KUCHING: The federal government will not reconsider its recent decision to grant approved permits (APs) to import sugar for food and beverage (F&B) manufacturers in Sarawak.
Deputy Minister of Domestic Trade and Consumers Affairs Chong Chieng Jen said this is because competition in the sugar industry will do more good for the country, business sector, and consumers at large.
“So far, the two sugar refiners – MSM Malaysia Holdings Bhd (MSM) and Central Sugar Refinery Sdn Bhd (CSR) – have enjoyed the monopolistic control over the sale and supply of sugar in Malaysia’s domestic market.
“This is another of the previous administration’s legacy. However, it is the general policy of the Pakatan Harapan (PH) government to encourage more competition, reduce costs of doing business, and enhance efficiency in all sectors,” he said in a statement yesterday in response to local sugar refiners’ call for the government to reconsider the decision to approve APs for eight F&B manufacturers in Sarawak.
The PH Sarawak chairman said no country can afford protectionism in a globalised market as such a policy would breed inefficiency, forcing the public to bear unnecessary costs.
He said international raw sugar prices had fallen by more than 35 per cent from 45 US cents per kg in February 2017 to less than 30 US cents per kg since February 2018.
Chong observed MSM had indicated in its annual report 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 one 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. With the new policy to allow the F&B manufacturers in Sarawak to directly import sugar from foreign sugar refiners, this will provide substantial savings for these F&B manufacturers and reduce their costs of business,” he said.
Chong said one of the manufacturers had just entered into a contract to purchase sugar from the largest sugar refiner in Thailand at the approximate price of US$400 (RM1,700) per tonne inclusive of transportation charges.
It had previously purchased sugar from a local refiner at more than RM2,700 per tonne, he said.
Chong said the manufacturer, which requires 300 tonnes of sugar annually, is now getting a savings of RM1,000 per tonne with the AP.
He questioned why the two local refiners were selling sugar at RM2,700 per tonne while the Thai refiner could sell it at RM1,700 per tonne inclusive of transportation.
He said local refiners had claimed that they needed to absorb price fluctuations when the international sugar price rises.
“Therefore, they are now entitled to make extra profits when the international sugar price goes down.
“This argument is untenable,” he said, pointing out that the present international raw sugar price is 28 US cents per kg.
He explained that if the international raw sugar price was 40 US cents per kg, the reasonable refiners’ price would be a maximum RM2.20 per kg.
“Yet, our local refiners have been selling sugar 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 40 US cents per kg.
“Another reason provided by the refiners is that they have the obligation to hold stocks for food security reasons and that it costs them an annual cost of RM7 million to RM20 million to hold stocks.
“Malaysia’s local sugar consumption is 1.5 million tonnes per year, which means that jointly the two refiners’ 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,” Chong said.
He said if the Thai refinery’s RM1,700 per tonne involved a profit of RM100 per tonne, then the two local refineries price of RM2,700 per tonne would involve a 1,000 per cent profit.
“MSM and CSR have also expressed concern that the imported sugar may not have halal certification,” he said, while pointing out many sugar refineries in Thailand are halal certified and that Malaysia recognises the halal certification of the relevant Thai authorities.
“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,” added Chong.
On Wednesday, MSM had said the decision to grant APs was made without fully understanding the background and current responsibilities of the domestic sugar industry and the mid- to long-term impact on sugar supply and food security in Malaysia.