Sunday, January 06, 2008

Cooking Oil, Cooking Oil, Where Art Thou Cooking Oil...

This blogger was recently accused of needing a sex scandal to resume writting. Whilst not denying such things can be inspirational, may I be 'holier than thou' here by proclaiming that it was the clear degeneration in Moral Standards in our leadership that 'inspired' me!

Be that as it may, I now feel compelled to further prove my worth by borrowing from Shakespeare to alude to the fact that not only sex-scandalised Federal Ministers are so cultured, but also to write on something completely devoid of sexual intonations to us 'holier..', cooking oil!

Actually, I had loads in mind to write until I saw the good work done by fellow blogger lulu, and was compelled to quote her instead when agreeing, disappearance of cooking oil may be partly due to high CPO price (indicative of high edible oils price in general as well)...

http://whatalulu.blogspot.com/2008/01/then-it-suddenly-struck-lulu.html

...and likely has very little to do with a prompt 'population explosion' as believed by a certain minister... unless the 'explosion' was due to sudden massive imports of cooking-oil guzzling illegal workers (jeng-jeng!) or if Siti Nurhaliza has been heavily campaigning for the feeding of cooking oil to the more modest baby output making it look like an explosion, of which she has not ...

http://whatalulu.blogspot.com/2008/01/lulus-wondering-if-we-had-sudden.html

This theory of lulu's that price controlled goods are being affected by such shortages more than others is also plausible, though maybe some general economics discussion would be prudent to explain why this may be happening to us Malaysians...

http://whatalulu.blogspot.com/2008/01/lulu-wonders-whats-next.html

OK, everyone who pretends to know economics reckons it is all to do with 'supply and demand'. Unfortunately for many of us, since the publishing of the Undercover Economist among other books, more have begun to understand that economics and the movement of goods is actually more to do with marginal supply and marginal demand.

What do I mean by 'marginal' - well marginal here means effectively the last ton, lori, kg, tanker, litre, bottle, metre, cup or whatever unit/resceptacle of a product that is or may be sold at any time. Movements of marginal supply and demand levels are not necessarily indicative of a shortage in a market for a good, but it may indicate why goods are not being sold.

So, time now for a motherhood statement - just because I like them as it makes me look important! THERE IS NO SHORTAGE OF COOKING OIL GLOBALLY AND CERTAINLY NOT IN MALAYSIA, ONE OF THE BIGGEST MARGINAL PRODUCERS OF EDIBLES OILS!

There is however a structural problem with the country's ability to efficiently distribute food, leading to issues of availability at certain locations at certain times and a need for a better supply chain as one can read from these articles on the web for starters:

http://www.econ.upm.edu.my/~peta/nik/nikmustapha.html
http://www.isis.org.my/files/pubs/papers/LWFoodSecurity&EconomicGrowth.pdf

No mention of cooking oil though, so how is this relevant? It is relevant in the context of the one source of news that Malaysians all rely on... gossip! Compounded by the biggest authority that shapes consumer market movements in the country, rumour!

It begins with Makcik Lela, who whinges to her friend that she couldn't find anything but Mazola at the supermarket. She just happened to mention this while passing by the kedai kopi where Pak Tam, happily asked the owner if he has oil. The owner says yes, but his Minyak Cap Kerja feels like is getting more expensive. Maybe it is because there is less Minyak Cap Kerja since the kedai kopi owner of course knows all about Supply and Demand. Other patrons nod their head in shared wisdom over cups of kopi-o.

Pak Tam in panic rushes home, instructs his wife to rush to the local kedai runcit and buy up all the Mazola left. Whilst his wife rushes along to buy Mazola, which she never buys, spreading gossip along the way, Pak Tam chooses to alert his daughter and all his daughter in-laws of the rumour of a shortage in cooking oil. "Remember the salt shortage?" he says,"This is worse!"

In due course, one of the younger members of Pak Tam's family finds it to be his civic duty to warn the entire staff of his GLC as well as his entire high school alumni and futsal club of the shortage in cooking oil. These fellows in turn decide that they should sms people as people should be warned promptly, and many are not on the web! Then the 'news' reaches the ears of a few politicians, many still reeling and gleeing over a DVD Sex-Scandal, as well as a few bloggers...

OK, I digress...

As I mentioned, back to marginal economics, lulu did have a point when linking the cooking oil and other recent shortages with our government's controlled goods policy. All in all, the policy is a good one as it provides some cost security of some critical food items to the populace, of significant benefit to the poor, but a benefit shared by all.

However, the government must also remember that businesses that produce these goods are there to make money. So, unless these businesses find it favourable and profitable to produce these goods for local consumption, these producers would rather produce the goods for export to more profitable markets or worse, not produce anything at all! They are not 'holier than thou'.

The solution, beyond the distribution issue mentioned earlier, would likely be a review of the control elements, such as price, or perhaps even the systems, mechanisms and processes underlying the control goods policy itself. In the end, whilst controling the cost of cooking oil, salt or other goods for public good, the government must ensure the prices are still better than the marginal cost of supply for the producer, and if needed, better than the marginal export options.

Of course, you need to find better people that those consultants who proposed the National Automotive Policy, but then I am holier than thou...

... by the way, was it those jokers or their friends on the 4th floor who suggested that 'rationing' of cooking oil was a solution. Hahahaha... what sort of unenforcable inefficient measure is this! Do we have to show our MyKad before buying now? Maybe queue at the nearest cooking oil AP holder's place?

PS - I hear even the PM is weighing in on this one now. Come on Pak Lah! It seems only you can solve such a difficult problem affecting so many voters! I'm sure as Finance Minister you know all about Marginal Economics...

4 comments:

Jason Lee said...

It is not difficult to understand the reasons for the cooking oil shortage if you understand the economics of production of cooking oil.

Palm cooking oil is basically RBD Palm Olein packaged into consumer packs. The current price for RBD Palm Olein is around RM 3330/tonne FOB i.e. around RM3.33/Kg cost to the manufacturer of cooking oil. Thus the cost of 5Kg is RM16.65. Add to that the packaging cost, the cost of the container, the distribution cost and the retailer's margin, we have to add at least RM3-4 per pack of 5Kg. Hence for illustration, let us round the cost at which the retailers must sell to RM 20.00/5Kg pack. The controlled price at which retailers are allowed to sell is RM 13.35/5 Kg. Hence the producer needs to receive a subsidy of at least RM 6.65 per 5Kg if the controlled price remains unchanged otherwise why should they produce more than what they are compelled to?

2 main factors account for the reason why the producers are reluctant to produce more:

1. The approved subsidy does not match with the actual subsidy required.

2. They have reached the quota of what they are authorised to produce and be subsidised for so unless the quota is increased, why should they produce more?

The solution to both problems lie with the government doesn't it?

Of course when the news spread that there is a shortage, consumers will scramble and hoard thus creating an artificial increase in demand that is not matched with a corresponding increase in supply - hence a shortage.

Manufacturers have been producing 48,000 tonnes of cooking oil per month or 576,000 tonnes per year which is less than 5% of Malaysia's annual production of Palm Oil so how can there be a real shortage?

A Voice said...

Now you're cooking... oil, I mean.

Finance Minister should understand marginal supply and marginal demand. He has been applying marginal propensity to compensate and dispensate for teh past 4 years.

Bernard Anthony said...

Boil all food its healthier, you wont die or starve without cooking oil, I know of people who never use cooking oil , because of the ill-effects of "palm oil" or any other cooking oil

David richard said...

The information in the blog is very informative and effective one.Keep update more things in the blog.Cooking Oil disposal

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