PRICE CONTROLS NOT EFFICIENT
IN response to the rise in chicken prices, the government has implemented price controls to regulate the maximum purchase price, with the maximum price of poultry meat capped at RM7.90 per kg at the retail level.
Failure to adhere to these regulations will result in charges of profiteering and a fine of up to RM100,000, and a possible jail sentence of up to three years.
Despite price controls, history tells us that these measures are effective only in the immediate short term and will produce inefficiency in the medium and long terms.
A prolonged period of price control will disrupt the efficiency of the supply chain, where price signals fail to encourage production at the producer level, thus keeping supply noncommensurate with market demand.
Moreover, it acts as a signal for producers to cut production if the cost per chicken is higher than its allowed selling price.
In addition, this control gives incentive to delay shipments and the hoarding of supplies until after these measures are lifted, resulting in shortages in the near term.
Making matters worse, once supplies are used up, there is always the possibility of a black market forming.
Even more problematic, price controls leave honest wholesalers with smaller margins, resulting in lower market coverage and a reluctance to supply retailers.
According to wholesalers, due to the higher costs faced in procuring broiler chickens, some endure a loss of RM1 for every chicken sold, forcing them to either limit their selling or renegotiate trading terms with poultry farmers.
Therefore, instead of a strict singleprice control, authorities could opt for a regulated profit margin for each player in the supply chain.
This would allow price mechanisms to function as intended and allow market players to remain profitable.
As it may not be possible to inspect all players, a secure complaint hotline may be established where investigations can be performed as needed.
In addition, authorities should limit the hoarding of poultry supply to the market by invoking section 21 of the Price Control and Anti-Profiteering Act 2011, requesting documents and statistics relating to the supply and storage of goods to ensure that supplies are not restricted without valid reason.
In the long term, efforts should be made to produce a bi-weekly list of prices in urban and rural areas that detail the highest, lowest, average and median prices of such goods in the supply chain, from the farmer to the retailer.
Moreover, a long-term plan should include a ministerial audit into the poultry industry, including qualitative interviews with farmer, wholesaler and retailer groups to determine the extent of anti-competitive behaviour in the industry, while taking action against unscrupulous market players and promoting market competition.
Lastly, at the federal level, the government should ensure an adequate supply of livestock feed.
In this regard, a government allocated fund could be established to subsidise farmers in times of high international price inflation.
This fund should be tapped only during times of distress amid sharp increases in international prices and not be abused to stockpile animal feed in anticipation of higher resale prices.
While price controls are necessary in the immediate term, they are nonetheless powerless to stop inefficiencies from occurring, being only a temporary solution to a larger problem.
Ultimately, the role of the government is to balance the needs of the market and consumers, ensuring that no one is left behind. QARREM KASSIM
Senior economist
Institute of Strategic Analysis and Policy Research (Insap)