The misunderstood Bernas and rice monopoly?

by AFIQ AZIZ / pic by BERNAMA

In 2008, food prices spiked to unprecedented levels, sending shivers throughout the globe — especially in the poor and underdeveloped countries. Prices of grains rose multifold, putting the world on a brink of another food crisis last witnessed in 1973 to 1975.

According to figures, the cereal price index reached a peak of 2.8 times higher in 2008 compared to 2000. Prices of food commodities like rice, corn, wheat and soybeans shot through the roof as the world also witnessed the global financial crisis unfolding in developed countries.

As rice, corn, wheat and soybeans were the staple food for billions of people and accounted for a substantial amount of expenditures among the poor, the food crisis of 2008 triggered riots, social tensions and unrests in over 30 countries, especially in poor and underdeveloped nations.

It was estimated that about 150 million of people were left on the brink of hunger. Rice, which is the staple food for billions of people in Asia, was not spared from the crisis.

The price of rice jumped to about US$1,000 (RM4,130) a tonne in May 2008 compared to about US$220 in early 2004, more than a 450% increase.

Countries in Asia were the main producers of rice, however, they too struggled to ensure sufficient supplies for their people. Rice export restrictions were imposed to protect supplies to domestic markets.

The move further fuelled the price hike of rice. Food-importing countries scrambled to find supplies to prevent social unrests. Major rice exporters like India and Vietnam had banned exports. Panic-buying by countries like the Philippines, one of the world’s largest rice importers, had exacerbated the situation, driving the price higher.

Panic swept across Asia after the dire situation in the Philippines and consumers scrambled to empty shelves and stocks at rice retailers in many countries.

But a majority of Malaysians did not realise that the world was facing a food crisis.

“Malaysians just went to any shop and continued to purchase rice at a subsidised price. They didn’t even realise that there was a food crisis and rice shortage globally,” said an industry insider.

Malaysia is among the few countries that had circumvented the full impact of the price hike and supply shortage, despite it was an importer of the staple food. Consumers were paying no more than RM3 for 1kg of rice, although the price of the staple food had tripled.

The “Single Gatekeeping Mechanism” (SGM), which has Padiberas Nasional Bhd (Bernas) as the guardian of the country’s rice management, prevented the food crisis in Malaysia.

According to reports, the rice concession company incurred losses of more than RM70 million during the 20082009 crisis due to higher import prices, while keeping transacted prices at the lower end.

Bernas was the evolution of Lembaga Padi dan Beras Negara (LPN) which was established in 1971.

The setting up of LPN was to ensure the availability of rice at an affordable price and guarantee the wellbeing of farmers. There are almost 200,000 local farmers who depend on the crop for their livelihood.

LPN was given the sole right to manage the country’s rice supply after the 1973 rice crisis. The crisis which was triggered by a large-scale El Nino event sharply reduced the dry season crop throughout South-East Asia, especially in Indonesia, Thailand and the Philippines.

Thailand, the world’s leading rice exporter, at that time banned rice export altogether, triggering a panic across the region.

On the other hand, local rice importers declined to import the staple commodity due to high prices, leading to a rice shortage in the country.

Following the incident, the government entrusted LPN to be the sole guardian of the country’s rice sector.

In return, LPN must ensure that the farmer’s wellbeing is taken care of, the prices of imported rice are not lower than local rice and ensure market stability.

Under the SGM, Bernas will have to import rice regardless of international price volatility and complement the shortage of local production which is short by 30% to 40%.

Bernas today plays many roles in the post-harvest chain from the procurement and processing of paddy, importation, warehousing, and to the distribution and marketing of rice in Malaysia.

It is also the buyer of last resort (BOLR) where the company has no choice but to purchase paddy irrespective of the quality at a guaranteed price.

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

In the report by Khazanah Research Institute (KRI) titled “The Status of the Paddy and Rice Industry in Malaysia”, Malaysia consumed 80kg of rice per person in 2016, which is about 26% of the total caloric intake per day, costing an average of RM44/month per household.

Households in Sabah spent the most on rice at RM73/ month, while households in Perlis spent the least at just RM13/month, the report said.

The report said Malaysians consumed 2.7 million metric tonnes of rice, whereby 67% was produced locally and the rest imported primarily from Thailand, Vietnam and Pakistan.

In the last few months, Bernas’ monopoly of the rice and paddy sector has been under scrutiny. There are suggestions that the government should abolish monopolies in Malaysia, including Bernas’ role as the caretaker of the country’s rice imports.

Bernas denied the claims, saying that it has both national and social responsibilities to ensure prices are kept low and the produce of 200,000 paddy growers are protected under the BOLR.

The KRI report said Bernas is responsible to take in any excess of paddy produced under the BOLR at the guaranteed minimum price of RM1,200 per tonne.

Bernas operates 28 mills from a total of about 180 mills across the country, with purchases of over 500,000 tonnes of local harvest including under the BOLR. The other 152 private mills purchase around 1.2 million tonnes of yields, largely quality grain.

Agriculture and Agrobased Industry Minister Datuk Salahuddin Ayub said the government will try to convince Bernas to accept its “soft landing” proposal by appointing a few rice importers before 2021.

However, the viability of the new system in safeguarding the Malaysian staple food is still unclear. Salahuddin is also mulling the re-establishment of LPN, where all the industry stakeholders will be put under one umbrella.

Based on the LPN financial report, on average, the government subsidised the body around RM54.8 million per annum or a total of RM1.26 billion from 1972 to 1994.

It is not known if the government will be willing to spend the millions of ringgit to form the new LPN.

Presently, paddy farmers are already subsidised to the tune of about RM1.7 billion in 2017 and any additional expenses will weigh on the government’s already thin budget.

There are also arguments that surrendering the SGM will open the country’s risk to a food security issue again, similar to the event in the 1970s where importers declined to import the grain in the event of high prices.

“It somehow would be challenging for the government to strike a balance between the 200,000 rice growers’ wellbeing, while maintaining the low prices of rice and its availability across the state in the country,” said an industry player.

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

“Bernas does not have the power to set the prices for rice, which are determined by the government through ceiling prices,” said the research institute. Bernas, said KRI, is also tasked to managing the national rice stockpile, which now stands at 150,000 tonnes compared to only 92,000 tonnes prior to the 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.

“The issue goes beyond the monopoly and commercial value.

“Other companies can seek Approval Permits to import, but they must share the social responsibilities like the BOLR, ensuring food security, assis-ting paddy growers and importing at a loss when prices are high,” said the industry insider.