently seen in the Philippines during the pandemic.
In June, the United Nations predicted the world was on the brink of the worst food crisis in the last 50 years.
However, since the Asian food crisis in 1997, which saw essential food items become scarce across the continent, Malaysia is yet to suffer a major food shortage. This year alone, even developed countries like China and the US have battled with unavailability of staple foods.
M Niaz Asadullah, an agricultural economist at Universiti Malaya (UM), said that “ensuring adequate supply and production is the key” to stabilising food prices.
“Cutting down dependence on single sources will mean less price fluctuations in case of change in production and trade conditions in the source country. Internally, maintaining a good local transport and shipment network is also important,” he said.
The less Malaysia relies on imports for a particular food, the fewer variables at play that can affect its price.
“For food where Malaysia is not self-sufficient and import is not diversified, the price shows greater volatility,” said Niaz.
For example, he said, 63% of Malaysian rice is produced locally, a large proportion that means imports are only needed to service leftover demand.
Abdul Rahman Saili, an associate professor in agribusiness at Universiti Teknologi MARA, said the government can play an important role in protecting vulnerable communities from high prices as they can implement policies to control prices, protect producers and manage stockpiles, functions that in Malaysia are performed by Bernas in the case of rice.
Ensuring price stability is particularly important for staple food items, as fluctuations in cash crops like coffee and palm oil are less likely to affect as wide a socioeconomic spectrum of consumers.
“This is not to say that volatility of prices for these crops is unimportant for the welfare of the poor, only that it is probably less important than volatility of prices for staple foods,” he said.