Malaysia Food Companies Pledge Not to Pass on Prices

Malaysian food and drinks companies gave assurances that they won’t pass on higher sugar and fuel costs to consumers after the government cut subsidies last week, reported NA “Kazakh-Zerno” with the reference to the “Bloomberg“.

Representatives of almost 500,000 manufacturers, restaurateurs and coffee-shop owners, including Nestle Malaysia Bhd. and Fraser & Neave Holdings Bhd., met today with Ismail Sabri Yaakob, Minister for Domestic Trade, Co-operatives and Consumerism, to discuss potential risks to inflation.

“They have given the commitment to the government that they will not raise prices of food and drink,” Ismail Sabri told reporters today in Putrajaya, near Kuala Lumpur. “I hope this will relieve consumers and they can report to the ministry if there are any price increases.”

The Southeast Asian nation trimmed subsidies for sugar, gasoline, diesel and liquefied petroleum gas on July 16 in a first step toward scaling back aid on essential items. Malaysia aims to almost halve its budget deficit in the next five years as it widens the tax base and cuts expenses under a plan to make the economy more competitive, the government said last month.

The country spends about 73 billion ringgit ($23 billion) a year on subsidies on goods from fuel to flour, Prime Minister Najib Razak said in April, calling the amount “not sustainable.”

Sugar prices were raised by 25 sen to 1.90 ringgit per kilogram as a result of last week’s subsidy cuts, which the government said on July 15 would save it more than 750 million ringgit between now and the end of the year.

Paying Suppliers

Malaysia pays suppliers to keep many consumer goods below their true market values. The decades-old system, aimed at helping the poor, has also benefited the rich and encouraged smuggling to neighboring countries where prices are higher.

The government has said it plans to ease these subsidies gradually over a number of years to avoid triggering excessive inflation. An earlier attempt to cut the amount the state pays to subsidize gasoline caused consumer-price gains to surge to a 26-year high in 2008.

Companies understand why the government needs to revamp its subsidies, Ismail Sabri said. Still, the government has no mechanism to fine any business that doesn’t keep its pledge to refrain from passing on the higher costs to consumers, he said.

“It will eat into our profits, but we won’t lose that much,” said R. Ramalingam Pillai, president of the Malaysian Indian Restaurant Owners’ Association, which has about 1,300 members with some 5,000 eateries. “It is manageable.”

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