This article first appeared in The Edge Malaysia Weekly on September 18, 2023 - September 24, 2023

THESE days, it can be difficult to buy a 10kg bag of local white rice, better known as the Super Special Tempatan 5% rice (SST 5%), from the neighbourhood store or hypermarket.

Datuk Ameer Ali Mydin, managing director of Mydin Mohamed Holdings Bhd, which owns the Mydin hypermarket chain, says it received a measly 316 bags of rice last week, hardly enough to meet its sales requirement for a day. Previously, it used to sell about 35,000 bags of rice a week at its outlets, where there is a 50:50 ratio between local and imported rice.

“For our requirement, we should get 17,000 bags of local rice, but we only received slightly over 300 bags of rice in total, which means it [the stock] has all dried up … The question, of course, is where has the rice gone?” he tells The Edge over the phone.

His predicament is shared by other major retailers in the country. Retailers such as TF Value-Mart Sdn Bhd and 99 Speed Mart Sdn Bhd have also lamented the shortage of local rice at their outlets.

Asked if his retail chain is getting the quantity of rice it wants to sell at its outlets, TF Value-Mart CEO Ho Mun Hao curtly replies: “Of course not.” His frustration is understandable as the company is not a small outfit, but operates 44 hypermarkets, many of which are in secondary towns.

As a result of the shortage, a meeting is understood to have taken place last week between the retailers and two government ministries — the Ministry of Domestic Trade and Cost of Living and the Ministry of Agriculture and Food Security — at which the government sought to come up with a solution.

“They wanted to know what quantity of rice we require at each store. Five suppliers have agreed to supply our required quantity, being OEL, Jasmine, Serba Wangi, Syarikat Faiza and YHL. The Ministry of Domestic Trade will allocate and ensure they will deliver the rice,” says Ho.

He adds that the meeting also saw the ministries increase the net cost price of suppliers by 10 sen to RM25.50 from RM25.40 previously. Note that the ceiling retail price for SST 5% is fixed at RM26 per 10kg bag.

It is worth noting that the price of imported white rice, which is not a price-controlled item, has been raised by 36% since Sept 1 by Padiberas Nasional Bhd (Bernas). The nation’s sole rice importer reportedly said the increase in imported white rice from RM2,350 to RM3,200 per tonne was inevitable and in line with the latest cost of the commodity in international markets (see “Bernas’ role questioned amid country’s rice dilemma” on Page 70).

On the global scene, the world’s largest rice exporter India’s ban on non-basmati white rice exports as of July 20 has caused rice prices to increase. The benchmark 5% broken Thai white rice rose to US$514 per tonne in July from US$431 per tonne a year ago.

Due to the increase in the price of imported white rice, the government has allowed rice distributors to temporarily use stickers, until Nov 30, on existing plastic packaging to reflect the change in pricing for imported rice.

This is done in order to reduce wastage of pre-printed plastic packaging with the old retail price on it which distributors print in bulk, says 99 Speed Mart director of branch operation Yong Eng Kwang.

Although it is only a temporary measure to stem wastage of plastic packaging, there is no way of knowing whether this practice, of having the new retail price on the plastic packaging of imported rice, will apply only to incoming stock of rice since the price increase was announced.

While solving the shortage in the local rice supply is welcomed, the main issue that needs to be addressed is how the shelves of retailers around the country ended up empty with a scarce incoming supply in the first place.

There seems to be no clear answer to the root cause. The Ministry of Agriculture and Food Security did not reply to questions sent by The Edge.

Some quarters have suggested that there could be an issue of hoarding happening at the level of wholesalers or millers. Yet others believe the high price of imported white rice could have served as a motivation for some parties to repackage local rice as imported rice in order to pocket the extra profit from the more costly imported grain.

“Local rice is the cheapest substitute for imported non-basmati and non-fragrant rice in the carbohydrate diet. When the prices of imported rice rise too quickly and too dramatically, domestic purchases shift to local rice,” says Dr Tey Yeong Sheng, a senior researcher at the Institute of Tropical Agriculture and Food Security at Universiti Putra Malaysia.

“Furthermore, because the quality characteristics of the imported rice are virtually indistinguishable, the rapid price increase presents an opportunity for rent-seeking and arbitrage. A gradual upward revision could aid in mitigating these risks.”

The price differential between local rice and the imported variety currently stands at RM13 per 10kg bag following the 36% price hike on Sept 1. Imported white rice now costs about RM39 per 10kg bag from RM32 previously.

On the other hand, agrifood researchers say the production of local rice has been on the decline in recent years, meaning that the supply of local rice is shrinking. Based on data published by the Ministry of Agriculture and Food Security, local rice production had fallen to 1.57 million tonnes in 2022 from 1.68 million tonnes in 2021.

“If you look at the data from 2013 to 2021, our [rice] production has been declining by 0.7% annually,” says Sarena Che Omar, deputy director of research at Khazanah Research Institute (KRI).

Researchers say domestic rice production has actually been declining since its peak in 2018. Tey says part of the reason can be attributed to the loss of 50,000ha of paddy areas over a five-year period, but recent statistics also show a loss of paddy productivity.

“The drop in domestic rice production is most likely a result of fertiliser product inflation, which caused paddy farmers to reduce their application in supplementing standard fertilisers subsidised by the federal government,” he notes.

Sarena suggests that changing weather patterns could have affected production, as well as infertile soil, as a result of overworking the fields in the northern states. She also highlights how the bulk of rice producers in the country is centred in the northern states of Kedah and Perlis.

“Sixty per cent of all rice produced in Malaysia is centred in the northern states. That is huge. That means if something goes wrong in the northern states, be it disease or climate change, there goes our production because we are so skewed towards one area,” she says.

While it makes sense to have economies of scale with a certain region specialising in paddy, it could be risky from a food security perspective. Sarena says from this perspective, it would be better to have at least two regions in the country producing rice.

“What KRI is proposing is that we need to rebalance production so as not to be too concentrated in one region, which is the northern states of Peninsular Malaysia. Maybe we can split it a bit [and have rice production in] Sabah and Sarawak, maybe grow more hill rice. These are some of the ways to mitigate such risks,” she adds.

While retailers’ shelves may not be fully stocked with local white rice, it is reassuring to know the country does have safeguard measures in place for the staple.

Datuk Azman Mahmood, secretary of the agricultural industry development division at the Ministry of Agriculture and Food Security, was recently quoted as saying that the country has more than a month’s stockpile of local white rice and a trading stock of about six months for imported white rice.

Besides that, Act 522 (Control of Paddy and Rice Act 1994) prohibits the export of rice unless specific permission is obtained from the director-general, thereby safeguarding the supply of rice in the country.

At the current level of the rice stockpile, experts say it would be sufficient under normal circumstances, excluding war or a prolonged natural disaster.

It is worth pointing out that Malaysian dietary habits have changed over the years as the country develops and people become more affluent, whereby the consumption of starchy food has reduced while the consumption of more nutrient-dense food has increased. The statistics show that rice per capita consumption has declined over the years, from 120kg in the 1970s to 77kg in 2022.

Nevertheless, the amount of rice imports has increased in order to meet the shortfall in local rice production. Official data published by the Ministry of Agriculture and Food Security show that rice imports had increased to 1.11 million tonnes in 2022 from 1.06 million tonnes in 2021.

Research done by KRI in 2022, in which it studied Malaysia’s food import bill, found that Malaysia imported rice from as many as 12 countries in 2021. According to Sarena, the main sources of Malaysia’s rice imports change every year and the country does not import more than 50% of imported rice from a single nation.

“That is why if you ask me, I’m not too worried about our import behaviour … it’s very diversified and it’s very risk-managed, and we have a good stockpile. The unhealthy trend is our domestic production,” she adds.

According to data by the Department of Statistics Malaysia, the country’s rice self-sufficiency ratio stood at 62.6% in 2022, lower than the 65.2% in 2021. Meanwhile, Malaysia ranked No 41 out of 113 countries on the Global Food Security Index 2022, with an overall score of 69.9%.

Monash University Malaysia professor Niaz Asadullah, who was a member of the National Agricultural Advisory Council of the Ministry of Agriculture and Food Industries, believes that the self-sufficiency ratio at present levels leaves the country exposed to global disruptions to the rice supply chain.

“Even though our annual per capita consumption of rice is somewhat lower compared to other rice-consuming populous Asean countries such as Indonesia (108kg) and the Philippines (118kg), our local production is lacking,” he says, adding that countries like Indonesia and the Philippines enjoy a self-sufficiency ratio of 90% in terms of rice production.

“In general, given the relatively inelastic demand for rice in Asian societies, even land-poor countries like Bangladesh have achieved a high self-sufficiency ratio as part of the national food security strategy.”

The decline in the self-sufficiency ratio, which measures the level of availability, and the subsequent higher import reliance is something that requires serious policy attention, say researchers.

However, merely looking at self-sufficiency ratios alone is not enough. Professor Datuk Dr M Nasir Shamsudin of Putra Business School at Universiti Putra Malaysia points out that while the level of self-sufficiency is an important component to ensure food security, food security must also include accessibility, utilisation and stability in rice supply. In order to prevent such shortages from happening again in the future, a suggestion that is frequently brought up is to do away with price controls for locally produced rice.

“We should float the price of SST 5% rice and replace it with transfer payment to the very poor, especially the urban poor. This will streamline the country’s rice and rice supply chain and overcome the issue of no local rice supply,” says M Nasir.

The current rice price stabilisation strategy has left margins very thin for millers.

According to Tey, paddy has been guaranteed a minimum price policy of RM1,200 per tonne since 2008 while the rice ceiling policy for 15%, 10% and 5% broken white rice has been capped at RM1.80, RM2.40 and RM2.60 per kg respectively.

“Millers pay RM1.20 per kg for paddy. Assuming a standard rice recovery rate of 65% from paddy and no logistics or operation costs, milled rice costs RM1.85 per kg at the ex-farm level,” he explains.

“Efficient rice enterprises profit little, while inefficient ones lose money. As a result, the number of mills had reduced by approximately one-third to fewer than 160 by 2015. Procurement and wholesaling have been consolidated. In parallel, the number of meehoon manufacturers has fallen significantly.”

He adds that the industry is seeing signs of premature deindustrialisation as there are no new ventures at all stages of the paddy and rice value chain.

Notably, the National Agrofood Policy 2021-2030 (NAP 2.0) has aspirations of achieving a targeted self-sufficiency level of 80% for rice by 2030.

Niaz highlights that for Malaysia to achieve an 80% self-sufficiency level in rice production, Sabah and Sarawak are critical pieces in the equation.

“Sabah and Sarawak together account for 32% of Malaysia’s entire agricultural gross domestic product. Sarawak also has an ambitious agricultural target to become a net food exporter by 2030. Yet, the total agricultural land allocated to paddy production is on the decline in Sabah and Sarawak, limiting the combined contribution of Sabah and Sarawak to national rice production to as little as 9.5%. Modernising and scaling production in the two states alongside greater involvement of youth will be critical long-term measures to deal with any future rice shortages,” he says.

Ultimately, what is needed is a reformulation of existing policies in the rice industry.

While the prices of imported rice have increased sharply over a short period, many opine that the impact on food inflation will be minimal based on the fact that rice constitutes only a small portion of consumer expenditure.

“With the global scenario transpiring and the relatively ‘thin’ global rice market (with about 7% of the world’s rice production traded internationally, in contrast to nearly 18% for wheat and 12% for coarse grains), the general opinion is that the global rice price will increase and hence our food inflation. But since rice expenditure is small compared to the overall food expenditure, the impact on the general population is minimal. This can be compensated by implementing a transfer payment scheme to the very poor,” says M Nasir.

Data published by the Department of Statistics Malaysia show that the average consumer from the bottom 40% income group (B40) spends about RM35 on rice per month while the middle 40% (M40) spends about RM42 per month. The top 20% (T20), who most likely buy imported rice, spend RM55 per month on rice.

However, for the B40 group, the worry is that the lack of cheaper local rice will result in a higher food cost for the group. Mydin’s Ameer says the cost can be significant for a B40 family that relies on rice as a staple.

“About 1kg of rice will give you 10 plates of [cooked] rice — the amount for a day for a family of five that consumes rice twice a day. Their cost per day will go up ... that is a lot of money for the B40 group,” he adds.

Others say now is the time for Bernas to step up as a body set up to ensure food security in terms of rice production to slow the inflation in rice prices at a time like this.

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