JAN 22 — Given the situation that the Cabinet is unable to return fuel, electricity tariff and sugar to their original price levels, it has instructed ministers to walk into the day-to-day lives of the public to identify the factors that have caused the excessive price hikes in the market. But, will our ministers be able to see the root cause of the problem and come up with the right solution?

And for how long will the heavy-handed raids last?

Compared to our incomes, prices of many goods and services have indeed soared way too high thanks to the distorted market mechanism.

The government started subsidising essential items with oil revenue during the early years of nationhood as people were living in difficulty back then. At the same time, the government allowed government-linked companies and those with favourable political backgrounds to monopolise public utilities such as water and electricity supply, telecommunication, transport, waste disposal, etc. and managed to keep the prices low by way of subsidies. Meanwhile, the government also implemented protective measures to help support bumiputra companies.

Such a subsidy-based economic model has successfully kept living costs low but because of long-term regulation and intervention, market mechanism has gone out of tune.

With fuel prices and electricity tariff rising, minimum wage scheme and a depreciating ringgit, businesses have scrambled to mark up their selling prices to deal with the issue instead of implementing more effective cost-cutting strategies. All this could be blamed on the comfort zone these businesses have enjoyed over the decades.

Monopoly in public utilities means lower efficiency and management level on the part of these companies. Take Tenaga Nasional for example, it made a net profit of RM4.614 billion in fiscal year 2013, and with higher electricity tariff now, it is anticipated to rake in RM4.9 billion of net profit his year, and RM5.5bn over the next two years. But why is such a profitable company unable to share the burden of the government’s subsidy rationalisation programme?

Things will not be the same if we have a second power supply company.

In a similar manner, the rigid telecommunication industry means we are paying more for an Internet service that is way slower than in many other countries.

Rice and sugar imports are also monopolised. Even as the government abolished the sugar subsidy recently, retail prices of white sugar will still be 72 per cent higher than international sugar prices because of a 3-year supply contract the government has signed. But as the government bought in sugar at a rate 10 per cent higher than market prices, it had to incur some RM64 million in financial losses annually.

The white sugar market is anticipated to be in an oversupply next year, but Malaysians will continue to pay dearly for this commodity.

In the meantime the government has allowed Bernas to continue monopolising the entire rice import market.

Protective policies are detrimental to consumer interests. For example under the 2014 National Automotive Policy, the government will only be able to progressively reduce the prices of cars by way of “localisation.” It is yet to be seen whether such a measure will effectively lower vehicle prices by 20 per cent to 30 per cent over the next four years as pledged before the general elections.

Where food security is concerned, we lack clear and distinctive policies. While the government has reiterated the importance of self-sufficiency, the country’s food imports have soared from RM10 billion in 1998 to RM30 billion in 2010.

The government has provided a great deal of subsidies for rice farmers in the form of padi seed. fertilizers and agrochemicals. Unfortunately the average yield remains at a pathetic 3.8 tonnes per hectare, far below the 10-tonne target. In addition, many agricultural raw materials need to be imported, resulting in increased food expenditure.

Do our ministers see the discrepancies in the above systems, policies and market mechanisms? I don’t think so. Minister of agriculture and agro-based industry Datuk Seri Ismail Sabri Yaakob has declared to wage a “holy war” against the middlemen this year, while federal territories minister Tengku Adnan Tengku Mansor claimed some pro-Pakatan middlemen have attempted to bring up the prices just to make people hate the BN government.

How is the government going to ensure that goods are sent to the producers and retailers as soon as they have arrived at the port or airport? Will government intervention give rise to more monopoly? It will take time to construct a comprehensive supply chain.

I personally support the domestic trade, cooperatives and consumerism ministry’s initiatives to provide low-priced items to consumers but this should not been done with the old subsidy approach. For example the government has spent RM87 million to set up 57 Kedai 1Malaysia outlets throughout the country. This effort will not pay off if the treasury is dry.

To address the issue of price hikes, we should go into the economic root of it instead of tackling it the political way.

* This is the personal opinion of the writer or publication and does not necessarily represent the views of The Malay Mail Online.