On the Beat | By Wong Chun Wai

Pampered lives and price hikes

JUST carry out a simple survey among your family members and friends – they are probably not aware that our cooking oil is subsidised.  

The price of cooking oil in Malaysia is RM2.50 per kg and we would assume that the price would be in the same range in the neighbouring countries.  

In Thailand, cooking oil costs between RM3.20 and RM5.80 per kg and in Singapore, it is RM6.50 per kg.  

Our price is pegged low because the Government dished out RM800mil in subsidies last year alone.  

Even flour is subsidised, as are some essential items in education, housing and agriculture – totalling RM5bil.  

And that’s not even taking the fuel subsidies into consideration. With crude oil prices hovering at US$100 per barrel, the subsidies have climbed to RM35bil. That’s equivalent to what our planners have set aside as the development expenditure for the Ninth Malaysia Plan each year.  

The fact is Malaysians have become used to the pampered life. Even those rich enough to drive luxury cars would shudder if they have to pay more at the pump, what more the common people.  

But the harsh reality is that at one point or another, the Government has to review these huge subsidy bills.  

Increasing subsidies means diminishing funds for projects that matter, like roads, schools, hospitals and other public amenities.  

But no Government would make such decisions when the general election is around the corner. The political costs would be simply too high.  

Nobody wants to hear the bad news with regard to price increases, especially when the opposition has even promised that they would reduce fuel prices if they come to power. That may be a mission impossible but in the emotions of the polls, anything can be made believable.  

Malaysians have rightly asked why the country should face a cooking oil shortage when we are the world’s second largest producer of palm oil.  

Palm oil prices are on the ascent and this has certainly benefited major producers like Malaysia and Indonesia.  

But in Indonesia, where cooking oil is not subsidised, millions of poor Indonesians have turned to boiling, instead of frying, their food, when the price zooms up.  

Another factor that comes into play is that with crude oil prices going up, the price of crude palm oil goes up in tandem since the commodity is increasingly being used also as a source of biofuel.  

The average consumer is not interested in the complicated mechanics of palm oil futures trading and the voracious demands from China and India, the biggest consumers of palm oil and everything else.  

But from smuggling to hoarding, to increased demand of our subsidised cooking oil, an artificial shortage has hit us.  

Back to the bigger picture, the demand for oil has gone up from 82.4 million barrels a day last year to an expected 90 million barrels by 2010, mostly from China and India.  

Malaysia produces about 700,000 barrels a day but we use over 520,000 barrels a day. Based on current trends, we may end up as an importer within four years. This is hardly good news when Petronas is a major contributor to the country’s economy via the payment of taxes, dividends and royalties.  

Other external factors are difficult for the Government to control. For example, the cost of shipping raw materials across the world’s oceans have reached an all time high, pushing up the prices of grain, iron ore, coal and other commodities.  

Flexnews reported in October last year that the average price of renting a ship to carry raw materials has tripled, and in some cases, ocean shipping can be more expensive than the cargo itself.  

Higher costs are naturally passed on to the consumers, affecting the price of everything from cars to washing machines and bread, it reported.  

Politicians are fond of asking businessmen to absorb higher costs, which makes no sense.  

The Manila Standard Today reported recently that the prices of milk and milk-based products had gone up as the cost of imported raw materials continue to rise. Powdered milk and evaporated milk have been the main items.  

Everything is interconnected. The drought in Australia affected its dairy industry as the country had to import maize, an essential item for animal feed, for its cattle. Even the price of cheese has jumped as a result.  

Our politicians have preferred to downplay the escalating cost of living while trying to convince the people on the need to reduce subsidies. But the fact is, you cannot do both at the same time.  

Sooner or later, we have to bite the bullet and face the reality of sharing the burden of subsidies. Elections or not, the Government will have to deal with the impact of oil price increases.  

At the same time, the Government needs to work harder to stop wastage in projects that bring little benefit to Malaysians. Pride is one thing but if it serves little besides inflating our egos, then we should just save our money.  

We also need to contain our cost of production and be serious in fighting corruption and mismanagement.  

The campaign to convince Malaysians to be prudent and thrifty can only work if the Government also ends some of these abuses.