Rising food prices are not only affecting the purchasing power and income of the M40 and struggling B40 communities in Malaysia, it is also aggravating a food security crisis, according to an article produced by Emir Research, an independent think tank focused on strategic policy recommendations based on rigorous research.
The think tank observed that while we should be steadily recovering from the economic impact of pandemic lockdowns now as we enter the endemic phase, food price inflation is still negatively impacting household and private sector spending.
Households and the private sector would need to increase savings to cope with unexpected circumstances as we live in a world rife with uncertainty and externally-driven interrelated factors. Emir Research researcher author of the article, Amanda Yeo, shares some factors that escalate food price inflation.
Factors that magnify food price inflation
One factor is the introduction of the RM1,500 monthly minimum wage rate. Producers that operate farms may be forced to reduce the number of local workers hired in order to cut operational costs.
Also, the current difficulty in employing foreign workers aggravates the labour shortage problem that companies are facing. The reduction in the number of workers could result in reduced production levels resulting in decreased supplies, which cause price increases.
Although pandemic movement controls and restrictions are no longer an issue, supply-chain disruptions still persist externally. Obstacles and blocks in certain major ports abroad and their domestic counterparts are still causing logistical congestion.
All of these factors add to the price hikes and intensify inflation pressures, which do not help Malaysia's already weak food security situation.
Malaysia’s Food Security Status At Crisis Level
While our country is abundant in natural resources, such as agricultural land, our self-sufficiency ratio (SSR) has been declining and shrinking due to an over-reliance on imported food.
According to the Supply & Utilisation Accounts Selected Agricultural Commodities 2016-2020 report from the Department of Statistics Malaysia (DOSM), the lockdown measures resulted in fewer food commodities recording SSRs at 100 percent in 2020.
In 2020, just 19 food items had an SSR of 100 percent, compared to 25 in 2019.
Mutton (9.6%), ginger (18.9%), mango (20.2%), beef (22.2%), chilli (30.9%), round cabbage (37.5%), fresh milk (65.0%), rice (63.0%), coconut (66.6%), sweet potato (75.6%), and sardine (75.6%) are among the foods with less than 100 percent SSR (80.7 percent ).
Malaysia imported RM55.5 billion in food items in 2020, compared to RM33.8 billion in exports, resulting in an RM21.7 billion deficit. This shows a disturbing trend which is not improving, as Malaysia's food imports have totaled RM482.8 billion over the last decade, while exports have totaled RM296 billion.
The severe floods in several states such as Kelantan, Terengganu, Pahang, Perak, Negeri Sembilan, Melaka, Kuala Lumpur, and Selangor, a result of climate change further caused bigger losses in the agriculture and food industry. Heavy and unexpected downpours, at the end of 2021 and early 2022 affected around 5,000 animal breeders and farmers , resulting in agro-food losses of nearly RM67.72 million.
Malaysia was rated 39th on the Economist Intelligence Unit's latest Global Food Security Index (GFSI) 2021, very far behind the UK (3rd), Finland (4th), Netherlands (6th), Japan (8th), United States (9th), Singapore (15th), Qatar (24th), and Kuwait (30th).
Eventhough we improved from a score of 68 in 2020 to 70.1 in 2021, Malaysia still ranked poorly in the "availability" and "natural resources and resilience" aspects, with scores of 64.0 and 46.6, respectively. Malaysia received 85.6 and 76.3 points for the last two criteria, "affordability" and "quality and safety," respectively.
These indicators point to Malaysia's long-standing structural issues related to import dependency and food-related balance of payment (BOP) deficits.
With the ongoing Russia-Ukraine crisis and our declining currency, our BOP deficit is increasing by markups from cost-push inflation, which worsens the cost of doing business and living.
According to the United Nations' COMTRADE database on international commerce, Russia is Malaysia's third largest trading partner for "mineral or chemical fertilisers, phosphatic" imports, worth USD4.77 million and accounting for 16.2 percent of the total. Western sanctions on Russia have resulted in a global shortage of fertilisers, driving up the cost of animal feed and crops in Malaysia.
In order to compensate for the increased cost of feeding components such as corn, soybeans, and wheat, local animal breeders and farmers have to charge retailers/consumers higher selling prices, in addition to the minimum wage increase of RM300 per month per employee beginning 1 May 2022 onwards.
This blog post is based on the research and article by Amanda Yeo of Emir Research.
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