OVER the years, subsidies have been deployed as an economic instrument to manage the price of important consumer items. The subsidised items are mainly those which have direct implication on the price of other consumer items. Fuel, for example, is one item which is often subsidised, not only because the price of fuel influences the price of other items, but also to make it affordable to the poorer segments of society.
A problem with any kind of subsidy is that it tends to be abused. It is natural for business opportunists to make easy money. It explains why all those get-rich-quick schemes never fail to entice many people to join, including even those who have already burnt their fingers in earlier schemes. The easiest kind of subsidy to abuse is the blanket subsidy. Over the years, cooking oil enjoyed a blanket subsidy. Therefore every person, regardless of whether he can afford it, was entitled to buy the subsidised cooking oil. When world palm oil prices remain high, the subsidy makes the local cooking oil affordable to all, but at a cost to the country.
This would be perfectly okay if the sale of such subsidised cooking oil remains within the confines of the country’s borders. The problem starts when the sale moves outside our borders. The cost of subsidy to us automatically goes up. The people who profit are the cooking oil smugglers. The motivation for smuggling is often the attractive price difference. The revelation that a large amount of our subsidised cooking oil is found in a neighbouring country is not new. As long as the subsidy is there, the problem will persist. It is not just our products that are going there, but items which they subsidise are also coming our way. It is the price difference which motivates the practice. In the end both sides lose. Now may be the time for Asean countries to fix the prices of such items in the region. If that happens, there would be no more incentive to smuggle.
The other option is to do away with blanket subsidies. A few consumer groups have suggested using subsidy coupons for the target population. A recent move by the government to limit cooking oil subsidy only to one kg packs may not solve the abuse problem. It will not stop people from repacking the packs into bottles and then selling them at a higher price.
Again, the best option is to remove the subsidy altogether and give the target group food coupons to buy at affordable prices.
Limit the amount of eligibility. The only way this option can fail is if the target group is abusing this privilege!
DR AHMAD IBRAHIM,
Fellow Academy of Sciences Malaysia, UCSI University