I praised Shahrir Samad earlier but I am having a second thought now. Shortly after that announcement, he suggested for food production to be subsidized, much to my dismay.[1] Pragmatic may be but our current government policies are confusing. If there is a liberalization in our economy, the current trend does not seem to suggest that.
Take for example the recent effort to increase in local rice yield.
KUCHING: Sarawak will develop large-scale padi planting areas and mini-estates to achieve 100% self-sufficiency in rice by 2015.
Deputy Chief Minister Tan Sri Dr George Chan said the state government had identified eight areas totalling 43,821ha as suitable for large-scale padi production, with Sungai Seblak in Roban the first to be developed under the 9th Malaysia Plan. [Going big on padi yield. The Star. May 8 2008]
And then contrast that with call for price ceiling on rice.
JOHOR BARU: The Domestic Trade and Consumer Affairs Ministry wants ceiling prices on local varieties of rice to be imposed immediately to curb fluctuating prices.
Ceiling prices for the local 5, 10 and 15 per cent broken rice are supposed to come into effect on June 1, but retailers are taking advantage of the interim period to raise the prices of these varieties. [Shahrir: Impose rice ceiling price right away. New Straits Times. May 19 2008]
Price ceiling removes the incentive to increase production in a free market. Nevertheless, there is at least one way to increase yield despite the presence of price ceiling and that links back to subsidizing rice producers.
The size of the subsidy is inversely related to prices of rice under this scenario. The larger the subsidy, the lower will the prices be. We all better pray that the differential between the ceiling and market prices is small.
And dare not to even think that you will be enjoying lower spending under this scenario. Just think who is actually footing the bill for that subsidy. Yes, you and I. We are giving out our government with money to allow us to buy cheaper good. If that is unclear, we are paying the government to allow us to buy cheaper food.
How stupid is that?
We might as well not pay tax and pay for higher rice prices. A far simpler situation, do you not think so?
[1] — KUALA LUMPUR, Malaysia (AP) — Malaysia’s government is planning to subsidize locally-grown rice to prevent consumers from being hit by record high prices of the staple food in the world, a Cabinet minister said Monday. [Malaysia plans local rice subsidy. CNN. April 28 2008]
3 replies on “[1657] Of price ceiling does not encourage greater yield, unless production is subsidized”
Most “poor” Malaysians are fat and suffer from illnesses related to excess food consumption anyway. Hardly I see a 60 year old “poor” man with visible skeletal forms in his body.
Subsidize food, and Malaysians become fat, which will make them unhealthy, which will make them demand for subsidized health care, which will further hurt the government’s coffers, which will… etc etc..
Subsidies = creation of a financial vicious circle.
I am well aware that money transfer is more efficient than blanket subsidy. It is basic economics and I’ve mentioned it here.
You are free to disagree but I won’t agree to subsidizing your conscience. Sorry if I sound haughty but I believe charity is a better method that forcing everybody to subsidy somebody. If a person feels badly about it, then the person should endeavor to give out aid from his pocket, not by taking from others’ pocket through coercion.
And yes, what you are suggesting is a short term solution but it seems that every time is short term.
The best way to solve the issue in the long term-wise is to start now. Force all to take care of their own well-being instead of being dependent on others. I prefer to use the resources used for subsidy to be invested in something more substantial and affects the long term equilibrium, like investment in education and in research and development, not policy of here and now.
Well I disagree with you on some points. I think you’ve oversimplified the problem. It would be extremely detrimental to any political establishment that allows the price of rice to rise the way it has.
Although subsidizing it is inefficient and although it comes out from out tax money, not everyone is as well off enough to actually afford to pay for rice. There are still many Malaysians under the poverty line and they’re the most likely people to suffer. Not to mention people in the low income bracket.
However the more efficient and cheaper solution to the problem is to give these poor and lower income people money directly to make up for the increase in rice prices, this will reduce the distortions in the rice market and encourage local Malaysian rice planters to plant more rice.
Do note that this is only a short term solution. Of course the long term solution is to improve their economic well being which will free the government from any kind of subsidies.