KUALA LUMPUR: An economist has cautioned that implementing targeted subsidies on rice would destroy market dynamics, the retail market, and Malaysia's reputation of fairness towards foreigners.
Malaysia University of Science and Technology's economic professor Geoffrey Williams said providing subsidies to companies instead of targeted cash transfers would benefit companies and cartels the most.
"The problems in rice supply - stemming from the reliance on imported rice, the cartels and anti-competition behaviour - and the affordability problems for low-income groups are mostly due to subsidies to rice providers and sellers. It is companies and cartels that benefit most.
"If you try to sell low-priced rice only to low-income groups or worse, try to exclude foreigners, this will make things worse. Rich Malaysians will simply find ways to buy cheap rice, vendors will sell only the low quality rice cheaply and foreigners will use black market rice or will starve.
"So subsidies to companies destroy the market dynamics as we have now and subsidies to consumers will destroy the retail market and destroy Malaysia's reputation when it comes to fairness for foreigners here," he said.
He added that targeted cash transfers, which are essentially subsidies to incomes, are better than subsidies on products.
Earlier today, Agriculture and Food Security Minister Datuk Seri Mohammad Sabu said the government may introduce targeted subsidies for rice as part of restructuring of the rice industry.
Currently, the country is facing a local white rice shortage in the market.
Williams proposed for the government to work towards breaking up cartels and remove anti-competition behaviour and provide targeted income support through the Central Database Hub (Padu) to help tackle rice affordability among the low-income group.
"Allowing wholesalers and retailers to source rice from wherever they can and sell at best-price options without restrictions and permits is the best option in the short-term.
"Removing rice subsidies could raise rice prices but increasing competition in the market can keep prices lower or keep price rises limited," he said.
He added that long-term structural reforms in agriculture and agribusiness, through reforms of Padiberas Nasional Bhd (Bernas), the Federal Land Development Authority (Felda) and other agencies is essential.
Meanwhile, Putra Business School agricultural economics expert Prof Datuk Dr M Nasir Shamsudin said a targeted subsidy mechanism for vulnerable groups is a good idea, should the government aim to float the rice price similar to the Malaysia Madani rice concept.
He explained that if there's only one type of white rice available, its price would likely mirror that of the current imported rice, making it susceptible to fluctuations based on global market demand.
This means that the price of rice could vary in response to shifts in worldwide supply and demand dynamics.
Due to this, he said there should be a trigger price to implement the targeted subsidies.
"If the price of rice reaches more than the trigger price, then only the targeted subsidy should be implemented, if it's lower than the trigger price, there is no need to apply the subsidy," he said.
However, he said if the government opts against floating the price of rice, implementing a subsidy would not be advisable, given that the price of local white rice remains lower.
Consumers Association of Penang (CAP) senior education officer N.V. Subbarow said implementing targeted subsidies on rice is a very good move as it ensures only needy people would receive the subsidy.
He said this would also encourage more people to register with Padu.