Tesco rations sugar in Malaysia as price surge boosts smuggling

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Kuala Lumpur baker serene chin is having trouble keeping her egg tarts sweet. A sugar shortage prompted her local Tesco hypermarket to impose a 2kg- per-customer ration, forcing her to make several trips a week.

"This current shortage is really tiresome," said Chin, who normally buys 48kg at a time for her John King's bakery. "Sugar is necessary for the people."

Supplies of the sweetener are scarce in Malaysia because of a global shortage and a decades-old government price cap that encourages people to smuggle sugar across the border into Thailand, where it fetches double the price. Almost every vehicle stopped at the border is carrying controlled-price items like sugar and cooking oil, said Minister for Domestic Trade and Consumer Affairs, Ismail Sabri Yaakob. Customs has begun 35 investigations, more than twice the number last year.

"If you put a ceiling on local prices, when the difference between global and local prices widens, it makes no sense to retailers to sell sugar domestically," said Suhaimi Ilias, chief economist at Maybank Investment Bank Bhd. in Kuala Lumpur. The government needs "more flexible price controls".

Raw sugar futures have doubled this year to a 28-year high, after India, the biggest consumer, had its driest June in 83 years, reducing domestic supplies, and crops in parts of Brazil, the largest grower, were wrecked by rainfall four times more than normal. Malaysia spent 720m ringgit ($204m) on sugar subsidies this year, Ismail said.

World demand for sugar will exceed supply by as much as five million tons over the next 12 months, the International Sugar Organisation estimates.

In Malaysia, the price is set at 1.45 ringgit per kilo, or 1.55 ringgit in the eastern states of Sabah and Sarawak. In Thailand, the world's second-biggest exporter, it can fetch as much as 2.90 ringgit, Ismail said.

Malaysia introduced price controls on essential items in 1974 to ensure food security and cushion volatility in the commodities markets. To prevent a run on sugar in the shops during the month-long peak demand period of Ramadan, which started August 22, retailers were rationing supplies.

Enforcement agencies have stepped up border checks and wholesalers who are caught hoarding sugar will be stripped of their licenses and blacklisted, Ismail said. About 10 tons of sugar have been confiscated from people carrying the sweetener over the Thai border this year, the Customs Department said. Under the 1967 Customs Act, sugar smugglers face up to three years in jail or a fine of at least 100,000 ringgit, or both.

In an effort to meet higher demand before Ramadan, when Muslims break their daylong fast with large meals at dinner, sugar refiners including Malayan Sugar Manufacturing Co, a unit of Robert Kuok's PPB Group, and Central Sugar Refinery Sdn Bhd increased production 20 percent in August to 120,000 tons a month, Ismail said. The state compensates refiners for selling a set quota of sugar below cost, based on their 2008 sales.

No more than 10 percent of locally made sugar is exported, said domestic trade ministry secretary-general Mohd Zain Mohd Dom. Manufacturers are slowing production as the subsidy for the year is running out, the Star newspaper said, citing Mohd Zain.

"If panic buying continues, no matter how much we load, sugar will run out in the shops," said Ismail.

Ministry investigations show the black market price for sugar ranges between 1.50 ringgit and 1.70 ringgit, he said. The government has offered a reward of up to 10,000 ringgit to anyone with information on hoarders or smugglers.

Food stores across Malaysia are rationing sugar supplies, local newspapers reported. Tham Weng Tuck, grocery manager at the Tesco store, said supplies were less than ordered and warned there might not be enough during the festive season.

"We may order 2,000kg, but only 1,000 kilos are delivered," said Tham.

Marlene Kaur, corporate affairs director for Tesco Malaysia, said that the temporary 2kg ration was required by the government "to minimise any possible shortage of supply".

Muhammad Sha'ani Abdullah, secretary general of the Federation of Malaysian Consumers Associations, said that the government should set up a database so that subsidies go only to the poor and not to industries that use sugar in their products.

"We don't agree with subsidies across the board because it is very wasteful and goes to the non-target groups," said Muhammad Sha'ani. "Subsidies are given to provide a safety net for the lower-income groups."

He suggested that sugar be sold at higher prices for bakeries and wholesalers, or that subsidies be given in the form of low-cost housing or cheaper public transport.

Ismail dismissed any suggestion of removing subsidies. "The government gives subsidies to help the people," he said.

Instead, he said, the government would step up efforts to stop the smuggling, including handing out leaflets to people crossing the border, informing them that it is an offence to take out large amounts of controlled price items.

Malaysians consume an average of 26 teaspoons of sugar a day, compared to 17 teaspoons in the 1970s, SM Mohamed Idris, president of the Consumers Association of Penang, said in a statement dated July 24.

"An increasing amount of sugar consumed by the public is in industrially prepared drinks and food," said Mohamed.

Other price-controlled items in Malaysia include gasoline, diesel, wheat flour, white bread and cooking oil.

As for Chin, the sugar shortage has forced her to look beyond the hypermarkets and source the sweetener from suppliers who charge 1.70 ringgit per kilo, although the price of her egg tarts remain the same at 1.80 ringgit each.

"I have no choice but to pay more," she said.

This article is courtesy of Bloomberg.

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