KUALA LUMPUR: Unfavourable foreign exchange rate, especially the ringgit against the US dollar, is the primary cause for the sudden surge in egg prices, one of the country’s leading egg producers said.
Lay Hong Bhd group executive director Datuk Yap Chor How said chicken feed constituted 70 per cent to 80 per cent of the company's production costs.
Purchases of the chicken feed were commonly done in the dollar, he added.
"Hence, the weakening ringgit and the spike in raw materials price like corn and soy have contributed to the substantial rise in production cost.
"With suppliers passing the higher cost to the consumers, the egg prices have increased as a result," Yap told NST Business.
Bloomberg reported that egg prices had jumped almost 30 per cent in just one week, climbing as high as RM5.11 for a crate of 10 eggs this month compared to RM3.98 a week earlier.
Average prices in Malaysia are currently about RM4 for 10 eggs.
In reply, Domestic Trade and Consumer Affairs Minister Saifuddin Nasution Ismail said the ministry was looking across the supply chain to determine whether collusion or cartels artificially had boosted prices.
Agriculture and Agro-Based Industry Minister Datuk Seri Salahuddin Ayub said egg prices were expected to stabilise from Monday onwards, whereby price of various grades of chicken eggs will come down by two sen.
This follows an agreement with the Federation Of Livestock Farmers Associations Of Malaysia (FLFAM) last Friday on the matter.
To a question on the possibility of cartels and syndicates intentionally boosting prices, Yap begged to defer.
He said eggs were fresh commodities, and it ws not possible for the producers to hoard the eggs in order to artificially boost the prices.
"Eggs have to be collected and delivered on a daily basis. Also, the Domestic Trade and Consumer Affairs Ministry is actively monitoring the market for any unwanted collusion activities, especially with regard to food items.
"Hence, it is unlikely for such cartels or syndicates to drive the egg price higher," he said.
Yap said Malaysians should view the increase in egg prices as a market recovery.
He pointed that from April to July, egg prices had been very soft, causing egg producers like Lay Hong to sell at below their production costs.
"Thus, the recent change in egg prices marks the recovery to a normal, acceptable price level for the producers. Short-term adjustments are perfectly normal," he said.
As an integrated livestock farming company, Lay Hong’s core business activities are in the mass production of specialty chicken eggs, liquid eggs, chilled and frozen dressed chicken, chicken parts and processed related chicken products such as frankfurters, nuggets, and fried chicken.
In June this year, the company allocated RM39 million in capital expenditure (capex) for the year ending March 31, 2019 (FY19) to increase broiler production.
It also plans to increase broiler production capacity to two million birds monthly from the current 1.2 million.
Commenting on the plans by the government, together with the Department of Veterinary Services, to set a ceiling price after discussions with producers, Yap said the move was both good and bad.
"The rakyat will benefit given the lower egg prices. However, on the other hand, this will create a non-free market for producers like us.
"Commodities like eggs should be transacted in a free market and should be based purely on supply and demand. With the existence of price ceiling, this may take away the incentive for producers to increase their supply and it will cause shortages in the market," Yap said.
Hence, there would be a mismatch of supply and demand and this could force the prices to go up again eventually.
"Only a free market mechanism will benefit both producers and consumers over the long run," he added.