From fuel pumps to food bills

FUEL subsidies have helped cushion local consumers from rising global energy prices, but higher costs could still feed through to the food supply chain.

International Energy Agency executive director Fatih Birol warned in Singapore last week that higher diesel prices and disruptions to fertiliser supplies could push food prices up in the coming months, particularly as farmers in many countries enter the planting season.

The agency said nearly one-tenth of Malaysia’s diesel supply and about one-fourth of its urea fertiliser supply come from the Persian Gulf, leaving the country exposed to disruptions in the region.

Diesel is used to power agricultural machinery and transport produce, while natural gas is a key feedstock for nitrogen fertilisers.

Higher fuel prices can also raise the cost of processing, refrigerating and distributing food. For Malaysia, the risk is not necessarily an immediate food shortage, but that it could become more expensive to produce and supply food.

These pressures could eventually affect food prices, particularly for lower-income households.

So far, inflation has remained relatively contained in the first eight months of the year, but BIMB Research noted in a report earlier this month that prices of meat, vegetables and eggs had continued to rise, along with the cost of eating out.

Food is a regular household expense that is difficult to avoid.

So even if overall inflation remains manageable, higher prices for everyday items such as meat, eggs and vegetables can still squeeze household budgets.

Other factors could add to the pressure. A weaker ringgit may raise the cost of imported food and agricultural inputs.

El Nino is also expected to strengthen towards the end of this year and into early 2027, bringing the risk of hotter, drier conditions that could affect crop yields.

Headline inflation may not tell the whole story, and the impact may not be immediate.

As BIMB Research noted, higher energy costs can take several months to feed through to consumer prices as businesses draw on existing stocks or absorb some of the increases through lower margins.

Targeted diesel assistance for farmers and smallholders can help ease the burden, but keeping food production viable will require more than short-term relief.

Improving farm productivity, boosting domestic food production and reducing reliance on imported inputs will also be key to making the food supply chain more resilient.