Is the government’s rice move the right one?

Imported rice: Workers plant rice seedlings at a paddy field in Serang, Indonesia’s Banten province. Bernas operates only 28 out of the 180 rice mills in the country, where between 650 million tonnes and 800 million tonnes of paddy are imported annually. — Reuters

Bernas says ending its monopoly will not bring down price of rice

PADIBERAS Nasional Bhd (Bernas) came under the spotlight recently when the government announced that the company’s monopoly to import rice, a right it has had since 1974, would be terminated.

The move, which will liberalise the industry, is aimed at knocking down the price of rice and removing Bernas’ “monopolistic profits.”

However, Bernas chief executive officer Ismail Mohamed Yusoff, who believes that there is a “need for some monopoly,” says that Bernas is not “in it” to make monopolistic profits, adding that should liberalisation happen, the price of rice is unlikely to come down by much – if at all.

“Contrary to popular belief, Bernas does not make monopolistic profits,” he tells the media during a briefing earlier this week.

Citing data, Ismail says that Bernas’ profit margins were minimal – between 0.4% and 1.8% over the past three years.

“Our return on equity (ROE) stood at 4.9% in 2017.

“This in comparison with fast-moving-consumer-goods companies such as Dutch Lady Milk Industries Bhd or NESTLE (M) BHD, whose ROE were above 100% that year.

“The ROE for privatised concessions such as Tenaga Nasional Bhd and TELEKOM MALAYSIA BHD in 2017 were also higher than us, about 12% and 9.4% respectively,” he says.

However, Ismail declined to comment on how liberalising the industry would impact Bernas’ earnings.

“I cannot speculate how this will impact us,” he says, adding that Bernas still has the rights to manage the country’s rice stockpiles for another two-and-a-half years.

Bernas was granted a 10-year agreement extension approval from the Government in 2012 to conserve, maintain and manage the country’s stockpiles of rice until January 2021.

Ismail: We have the cheapest price for rice with a bowl costing 26 sen.
Ismail: We have the cheapest price for rice with a bowl costing 26 sen.

Non-monopolistic benefits?

Even if liberalisation takes place, Ismail says the new players coming into the industry may not be able to cope with the various responsibilities that Bernas had been tasked with all these years.

“The Single Gatekeeping Mechanism (which grants Bernas the monopoly) has been in place since 1974 and it works.

“It has allowed us to safeguard the paddy farmers and consumers alike.

“Paddy farmers in Malaysia are enjoying one of the highest paddy prices in the region; and at RM2.60 per kg, consumers are also enjoying the second lowest price of rice in the region.”

Ismail says that since 1974, Bernas has maintained stability within the industry.

“Rice has always been available and prices have always been stable.

“Bernas has ensured stability to allow intermediaries (millers, wholesalers and retailers) to focus on their scope of work and not be concerned by global volatilities.

“The wholesalers are on a level playing field because they don’t have to think about where to buy or what’s the foreign exchange rate.

“We take care of the volatility so everyone can compete on a level playing field.”

He says Bernas also functioned as a “shock absorber” for the country in the case of a food crisis.

“Many people may not know that there was a world food crisis in 2008.

“This resulted in unprofitable imports for Bernas.

“Due to international price shocks, we continued to import despite making financial losses,” he says.

Ismail adds that Bernas, over the years, had been in the spotlight due to misconception and inaccurate perception around its roles and responsibilities.

“This misconception is not because of a food crisis from mismanagement, or due to inefficiencies in safeguarding the industry.”

Ismail points out that Bernas operates only 28 out of the 180 rice mills in the country, where between 650,000 tonnes and 800,000 tonnes of padi are imported annually.

“We have the cheapest price for rice with a bowl costing 26 sen.

“Even if we lowered it by just one sen, local farmers will be affected,” he says, adding that they supply some two million tonnes of padi.

Last month, the government announced that it would be terminating Bernas’ monopoly to import rice.

Agriculture and Agro-based Industry Minister Salahuddin Ayub said a working paper on breaking up the monopoly would be drafted with feedback from both the ministry and other stakeholders before being submitted to the Government for further action.

Salahuddin said the move would benefit consumers as they could choose the rice they want.

He says the ministry, the National Agriculture Advisory Council and the corporate sector will sit together to come up with the “best business model” on the country’s rice import.

“Bernas will still import rice but other companies will be doing that as well,” he was quoted in a report last month, adding that liberalising the industry would reduce the risk of being too dependent on one party to import rice.

Meanwhile, Ismail says liberalising the industry would not bring down the price of rice in the country.

He says having more players in the market would not alter or affect the price of rice – which is sold at controlled prices in Malaysia.

“About 60% of the rice consumed in Malaysia is white rice, which is price-controlled.

“Another 30% of white rice is imported, and it’s a policy that it cannot cost more than local rice.

“That’s 90% of the market already.”

He says prices can only be affected if there was a disruption to the supply chain.

“Unless something changes along the supply chain, from the paddy to the millers to the wholesalers, I don’t see how the price that is controlled now, can be lower.”

Ismail says Bernas is holding talks with the government and recently presented a paper to the Council of Eminent Persons on the matter.

“We are hopeful that a comprehensive study can be done because it’s not just about removing Bernas.

“This is about a system that has been in place since 1974 and it has worked very well for the nation.

“You need to come up with a new model that is well thought of.

“If it’s about the interest of the farmers, consumers and addresses food security, we will support it.”

Business , Bernas , Padiberas Ismail


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