Commentary

Economics IA Microeconomics
Government intervention

https://themalaysianreserve.com/2022/08/06/government-intervention-stabilises-chicken-pric
es-supply-pm/

Government intervention stabilises chicken prices, supply – PM

The Malaysian Reserve
Article written on August, 6 th, 2022
(Writing on 31/01/2022)
Word count: 800 (Not including diagram Titles)

This article explains the price ceiling set by the Malaysian Prime Minister Datuk Seri Ismail

Sabri Yaakob on chicken prices in the country to RM9.40 per kilogramme, to reduce chicken

prices. The article also highlights how Datuk granted subsidies for the chicken breeders to

ease their burden. Also, it goes over the measures taken over the years to reduce the

shortage and improve the alimentary segments of the country.

The justification for this price ceiling set by Yaakob is the increased food production costs in

agriculture. Yaakob also said, "The government is trying to deal with the manipulation of

middlemen and cartels in the agriculture sector and the food supply chain, which causes

inflation and increase in the prices of goods." Datuk stated the administration remained

committed to controlling the food shortage while confronting several obstacles. The

population of Malaysia was threatened by such high prices of chicken, which would cause

people to stay away from chicken, going to other substitutes resulting in a lack of supply of

these said substitutes and an excess supply of chicken.

Diagram 1: Chicken Supply when Price Ceiling is implemented

Creating a price ceiling solves the extremely high prices that chicken had before, as seen

(Diagram 1) consumer surplus was created as before there was none due to the prices

being extremely high. Creating a price ceiling results in a massive increase in demand, as

seen in (Diagram 1) QD, which results in a supply shortage, as seen in (Diagram 1) QS. This

is bad as it would only result in more significant food shortage problems, which is why Datuk

also implemented subsidies in this deal. These subsidies will amount to RM1.1 billion as a

way for the breeders to reduce their burden and ensure sufficient supply of eggs and chicken

so that the price can be stable. By applying the policy correctly, the country's agricultural

sector is expected to grow at 4.5% per year, taking on significant roles in the state's gross

domestic product. In (Diagram 2) it's possible to see how the whole policy would be applied.

The government will offer incentives for production which would lead to a new equilibrium as

seen in (Diagram 2) Q**, meaning there would be no shortage, and supply would be ideal,

covering all demand. And obviously, the price would be at the one set previously by Yaakob,

RM9.40 per kilogramme of chicken. The intended effect of the policy is for prices to be more

affordable for the population and there to be no shortage with the price reduction, creating a

new equilibrium for the cost of chicken.

Diagram 2: Solution to shortage problem. Offering incentives for suppliers to increase

supply.

This policy will be sort of a short-run policy, because it will only last until the RM1.1 billion is

in the breeding market. After that, if there isn't more investment by the government, there will

be a shortage again. If there is further investment in the manner that the chicken is bred that

is permanent, then the policy should work long-term for a good time. In theory, this policy

would not worsen any factors of production or any area in Malaysia. The parties involved in

this policy are chicken consumers within the country, chicken breeders, and the government,

that implement the policy. This policy will primarily benefit the consumers as they can

acquire chicken at lower, more affordable prices. The producers will also be helped as they

receive incentives to boost production. However, they will only be able to maximise their

profit if a ceiling is set to protect the customers. The government is neutral and trying to

solve the issue so that both parties will have something to gain. The government's priority

with this policy is decreasing chicken prices so consumers may buy it at a lower price and

there isn't excess supply. The article explains that Datuk's main priority is to improve

consumers' well-being and for them to be able to afford food. The pros of this policy are that

they make chicken prices more affordable, which before they weren't, and indirectly improve
other products supply, such as eggs and other farming goods. Also, allowing the country's

agricultural sector to become more competitive and developed to benefit the country's GDP.

The cons of this policy are that it may cause environmental damage as more chicken will

require more space and food and, consequently, drive more waste. Also, there will be a less

competitive market because consumers will want the cheapest alternative, which will be

chicken, resulting in a shortage of demand for many other products.

The price ceiling set in Malaysia will allow consumers to afford their food in a cheaper

manner. The government's subsidies will keep the supply steady and create an equilibrium

between supply and demand. This policy should be successful and will ultimately depend on

the government's further investments and breeders' willingness to produce the goods.