Food prices expected to rise next year

According to the 2015 Economic Census, Malaysian households consume more processed foods and beverages than primary agricultural products. – The Malaysian Insight file

MONOPOLY, a weak ringgit, and consumption tax will further push food prices above Malaysia's inflation rate in the coming years, a think tank said, despite better economic data. According to the Food Policy Institute (IDKM), the country’s high food prices were due to several factors, with the monopolies over food imports and supply of locally sourced fresh produce having the greatest impact.

IDKM laboratory chief Dr Yusof Saari, who has advised the government on food policy, said as the rise in prices did not match the slower rise in wages, consumers would continue to be burdened by higher living costs.

Yusof added that dearer food next year would most affect the the middle class, or the M40 income group, and the effects were already visible.

For instance, consumers were unable to buy in large quantities or they are skimping on quantity and quality to stretch their ringgit, said the Universiti Putra Malaysia lecturer.

“People can’t buy 10 or 15kg bags of rice anymore. So they are buying smaller bags of 1 or 2kg while waiting for the next salary," he told The Malaysian Insight.

Yusof said before the subsidy was abolished, there was high demand especially in urban areas for low-grade 15% broken rice known as “ST15” that was usually reserved for the poor.

The price of ST15 was subsidised at RM7.50 per kg but the programme was stopped in 2015 due to leakages.

Monopolies over food imports and supply of locally sourced fresh produce have the greatest impact on food prices. says an expert. – The Malaysian Insight file pic, November 17, 2017.

Data from the Statistics Department show that food and non-alcoholic beverages are the highest rising components in the Consumer Price Index – a measure of inflation.

In September, food and non-alcoholic beverages went up by 4.3% compared with the same period last year.

“Our problem is the monopoly of certain companies, which makes things worse when our ringgit weakens and petrol prices increase.

“It is also not because our farms don’t produce enough. Even if they do produce a lot it is pointless if consumers cannot afford it.”

Malaysia imported food because it made more economic sense given that the imports cost less than local produce, he said.

Diyana Ibrahim

Source: https://www.themalaysianinsight.com/s/23211/

Conclusion:

Monopolies in the supply chain were aggravating the price increases and in some cases, causing food costs to rise.
They also controlled the market and giving consumers fewer choices in price and quality.

There are also monopolies over local food production, such as of rice which is controlled by Bernas. There are other companies that sell rice but they source the rice from Bernas.

The result of all this is that consumers have fewer choices and food producers have little incentive to offer better quality and prices.

I think the better solution was to get rid of monopolies that were controlling market prices. We won’t stabilise food prices even if we increase wages. We have to change our food supply chain, so that our market can work the way it is supposed to.

With Geely, Proton can achieve economies of scale

KUALA LUMPUR: The economies of scale factor which has eluded national carmaker Proton Holdings Bhd for a long time, can be achieved via its newly-signed strategic partnership agreement with China's Geely, a research institute director said today.

Dr Irwan Shah Zainal Abidin, Director of the Asian Institute of Banking and Finance at Universiti Utara Malaysia, said with the deal, Malaysians can also expect a gradual reduction in car prices in the future, a key objective of the National Automotive Policy (NAP).

"I see the partnership as a huge opportunity for Geely through Proton to access the 600-million ASEAN market. For Proton, it is a chance to penetrate the vast China market," he told Bernama.

He said the transformation of Volvo in less than five years after being acquired by the Chinese carmaker would be replicated at Proton as well, because Geely is a highly market-driven entity.

The company's track record shows it has turned around several ailing car manufacturers.

In acquiring a 49.9 per cent stake in Proton, its founder, Li Shufu, must surely be confident of putting the ailing Malaysian company back on the right track.

"Li Shufu is an industrialist and entrepreneur who won't just buy something for the sake of acquisition. He must have studied the risks and viability, both over the short and long terms, and at Proton's production capacity of 400,000 cars that is currently under-utilised.

"Geely has just set up a plant at London Taxi, specifically to work on electric and hybrid car models, and this will have a positive impact on future production at Proton," Irwan Shah said.

DRB-Hicom Group Managing Director Datuk Seri Syed Faisal Albar said last week that as part of the agreement, Geely would inject a sports utility vehicle (SUV) platform into Proton and offer its best-selling SUV. This enables Proton to enter into a new segment that had grown tremendously over the past years.

Syed Faisal also said Geely made the best partner for Proton as the former had agreed to retain the carmaker's nameplate and aimed to reclaim the number one spot in the country.

Irwan Shah said some Malaysians, sceptical of the tie-up, were those who still believed in the old ways of the automotive industry and oblivious to changes in its business models and trends. This latest partnership is just one of many to have taken place worldwide as the industry’s bottom line is the production of quality cars that can compete in the global and open market. -- BERNAMA

SOURCES : https://www.nst.com.my/business/2017/06/245457/geely-proton-can-achieve-economies-scale

CONCLUSION :

Economic of scale means can produce more quantity with the minimum of cost.

In the article said, Geely,proton can achieve economic of scale because they can produce Geely at maximize quantity at a lower cost.Besides, Geely is the most bestseller in national because it was a transformation of volvo and also the price is affordable. Beside, in malaysia it was a proton's first SUV model.

                                       

THE SHORT RUN AGGREGATE SUPPLY CURVE (AS)

Short Run Aggregate Supply Curve

A change in the price level brought about by a shift in AD results in a movement along the short run AS curve. If AD rises, we see an expansion of SRAS; if AD falls we see a contraction of SRAS.

Short run aggregate supply curve

Shifts in Short Run Aggregate Supply (SRAS)

Shifts in the position of the short run aggregate supply curve in the price level / output space are caused by changes in the conditions of supply for different sectors of the economy:

• Employment costs e.g. wages, employment taxes. Unit labour costs are also affected by the level of labour productivity
• Costs of other inputs e.g. commodity prices, raw materials. The exchange rate can affect the prices of key imported products
• Impact of government e.g. environmental taxes such as carbon duties & business regulations which affect the costs of production

CONCLUSION

THE GRAFT SHOWN BETWEEN PRICE AND GDP( GROSS DOMESTIC PRODUCT) IN SHORT RUN CURVE.THERE ARE SHIFT OCCUR IN THAT CURVE WHICH IS JUST SHIFT THE POINT OF THAT PRICE AT THE SAME CURVE. THIS PHENOMENA HAPPEN WHEN THE COST OF PRODUCTIVITY IN ECONOMY CHANGE.IF THE COST OF INPUT INCREASE, SO, THE PRICE WILL SHIFT TO DECREASE POSITION AND THIS WILL AFFECTED THE OUTPUT TOO AS IT  WILL DECREASE AND VICE VERSA.

THE FACTOR THAT EFFECT THE COST ARE SUCH AS WAGES,COST OF RAW MATERIAL,TAXES AND OTHERS. THESE WILL AFFECTED TO THE COST PRODUCTIVITY. SO, ECONOMY IS DEPEND ON COST OF PRODUCTIVITY IN PRODUCE A COMMODITY.

SHELL PERTOL as Oligopoly market

 SHELL PETROL

Nowadays, no matter cars, buses, airplanes, they are all the vehicles that have been walked through our life and become a necessity to us. As a student, need to take a bus to school. A businessman needs a car to go to work, sometimes even has to take the aeroplane to other countries for a meeting. So that, vehicles are very important as they are helpful in our life.

            Shell, also called by Royal Dutch Shell, a petrol station which is founded by Marcus Samuel in 1897 and it first entered to Malaysia, Miri at 1910 while there was proceeding an oil well drilling project (Royal Dutch Shell, 2013). Until now, Shell becomes the largest natural gas producer and it is the one retailer out of few petrol stations in Malaysia, such as Caltex, Petronas, and Petron. (Shell, 2013). Shell is an oligopoly market structure which is described as only a few numbers of companies or firms control over the market, although each of them is the competitors to each other. Because of they are interdependent and only few petrol stations in this industry, each of them is holding a large market share which gives them the power to control and influence the prices of petrol (Your friendly tutor, 2007). However, they are prohibited to argue or control the prices of petrol in Malaysia because of petrol is an item which is controlled by the government. Thus, all petrol stations have to sell petrol at the same prices. In this situation, Shell and other petrol stations have to follow the instructions given by the government and accept the price ceiling or price floor that set by the government. Although it has a price ceiling of the petrol, it actually helps to loosen consumers’ burden and it will help the market by avoiding shortage through both the demand and supply are in equilibrium. Besides, The government will set a price floor in order to prohibit anyone influences the prices of petrol by making them lower.

In the diagram above, we can see that price floor it looked like the price which is set by the government. Why and what causes the government to set a price floor of the petrol price? It is because of prohibiting the petrol stations from changing the prices of the petrol as they like. If the prices of petrol arise as high as consumers cannot afford it, demand will go down, however, supply will be going up in term of the target or goal of a firm is to maximize their profit. According to the Law of Supply, when the price is higher and higher, The Supply curve will rise (The Economic Times, 2013). Therefore, The producer will definitely supply more in order to get more and more profit. To solve this problem, The government has to set a price floor to control the prices of petrol to make sure all the consumers can afford and use petrol when they need. 

QUESTION :

There is a new type of car comes out and it is running on a hybrid electric engine. It uses lesser petrol and gives more power to a car to speed up. Will this influences the price elasticity of demand for petrol becomes elastic?

ANSWER :

In my own words, the value of the hybrid electric vehicles might be costly and majority consumers who are belonging to lower income group cannot afford the price of it. They are willing to choose a normal car and continuously pay the high petrol fee. Moreover, limited resources in nowadays will also become an obstacle while producing the hybrid electric vehicle, at least most car factories are unable to do the mass production. Therefore, the demand of hybrid electric vehicle will not influence the elasticity of petrol. 

Malaysia trade exports and imports,

Southeast Asia, particularly Malaysia, has been a trade hub for centuries. Since the beginning of history, Malacca has served as a fundamental regional commercial center for Chinese, Indian, Arab and Malay merchants for trade of precious goods. Today, Malaysia shares healthy trade relations with a number of countries, specifically the US. The country is associated with trade organizations, such as APEC, ASEAN and WTO. The ASEAN Free Trade Area that was established for trade promotion among ASEAN members also has Malaysia as its founding member. Malaysia has also signed Free Trade Agreements with countries including Japan, Pakistan, China and New Zealand.
Malaysia was once the world’s largest producer of tin, rubber and palm oil. Its manufacturing sector has a crucial role in its economic growth. The export industry was hit hard during the late 2000 economic recession drastically dropping to 78% i.e. FDI to RM4.2 billion in the first two quarters of 2009. Total exports fell down to $156.4 billion in 2009 from $198.7 billion in 2008. The imports also reduced from 154.7 billion in 2008 to $119.5 billion 2009.

Malaysia Exports Commodities

Malaysia mainly exports the following commodities:

• Electronic equipment
  
• Petroleum and liquefied natural gas
  
• Wood and wood products
  
• Palm oil
  
• Rubber
  
• Textiles
  
• Chemicals
  

Malaysia Exports Partners

The following graph depicts the shares of various export partners of Malaysia:
 

Malaysia Imports Commodities

Malaysia mainly imports the following commodities:

• Electronics
  
• Machinery
  
• Petroleum products
  
• Plastics
  
• Vehicles
  
• Iron and steel products
  
• Chemicals
  

Malaysia Imports Partners

The following graph depicts the share of various import partners of Malaysia:
 





Importance of exports

• Employment. Growth in exports can create employment. 

• Economic growth. Exports are a component of aggregate demand (AD). Rising exports will help increase AD and cause higher economic growth. Growth in exports can also have a knock on effect to related ‘service industries.

Monopoly in Malaysia ; Tenaga Nasional Berhad (TNB)

          Tenaga Nasional Berhad (abbreviated as TNB or simply Tenaga Nasional is the only electric utility company in Peninsular Malaysia and also the largest publicly-listed power company in Southeast Asia with MYR 99.03 billion worth of assets. It serves over 8.4 million customers throughout Peninsular Malaysia and the eastern state of Sabah through Sabah Electricity Sdn Bhd. TNB's core activities are in the generation, transmission and distribution of electricity. Other activities include repairing, testing and maintaining power plants, providing engineering, procurement and construction services for power plants related products, assembling and manufacturing high voltage switch gears, coal mining and trading. Operations are carried out in Malaysia, Mauritius, Pakistan, India and Indonesia.

          

          Monopoly is a single firm producing a commodity that has no close substitutes. The firm is also considered as the industry. The essence of monopoly lies in the ability of the firm to control the price of its product or service, and Tenaga Nasional Berhad is able to make it.

          Tenaga Nasional Berhad is the only company in Malaysia which supplies electricity to households. The company remains as the only electricity supplier direct to the consumer because to start such a monopoly business as TNB will require a company to invest a huge amount of capital. A huge capital is needed mainly for the start-up of power plants with the high electric capacity of megawatts.

          We now assume there are two companies supplying electricity in Malaysia such as TNB and Malaya Electricity Berhad, having two companies to choose for consumers, it is definite that consumers will most likely make a decision based on which company can offer a cheaper price. Furthermore, not just price will be the issue but the number of power plants will also increase in the country, which will lead to the increase of transmission towers, what’s worse is how will they direct the cables to each household who chooses different suppliers. In order to resolve these issues, the government have given the license to only TNB to operate this business. This helps limit the entry into the industry by using license, and these are why monopoly industry has extreme barriers.

       TNB has ownership of the scarce raw materials and this plays a part in making an effective barrier to entry with no other firms having access to the scarce inputs to produce their output. So, if a certain production requires a particular input and the single firm which owns the entire supply of the input, the firm will have complete control in the industry. In this case, TNB has access to coal, which is the cheapest raw material used to generate electricity here in Malaysia. 

   

          Moreover, a single firm should be in this industry to keep the production cost from increasing, if there were more than one firm in this industry it will contribute to a higher price in coal. Then the coal supplier will sell the coal at a higher price because coal is a scarce resource by selling it at a higher price will contribute to the increase in production cost.

Based on the graph where production at the Marginal Revenue (MR) = Marginal Cost (MC) output. In order for the company to obtain maximum profit, the price must be set at the point, where it touches the demand curve and must be above the Average Total Cost (ATC). If TNB remains a monopoly in this industry it will be able to make supernormal profits indefinitely.

     

          Monopoly usually gets supernormal profit as their type of profit. Supernormal profit is the total revenue exceeding total costs for a company that holds a monopoly in a market.

          

            As a conclusion, TNB is a pure monopoly and this makes the TNB a price maker, so if prices were to be maintained or increase in the future, TNB will still be making a higher supernormal profit during that period, which will boost the company’s income. In the Islamic view, monopoly emerged on the economic scene after the industrial revolution. There is nothing in Islamic jurisprudence to justify an indiscreet condemnation of modern monopoly structures. Sometimes we need them in social interest. Also, we can take action if monopolies misuse their powers against social interest.

THAT'S ALL, THANK YOU.

Reference :

1) Economic with Islamic Orientation Oxford Fajar Sdn Bhd

2) http://www.preservearticles.com/201106178114/what-is-the-difference-between-normal-profit-and-super-normal-profit.html

3) Google image

4) Wikipedia

5)https://jonathan0311542.wordpress.com/tenaga-nasional-berhad-is-a-monopoly-company/