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

The removal of approved permits (APs) for the importation of food items is a laudable decision by the government. In fact, most, if not all, APs should be removed, not just for food, as these APs are just means to extract rents by those holding them. Oftentimes, they are not even involved in the business for which the APs are issued. There are many AP kings who made a lot of money simply trading the APs to people who are actually carrying out the business.

This drastic step of removing the APs for food imports was in response to the spike in chicken prices, in particular. Under the present circumstances, opening up the food import market, including inputs to food production such as grains for animal feed, will not address the price hikes we are seeing. There was also the recent additional announcement that there will be a ban on the export of chicken to “stabilise the price of chicken”. This step too will not do much to address the price hikes of chicken products as we do not export much of our production anyway, and that is not the reason for the shortage.

The price increases in poultry products is due to the global price increases in their main input — feed — which is grain-based, mainly corn, soybean and wheat — because two of the world’s major producers of grains are at war with each other. Poultry farming costs have increased by some 70% because of these input price increases, which have been aggravated by the weakening Malaysian ringgit.

The poultry industry in Malaysia is actually a rare success story in the country’s food industry. It is the only successful food industry in the country, making us almost self-sufficient in both eggs and chicken, and providing Malaysians with their cheapest source of protein. It is a testimony to the acumen of both farmers and investors that the industry has grown to this point over the last three decades without the country having any natural endowments supporting such an industry. In the early years, even the chicks were imported but the industry has grown the capability to solve that problem while also moving towards very high technology production farms. The only problem it has not solved is feed, for which it relies almost exclusively on imports.

All other initiatives to diversify the nation’s protein sources, many of which were supported by public policy and funds — from fisheries to beef to mutton to even rabbits — have largely failed. Beef and fish are much more expensive protein alternatives than chicken and eggs, and the country is far from being sufficient in any of them.

The explanation for the increases in the prices of chicken is clear. In fact, the disruptions in various supply chains because of the war in Ukraine and the continued weakening of the ringgit means that all imports will experience price increases. The world will face a food shortage as a result of the war and its disruptive effects as well as from global warming that has affected farm production almost globally.

The perspective that should have been adopted by the government is that of national food security, and the decisions taken from that perspective, including dealing with APs, should systematically address the various inter-linkages between domestic production capacity, access to supplies, costs and affordability. The rhetoric of “evil middle man” and “hoarding” used to describe both the price increases and shortage of chicken is rather unfortunate and reflects a totally incorrect, if not altogether iniquitous, view of the problem.

It is a fact that we have the domestic capacity to produce chicken and eggs to almost self-sufficiency levels, and it is something to be protected. It should be obvious why chicken prices have spiked. It should also be obvious why there is a shortage despite the supply capacity. The ceiling price imposed by the government is below the cost of production, something the government is aware of. This means that producers are incurring losses as long as they produce, which leads to the rational decision to stop production or for firms to exit the industry altogether. The solution is an obvious one: the imposition of a ceiling price below cost requires a subsidy to cover the difference so that supply capacity is sustained, and for farms to continue their operations.

To ensure both affordability to consumers and for food security reasons, the government has to subsidise production costs until input prices stabilise. There is no alternative. Not doing so will see supply contraction on a food item we are self-sufficient in while prices continue to rise, even with imports, not just because of cost-push factors, but also because of supply contraction. From a food security perspective, this is akin to shooting ourselves in our own foot. My guess is that you do not really need a big room for the right people to sit down together and hammer out a solution instead of the increasingly toxic rhetoric that is beginning to appear. The government will have to pay to ensure that the supply of the cheapest protein for Malaysians is adequate.

Poultry should be the least of our food security problems because we have the capacity to produce a sufficient quantity to meet demand. We import significant amounts of staples such as rice and wheat as well as fish, vegetables and fruits, which are also facing supply disruptions and price increases. Ensuring access to supplies of these items in light of the supply chain disruptions will be crucial. There will also be the more pressing problem of prices again, more onerous than that involving chicken and eggs as we do not have domestic capacity to produce these items at the levels we need.

The discussion on the nation’s food security will necessarily be about levels of self-sufficiency and import dependency of the major food items. A question of balance and trade-offs must be decided for which there are costs as well as risks of concentration and lack of competition. Policy tools such as duties and non-tariff administrative policies, including the use of APs and imposition of standards, will be used to support the policy in some coherent manner, perhaps applying a food balance of payments approach instead of simply import substitution.

Despite being naturally endowed to be an agri-food producer — we have arable land, abundant water, sunshine all year round and our location is at the equator — we are far from fulfilling that potential. That is why we import so much of our food needs. Evidently, our agriculture and food policies as well as all government agencies involved in this area have largely failed. The Department of Statistics’ Self Sufficiency Ratio (2020) tells a glaring story of this unfulfilled potential. We import significant amounts of food we consider as staples: almost 40% of our rice, almost 80% of our beef and mangoes, 70% of chillies and 30% of coconuts. There are also items such as wheat, corn and soybean that we cannot grow and have to import entirely. There is some recent discussion about growing our own corn for our feed meal requirements, which seems impervious to the fact that corn is the most important grain globally, accounting for about half of the world’s total grain production. As if we can have the scale and capabilities to do the same more cheaply.

Malaysia can, of course, increase its own food production. To be viable and competitive, Malaysian agri-food must have a much higher capital intensity relative to land and labour than what they are presently. In other words, it has to be much more technologically driven, which also means it requires different kinds of labour input. The poultry industry is actually an example of that. There must also be a perspective change from one that tends to look at upstream agri-food in the same perspective as plantations — huge tracts of land coupled with cheap labour and minimal capital. That is not the way forward.

Having said that, land is still the crucial input in any agri-food production model, and one of the key reasons for the lack of capital (and technological) investments in the agri-food sector is the scarcity of land and, more crucially, the lack of any security of tenure on land. Some states such as Selangor have extended the lease period of agricultural land but much more has to be done. We have seen so many farmers — including vegetable and fruit farmers in Perak and durian growers in Pahang — who have successfully cultivated the land only to have it taken away.

Capital will smell opportunities, but the smell of agri-food must be the right one. While the immediate concerns today are the price hikes and affordability of food, those concerns must be addressed holistically as part of a broader national food security strategy in a world that is in a bit of a turmoil and facing climate change. The longer-term issues around land tenure, availability of human resources and the underlying research and development capabilities must also be addressed.

Dr Nungsari A Radhi is an economist

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