KUALA LUMPUR: Malaysian sugar producers may have difficulties in the months ahead as a result of rising energy, raw material, and transportation costs as well as supply shortages brought on by producing nations giving priority to their home markets.
Dr. Yeah Kim Leng, an economics professor at Sunway University, highlighted that manufacturers in the country may encounter heightened financial pressures, compelled to sell at the prevailing regulated sugar price amidst the sudden surge in raw sugar costs and other production expenses.
Given that Malaysia's sugar sector heavily relies on imported raw sugar, stakeholders must brace themselves for disruptions in the global sugar market.
As companies await government intervention and consumers' willingness to accept prices closer to market rates, Dr. Yeah emphasised the necessity for firms to stockpile adequately, diversify their sources of raw sugar imports, and enhance productivity and production efficiency.
Furthermore, Yeah attributed Malaysia's comparatively low retail sugar prices among ASEAN nations and globally to government price regulations.
"To some extent, cross-subsidies from exports based on prevailing world market prices have also allowed the sugar producers to remain profitable until the recent sharp increase in world raw sugar prices caused by global production shortfalls, higher energy and freight costs, supply chain disruptions, and currency weakening that raises import costs," Yeah added.
Additionally, Yeah observed that sugar producers have been absorbing the losses since the government stopped sugar subsidies.
"Consumers have benefited from the low sugar price in terms of lower expenditure for sugar consumption as well as lower overall inflation, given that sugar is a key input in the food and beverage industries.
"The government would need to consider either subsidising the producers or consumers to maintain the current price level or raising the administered sugar price to avoid a collapse of the distressed sugar producers," he told the Business Times.
He emphasised that consumers will need to brace for higher sugar prices which, from a health perspective, is desirable to reduce excessive sugar consumption.
"Sugar subsidies are considered regressive given the medically-proven adverse effects of high sugar consumption on health over the long term," said the professor.
Meanwhile, UniKL Business School economic analyst associate professor Dr. Aimi Zulhazmi Abdul Rashid noted that the retail price of sugar in Malaysia is the most affordable in the region, despite the irony of being lower than that of Thailand and the Philippines, from which Malaysia imports raw sugar.
"All two companies with five factories in Malaysia have a maximum capacity of three million MT a year but produce less than the capacity due to the loss of almost RM1 per kg.
"The retail price is RM2.85 whereas the operational cost is around RM3.85, which leads to below-capacity production pending government subsidies to the manufacturers," he told Business Times.
He also mentioned that this situation could potentially result in the misuse of sugar subsidies by the industrial sector and, notably, by smugglers transporting sugar to neighbouring countries in the region.
"Floating the sugar price will ease the situation in the market but negatively impact the food industry supply chain as sugar is among the crucial basic ingredients, causing an escalation of food prices.
"Even the sugar tax imposed a few years ago was unable to deter the amount of sugar consumption," Dr. Aimi continued.
The economic analyst stated that Malaysia relies entirely on imported raw sugar and no longer engages in domestic sugar production, with Brazil, Thailand, and the Philippines being among the key exporters to Malaysia.
"Hence, any disruption to the global supply chain will significantly impact the sugar price in Malaysia; however, the impact is almost fully absorbed by the government subsidy," he added.
Dr. Aimi expressed concern about Malaysia's food security, highlighting the country's high vulnerability and dependence on imported sugar from overseas.
"Maybe there is a need for a strategic plan to keep sufficient inventory," he said.
Singapore Institute of International Affairs senior fellow Dr. Oh Ei Sun suggested that subsidies and price controls for cash crops might not be the most efficient measures in today's globalised world.
"The priorities should be finding viable markets for Malaysian sugar, failing which the growers should be encouraged to explore other food crops in order to build up the food resilience of the country," he added.