By Nigel Edgar
KUCHING, June 14: The Ministry of Domestic Trade and Consumer Affairs (KPDNHEP) will not retract its decision to grant sugar import permits to Sarawak-based food and beverages (F&B) manufacturers.
Two sugar refineries — MSM Malaysia Holdings Bhd (MSM) and Central Sugars Refinery Sdn Bhd (CSR) — had issued a joint statement on June 12 urging the government to reconsider its recent decision to grant such permits to eight Sarawak-based (F&B) manufacturers.
They claimed such a move would force the domestic sugar refining industry to cut cost besides having negative long-term impacts.
The joint statement was made following an announcement made by KPDNHEP Deputy Minister Chong Chieng Jen on June 7 that the ministry would be granting permits to qualified Sarawak-based F&B manufacturers to directly import up to 60 per cent of sugar from overseas refineries of their choice.
In response to the statement by MSM and CSR, Chong argued that a little competition would do more good than harm to the business sector and the consumers at large.
He said the two sugar refineries had been enjoying monopolistic control over the sale and supply of sugar in Malaysia’s domestic market since the previous administration. But the general policy of the Pakatan Harapan (PH) government is to encourage more competition, reduce costs of doing business and enhance efficiency in all sectors.
“In this globalised market, no country can afford to have a protectionism policy go on forever. Such protectionism policy will surely breed inefficiency, for which the general public will be forced to bear unnecessary costs,” said Chong.
He revealed that international raw sugar prices had fallen by more than 35 per cent from US$0.45 per kg in February 2017 to less than US$0.30 per kg since February 2018 till now.
“In its annual report, MSM indicated that raw sugar constituted 88 per cent of its production costs for refined sugar. Yet, despite the huge fall in its production costs for more than a year, the proportionate benefits of the reduced price were not passed on to the F&B manufacturers.
“This is especially the case for the F&B manufacturers in Sarawak, who have no bargaining power vis-à-vis the two sugar refineries due to the former’s relatively small volume of purchases,” Chong explained.
With the new policy to allow F&B manufacturers in Sarawak to directly import sugar from abroad, Chong said this would provide substantial savings for these F&B manufacturers and reduce their costs of doing business.
Chong said a quick check with one of these F&B manufacturers revealed that it had just entered into a contract to purchase sugar from the largest sugar refinery in Thailand at the approximate price of US$400 or about RM1,700 per tonne, inclusive of transport charges.
Before that, he said that F&B manufacturer was buying sugar from one of the local refineries at more than RM2,700 per tonne.
“With the sugar import Approved Permit (AP), there is now a saving of RM1,000 per tonne, and that manufacturer’s production requires 300 tonnes of sugar per year,” he said.
On the justifications given by the local refineries for selling sugar at such a high price, where they said they had to absorb price fluctuations in the international market, described their argument as “untenable”.
At present, international raw sugar prices are US$ 0.28 per kg, and the average raw sugar prices for the past five years are as follows:
2014: US$0.37 per kg
2015: US$0.29 per kg
2016: US$0.39 per kg
2017: US$0.35 per kg
2018: US$0.27 per kg
With international raw sugar price at US$0.40 per kg, Chong pointed out that the reasonable refineries’ price should not be more than RM2.20 per kg.
“Yet, our local refineries have been selling sugars at way above that price for the last five years, despite the fact that for the past five years, average raw sugar prices had been below US$0.40 per kg,” he said.
Chong also revealed another reason provided by the refineries, that they have the obligation to hold stocks for food security reasons and that it would cost them RM7 million to RM20 million annually for doing so.
He said Malaysia’s local sugar consumption is about 1.5 million tonnes per year, which means that jointly, the two refineries’ annual revenue from the sale of sugar is more than RM3 billion.
“RM7 million to RM20 million is less than 1 per cent of that revenue. Surely, it does not justify the extra RM1,000 profit per tonne from the reasonable price of RM1,700 per tonne,” he said.
As for the Halal certification concerns expressed by MSM and CSR, Chong assured that there were many sugar refineries in Thailand that had valid Halal certification, and Malaysia had a mutual arrangement to recognise the Halal certification issued by the relevant authority in Thailand.
“I appeal to the two refineries to improve on the efficiency of their sugar refinery business and to offer cheaper and fairer sugar prices to other businesses and F&B manufacturers in Malaysia.
“As for their proposal to close down some of their loss-making factories, the ministry may be able to assist in finding some investors to take over the factories and facilitate the application for a new sugar refinery licence from the relevant authorities.
“This will also increase the number of refineries in our country and, thereby, increase competition for the benefit of the other related business sectors and consumers at large,” said Chong. — DayakDaily