War on middlemen should target monopolies instead, say critics

The Agriculture and Agro-based Industry Ministry’s ‘jihad’ (war) against middlemen is highlighted in this banner in the ministry’s building in Putrajaya. – The Malaysian Insider pic by Kamal Ariffin, February 14, 2015.

Putrajaya wants to ratchet up its campaign against middlemen in the agriculture supply chain as it believes this will lower food prices, but critics question whether this is effective as in some industries, such as rice, there are monopolies and abuse of subsidies which distort prices and supplies.

The Agriculture and Agro-based Industries Ministry will start competing directly with established private sector players in logistics, food processing and retailers who usually buy farm produce and sell it to the consumers.

Minister Datuk Seri Ismail Sabri Yaakob said this year, the government – through farmers’ associations and agencies – would provide these services to farmers and fishermen.

In theory, this would reduce the price of goods sold to consumers while ensuring that producers get a fair price for their harvest and catch.

However, consumer rights watchdog Fomca (Federation of Malaysian Consumers' Associations) said the initiative would only work if the government did it effectively as similar efforts in the past, such as “Pasar Tani” (farmers’ markets) have had mixed results.

Alor Star MP Gooi Hsiao Leung said in the rice industry, middlemen were not as big a problem as corruption and mismanagement of the subsidised rice scheme.

Ismail has frequently blamed middlemen for colluding to set high prices for fresh produce, such as vegetables, poultry and fish at the retail level, while paying producers a pittance.

He said in an interview on February 4 that farmers and fishermen who bypassed middlemen and went straight to the ministry’s supply chain had raised their incomes by 10% to 20%.

The ministry’s supply chain involves transportation and storage services owned and operated by farmers’ associations and bodies such as the Federal Agricultural Marketing Board (Fama).

This year, the ministry planned to expand its supply chain to include everything from food processing and packaging services to farm machinery rental.

For example, in the rice farming industry, the ministry wants farmers’ groups to have their own rice milling and packaging plants and harvesters that can be rented to padi farmers.

Ismail, however, admitted that the ministry has had limited success in getting farmers to switch to the new supply chain.

“There is still a lack of awareness among farmers and fishermen about our campaign. This is because they are used to their middlemen,” Ismail said in an interview on TV1 programme Dialog.

For instance, of the more than 33,000 fishermen in the country, only about 3,800 have switched to the government’s supply chain last year, short of the ministry’s target of 4,735.

Some fishermen, he said, had been provided with loans and boats from middlemen.

“We had provided RM40 million to farmers and fishermen to settle the debts they owed to middlemen. But so far only RM10 million has been used.

“Some fishermen, for instance, only have to go to sea to catch fish. When they return to the jetties, the middlemen will be there to buy it off from them,” Ismail said, explaining the close relationship between wholesalers and fishermen.

The ministry’s initiative this year was not new, said Fomca, as it was attempted before through Fama and the Pasar Tani programme.

Fomca executive director Datuk Paul Selvaraj said this new push could result in fairer and better prices for both producers and consumers as there would be a direct link between them.

“We have seen cases where smaller farmers don’t get fair prices for their produce from wholesalers,” Selvaraj said, compared with if they had sold them directly to consumers.

“If done effectively, it can benefit producers and consumers.”

At present, there are problems with the Pasar Tani programme, which is originally supposed to be a way for producers to sell directly to consumers.

“But right now, there are some sellers at the pasar tani (who are not producers) but who buy from wholesalers.”

The other method, said Selvaraj, was to liberalise the market and get rid of monopolies, such as in rice and sugar that allowed certain quarters to collude and distort prices.

This includes opening up the system of giving import permits to create more competition among wholesalers, which could drive down prices.

“When you give import permits to only two or three people to bring in produce, it can lead to collusion. So we need to liberalise this.

“At the same time there must be strict enforcement from the Competition Commission to ensure that there is no price collusion.”

Gooi said simply targeting middlemen in the rice industry would not solve the problems of farmers not getting paid enough and supply disruptions in the market.

He said these problems stemmed more from Padiberas Nasional Berhad or Bernas’s mismanagement of the subsidised rice scheme called ST15 rice. Bernas is the regulator and distributor for the country’s rice industry.

“I don’t deny that there are unscrupulous middlemen. We are all for schemes to improve farmers’ incomes and to ensure consumers get an affordable price for their rice.

“But we question whether this campaign is really targeting the real problems in the rice industry, which is more to do with Bernas.”

- TMI