KUALA LUMPUR: Setting ceiling prices for chickens and banning exports of the birds is a "perfect recipe" for inflation and food insecurity, the Centre for Market Education (CME) warned today.
CME chief executive officer Dr Carmelo Ferlito said the measures would worsen the shortage of chickens in the country and force local breeders to abandon domestic production of the birds.
The best way to restore the chicken supply, he said, was to allow market forces to work.
"First and foremost, it is necessary to acknowledge that, in pushing for these measures, the government fails to recognise who is behind the current issues with poultry prices and supply: the government itself.
"In fact, supply chain disruptions were caused by lockdowns (imposed by the government). Those supply chain disruptions created price tensions, while general inflationary pressures have been generated by excessive money creation.
"Lockdowns created a shock both on the supply and the demand sides. With the reopening of the economy and the bettering of the economic conditions, demand started to scale up.
"In this scenario, it is easier for demand than for supply to adapt to the new conditions.
"In fact, during the lockdown, production plants were switched off, machineries were dismantled and workers were laid off.
He said this process of capital destruction was faster than any process of capital creation could be – and capital creation requires positive profit expectations.
"Price tensions created by increasing demand met by insufficient supply are necessary to signal to the supply side that this is the moment to scale up.
"If the market is allowed to work, the price tensions will be resolved quicker, as the supply can recognise and exploit profit opportunities.
"With the scaling up of supply, prices can finally cool down," he said in a statement today.
Chicken prices have been soaring since February and several parts of the country are currently facing severe supply shortage of the birds.
The Domestic Trade and Consumer Affairs Ministry, on Feb 5, set the ceiling price of standard chicken at RM8.90 per kg in Peninsular Malaysia, which will remain in effect until June 5.
Prime Minister Datuk Seri Ismail Sabri Yaakob, on Monday, said the government would temporarily suspend the exports of 3.6 million chickens each month, starting June 1, until the chicken prices and supply stabilises.
The government, he said, had also abolished the need for importers to obtain approved permits (AP) for chicken, including chicken parts, to create more supply chains for the item.
However, Carmelo said only the AP removal could be considered beneficial in the fight against price tensions and to improve food security.
Price ceilings, on the other hand, would hinder suppliers from investing in the necessary process of capital creation and subsequent production.
"With profit expectations domestically frustrated by price ceilings, poultry producers can look at foreign markets to keep on their production in a profitable way.
"But then, the government decides to ban export, further stopping the supply process of scaling up.
"The price tensions will not be resolved. Instead, when the ceiling prices are removed, consumers will be met with high prices again.
"The necessary process of increasing supply is blocked because profit expectations are frustrated.
"Consequently, consumers will get less chicken at even higher prices in the market, as some producers may abandon the market.
"Some of the producers may decide to abandon domestic production and this will lead to unemployment," Carmelo said.