There was a piece up over at The Star on Jan 15, which Philip Wong of the Sarawak Institute for Public Affairs had an interesting view about how abundance and excesses of fruits from durians to rambutans, langsat, mangosteen and bananas, somehow, is not efficiently managed and distributed thus how much those fruits are wasted.
This is not an unusual occurrence or something appears to go wrong with an economy.
It is just that we produce too much; we buy too much, don’t eat it, and then throw it out.
And some of what is grown is just never picked up by the food retailing chain and profit oriented entrepreneurs – deformed fruits and vegetables are often just ploughed back into the fields or left to rot.
He is right, we really do have abundance, so what?
It is, rather, evidence that the economic process being followed is beneficial to the economy.
And that’s all that is happening;
“Naturally, this is not to the farmers’ advantage, as agents simply pay the lowest prices for the fruits, which otherwise would rot.”
The people with the money simply think that paying low prices is a good idea.
Now, of course, that might not be a message that Philip wants to hear but it is what is actually being paid.
In the poor world there’s a very different problem.
This is where 50 per cent of the food grown rots or is otherwise destroyed in the movement from farm to fork.
Fortunately, we haven’t adjusted to this reality yet.
“Unfortunately, this scenario is common in Sarawak yearly due to mainly to the lack of marketing, transportation and repackaging/reselling opportunities.”
I think this is a hugely useful signal about things that might happen in the future. And as such those signals allow us to take action to deal with the abundance.
In fact, it is merely the basic inefficiency of the logistics systems which is a symptom, not a cause.
So, abundance itself is not a problem, happy?
“Until the road system has been upgraded, this issue will continue to hinder any initiative to solve the over abundant fruit supply problem.”
But in an economic sense the road system is only a small part of the system.
And this is where we should consider what a supermarket chain really is, an efficient logistics chain.
Sarawak has a desperate and crying out need for a more efficient series of logistics chains to get food from farm to fork.
The marriage of the two is obviously going to increase efficiency.
And we all know what increased efficiency means – the consumer becomes better off.
I most certainly don’t want public policy to go around sorting this out where we have managed to achieve it.
“The state ministry could determine a fixed minimum price for fruits during such times but it would be difficult to enforce due to the varying distances to collecting centres in the state.”
He called for controls on the prices which never worked, historically. His proposal actually suggests, to save it, is to crash it.
State intervention in food production has been tried before – in Soviet Russia and Mao’s China where it was not exactly a roaring success.
The answer to this is to have futures market.
The consequence of this activity is far reaching, making us economise on consumption and others increase production, thus actually solving, over time, that very abundance the prices are signalling.
For example, consumers are encouraged to eat less and save more, farmers to improve their yields, entrepreneurs to invest more in logistics and distribution.
I agree, a future market isn’t going to eliminate the abundance of fruits. But it surely will change the effect and decrease the scale of it.
To find out what a basic future market does, we hear from a local company itself;
“The durians were collected during the peak season of 2018 and purchased at 40 sen per kg from farmers in collaboration with Persatuan Peladang (Farmers Association).”
The supply has also been affected by that abundance, leading to less or more planting which is the information we really want.
That also the bit that future market can help with when deciding which fruits to plant a farmer is taking a gamble.
The need of the hour here is information.
Information on seed sales, cropped area, weather, plant health and arrival forecast.
If all other farmers plant the same fruit then there will be a glut of produce at harvest time and thus no income for the farmer from the low prices.
Even the leftist gets the concept right, at the very least!
“The Federal Agricultural Marketing Authority (Fama) can enter into a contract with rubber tappers to buy certain amount of fruits at a specific rate in the future,” Michael Jeyakumar Devaraj of Socialist Party Malaysia said.
If instead very few plant then prices will be high and so will profits for those who grow the plant in short supply.
If the farmers think a current price is mostly likely the best price than can be expected, they all can try to market their inventories at the same time.
But there is a time lag between when the farmers decide to deliver and when the fruits arrive on the market and affect price.
This is the reason why we always see an unusually high price for certain fruits may be followed by a flood of fruits being brought and subsequently extremely low prices.
Yes, a supply shock has reverberated throughout the price system. So Philip suggested:
“The most practicable solution is probably for the state to set up processing centres in various locations with private enterprises partnerships during such periods. Over time, the state could pinpoint the types of fruits or vegetables that will be able to sustain the production centres during the rest of the year; these could be non-seasonal fruits like papayas, lemons, oranges, watermelons and others.”
Well, yes, but that’s probably not the way to do it.
Why use the state government? Why not use the more efficient private markets since he already suggested private enterprises partnerships?
For who is it that gets the seeds to farmers? Ships the fertiliser? Runs the warehouses and processing centres after the harvest and pays the farmers so that they can do it all again next season?
For that is what a futures market to achieve!
What if future markets are wrong?
The person who commits errors will suffer severe financial losses.
Yes, this will misdirect the economy, but that’s perfectly normal because of the nature of the market itself.
More importantly, the person will not remain in a position where he can increase the severity of the problems by his errors. We don’t need to worry about him.
The existing players are likely to be very efficient and therefore beneficial to the economy.
Our real concern is about the volatility price of fruits. The solution to such abundance and price variation is a futures market.
Thus, we should have a futures market. Problem solved and job done.
Lines in italics are the words of Philip Wong, Sarawak Institute for Public Affairs
The views expressed are those of the author and do not necessarily reflect the official policy or position of the New Sarawak Tribune.
