KUALA LUMPUR (July 12): Poultry producer Leong Hup International Bhd said the government should do away with the subsidies for chickens and eggs, which distort the market and is unsustainable over the long run, and use the money saved to create higher value jobs instead.

“As a short term measure, it's good, [but for] long term, the boom and bust cycle of the free market cannot be avoided and it is not healthy [to keep the subsidies],” Leong Hup's chief financial officer Chew Eng Loke told reporters on Wednesday (July 12) after speaking at the Hong Leong Investment Bank-Bursa Malaysia STRATUM Focus Series 15 on “Food Security: Where are we now?”

“I don’t think subsidies are sustainable [and] once you put it in place, it is very hard to remove," he said, adding the government should focus more on creating high value jobs in order to support the local food supply.

As example, he cited the higher chicken prices in Singapore compared with Malaysia, despite the same producer supplying to the two markets, due to Singaporeans' higher incomes.

“If I were the government... I would take this [subsidy] to create more high value jobs because [for example] the chicken price in Malaysia is RM6.00 but we are selling our chicken in Singapore at RM9.00 because they can afford it. Why they can afford it is because their income is high... So, I would actually use it [the money from the subsidies] to grow jobs.”

During the event earlier, he noted that ceiling prices are not new especially during the festive season — which the government often imposes for a short period of time to curb profiteering.

“But by 2021, that ceiling price has stayed and there is no time frame [given for when it will be lifted]."

Taking egg prices as example, he said the ceiling price of Grade C eggs in Peninsular Malaysia for July 1 to Oct 11, 2022 was 37 sen, with a three sen subsidy. That changed to a lower ceiling price of 35 sen, but with a higher subsidy of eight sen in the Oct 12 to Oct 31 period. Then from Nov 1 to Dec 31, 2022, the ceiling price was maintained at 35 sen but the subsidy increased to 10 sen.

“As you can see, it's only a matter of days, then it adjusted again because corn and commodities have gone up and down, so the government is doing a heroic job but it's really impossible.”

“Right now, the currency's (ringgit) going down again, so the cost will go up. If the government is to maintain [egg prices], it's going to be a tough juggling act.”

Chew also noted Leong Hup’s gross profit margin has recovered to 3.6% in FY2022, with a higher revenue of RM9.04 billion, as opposed to FY2021's 2% when it reported a revenue of RM7.15 billion, though the group's profit margin is still lower than the 6.1% it saw in pre-pandemic FY2018.

“For the industry, the profit is like [a] cycle… When our profit dropped 2%-3% you can bet there are many smaller ones (poultry producers) that have exited the market, so the bigger ones will consolidate and then the profit margin will come back.”

“We think brighter days are ahead of us,” he added.