There are reports of sugar shortage in four Malaysian states. While that happens, the authority, which is the Ministry of Domestic Trade and Consumer Affairs in this case, is blaming smugglers and hoarders.
PUTRAJAYA: Low sugar cane supply in the international market has contributed to the shortage of sugar in the country, said Domestic Trade and Consumer Affairs Minister Datuk Shafie Apdal.
This is in addition to the on-going smuggling of the controlled item to neighbouring countries, he added.
On the contrary, smuggling and hoarding is not the root cause. Instead, these are mere symptoms of inefficient market. The root is inflexible price; controlled price regime.
In Malaysia, items of mundane but delicious daily want and need like chickens, salt and sugar are controlled. They’re controlled because people in the higher echelon of the Malaysian society want to protect the consumers, in particular the common people. Noble indeed but misguided.
Price is an important signal. In a free market, price fluctuates with supply and demand, constantly seeking the perfect equilibrium. If it is not allowed to seek that equilibrium, something is bound to happen. That something could be anything — smuggling activities is one of them. Currently in Malaysia, there is a price ceiling imposed on the sugar market and that price ceiling is preventing the prices from achieving its stable state.
If prices increase worldwide and Malaysia has a price ceiling on sugar, thus making Malaysian prices lower than world’s prices, a simple arbitrage demands a reasonable trader to sell sugar to the world instead of Malaysia. This is the reason why smuggling is happening; it is not because some people are naturally born criminals but rather, simple economics demands it.
Like I have said earlier, this price ceiling is there to protect the consumers, or so those in the government thought. In reality, we can clearly see how such unneeded protection is depriving consumers of sugar. This brings in a question – do we prefer higher priced sugar or no sugar at all?
I’m forcing a false dilemma on you, true. Nevertheless, distributive inefficiency is as real as it can get.
7 replies on “[763] Of honey, ah sugar sugar”
[…] ground, the first thing we need to do is to acknowledge the root course. Attacking the symptoms, which is too common in Malaysia, does […]
[…] section. Shortage is not uncommon. Similar episodes are observable in the past, for instance, in the sugar market not too long ago. Such shortages constitute inefficiency. After some rethinking, the word inefficiency works better […]
what is the economic reasoning to impact the sugar market?
I’m not sure but that’s an interesting question.
I bet it’s that (cost of smuggling) > (possible profit). Bread has a short expiration date and that fact definitely needs to be accounted for as part of smuggling cost. A rational consumer wouldn’t go for a spoilt good and hence, the lack of bread smuggling?
But, wouldn’t it easier to smuggling flour (raw material) instead bread (end product)? Flour smuggling is not unheard off.
So why aren’t people smuggling bread ? or are they doing that, and we just don’t know about it ? :)
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Nicely said