Sugar Subsidies in Malaysia

“Statistics indicate that 2.6 million Malaysians under the age of 30 are diabetic. If left untreated, patients will face various complications such as heart disease, kidney failure, blindness and amputation. In relation to this, the government proposes to abolish the sugar subsidy of 34 sen effective 26 October 2013. I urge all Malaysians to take care of their health and reduce sugar in your food and drinks.” Said by Prime Minister of Malaysia, Datuk Seri Najib Tun Razak during the budget speech.

A subsidy is a grant given to lower the price of a good. It is a part of government policies to alter the behavior of businesses and consumers.

Figure 1

From the Figure 1, it shows the prevalence of diabetes in adults in the world and Malaysia. As we clearly see that adults in Malaysia are more involves in diabetes diseases compare to the world average. Therefore, this is a good reason for Prime Minister of Malaysia to cutting off the subsidy on sugar to reduce the consumption of sugar and promote a healthy lifestyle. As we can see that, the health of the citizens was the Prime Minister’s main concern by cutting off subsidy on sugar. By the way, he also believes that cutting off subsidy of sugar is also good for economic growth. Therefore, I strongly agree that cutting off subsidy on sugar is a good way to pump our economic and it’s also to educate people to avoid over-consumption of sugar which will also lead to other diseases, like obesity and heart disease.

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Surprisingly, Malaysia is the only country with a sugar subsidy and this policy commenced in 2009. At the first place, the purpose of the policy is to sustain the sugar price at the current level and to reduce the burden of the targeted people especially the poor. However, as the time past, the government reduces the sugar subsidy by several times among the years (as shown in Table 1) to combat diabetes among Malaysians.

Table 1: Sugar retail price in Malaysia

Source: MSM, Budget 2014

According to Elias Soukiazis and Túlio Cravo (2007), they argued that good health raises the levels of human capital, helps to improve the levels of schooling and education performance, increases labour productivity (reduces incapacity, debility, and days lost because of sick leave) and that all these are beneficial to economic growth in their discussion paper and the result they obtain is that health status are important factors for generating higher income and then it is important factor inputs in growth equations and cannot be omitted. However, it only relevant in apply to the intermediate and lower income country. Besides that, Mankiw, Romer, and Weil (1992) state that the importance of considering not only education, but also health and nutrition as conditioning factors to growth.

Table 2: Subsidy on sugar in Malaysia

Source: nkkhoo.com & Amanah Mutual Berhad

On the other hand, cutting off subsidy of sugar is also good for economic growth. From Table 2, we can see that there are huge amount of subsidy, which is around RM2000 million was allocated for sugar. By abolish the sugar subsidy, the government may also subsidize on other commodities which are more important and essential such as petrol, health and education. The move is also to enable Malaysia to shrink its deficit and boost its economy and development. For example, 1 Malaysia program.

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According to Prime Minister of Malaysia, he has focused on expanding measures such as BR1M, which gives cash directly to those poorer families in need as aimed to increase the BR1M aid from RM500 to RM1,200 for households and from RM250 to RM600 for single people. BR1M also serves as a clever way to boost growth, because poorer households tend to spend their cash hand-outs, whereasricher households tend to save extra income. Beside BR1M, other 1 Malaysia program like book voucher at RM250 for university students and this would be a significant help to local university students. Moreover, The Student Assistance program amounting to RM100 and this is a significant help in terms of alleviating the burden of parents with school-going children.

However, according to University of Malaya’s Centre for Poverty and Development Studies Director Assoc. Prof Fatimah Kari, she opined that the government should gradually abolish the BR1M as in the long run, it would not help to eradicate poverty. Indeed, a one-off RM650 cash aid cannot help much. After the money is spent, the household income would remain low and the BR1M could only meet their immediate need, but not a long-term poverty eradication program.

Even though sugar price increases almost every year, the increase in sugar price in Malaysia is considered reasonable and affordable as compared to other countries like Indonesia and Singapore. Countries like the Philippines, Indonesia and Thailand have a per capita income that is lower than Malaysia yet they pay more for their sugar.

By the way, sugar should be sold at its market price because, tt is not a basic necessity and its consumption is most harmful to one’s health. With the total withdrawal of subsidy, the price of sugar will increase by 80 sen per kilogram but this should not lead to a drastic increase in the price of sugar-based food and drinks.

In sum, subsidy may be a good move to control the way businesses and consumers behave in response to the economic changes. However, subsidy is an expense to the government. Because of higher demand for sugar, government has to allocate more subsidies on higher unit of production. So, it makes sense that the government is trying to rationalize the sugar subsidy. In order to rationalize subsidy, a long revision and adjustment should be made. It may take a long time to abolish the sugar subsidy because it has to be done periodically, by steps and not to shock the consumers.

References

1. Elias Soukiazis & Túlio Cravo (2007). The Interaction between Health, Human Capital and Economic Growth. Discussion paper, Empirical Evidence. Retried from http://www4.fe.uc.pt/ceue/working_papers/elias_tulio42.pdf
2. Lim Sue Goan (2014). Cash aid cannot eradicate poverty. Retried from MYSinChew website: http://www.mysinchew.com/node/96395?tid=12
3. Economic Insight (2012). Retried from Amanah Mutual Berhad website: http://www.ambmutual.com.my/publications/economic reports/2013/10Oct/44 – Subsidy Rationalization.pdf
4. Why sugar subsidy should be withdrawn immediately (n.d.). Retried from Consumer Association of Penang website: http://www.consumer.org.my/index.php/focus/sugar-and-diseases/403-why-sugar-subsidy-should-be-withdrawn-immediately
5. MSM Malaysia- Sugar Gets More Expensive (n.d.). Retried from Investor.com website: http://klse.i3investor.com/blogs/journeytowealth88/18382.jsp
6. Audrey Ewards (2013). Diabetics getting younger. Retried from The Star website: http://www.thestar.com.my/News/Nation/2013/11/14/Diabetics-getting-younger-Disease-to-affect-productivity-and-quality-of-life-in-the-long-run.aspx/
7. When sugar leaves bitter taste (2013). Retried from FMT News website: http://www.freemalaysiatoday.com/category/opinion/2013/10/29/when-sugar-leaves-bitter-taste/
8. Malaysia’s economy turns the corner (2013). Retried from Malaysia Kini website: http://www.malaysiakini.com/letters/255037