Abstract for: Examining the effects of removing price controls and a rice miller subsidy on rice prices and self-sufficiency in Malaysia
The Malaysian government has pursued protectionist policies to control the market prices and supply of local rice. Particularly, the government subsidizes the local rice, known as Super Tempatan 15% (ST15), to help low income groups purchase rice by setting its retail price lower than a market price. Consequently, rice millers who supply ST15 receive low margins due to the price fixation. In return, the government provides a rice miller subsidy to improve rice millerís profitability. However, in recent years, there have been concerns over the impacts of trade liberalization, which mandates removal of the price controls and the rice miller subsidy. Hence, the authors developed a system dynamics model for the Malaysian rice market and examined the impacts of removing the price controls and the miller subsidy on rice production, consumption, price and import. The simulation results show that the market price of ST15 increases immediately. The price increase causes a sharp drop in ST15 consumption and import, while production continues to grow. It will reduce Malaysiaís reliance on rice import. Malaysia is likely to improve the rice self-sufficiency level, although consumers will bear the burden of price increases.