Govt should tread carefully before liberalising rice industry, says report

The whole chain of domestic paddy industry must first be strengthened if there is any move to liberalise the sector


A recent research report warned of the implications of liberalising the import of rice in a fragile midstream ecosystem, the absence of social net to help paddy growers and the ramifications to the country’s stockpile.

A report by Khazanah Research Institute (KRI) revealed that the whole chain of domestic paddy industry must first be strengthened if there is any move to liberalise the sector or to abandon the single importer model.

KRI, in the report titled “The Status of the Paddy and Rice Industry in Malaysia”, said Padiberas Nasional Bhd (Bernas) plays a key caretaker role in the midstream segment which the report suggested that there “is distrust between millers and farmers”.

The report said Bernas is also responsible to take in any excess of paddy produced, known as Buyer of Last Resort (BOLR), at the guaranteed minimum price (GMP) of RM1,200 per tonne to protect the rice growers.

“If private millers refuse to purchase the grains, usually for not meeting the quality standards needed, farmers can sell to Bernas,” said the report which was released last week.

“Besides importing rice from other countries and distributing them to wholesalers, Bernas also procures paddy from local farmers and millers, and then markets them.

“This procurement is not only part of its commercial interest, but also of its social obligations to be the BOLR,” the report said.

The report suggested that Bernas had no choice but to purchase the paddy, irrespective of the quality.

The report also said in the event of no or insufficient private millers in certain paddy planted areas, Bernas still has to carry the same task although at a loss.

“For example, due to the GMP standardisation exercise in 2014, many millers were forced to shut down in Kelantan. As a result, Bernas, due to its social obligation as a BOLR, had to buy paddy from farmers in Kelantan, regardless of the quality.

“The second instance is when the private millers have met their daily drying capacity during peak harvesting seasons. In the past, all these purchases were done based on the market price, above the GMP,” it said.

“Due to the long-standing social obligations of Bernas, the domestic paddy industry must first be strengthened before attempts are made to change Bernas’ role, including its exclusive rights to import rice,” the report said.

Bernas’ monopoly has been in the limelight over suggestion that the government should abolish monopolies in Malaysia, including Bernas’ role as the caretaker of the country’s rice imports.

Certain parties had claimed that Bernas has the monopoly over the sector.

Known as “Single Gate Keeper Mechanism”, Bernas inherited the policy from the government’s National Paddy and Rice Board (LPN) to ensure sufficient supply and prices are capped at a low price.

The KRI report also suggested that high market share does not automatically constitute a monopoly or abuse of dominant power.

“Bernas does not have the power to set the price for rice, which is determined by the government through ceiling prices,” it said, adding that Bernas is also tasked to managing national rice stockpile, which now stands at 150,000 tonnes compared to only 92,000 tonnes prior to 2008 crisis.

“Understanding Bernas’ operations, effectiveness, relevance and effects on the industry is a complex exercise and care is needed when determining policies affecting this company,” the report said.

In 2008, the price of rice rose more than 250% from about US$300 to US$1,000 (RM4,110) per tonne, forcing consumers in many countries to pay higher prices.

However, Malaysians only paid not more than RM3 for every 1kg of rice due to the price mechanism implemented by the government. Bernas had to bear the price difference for rice imports as selling prices are determined by the government.

Industry observers also warned of a possible repeat of the 2008 rice hike and importers’ reluctance to bring the staple food due to the losses to be incurred by these traders, if the single importer model is abandoned.

In 1974, due to the world food crisis, the LPN had been made the sole rice importer and the country’s gatekeeper. The move then is said was due to the reluctance of some importers to import rice due to the high price.