This article first appeared in Forum, The Edge Malaysia Weekly on May 30, 2022 - June 5, 2022

On a recent Saturday evening, the buzz at the Pizza Hut outlet in Kelana Jaya was conspicuously missing. The reason was because the outlet had once again run out of ingredients to make the pizza base.

The ingredients for the pizza dough are wheat and other grains — food items that are facing a global shortage. When asked, the staff at the counter replied that they had received only a limited supply of the base because of supply chain issues.

In essence, it is not only chicken that is in short supply in Malaysia. There is a shortage of a host of things such as wheat, corn and other grains, and edible oil. And what we are experiencing is no different from what is happening in many other developing countries.

Developing countries are struggling with a growing food import bill owing to their depreciating currencies, a situation compounded by the rising cost of agri-food commodities such as wheat, corn and other grains.

Malaysia has responded to the problem by removing the approved permits, or APs, for the import of several food items, hence freeing up the market, as well as banning the export of chicken.

Why chicken has been singled out and not everything else that is exported — from vegetables to seafood — is anybody’s guess.

Malaysia would not be the first country to adopt a protectionist policy for the export of food items. India and Indonesia have both experimented with export bans on agricultural food in an attempt to increase supply in their domestic markets.

However, both countries failed and had to backtrack on their earlier stance of restricting exports.

Will Malaysia also ease off on its export ban of chicken?

It will likely be the case because the move to ban the export of food products is only a short-term measure to force more supply into the domestic market.

However, prices will not come down and the shortage situation may persist. These are the two outcomes that Indonesia and India are experiencing after experimenting with food protectionist policies.

Indonesia’s export ban on palm and other edible oils imposed in late April lasted less than a month. President Joko Widodo lifted the restrictions three weeks later amid protests from plantation owners and after realising that the price of edible oil was not coming down.

Instead, his government imposed conditions on producers of palm and other edible oils, requiring them to supply a certain quantity to the domestic market.

In India, Prime Minister Narendra Modi’s government banned the export of wheat on May 13 after prices of the commodity shot up in the domestic market owing to a supply shortage.

Farmers and traders were exporting more wheat than they normally would have because exports were being sold at a premium of up to 15%. After years of suffering from drought and poor harvests, farmers were finally recouping their losses.

The government decided, however, to put a stop to wheat exports, a measure that drew vehement protests from farmers and traders of wheat.

It resulted in India backtracking on its hard stance just two days later. On May 15, it was reported that the government had softened its export ban and said it would “ensure the fulfilment of the genuine need” of the countries that are dependent on wheat as a staple food.

Russia and Ukraine together supply a quarter of the world’s wheat requirements. The war merely exacerbated the supply constraints of wheat that had resulted in the price of the commodity doubling over the past few months.

The prices of a host of other grains have gone up in the last two years because of a combination of factors — from poor harvests and a lack of manpower to the increasing cost of fertiliser. But generally, consumers did not feel the rising costs because demand was subdued due to the pandemic.

The prices of corn and soybean meal — two key ingredients to make feed for chicken — have gone up by 70% in the last one year. But the pandemic had restricted people’s mobility, causing many eateries to close down, hence reducing the demand for chicken.

In Malaysia, medium and smaller-sized poultry farms went out of business because their main customers were restaurants and local wet markets. As a result, supply started to constrict last year when the pandemic was at its height.

However, the market rebounded strongly from March this year, coinciding with the reopening of the economy. Nevertheless, the poultry farmers were not prepared to reopen their farms because of what they deemed to be an unviable business environment.

This situation began at end-January when the government announced that the price of standard chicken would be fixed at RM8.90 until June 5 this year in an attempt to stabilise its price. The government also said that farmers would receive a 60 sen subsidy per bird.

However, the poultry farmers felt that the previous system of fixing chicken prices was better for them to operate in as production cost was rising fast in the six months to June.

Prior to the January announcement, the price of chicken was fixed for only a 20-day period. This means that after 20 days, the price would be revised up or down depending on the supply and demand situation and prices of feed material.

In the current environment, the poultry farmers would have to contend with a fixed price of RM8.90 per chicken for several months before another revision. In the meantime, the cost of production is rising.

“It’s not only the chicken feed meal that has gone up. Salaries and living conditions have all changed due to the pandemic and it is a cost to the industry,” says a person familiar with the sector.

The big poultry farmers normally export the chicken to Singapore where they get better margins, in addition to supplying to the local market. Singapore is also the main destination for the best-quality vegetables and seafood exported from Malaysia.

The smaller poultry players generally target the domestic market. Many will eventually come back to the business, but due to the current system of fixing chicken prices for several months, that will take a longer time to happen.

If the price fixing system reverts to the previous 20-day interval, supply should pick up quickly, normalising within a few months. Until then, the cheapest form of protein for Malaysians is not likely to be so cheap anymore.

M Shanmugam is a contributing editor at The Edge

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