Malaysia Agribusiness Report Q4 2009

Malaysia is in the midst of a recession. BMI is forecasting GDP growth to come in at -3.4% in 2009 as demand for the country's exports fall. Despite the poor state of the overall economy, prices for many key food items have stayed stubbornly high. This has begun to cause friction between producers, traders, consumers and the government.

Consumers have been particularly sensitive to the high price of meat. Prices for chicken and pork rose sharply through the first half of the year and at the time of writing were back up around the level seen at the height of the 'food crisis' of 2008. Both consumer groups and the government have blamed producers for the high prices, complaining that they have continued to go up even after the price of feed had stabilised. Producers have blamed the rises on high demand and continued low profitability in the livestock production sector following the rapid rise in input costs in 2007 and 2008.

The Malaysian government, keen to avoid stoking public anger at a time of heightened political tension, is threatening to get tough on livestock producers if meat prices remain high. The Ministry of Domestic Trade, Co-operatives and Consumerism first attempted to bring together producers and traders in a Committee on Chicken Pricing, but received no interest from producers. The ministry is now threatening to issue import permits for both pork and chicken meat if prices do not come down. This would expose domestic producers to cheaper imports from northern neighbour Thailand as well as further afield.

The trade off between guaranteeing good profits for agricultural producers and keeping food prices low for consumers is one that has to be given careful consideration when decisions on food security are made.

Malaysia is now aiming to increase its self-sufficiency in food production following the food scares of last year. The disbursal of funds and levels of protection given to the agricultural sector will remain high on the agenda over the coming year.

The recession has also impacted the rice market, with the government struggling to deal with a surge in demand for subsidised low-cost rice. The government has been providing millers with subsidies to produce low-grade 15% broken Super Tempatan (ST15) rice. The cheap rice has, however, proved increasingly popular with regular consumers as the recession has hit pockets. This has left the intended low-income recipients often unable to find supplies. As the economy returns to growth next year, consumers are likely to switch back to higher grade rice.