KUALA LUMPUR: Malaysian sugar producers are facing increasing pressure due to sudden increases in production costs, even though the government controls the price of the commodity.
At RM2.85 per kilogram, Malaysian retail sugar prices are among the lowest in ASEAN and the world, according to BIMB Securities Research.
This amount is in sharp contrast to neighbouring nations like Thailand (RM3.91), Singapore (RM7.34), the Philippines (RM8.53), and Indonesia (RM5.74).
The research firm pointed out that since 2013, the price of retail sugar in Malaysia has increased by just one cent.
However, the average cost of producing sugar has exceeded current selling prices for producers due to the spike in global sugar prices, which is being caused by shortfalls and rising oil and transportation costs.
It said that, as a result, sugar producers are currently suffering significant losses for each kilogram sold.
According to BIMB Securities Research, the Malaysian sugar industry is confronted with rising operational expenses as a result of supply shortages that cause price spikes. These issues are further exacerbated by rising crude oil prices that impact natural gas-dependent refining processes.
These difficulties are further compounded by currency volatility, specifically the depreciation of the ringgit relative to the US dollar.2013.
The research firm underscored that sugar producers in Malaysia are urging the government to reconsider price ceilings or subsidies for both raw and refined sugar in one-kilogram packs, given the challenging operating environment characterized by high input costs and currency depreciation.
Despite Malaysia's controlled sugar prices being the region's most affordable, local producers must meet a minimum monthly quota of 42,000 tons, with MSM Malaysia Holdings Bhd allocated 24,000 tons and Central Sugar Refinery (CSR) 18,000 tons.
To address these challenges, sugar producers received monthly incentives of RM1,000 per ton in November and December 2023 for coarse granulated sugar (CGS) for one and two-kilogram packs, and fine sugar for one-kilogram packs, to cover their cost losses.
These incentives are expected to continue until a revised price mechanism is implemented in the second half of 2024.
BIMB Securities Research said that Malaysia's reliance on sugar imports from Brazil, coupled with limitations in global supply options due to halts in sugar exports by major producers like Thailand and India, further exacerbates risks in the local sugar industry.
It said that this dependence exposes Malaysia to disruptions in the global supply chain and the potential prioritization of domestic markets by supplier countries.
"If the local sugar industry becomes unsustainable, Malaysia will have to rely entirely on more expensive imported sugar, thereby raising domestic prices," it said.
Rising global sugar prices, attributed to extreme weather conditions linked to the El Nino phenomenon causing crop damage in Asia, compound challenges for developing countries already grappling with food shortages and limited food trade, leading to further food price hikes.
