KUCHING: The federal government will not re-consider its decision to grant sugar import permits for Sarawak food and beverage (F&B) manufacturers.
This was emphasised by Domestic Trade and Consumer Affairs deputy minister Chong Chieng Jen in a press statement issued yesterday in response to a statement made on June 13 concerning two local sugar refiners.
He stated that the two sugar refiners, MSM Malaysia Holdings Bhd (MSM) and Central Sugar Refinery Sdn Bhd (CSR), have enjoyed monopolistic control over the sale and supply of sugar in Malaysia’s domestic market.
“However, it is the general policy of the federal government to encourage more competition, reduce costs of doing business and enhance efficiency in all sectors.
“(But) to afford protectionism policy will only breed inefficiency for which the general public will be forced to bear the unnecessary costs,” he said.
Chong further stated that the international raw sugar prices has fallen by more than 35 per cent from USD 0.45 per kg in Feb 2017 to less than USD 0.30 per kg since Feb 2018 till now. In its annual report, MSM indicated that raw sugar constitutes 88 per cent of its production costs for refined sugar.
“Yet, despite the huge fall in its production costs for more than a 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 explained.
Chong also revealed that one of the manufacturers has just entered into a contract to purchase sugar from the largest sugar refiner in Thailand at the approximate price of USD 400 per ton (RM1,700) inclusive of transport charges. Before that, it was buying sugar from one of the local refiners at the price of more than RM2,700 per ton. With the sugar import AP, there is now a savings of RM1,000 per ton and that manufacturer’s production requires 300 ton of sugar per year.
Thus, he questioned the two local refiners: “If the Thailand refiner can sell their sugar at the price of RM1,700 per ton (inclusive of transport charges), why are the local refiners selling their sugar at RM2,700 per ton?”
Amongst the justifications given by the local refiners for selling sugar at such high price is that they are entitled to make extra profits when international sugar price goes down because in the case of rising international sugar price, they are the ones who absorb the price fluctuation to maintain supply.
However, Chong claimed that the argument is untenable because at present, international raw sugar price is USD 0.28 per kg. For the past five years, the average raw sugar prices sourced from Indexmundi were USD 0.27 (2018), USD 0.35 (2017), USD 0.39 (2016), USD 0.29 (2015) and USD 0.37 (2014).
“With international raw sugar price at USD 0.40 per kg for the past five years, the reasonable refiners’ price should not be more than RM2.20 per kg. Yet, our local refiners have been selling sugar at way above that price for the last five years,” he stated.
Another reason provided by the refiners is that, they have the obligation to hold stocks for food security reason and that it costs them RM7 to 20 million annually to hold stocks.
In response, Chong said that Malaysia’s local sugar consumption is 1.5 million ton 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 one per cent of that revenue. Surely, it does not justify the extra RM1,000 profit per ton from the reasonable price of RM1,700 per ton,” he said.
He continued, “Just as a simple illustration, if the Thailand refinery selling sugar at the price of RM1,700 per ton makes a profit of RM100 per ton, then, aren’t the two local refineries selling sugar at the price of RM2,700 making a 1000 per cent extra profit?
“The annual RM7 million to RM20 million extra holding expenses surely won’t justify such enormous extra profit,” he pointed out.
On halal certification, Chong said that there are many sugar refineries in Thailand which have valid “halal” certification and Malaysia has mutual arrangement to recognise the “halal” certification issued by the relevant authority of Thailand.
Thus, he urged the two refiners to improve on the efficiency of their sugar refinery business and to offer cheaper and fairer sugar prices to other businesses and F&B manufacturers in Malaysia.
On the refiners’ proposal to close down some of their loss-making factories, Chong claimed that 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.
