I refer to the recent announcement by the government in removing subsidy for the 25kg pack of general purpose flour but maintaining it on the 1kg pack which is used by households.

The 25kg bag of flour, which is supposedly purchased by retailers such as coffee shops and mamak restaurants, will now see an increase from RM33.75 to RM42, while the price of a 1kg pack remains unchanged.

Through this announcement, we do sense the government commitment in trying to shield the consumer from negative cost of living impact but we fear that this may not be achieved.

It has been demonstrated time and again that whenever subsidies are removed, price increases will follow suit. Unfortunately in this case, again businesses have already indicated that if there is no subsidy, wholesalers will pass down the higher cost to retailers, who in turn will have to charge consumers more.

To me this move by the government may trigger three scenarios as follows:

1. Unethical businesses will continue to purchase 1kg subsidised flour to save cost but yet increase the price of end products directly blaming it on government for removing subsidies. In both ways the traders win and consumers lose, denting the government’s image .

2. Unethical business will purchase 1kg packs in bulk, repack it as 25kg and distribute into the market, making quick profits. This scenario is widespread under similar LPG scheme where 12kg and 14kg cylinders are subsidised for domestic use while 50kg cylinders for industry use are not. Decanting to make quick money is quite rampant as highlighted in media reports of government raids.

3. Due to item No 2, there will be constant shortage of 1kg flour from market, especially during festivities, compromising consumer welfare. How do you limit purchase from the retail market?

It would therefore have been wise for the government to maintain subsidy for general purpose flour until a more workable social security formula is developed rather that leaving it hanging under current arrangement, which ultimately causes more harm that benefitting the consumer.

It is certain that price hike will happen especially in restaurants and bakeries, while the government efforts to plug leakage and protecting consumers will remain cosmetic.