According to the economic definition:
"The price elasticity of demand is the percentage change in the quantity demanded of a good or service divided by the percentage change in the price. The price elasticity of supply is the percentage change in quantity supplied divided by the percentage change in price."
Economic Minister, Rafizi Ramli denied asking people to stop buying chicken but diverting the subject to the elasticity of supply and demand for chicken is the same thing.
Rubber chickens are elastic but not the live ones. Basic food items are usually inelastic. The supply and demand is not sensitive to prices to a certain extent.
The days yours truly was growing up, fish was the cheapest and most easily available source of protein. Chicken was considered a luxury consumed during kenduri, weddings and Hari Raya festivities.
It has since replaced fish.
Political suicide
On twitter, Rafizi claimed to have a plan. Could Rafizi or perhaps Invoke develop an App able to alter consumer behaviour such that chicken supply and more so, demand are sensitive to changes in prices, thus making market more efficient?
Economics trained Anas bin Jalil doubt it could be done based on Rafizi's textbook understanding. And that is unless there are substitution goods cheaper and acceptable to consumer.
Till he is able to prove his detractors wrong, NST reported him saying here "that "intelligent" members of the public would understand his point of view in presenting arguments". Over Christmas dinner, apparently a PH member of cabinet confided he has committed political suicide.
Confucious has a saying, “Don't do unto others what you don't want done unto you.”
Rafizi getting the brickbats for saying, "by right", chicken prices will be lower if consumer consume less chicken. The Malay proverb described his situation to that of returning back candle nut (pulang balik buah keras) for his past remarks towards previous Ministers.
The former MCKK debater was not to be defeated as he went on an hour long yapping over basic GCE level economic theory on supply and demand to blame the public's consumer spending habit for the rising cost of living. He could have applied the ICAEW he acquired in the UK to appreciate prices cannot be brought down below cost of production.
Jihad Inflasi failure
Farmers would prefer to close their operation than lose money selling below cost. More so, with uncertainty arising from the meteoric rise in US dollar and escalating prices of corn and soy due to Russia-Ukraine war.
Chicken farmers especially the SME closed nationwide due to Annuar Musa's insistence to label major producers as cartel and subsidised imported chicken sold below cost. It was compounded further by the export ban, which was the buffer for the low profit margin to maintain supply locally.
The failure of Jihad Inflasi policies affected food security for chicken and now the delayed egg effect. Rafizi failed to return blame for the problem today to the failure of Jihad Inflasi program by Ismail Sabri.
Theoretical flaw
Unfortunately, public ridicule and expert views against Rafizi have not abated. FMT reported below:
Economist derides Rafizi’s solution to curb inflation
FMT Reporters -December 24, 2022 4:16 PM
PETALING JAYA: It is unreasonable to expect the low-income group to stop buying items to curb price hikes, an economist said today, saying the solution was “too easy”.
This was after economic affairs minister Rafizi Ramli advised consumers to avoid buying unreasonably priced items to curb inflation.
Former Economic Action Council executive director Noor Azlan Ghazali said such a move was wrong, and would not produce the desired result.
“From an economic perspective, bringing down demand to curb rising costs is too simplistic.
“It gives the impression that it is among the measures to arrest rising costs. In extreme cases, will ensuring there is no demand be an effective way to curb a price hike? It is not the way,” he said in a Facebook post.
Noor Azlan said a price hike is likely caused by a lack of supply, noting that during the festive season, demand was stable and there was no surge in prices.
He went on to cite the increased price of eggs, which he said was likely caused by suppliers.
Noor Azlan said it was either caused by a cut in production or items being shipped off to more profitable markets.
He said in this instance, chicken and eggs are without any alternatives, so forcing people to not buy them was impossible.
“Low-income groups don’t have many options. From an economic standpoint, Rafizi’s call is too easy. Economic logic is very important in dealing with these problems,” Noor Azlan said.
He added that the parties concerned should always practice caution when proposing solutions to economic problems.
Noor Azlan proposed a study of the spending habits among the low-income group to draw up sound economic solutions.
At a press conference yesterday, Rafizi was reported to have said that consumers were partly to blame for the increase in the price of food.
He said if consumers stopped purchasing unreasonably priced items, sellers and suppliers would not increase the prices at their whims and fancies.
Problems await
Being a member of the opposition, it is easier to merely find fault, and drum up sentiment by sensationalising issue than being a Minister to lead the solving of problems, plan and execute responsibly. The troll was merely a month long awaited baptism of fire for Rafizi.
More problem awaits. The inflationary problem is far from over and economic forecaster expect inflation to stay high next year and price pressure taper off the following year. There doses of optimism on the inflation and growth front, but dashed by the recent 50 basis points hike. It is indicative Fed is still hawkish on their quantitative tightening.
The persistent increase in US interest rates pushed dollar stronger and contributed significantly to rising food cost for import dependent Malaysia. Last year, Malaysia was grappling with the global supply chain problem.
Then the Russia-Ukraine war which contributed to rising cost for grains, and soy. Both are basic ingredient for chicken feed. Instead of price targeting by Jihad Inflasi, policy emphasis should be on the food security aspect of supply availability and market self correct for prices.
Food and transport contribute almost 40% of the cost of living for the B40. Other significant items rising in the basket of goods and services are education, childcare and health.
It ain't easy like Sunday morning.
As you rightly said, chicken and eggs are the cheapest source of protein Red meats are expensive these days. Fish are there but you have to shop for different types if want to economise on costs. Hard to cut on bare essentials like food. Mortgage repayment rising as interest rate rise and landlords likely pass to tenants as well. Am sure businesses are affected by interest rate hikes, on top of various other cost increases - labour, inputs/raw materials - especially imported ones amid weak Ringgit. Inflation is largely cost push, demand will naturally dampened with inflation but mainly on non-essentials and discretionary, hard to cut on essentials.
ReplyDeletePeople mostly cuts are on non-essential and discretionaries - even heard people are cancelling insurance policies to get extra cash for spending on necessities instead of paying insurance premiums (which is "premium" e.g. my health insurance premium has risen twice - 2017 (insurance company seemed to blame it on GST) and in 2021 (no more GST... but now blame on general rise in (whatever) costs)...