Egg producers are not likely to see an impact, unless consumers reduce egg consumption significantly.
PETALING JAYA: The removal of chicken egg subsidies will have a minimal or neutral impact on the earnings of poultry players, amid stable feed cost.
Listed poultry players, however, should brace for a knee-jerk reaction in their share prices, as investors take time to digest the impact of egg subsidy removal.
Poultry stocks – except for QL Resources Bhd
– fell yesterday following news that a proposal has been submitted to the Finance Ministry and Domestic Trade and Cost of Living Ministry on ending subsidies for eggs.Currently, the difference between government-mandated ceiling price and the cost price of an egg is paid for by the government in the form of subsidies amounting to RM100mil a month.
By removing the subsidies, consumers will have to fork out the difference.
Egg producers are not likely to see an impact, unless consumers reduce egg consumption significantly, which is unlikely given that eggs are the cheapest source of protein.However, an egg producer told StarBiz that the government must remove the ceiling prices if it ends the subsidies.
“Based on our conversation with ministry officials, it seems that they are not keen on removing the ceiling price.
“If egg producers are expected to keep their supply uninterrupted, there must be no ceiling prices in the absence of subsidies. Only then can we manage our costs and still maintain a decent margin.
“If not, small farms cannot survive. Let the market decide on the pricing.”
It is not unusual for a product sold in Malaysia to be subjected to ceiling prices, despite not receiving subsidies.
For example, ceiling prices for sugar are still in place, even though the local sugar industry has not been receiving subsidies since 2013.
Currently, the price of coarse sugar is capped at RM2.85 per kg and RM2.95 per kg for refined sugar.
In June, Prime Minister Datuk Seri Anwar Ibrahim announced new retail prices for Grade A, B and C eggs at 42 sen, 40 sen and 38 sen each, respectively in Peninsular Malaysia.
Retail prices for eggs in Sabah, Sarawak and Labuan will be adjusted according to the respective zones and districts.
The new retail prices were announced after the government decided to reduce the retail price of Grade A, B and C eggs by three sen.
With the reduction, the government subsidises as much as 10 sen per egg.
An egg producer suggested that the government consider removing subsidies in stages, while also adjusting the ceiling prices upward.
“While there will be a neutral impact on earnings, the removal of egg subsidies may actually be positive for the producers’ cash flow. There is always a delay in the government paying us the subsidies. For example, we have yet to receive the subsidy payments for the past six months.
“At least, when subsidies are removed, the consumers pay us on the spot as they purchase,” according to the producer.
Meanwhile, Rakuten Trade head of equity sales Vincent Lau commended the government’s decision to consider ending the egg subsidy.
Earlier, Agriculture and Food Security minister Datuk Seri Mohamad Sabu said the savings from ending egg subsidies could be redirected to develop other critical aspects in agro-food sectors.
“Ending egg subsidies will be good for the government’s fiscal position.
“Meanwhile, I foresee minimal impact on others, including the consumers,” said Lau. He pointed out that the removal of egg subsidies may be a temporary, short-term negative for poultry players.
“So, investors may have a knee-jerk reaction. But, the market will find an equilibrium as prices adjust.”
CCK Consolidated Holdings Bhd’s shares fell 5.2% yesterday, while Teo Seng Capital Bhd and Leong Hup International Bhd declined by 10.2% and 2%, respectively.
QL Resources, however, was up marginally by 0.21%.
Lau said consumers should know that not all eggs are subsidised currently.
“The packed eggs, enriched with various vitamins, are not subsidised.
“Egg producers can manage any impact (post-egg subsidy removal) by selling more premium eggs,” he said.
The abolition of egg subsidies will be key in eliminating leakages as currently, the subsidies are enjoyed by not just financially vulnerable Malaysians, but also foreigners and hawkers.
