[News] GLCs in charge of food supply chain would make Putrajaya the new middlemen, says expert

Experts have long raised concerns about the involvement of state-owned firms in crucial industries, pointing to track records that show most GLCs to be rarely efficient or properly managed. — Picture by Ahmad Zamzahuri

Experts have long raised concerns about the involvement of state-owned firms in crucial industries, pointing to track records that show most GLCs to be rarely efficient or properly managed. — Picture by Ahmad Zamzahuri

By Syed Jaymal Zahiid

Tuesday, 21 Jun 2022 12:14 PM MYT

KUALA LUMPUR, June 21 — Putrajaya’s decision to make government-linked companies in charge of the food supply chain risks creating a monopoly that could hamper efforts to modernise the agriculture sector and tackle food insecurity, an expert warned today.

Datin Paduka Fatimah Mohammed Arshad, a fellow at the Laboratory of Agricultural and Food Policy Studies with Universiti Putra Malaysia, said the profit-oriented state-owned firms with huge capital could exert market power and deter competition.

On June 13, Prime Minister Datuk Seri Ismail Sabri Yaakob announced that GLCs would be given a lead role downstream of food production “to widen the agrofood ecosystem” as part of the government’s food security drive.

Fatimah said the policy would effectively make Putrajaya the “new middlemen”.

“The government has long campaigned against middlemen. But with the new policy, the GLC or GLICs, as government investment arms, make the government the new middlemen to the farmers,” Fatimah said in a statement to Malay Mail.

Experts have long raised concerns about the involvement of state-owned firms in crucial industries, pointing to track records that show most GLCs to be rarely efficient or properly managed.

Fatima cited the case of Lembaga Padi Beras Negara, saying it is plagued with governance issues and irregularities.

“GLCs and GLICs are capitalistic in orientation hence their main concern is return to capital,” she said.

“With their big capital they may exert their market power and hence create a high barrier to entry to new entrants or young entrepreneurs or SMEs. A monopolistic and oligopolistic market structure is not equitable and competitive and could waste taxpayers’ money,” the expert added.

Fatima has called on Putrajaya to encourage cooperatives to be involved in supply chain activities instead, citing the success seen in Taiwan and Korea.

“While farmers’ cooperatives in these countries have advanced so much where farmers sell their produce through their own hypermarkets, our cooperatives are still struggling with farm production and marketing problems,” the academic argued.

“Other alternatives include direct selling by farmers through night markets, online, production and marketing contracts.” Soaring food prices caused by a prolonged global supply chain bottleneck and a weakening ringgit has again cast food security under the spotlight, prompting public pressure on the government to act.

Analysts have said that the backlash over inflation could also threaten to upend the ruling Barisan Nasional coalition’s resurgence, and affect Ismail’s approval rating.

This has fuelled speculation that factions in Umno, which anticipate the economy could worsen by next year, want the prime minister to hold a general election by this year, possibly in August.

Last week the prime minister announced a slew of measures to address food insecurity, including making ceiling prices set for crucial food items more “flexible” according to price input factors.

Fatimah lauded the government’s push to domesticise food production again, but said the long-term negative effects of a flexible ceiling price would outweigh the short-term benefits. The expert said the policy would also benefit rich consumers.

Malaysia imposes price controls on essential food items in a bid to make food affordable to its largely low to middle income workforce. But experts argued the policy has caused inefficiencies and market distortion that enables bottlenecks and rent-seeking.

“Clearly the policy is subsidising the rich consumers when they can be excluded as they can absorb the inflationary effect relatively better than the poor,” she stressed.

“Besides, stable prices do not bring growth and innovation in the long term. When prices are controlled at certain levels, there would be little incentive for producers and traders to innovate and create new products or food services,” the researcher added.

Up to 90 per cent of paddy farmers and a high percentage of vegetable producers are poor, or officially categorised as “B40”, which Fatima said is the unintended consequences of Putrajaya’s policy to keep prices of rice and vegetables low when production cost is high, squeezing their profit margin.

Fatima said capital formation on the farm has been static for decades.

“The new increase in price would provide an opportunity for farmers to explore ways and means to take advantage of the situation by optimising their input use. It’s an opportunity for small farmers to get out of the rut of low food prices for years,” the researcher said.

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