IN Malaysia and other countries around the world, the prices of commodities, especially essential goods, have increased to a great extent, leading to a decline in the standard of living. Calls have been made from various quarters to reduce prices so that consumers have more purchasing power.
There are two components to a price. That is the cost of the product and the margin that producers make. When prices rise, it is the result of rising costs or the attempt of producers to increase the profit margin of their goods. The government needs to look at the whole spectrum in the chain to determine the price increase. If prices of goods have increased due to costs, it must investigate which input factors have led to higher costs, which in turn must lead to higher prices, as the costs are borne by consumers.
For example, if the price of vegetables has increased, it could be due to supply factors such as drought or flooding because farmers are unable to produce enough due to a shortage of labour, or an increase in input costs such as the cost of fertilisers.
It is of paramount importance that a serious study is carried out to identify the factors that have triggered a price rise because the right diagnosis of the problem can lead to the right results. If it is a labour shortage, attempts must be made to bring more labour into the sector to address the problem in that sector, or if it is the cost of inputs, attempts must be made to find alternative sources or alternative sources of supply.
The government, in seeking solutions to the problems in each sector, must undertake a holistic study that incorporates valuable inputs from the people in the sector before a final decision is taken.
Reducing the prices of essential commodities in Malaysia requires a combination of economic, regulatory, and policy measures.
Among the factors that have contributed to the recent increase in prices are high inflation, fluctuations in commodity prices, and supply chain disruptions.
Establishing price control mechanisms, especially during times of crisis when there is a sharp increase in prices can help stabilise prices by the government imposing maximum price limits such as during covid-19 pandemic when Malaysia imposed price controls on face masks, sanitizers, and essential medical supplies,
The government can consider providing subsidies to producers and retailers to offset their operational costs allowing them to sell essential goods at lower prices. It can also establish price stabilisation funds to absorb the price stabilisation of key commodities. Malaysia has traditionally subsidised items like cooking oil and flour to keep the prices affordable to consumers.
Malaysia must now fully find ways of increasing its agricultural productivity as this would invariably result in better quality vegetables at lower cost by investing in research and development that would increase domestic production and reduce reliance on imports that are likely to escalate with depreciating ringgit. This must be coupled with sustainable farming practices that would enhance crop yields and reduce production costs.
Malaysia can also negotiate trade agreements that ensure that it receives stable supplies of goods and services at competitive prices. This can be achieved by identifying essential goods crucial for domestic consumption and avoiding over-reliance on goods with one domestic partner to reduce vulnerability to supply chain disruptions.
As an example, Malaysia can reduce its dependence on rice imports from India by engaging in multiple rice-importing countries such as Thailand and Vietnam to keep the price of rice affordable.
The Covid-19 episode must have taught Malaysia a valuable lesson about maintaining strategic stockpiles of essential medical supplies in the event of a pandemic again or collaborating with trading partners to enhance the resilience of supply chains for essential goods through improved transport infrastructure and logistics.
Another area that Malaysia must look to in assisting it in bringing down prices through dismantling of cartels. Cartels are illegal agreements among businesses to fix prices or limit production that can lead to higher prices for consumers and hinder fair competition.
It needs to ensure that competition laws are robust and comprehensive. It must continually address anti-competitive behaviour through the already-in-place Competition Act of 2010.
In addition, it must give the relevant competition authority, such as the Malaysia Competition Commission (MyCC), adequate powers and resources to investigate and prosecute cartels effectively. This includes hiring skilled personnel and providing them with the necessary tools for their work.
Malaysia must also streamline regulations and reduce bureaucracy to encourage entrepreneurship and competition in the retail sector, leading to lower prices. It must also ensure that t regulations are not inhibiting the growth of local industries, making them less competitive.
The government's attempt to keep prices, especially for essential goods would go a long way in ensuring the well-being of its people.
*The writer was formerly attached to a think tank. The views expressed in this article are the author's own and do not necessarily reflect those of Business Times.