PM Badawi announces measures to bolster Malaysian rice.
Recall, if you will, our previous post on Malaysian purchases of rice, and its effect on the U.S. market. It’s not just the U.S. market that is affected, of course — Malaysia’s internal rice markets respond these pressures even more readily than our own. Thus we see in today’s news reports that Kuala Lumpur is moving to cap rice prices within Malaysia itself. The policy is a mix of free-market and state interventions, with internal movement of rice being facilitated — and price controls simultaneously established. A short-term alleviation of the internal rice shortage is likely, but long-term effects remain to be seen. Price controls in particular are unsustainable, as they will lead to off-market trade and, in the long term, even higher prices than those they were imposed to control.
The probability is that the Malaysian executive grasps this. It’s an indicator of the importance of this issue that the announcement of the state’s moves came directly from Prime Minister Abdullah Ahmad Badawi himself. The PM is in a difficult spot here: he is known as a staunch advocate of markets, and especially of the intrinsic comparative advantages of Malaysia’s agricultural sector. On the other hand, that sector does not compete against the agriculture of other nations in a perfect free market — nearly every nation, including the United States, indulges in massive taxpayer subsidies to its food producers. Furthermore, the working of the free market in basic commodities is easier to theorize about than implement. When it’s a staple food like rice, a good pragmatist will attempt the middle course — in politics and in production. Observers of the Malaysian scene will watch with keen interest where the PM goes next on this front.
UPDATE: More on this story, with further details, here. Background on the relationship to world oil prices and the broader inflation fight here.
[...] As noted in our earlier post on the Malaysian rice market, the free-market, pro-trade, and pro-growth instincts of the ruling coalition under PM Badawai are sound — and the lifting of controls on the steel sector is evidence of this. In a region, and an era, where classically liberal economics are too often eschewed for statist “solutions,” the Malaysian government is providing a salutary example for Asia and the world. Who benefits? In the short run, Malaysians — and in the long run, everyone who trades with them, including their number one foreign investor, the United States of America. | Category: Malaysia, Malaysian Economy, Trade, US-Malaysian Relations [...]