A shrinking wallet
THERE is a lot wrong these days.
There is war in our lives once again, the world’s worsening climate is not fiction and the pandemic is something we all have to live with.
The other aspect of the whirlpool of events is the rise in the price of goods and especially the staggering amount of subsidies the government is projected to pay to keep inflation at bay.
When the figure of up to RM71bil in subsidies was reported yesterday to keep prices in check, with petrol subsidy bill at RM30bil, that alone should be a sign of worry.
Yes, government revenue is on track to be higher this year as revenue for the the first quarter was up 26.7% to RM62.7bil.
But when subsidies are a quarter of government revenue and the debt service ratio is inching 20% of revenue, that means that 45% or so of whatever money the government collects is going towards keeping prices stable and paying of just interest on the debt owed.
The question is whether the money spent on keeping prices in check is worth the cost to keep inflation from rising?
As it is, food inflation is up 4.1% from a year ago.
With salary increments projected to be lower than food inflation in Malaysia, that means a large percentage of Malaysians will be poorer off due to the higher cost of food.
For poor households, it was reported that about 29% of their income goes towards food.
Then there is the cost of electricity, which takes a chunk of subsidies because of high coal prices, and also transportation, where the cost of petrol is going to influence expenditure for Malaysians.
With the petrol subsidy likely to be only for the targeted, that will mean that overall inflation is going to spike once subsidies are done away with.
That means people are still going to be paying more for food and petrol and that will be like a tax on people’s wallet.
For Malaysians, there will need to come a point when we have to live beyond the shelter of subsidies.
Our tax base is too narrow to be offering subsidies just to keep things “cheap.”
Ultimately, we are all going to pay the price in one way or another.
Chicken and egg
FOOD protectionism, that’s the buzzword these days amid supply chain disruptions.
Governments around the world are jumping on the food security issue, some even turning nationalistic in their strategies as they curb food exports to ensure that their citizens have sufficient food.
Malaysia has imposed a ban on chicken exports to Singapore from June 1.
The country is set to stop the export of 3.6 million whole chickens a month until production and prices become more stable.
But is this the right thing to do?
The consequences could be far from desirable.
Recall, there was a similar move during the movement control order over the last two years, whereby a temporary ban on the export of eggs also to Singapore, was imposed.
After the ban was removed, the demand for Malaysian eggs shrunk by half of the usual four million eggs a month.
This was because Singapore had found other suppliers.
Could the same thing happen to the demand for local chicken once the current ban is removed?
Is the current curb fair to the chicken producers who are at the risk of losing the lucrative Singapore market?
As it is, they are already crying foul over high feed costs.
Also, by curbing exports and artificially keeping chicken prices low, producers are yet again being made to suffer.
Could a free market where demand and supply find their own rhythm be a better option in the current environment?
In theory, any government intervention within the market place is meant to serve public needs.
This means everyone and not just certain parties.
What is the point of ensuring that Malaysians continue to have their supply of chicken but in return for that, some business people have to face potential losses. That would also put in jeopardy the future of poultry farmers who will be burdened by the losses they will be carrying.
Courier sector woes continue
NATIONAL postal service company Pos Malaysia Bhd
is showing signs of transforming, finally.
The group has been suffering years of financial losses. While still in the red, its first quarter ended March 31, 2022 (1Q22) saw it narrowing its losses to RM30.37mil from RM46.78mil previously.
This was achieved from cost management efforts. But in its notes to its accounts, Pos Malaysia reveals the problematic scenario plaguing the industry.
It puts it down as this – the lack of fair competition in the last-mile delivery of parcels.
This problem, along with inflationary pressures and major eCommerce players leveraging on their insourced delivery capabilities will continue to put pressure on Pos Malaysia’s margins, the company said.
It also made reference to “international players penetration strategies to capture higher market share in the courier business”.
Meanwhile logistics and express carrier provider GDEX Bhd posted a net loss of RM1.9mil in its 1Q22, the first loss since it was listed in 2005.
GDEX managing director Teong Teck Lean noted: “We continue to face headwinds in Malaysia due to predatory pricing on the back of various new market entrants. The competitive pricing environment is destructive, with some players offering free delivery service to grow their volume.”
It is not a surprise that these large home grown courier companies are feeling the heat.
There are more than 100 licences for courier services issued in Malaysia.
In many countries around the world, the last-mile delivery is limited to a few players to compete, mostly local players, so as a means to protect the industry and ensure a decent but not overly competitive landscape.
Recall also that not too long ago, a new player emerged in this space, which has led to even more price throwing.
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