Malaysia may completely abolish subsidies for sugar as early as 2012, after the expiry of its long-term contract with global sugar producers this year.

NONE Domestic Trade and Consumer Affairs Minister Ismail Sabri Yaakob (left) said Malaysia's contract with sugar producers currently fixes the price of 70 percent of the nation's sugar supply at RM2.50 per kilogramme, while the remaining 30 percent follows global market price.

When asked, Ismail Sabri was non-committal on the government's position after the expiry of the contract at the end of this year, but did not discount the possibility of completely removing sugar subsidies by then.

"The next round of subsidy rationalisation will be this December. What the government decides then would depend on the situation at the time," he said at a press conference after launching his ministry's 'Kurang Gula, Kurang Belanja' campaign.

"If the price shoots up to, say, RM3 (per kilogramme) in 2012, then the government will have to consider that."

azlan The government implemented its fourth round of sugar subsidy cuts last Tuesday, raising the price by 20 sen to RM2.30 per kilogramme and just 20 sen lower than the current contract price between Malaysia and sugar producers.

According to Reuters , global sugar futures, however, have been on a downward trend since February this year, with London white sugar futures dipping US$18.20 to close at US$594.46 or RM1,771.49 per tonne as at Thursday.

The New York raw sugar contract for July also went down 0.93 cents to close at 20.94 cents per pound or an estimated US$461.64 (RM1,375.69) per tonne.

azlan The drop in sugar prices is due to a global sugar surplus of 10.575 million tonnes, nearly double the initial surplus forecast of 5.607 million tonnes.

This is largely attributed to an unexpected spike in production by the world’s top-two sugar producers - Brazil and Thailand.

Despite the dip in world sugar prices, it has little bearing on Malaysian sugar prices due to the current contractual agreement.

‘We will fight profiteering’

Ismail Sabri ,meanwhile, gave the assurance that his ministry is on constant watch to catch traders and restaurant operators who raise prices “unreasonably” following the recent subsidy cut.

“We have calculated, and the 20 sen hike only accounts for 0.4 percent of the (current) price of one drink.

“So if there are restaurant operators who impose unreasonable hikes like 50 sen, we will try to take action against them under the new Anti-Profiteering Act.”

Ismail Sabri also warned traders against selling sugar at prices higher than the current price of RM2.30 per kilogramme, stressing that his ministry will seize all sugar supply from businesses caught violating this rule.

He urged the public to report such cases to his ministry, as there are only 1,600 officers nationwide monitoring prices daily.

Cabinet studying fuel hike

On a cabinet discussion on Wednesday regarding the possibility of raising the price of RON95 petrol, Ismail Sabri said it is still being studied.

azlan He said the Finance Ministry presented a case study on the impact of current global oil prices on Malaysia’s economy, with a widening deficit on the cards if it remains at the present price of US$98.73 per barrel.

“The projection is that our (2011) deficit (due to) subsidies for petroleum products will increase from RM10.8 billion to RM17 billion.

“At the same time the cabinet also discussed the potential impact if we decide to raise the price of petroleum products, especially on the price of goods,” he said.

Ismail Sabri said the cabinet did not set a time frame to complete its study, but assured that there will be no move to push a price hike across the board for petroleum products until then.