As the debate on the price of goods takes on an increasingly racial
tone with calls to certain businesses, there is some good news from vegetable
wholesalers – the price of leafy greens is set to drop this week to a fraction
of what it was a month ago.
According to the Vegetable Wholesalers Association (VWA),
leafy vegetables such as kangkung, sawi (mustard leaves), spinach, and bok choy
(Chinese cabbage) will go for as low as RM1 per kg.
A month ago, they were going for as high as RM8 a packet
even in working-class neighbourhood supermarkets.
But the fall in prices for
vegetables is not likely to satisfy those who believe that low fuel prices
automatically means lower grocery bills, and that if it does not, it means
businesses are profiteering.
The agriculture and agro-based industries minister had
earlier last week urged Malays to boycott errant Chinese traders on his
Facebook page.
Ismail had courted controversy after he posted the
remark in relation to prices of goods that have not gone down despite the drop
in petrol and diesel prices.
Ismail said Malay consumers had a role in helping the
government fight profiteers by using their collective power to lower the prices
of goods.
VWA secretary Chong Tek Keong said the fall in prices of
vegetables was mostly due to the weather.
The prolonged rainy season led to low harvests and prices
went up. As the weather improved, farmers all over the country are harvesting
their crops all at once and now there is a glut.
This illustrates how there are more complex factors that
determine the price of goods than just the price of oil and that high prices
cannot simply be blamed on race and profiteering.
Combination of factors
The debate on whether low oil prices was going to be good
for the country started late last year as they began steadily falling from
US$60 (RM216) per barrel in November.
Even then one of the country’s think-tanks, the Malaysian
Institute of Economic Research, said that it was difficult to predict whether
low fuel prices would result in a net benefit.
This is because there are other factors in the production
chain that affect the final price consumers pay at the store counter.
One big factor that came with low oil prices was a weak
ringgit, which meant that manufacturers and suppliers would need to pay more
for imported raw materials and goods.
Today, the ringgit was trading at RM3.56 to the US dollar. A
few weeks ago it had fallen to about RM3.60 to the greenback, its lowest in six
years.
The ringgit’s value, said Federation of Malaysian Consumers
Association (Fomca) chief executive Datuk Paul Selvaraj, was a big determinant
in final store prices.
“Most of our food is imported. I asked a retailer how much
of his goods are imported. He laughed and said how much is left that is local?”
said Selavaj, when describing one of the groups’ surveys among retailers.
“Import costs are a big factor. What a retailer gets today
from the importer goes directly to the shelves,” said Selvaraj.
Chong estimates that 30% of the country’s produce has to be
imported and the figure rises every year.
In a brief email, the Federation of Malaysian Manufacturers
(FMM) also said the ringgit’s depreciation had caused the cost of raw materials
such as milk solids and meat to increase sharply.
Another factor is the price of electricity, which has not
come down even though the price of fuels for power generation – natural gas,
liquefied natural gas and coal – has fallen.
Lembah Pantai MP Nurul Izzah Anwar said when Tenaga Nasional
Berhad raised tariffs by 15% in January last year, natural gas was RM13.70 to
RM15.20 per MMBtu, coal was US$85-87.5 per tonne and LNG was RM41.68/MMBtu.
Coal, she said has come down to US$67 per tonne while the
prices of gas and LNG have come down in parallel with the price of crude oil.
And then there are also unequal market conditions, such as
monopolies for certain goods and materials.
Licensing restrictions to import can create monopolies, said
Selvaraj. This could lead to price fixing among those involved in the monopoly.
According to the International Trade and Industry Ministry’s
(Miti) website, there are more than 30 items which required an import licence.
The list includes rice, sugar, wheat flour, milk, steel and
iron products, cars, motorcycles, construction machinery and helmets.
Miti’s website states some reasons a permit is needed for
these materials. They include the need to protect the interests of local
manufacturers, public health and local plant life.
“Retailers say they can offer cheaper prices if there was
more freedom to bring in goods,” said Selvaraj.
He said the government has to create a more liberated and
open market as that would drive up competition.
“More competition would force entrepreneurs to work harder
to bring in cheaper products to attract more consumers.”
Oil still matters, a lot
But even with the fact that the production supply chain is
ruled by numerous factors, the effect of low fuel prices should not be
overlooked.
Petrol, said Selvaraj, was still considered a high
multiplier, when it came to calculating the consumer price index, a metric used
to measure inflation.
“It is a significant component. We feel that a drop in fuel
prices warrants a general decrease in prices. Businesses have always used the
excuse of high fuel prices to raise the price of goods.”
When there is little response from producers on why there is
not even a small drop in prices when fuel costs go down, it breeds suspicions
that they are profiteering.
This is seen in the numerous groups that came out to support
of Ismail’s statement for Malays to boycott Chinese businesses.
In a February 4 report in Utusan Online, some of these
groups even claimed that prices have even gone up even while petrol is now RM
1.70 a litre.
One commentator, Irwan Fahmi Ideris of Malay supremacist
group Perkasa, said the price of a “kopi O ais” was more than a litre of
petrol.
When The Malaysian Insider asked the FMM, whose members included
food and consumer goods manufacturers, to respond to allegations of
profiteering, this is its response: “There are many elements/variables
affecting price increase/reduction of manufactured goods.
“The entire supply chain has to be factored in, from the
cost of raw materials, energy, logistics, packaging, financing, to foreign
exchange rates.
“However, our members will always explore all avenues to
manage costs for optimum production and improve productivity and we are
committed to pass on cost savings to customers by way of price reduction where
feasible.” – February 9, 2015.
