Why the need to privatise Bernas?
Roger KinkladzePublished: Mar 21, 2014 2:32 AM | Updated: Mar 21, 2014 2:39 AM
COMMEN T From Bernas’ 2012 Annual Report, revenue for the group was RM3.6 billion while profit was RM117 million in 2012. Global rice prices which have fallen from its 2008 peak of more than US$1,000 per tonne to about US$390 per tonne today are expected to drop even further as the beleaguered Thai government plans to flood the market with rice.
COMMENT From Bernas’ 2012 Annual Report, revenue for the group was RM3.6 billion while profit was RM117 million in 2012. Global rice prices which have fallen from its 2008 peak of more than US$1,000 per tonne to about US$390 per tonne today are expected to drop even further as the beleaguered Thai government plans to flood the market with rice.
A Financial Times article dated Feb 26, 2014 estimates that Thai rice inventories could total between 10-15 million tonnes, just under half the world’s total trade value in rice. The price is expected to drop so low that a rice expert is even quoted as saying that the Thai government would be “better off dumping the rice in the sea”. Bernas would certainly benefit from cheaper rice from its two main sources - Thailand and Vietnam.
As it is, Bernas already benefits from its monopolistic position in the rice trade today. It receives government subsidies including an RM800 cash subsidy per tonne of rice milled that is graded Beras Super Tempatan 15 percent (15 percent broken rice, an inferior grade).
Note that only the price of Beras Super Tempatan 15 percent rice is controlled and is sold between RM1.65 to RM1.80 per kg to consumers. The prices of higher grades of rice are not controlled and since Bernas is the sole importer, it has ample room to raise prices if it chooses to do so. If rice prices drop, Bernas wins. If rice prices soar, Bernas still wins.
There have also been numerous complaints about the inefficient distribution of subsidised rice, of it being sold above the controlled price, as well as its sale to non-Malaysians.
A random check on the Kedai Rakyat 1Malaysia at the Kelana Jaya LRT Station in Selangor on March 5, 2014 by the author found that the listed price of Beras Super Tempatan 15 percent was RM1.75 per kg, in line with the controlled price and that there was a sign stating that only Malaysians could purchase the subsidised rice. Unfortunately, the shop appeared to be out of stock of the subsidised and controlled Beras Super Tempatan 15 percent.
Because of the strategic importance of rice as a staple food, the Malaysian government should remove Bernas’ monopoly of the supply of rice. Perhaps the strategic roles played by Bernas should be undertaken by a statutory body, as it used to be. Perhaps Bernas’ stranglehold on the import and distribution of rice should be loosened by allowing other companies to do the same.
Singapore’s Rice Stockpile Scheme
At last count, Singapore which has its own Rice Stockpile Scheme had 46 (!) licensed importers of white rice. How does Singapore manage its Rice Stockpile Scheme?
The Singapore government requires all licensed importers of white rice to participate in the scheme. Every month, importers pre-commit on the Monthly Import Quantity (MIQ) which is the amount of white rice they wish to import monthly for local distribution (minimum 50 tonnes).
The importers then have to keep a Prescribed Stockpile Quantity (PSQ) which is double the MIQ. The Rice Stockpile (which is kept for less than a year to ensure freshness) belongs to the importers but the government can acquire the rice (with compensation) during an emergency. Perhaps the Malaysian government should consider studying best practices of subsidy and stockpile mechanism from other countries.
Many controversial questions about Bernas and its privatisation remain unanswered. This article has barely scratched the surface. For example, why is the price offered by Syed Mokhtar to minority shareholders to take Bernas private only RM3.70? How is Bernas’ 10-year concession rights (from 2011 to 2021) for the exclusive distribution of rice only valued at RM40 million?
As the privatisation of Bernas puts Malaysia’s food security in the hands of one man who already has various businesses of strategic national importance on his plate (pun intended), it is time for clearer answers to these difficult questions before any privatization happens.
Yesterday: Part I - Let not Syed Mokhtar take Bernas private
ROGER KINKLADZE is the pen name of a Malaysian management consultant with a passion for being critical of silly decisions, all for the sake of the country's future.
A Financial Times article dated Feb 26, 2014 estimates that Thai rice inventories could total between 10-15 million tonnes, just under half the world’s total trade value in rice. The price is expected to drop so low that a rice expert is even quoted as saying that the Thai government would be “better off dumping the rice in the sea”. Bernas would certainly benefit from cheaper rice from its two main sources - Thailand and Vietnam.As it is, Bernas already benefits from its monopolistic position in the rice trade today. It receives government subsidies including an RM800 cash subsidy per tonne of rice milled that is graded Beras Super Tempatan 15 percent (15 percent broken rice, an inferior grade).
Note that only the price of Beras Super Tempatan 15 percent rice is controlled and is sold between RM1.65 to RM1.80 per kg to consumers. The prices of higher grades of rice are not controlled and since Bernas is the sole importer, it has ample room to raise prices if it chooses to do so. If rice prices drop, Bernas wins. If rice prices soar, Bernas still wins.
There have also been numerous complaints about the inefficient distribution of subsidised rice, of it being sold above the controlled price, as well as its sale to non-Malaysians.
A random check on the Kedai Rakyat 1Malaysia at the Kelana Jaya LRT Station in Selangor on March 5, 2014 by the author found that the listed price of Beras Super Tempatan 15 percent was RM1.75 per kg, in line with the controlled price and that there was a sign stating that only Malaysians could purchase the subsidised rice. Unfortunately, the shop appeared to be out of stock of the subsidised and controlled Beras Super Tempatan 15 percent.Because of the strategic importance of rice as a staple food, the Malaysian government should remove Bernas’ monopoly of the supply of rice. Perhaps the strategic roles played by Bernas should be undertaken by a statutory body, as it used to be. Perhaps Bernas’ stranglehold on the import and distribution of rice should be loosened by allowing other companies to do the same.
Singapore’s Rice Stockpile Scheme
At last count, Singapore which has its own Rice Stockpile Scheme had 46 (!) licensed importers of white rice. How does Singapore manage its Rice Stockpile Scheme?
The Singapore government requires all licensed importers of white rice to participate in the scheme. Every month, importers pre-commit on the Monthly Import Quantity (MIQ) which is the amount of white rice they wish to import monthly for local distribution (minimum 50 tonnes).
The importers then have to keep a Prescribed Stockpile Quantity (PSQ) which is double the MIQ. The Rice Stockpile (which is kept for less than a year to ensure freshness) belongs to the importers but the government can acquire the rice (with compensation) during an emergency. Perhaps the Malaysian government should consider studying best practices of subsidy and stockpile mechanism from other countries.
Many controversial questions about Bernas and its privatisation remain unanswered. This article has barely scratched the surface. For example, why is the price offered by Syed Mokhtar to minority shareholders to take Bernas private only RM3.70? How is Bernas’ 10-year concession rights (from 2011 to 2021) for the exclusive distribution of rice only valued at RM40 million?
As the privatisation of Bernas puts Malaysia’s food security in the hands of one man who already has various businesses of strategic national importance on his plate (pun intended), it is time for clearer answers to these difficult questions before any privatization happens.
Yesterday: Part I - Let not Syed Mokhtar take Bernas private
ROGER KINKLADZE is the pen name of a Malaysian management consultant with a passion for being critical of silly decisions, all for the sake of the country's future.
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