Why is our food so costly? Market structure creates food monopoly, says expert

The rising cost of food instantly becomes the overbearing central theme, whenever the topic of 'cost of living' crops up.

Whether at a high-level meeting among policymakers, researchers or small and medium-sized entrepreneurs, this subject of rising cost of food is inevitable.

Not just that, any regular Ali, Ravi and Ah Chongs have resigned to the fact that their plates of noodles and kopi O' have become so costly, these days.

In a nutshell, 'mamak' or 'nasi kandar' restaurants have become the benchmark of how consumers measure the hike in food price.

With the recent revelation by Khazanah Research Institute (KRI) on the ever-decreasing value of consumers' purchasing power -- propelled by stagnant wage growth and inflation -- it would be inappropriate not to seek a proper explanation for this upward trend.

According to the Head of Agriculture and Food Policy Laboratory at Universiti Putra Malaysia, Dr Mohd Yusof Saari, the real 'culprit' lies in the form of structural inconsistency and weakness in the market.

Market structure, he said has created monopoly among big firms, for some their daily dosage of teh tarik, is a thing of the past.

"To be exact, the real problem with our market structure is monopoly. For instance, when it comes to food, small and medium-sized food enterprises depend on a small number of big firms for their fresh produce and ingredients.

"And these big firms are controlling the retail trade, including wholesale, which is a big component in the industry's value chain. There is definitely no synergy in there.

"When these few big firms determine the price of goods, they also have control over the amount of supply in the market, which explains why Malaysia sometimes experience shortage of particular food items," he added.

He also said that the government can intervene, if it wants to, through a market-based approach.

"There is actually no need for the government to subsidise food items anymore. All they have to do is liberalise the market. For instance, if there are four main companies who import flour into the country, the government should allow liberalisation of the market for SMEs have the chance to import, too.

"When the market is liberalised, it becomes competitive and the price of goods will go down automatically without the government having to spend anything. What's happening in the market now is the direct impact of monopoly and it is constantly pushing the SMEs into a corner," he explained.

When it come to the discussion on food price increase, Yusof said that any average Joes are caught in a web of misconception that puts the blame on the implementation of the Goods and Services Tax (GST).

"When it was calculated on paper, the implementation of GST was supposed to cause a slight decrease in the price of goods but instead the price went up and at some instances, ridiculously so.

"That is the effect of a weak and problematic market structure. Aside from the fact that it is hampering good policies from doing its job to help the people, it allows for abuse and misinterpretation," he said.

On the economical side, the cost of production and import capabilities was maimed by the devaluation of the Malaysian Ringgit caused by the plummeting price of crude oil globally.

Yusof said other inflationary factors, including the implementation of GST and minimum wage in April, 2015 that shook domestic economy to the extent that producers were forced to turn to consumers to absorb the added costs.

He opined that the establishment of Malaysian Competition Commission (MCC) (2011) and the Competition Act in 2010, further aggravated the effects brought about by the weakening market structure.

"We seemed to aspire towards market liberalisation by decreasing certain subsidies. But, we still have exceptions for certain industries (electricity, communication and F&B) that are controlled by monopoly. This policy mismatch is further distressing the SMEs industry.

"Even though the increase of price is comparatively normal at 3.4 per cent per year, consumers still feel the pinch because wage is not growing at the speed of inflation, especially in the urban area.

"What's truly intriguing is that the International Monetary Fund (IMF) estimated a decrease in the price of food for 2016 because of the crude oil prices but this trend was not observed in Malaysia. The cost of energy was supposed to be cheaper because the cost of production is much lesser but it didn't happen," he said.

He concluded that the outlook for 2016 look gloomy with the price of food expected to experience an increase 'higher than normal'.