This is a reply to an article few days ago regarding food prices went down by 30-50%. It is true that food prices are going down, but this has nothing to do with the government zero-rising the GST.
The truth is, food prices have been moderating all over the world. Looking at the graph below, we can see that food prices in few developed and developing countries including the US, the UK, China and India are moderating since the beginning of the year.
There is a explanation to all of these. Let me show you the trend of world food prices. (You can find the data compiled by Food and Agriculture Organization, United Nations).
From the graph above, we could see that world food prices have been growing around less than 1%. This is much lower compare to last year with 8.1%. The explanation is, there are some food products the world is overproducing, such as oil and sugar. Some food products can’t meet the current demand, such as rice, and meat.
Simple supply and demand tells us, that if you are producing an item too much, you will push down its prices, ceteris paribus.
Let me explain each one of these.
Rice (or Cereal)
First of all, we are producing less rice compare to few decades ago. Looking back at the latest data, growth in production was only 0.2%.
I had a look at the data from USDA, and only production in the US and Thailand had a slight improvement. But overall global production was declining by -0.4% compare to last year.
This is why, rice (or cereal in general) prices is increasing at a certain extent. Demand exceeds supply.
Growth in oil production is slowing down too if we compare to the past 10 years trend. But if we look this by level, production is actually exceeds consumption since 2015.
This explains why prices for oil is declining; Supply exceeds demand.
Production of sugar is cyclical. Every 3 years, there is a jump in production. And at this moment, we are at its peak.
But also pay attention to the red line (human consumption). This tells that we are consuming less sugar comparing to few decades ago. Again, supply exceeds demand; pushing down the price.
You might ask, what does world food prices have to do with Malaysia’s food prices?
First, this graph below tells us that we import more than we export our food.
Looking into details, these are the top 5 food items we are importing. (Source: Trade Map)
Oil – 12.7% of overall food imports.
Cereal (also rice) – 11.3%
Sugar – 8.4%
Meat – 7.4%
Vegetables – 7.4%
Now, if I break down each food components, almost all of food prices are moderating since late last year.
The only exception was price of vegetables, which is declining since Apr-18.
The conclusion is, world food prices in general had been moderating since the beginning of the year, because there are few food items, such as sugar and oil are being overproduced.
This has nothing to do with zero-rising the GST.
- Department of Statistics Malaysia
- Food and Agriculture Organization of the United Nations
- Trade Map
- United States Department of Agriculture