KUALA LUMPUR – In September, amid a shortage of white rice in Malaysia, rice mill operator and wholesaler Allen Lim started receiving calls from supermarkets asking for additional supplies, but he had to turn them down.

Mr Lim said his company, PLS Marketing, simply could not afford to process and package more rice because the government’s years-long price control measures have eroded profit margins and prevented farmers and manufacturers from expanding capacity.

While the retail price cap of RM2.60 (75 Singapore cents) per kg for locally made white rice has been in place since 2008, the tension between a government policy aimed at helping consumers cope with inflation and an industry unable to supply rice at uneconomic prices has reached breaking point.

The situation has become acute in recent months due to shortages of rice in Malaysia after top exporter India restricted some shipments in July, sending global prices skyrocketing.

With the price of imported rice jumping sharply, demand for the low-cost domestic grain has increased significantly.

Yet, industry players say they are unable to raise production unless they can earn more to cover the sharply rising costs of fertilisers, pesticides, equipment, logistics and labour.

“The market price should be increased so that farmers can survive,” Mr Lim said. “Even millers cannot survive (at this price). For the past seven years, many have started experiencing losses.”

Many millers have shut down because banks will not lend money to unprofitable businesses, Mr Lim said.

The government, which fears that lower domestic output will increase reliance on more expensive imports, has acknowledged the issue, but the industry frets that little has been done to resolve the problem.

In a recent interview with Reuters, Deputy Minister of Agriculture and Food Security Chan Foong Hin said Malaysia is likely to see another output decline in 2023 due to the El Nino weather phenomenon and stagnant production.

Production fell 6.7 per cent between 2013 and 2021, while imports in 2023 are expected to increase 6 per cent from 2022, according to data from Malaysia’s government and the United Nations’ Food and Agriculture Organisation.

Mr Chan said the ceiling price for rice should be reviewed to encourage producers to boost output and quality, as well as ensure long-term food security in Malaysia, which relies on local production for 62 per cent of its needs.

But the government has no immediate plans to raise the price cap, citing a need to protect consumers amid rising inflation.

While overall inflation has been largely kept in check by government subsidies and price control measures, food prices have risen at faster rates, averaging at about 5.5 per cent in 2023.

“At the end of the day, when you want people to produce more… you will need to make sure that agriculture is a profitable business,” Mr Chan said.

“But at the same time… we need to have certain mitigation steps we can take in order to make sure the food price is always affordable.”

Malaysia has taken other measures to address domestic shortages, including raising subsidies for padi farmers and increasing scrutiny of the rice supply chain.

In October, the government lifted the minimum price of padi – last reviewed in 2014 – from RM1,200 per tonne to RM1,300 per tonne to boost support for farmers.

But, for many, the measures are not enough.

About 70 per cent of padi farmers in Malaysia’s main rice-producing state Kedah are in debt, and the new measures are barely keeping them afloat, said Mr Mohamad Rafirdaus Abu Bakar of Pesawah, a Kedah-based farming group.

The government price controls have created a distortionary effect, said Dr Sarena Che Omar, deputy director of research at public policy think-tank Khazanah Research Institute.

“The price floor and price ceiling squeeze the middle segment, and something’s got to give,” she said.

“You can’t please everybody.” REUTERS