Flour..., Winning, election, using, taxpayers', money

Can you imagine a Hari Raya Haji, Christmas and Lunar New Year without flour?

Seizing the situation, the Abdullah Administration has come up with a brilliant idea to stay winning in the coming general election by creative spending of taxpayers money.

What is NOT reported

During a meeting with representatives of local flour manufacturers yesterday, Domestic Trade and Consumer Affairs Minister Shafie Apdal made a U-turn and rejected the millers' demand to increase the price of general purpose flour -- the main ingredient for roti canai and kueh-mueh -- which currently retails at RM1.35 per kiiogram.

Shafie Apdal... March 2006

The general purpose flour is classified as a price-controlled item, hence we have yet to hear of price increase in roti canai, for example.

No price increase till March, or General Election

According to the Little Birds, The government had initially agreed to allow the flour millers to increase the price of the multi-purpose flour, or what is readily called the white flour, to RM2.15 per kilogram.

In return, the millers were asked to hold the RM1.35/kilo retail price to at least March, Little Birds familiar with the industry told Screenshots.

The ministry also proposed to compensate the millers for their losses incurred from October right up to the time when the general election, expected to take place in March, is done with.

This is seen the latest tactic from the Abdullah Administration aimed at pacifying the voters by holding back price increases for essential commodities, and by cushioning the costs by means of subsidy, which is fundamentally taxpayers' money.

According to industry insiders, the total market size for flour in Malaysia is about 69,300 metric tonnes per month. Out of which, about 17,000 metric tonnes, or 24.5%, is made up of the general purpose flour.

On the other hand, the price of wheat has gone up by RM710 per metric tonne, from RM790 to RM1,500.

Assuming that minister Shafie had meant that the government will subsidise the flour millers for six months from September through March, the month the general election is expected to be held, the quantum for the subsidy, just for the multi-purpose flour alone, will work out to about RM72 million -- solid taxpayers' money.

The arithmetic is simple: RM710 x 17,000 metric tonnes/month x 6 months = RM72 million.

That is discounting the fact the price of high protein flour -- which is the essential ingredient for bakeries, wet and dry noodles, instant noodles, biscuits and cookies -- will keep on spiralling.

Besides, there is no guarantee that the stalled increase in the price for white flour -- and for that matter, the prices of fuel and expressway toll tariff -- will not be reintroduced akin to the opening of the floodgates soon after the election.

There are three major flour millers in Malaysia, namely Federal Flour Mills, Malayan Flour Mills and Kuantan Flour Mills. They had collectively demanded for a second price increase to RM2.15 per kilo after the November hike.

Strangely, only one flour mill -- Malayan Flour Mills, the smallest player among the three -- attended yesterday's meeting with the Minister, the Little Birds said.

However, none of the millers were complaining after the rejection by the minister as they know full well that they will be compensated through the subsidy after the general election.

What is reported, superficially

November 3, minister Shafie said bread producers and bakeries were allowed to increase the price of bread by the 10 sen to 30 sen per loaf as 70% of the increase went towards the cost of importing enriched wheat flour.

The minister also conceded that the increase in the price of enriched wheat flour could not be avoided following the rise in the price of wheat imported from the United States and Canada, which had reached US$450 per tonne compared with US$235 per tonne previously.

Local millers are now carrying cash to buy from spot markets as wheat supply is short.

There is also no immediate solution to the demand-exceeding-supply situation. Wheat prices surpassed $9 a bushel for the first time in September as a drought in Australia cut production, pushing global stockpiles toward a 26-year low. See Google News archive here.

Double whammy

It has been a double whammy for the wheat market: A global disruption in climatic conditions that severely affected harvest, and unannounced stockpiles by China and Russia for the same commodity.

At the same time, countries like Egypt, Jordan, Japan and Iraq have planned to buy some 460,000 tons of wheat at tender markets.

Bloomberg News reported in September that global wheat supplies are expected to decline to 114.8 million tons by the end of the marketing year on May 31, the U.S. Department of Agriculture said in August. Inventories have fallen as adverse weather cut harvests in Europe, the United States, Canada and Australia. The United States is the world's largest wheat exporter.

Wheat harvest in Australia, expected to be the world's third-largest shipper of the grain this year, could be as low as 15 million tons, reported Bloomberg News/IHT quoting the Rabobank. The government's commodity forecaster, the Australian Bureau of Agricultural and Resource Economics, has estimated the crop in June at 22.5 million tons, more than double last year's.

The forecast for the Australian wheat crop may fall to 18 million metric tonnes from a previous prediction of 23 million tonnes in a U.S. report released September 12.

In Canada, the world's second-largest wheat exporter, reserves of the grain plunged 29% at the end of July from a year earlier, Statistics Canada said September 11.

On the demand side, Indofood Sukses Makmur, the world's largest producer of instant noodles and Indonesia's biggest wheat buyer, has been increasing flour prices in each of the next four months since September through December, by 4.5% monthly, to pass on record wheat costs.

Today (Nov 20), Australia's biggest publicly listed food group, Goodman Fielder, has joined a growing chorus blaming drought and rising commodity prices for an expected flat profit this financial year.

It announced that it was unable to recoup the rising price of wheat, edible oil and dairy products from retailers, so the increase would hit the bottom line.

The announcement follows similar comments from wine, beer, grain and meat companies including McGuigan Simeon Wines, Foster's, Grain Corp and Australian Agricultural Company.

Ricegrowers have also said that their harvest would be down from about 112 million tonnes to about 15 million tonnes.

If you remember well, in September, Australian Agricultural, the nation's largest rancher, had told customers that cattle prices will need to increase as wheat prices keep escalating. Wheat is used to feed livestock as well as for making bread, noodles and foods.

The global shortage of wheat has also impacted the price of other grains.

Already, barley prices in Winnipeg, Canada, gained 41% in the past year on increased demand for animal feed and for brewing beer. Canada is one of the world's biggest barley producers.

Similarly, corn has gained almost 50% in the same period, as demand for grain-based ethanol surged.

Distorted economy, Malaysian style

All this, yet our Shafie Abdal is still looking at distorting the economy and dispensing subsidies.