Figure 1: Logo BERNAS
Padiberas Nasional Berhad (BERNAS) is a company listed on the Main Market
of Bursa Malaysia. Essentially, BERNAS is a large scale firm that produce rice
and it is a normal good for the nations. BERNAS Group of companies involved in
the processing and procurement of paddy. As the custodian of Malaysia rice
industry, they also in charge of importation, marketing, distribution of rice
to maintain the nation’s rice stockpile. BERNAS Group of companies is now
involved in rice complementary businesses, international rice joint venture,
seed and farming activities to increase its existence as a leading player in
the rice industry supply chain. Their duties are to maintain quality and
sufficient supply of rice to the nations as well as fair and stable prices of
rice. BERNAS was privatised in January 1996 and it takes over the role of
Lembaga Padi dan Beras Negara (LPN) as the sole rice importer in Malaysia rice
and paddy industry. BERNAS continues to fulfil its responsibilities on behalf
of government under a Privatisation Agreement 1996.
(BERNAS, 2012) BERNAS has made a
historical remarkable because the company was recorded on the KLSE main board
on August 25 in 1997. Obligations of BERNAS are acting as the
buyer of last resort at guaranteed minimum price, provide paddy price subsidy
to farmers, maintain national stockpile. Due to food crisis on 2008, the
government urged BERNAS to increase the national stockpile level from 92,000 metric tonnes to 292,000 metric tonnes so that there is rice sufficiency and security at stable prices to the
nations. Moreover, BERNAS was given the authority to be the only one importer
of rice in Malaysia therefore they need to act as the buyer of last resort and
purchase at a guaranteed minimum price (GMP). On the authority of the
government, BERNAS distributes paddy price subsidies to the paddy farmers so
that they can enjoy a low cost of production hence output increases. (BERNAS, 2013)
Figure 2: National Stockpile of
rice
BERNAS is
the rice import monopoly. As the sole importer of rice on behalf of the
government, BERNAS controls approximately 40% of the local market share. Therefore
it is the only firm in the market that is given authority and license to import
paddy and rice to the nations. A
monopoly is a single firm in an industry or market that the product produced is
free from close substitute and significant barriers to entry. Other firms are
restricted to the industry due to the legal monopoly which derived from the
legal barriers to entry. (Say, 2011) Legal
monopoly is a market that is protected and restricted by government law and
license. Besides than legal barriers to entry, other firms also faced natural
monopoly and economies of scale. Economics of scale and other cost advantages
enjoyed by firm that has large capital requirements. A large initial investment
or the need to embark in an expensive advertising campaign deter entrants to
the industry. In addition, they are the price maker due to its available market
power as it is the sole producer in the whole industry. BERNAS have control
over the price of their output. BERNAS imports around 30% to 40% of domestic
rice yearly to ensure there is sufficient supply to the whole nations. They
also distribute to licensed wholesalers and consumers. (EMIS, 2010)
Figure
3: Economies of scale in a long run production
Sources:
(Riley, 2006)
BERNAS
is categorized as a long run production because it is a large scale firm thus
all of the inputs used is changeable in quantity. Due to time given, there are
no fixed factors of production and the quantity of fixed factor can be increase
and all inputs can become variable inputs. For instance, BERNAS can buy new
machineries to increase the process of rice thus output increases. The scale of
production for BERNAS is getting increasing returns to scale because when the
firm produces more, it uses smaller number of factors for each output.
Eventually BERNAS will produce at a lower unit cost. A large scale of firm such
as BERNAS will benefit from economies of scale. Economies of scale refers to
the benefits of large scale production due to reduce in average cost and
increase in efficiency. Based on figure 3, it indicates that in a long run
production, a large quantity of output will increase (Q1 to Q2) and at the same
time reduce in average cost (C to C1). In a long run production, firms are able
to manage administrative and tasks more efficient with better standard of
procedures. Therefore the firm reduce average cost and enhances in efficiency. (Riley, 2006)
One of the determinants to change in demand of rice is
the taste and preferences. Growth of economy in Malaysia results in the changes
Malaysian’s lifestyle especially the behavior of food consumption in their
daily life. They are more concern about their health compared to the past,
therefore they tend to change their consumption habits by consuming less
carbohydrates food such as cereals or fiber grains than the rice. In this case,
demand for rice is declining and demand for cereals or fiber grains is
increasing. (Soon, 2011)
Figure 4: Paddy Price Subsidy
One of the factors that influence change in supply is
the government subsidy. To maintain the nation’s rice stockpile and ensure that the country has sufficient supply of rice at all
times, BERNAS
controls the distribution of paddy price subsidies to farmers on behalf of the
government. Government involvement in BERNAS will pay a subsidy about RM400
million a year to the paddy farmers. (Yusof, 1994)To increase supply of rice to the local demand,
government subsidies help the producer to minimize their cost of production.
With subsidies, producer can cover their high land, fertilization cost and so
on. In addition, subsidies also increases the paddy yield obtained and hence it
contributes significantly to local self-sufficiency in paddy and rice production.
Government subsidies boost the rice production thus supply of rice increases.
Figure
5: Elasticity of demand for rice
Sources: (Riley, 2012)
Price
elasticity of demand measures how responsive or sensitive consumers are to
changes in the price of a product. One of the factors that influence the price
elasticity of demand is the closeness of substitutes. Rice is considered as a
normal and necessity good because rice is the main staple diet to the nations. Although
rice has substitutes like wheat, corn and meat, consumer is still willing to
consume rice compared to other substitute. According to figure 5, quantity of
rice reduces in a small amount, approximately 10% (Q1 to Q2) when price of rice
increases a lot, approximately 30% (P1 to P2). It indicates that most of the
consumer will not quickly shift their consumption to substitute goods although
the price of rice increases. This is because rice is a necessity and staple
food to the Malaysian community. The percentage change in the quantity demanded
is smaller than the percentage change in price, therefore rice generally has
inelastic demand and the price elasticity of demand is less than 1. (Riley, 2012)
Figure 6: Sufficient supply of rice
According
to law of supply, there is a relation between price of the good and quantity
demand of supply. When the price of the good increases, it is rational for the
firm to raise their outputs so to enjoy higher revenue and profit. However not
all the firms are able to increase their output when the price of the good
increases. One of the factors that influences price elasticity of supply is the
time period. During short period, firm like BERNAS is not able to adjust its
output level. This is because producers cannot process and distribute the rice
in a short time. There is insufficient time for getting new resources and
adjusting the output level although the price of rice increases. Therefore
price elasticity of supply for rice is inelastic due to the short period of
time. Meanwhile price elasticity of supply for rice is elastic during long term
time period. In long term, producer like BERNAS have more time to adjust their
supply. They have more time to engage more labours and buy new machines to
adjust their output level. In a long time period, BERNAS is able to process and
distribute rice when the price of rice increases. Thus the firm can gain higher
profit and revenue. (Hubpages, 2013)
Food
|
Income
elasticity
|
Rice
|
0.7104
|
Meat
|
0.5652
|
Fish
|
0.5360
|
Eggs
|
0.6155
|
Bread and other cereals
|
0.4311
|
Fruits
|
0.5870
|
Vegetables
|
0.6508
|
Table
1: Income elasticity for food items, Malaysia
Sources:
(Yeong-Sheng, 2008)
Income
elasticity of demand measures how sensitive or responsive quantity demand
towards the change in income level. Malaysia is a developed country, therefore
when there is a raise in income level, consumer will prefer higher standard of
living and consume more nutrition foods. They will tend to shift their rice
consumption to other food such as wheat, meat and vegetables. Table 1 above has
shown the income elasticity of demand for rice is 0.7104 and the income
elasticity of demand for other food items is between 0.4311 to 0.6155. It is
proven that consumer tend to consume less rice than other food items when their
income level increases. However the income elasticity of demand for rice is
greater than 0 but less than 1, it indicates that demand is income inelastic
and rice is not an inferior good but a normal good hence it is still playing
its role as primary staple food in Malaysia. (Yeong-Sheng, 2008)
Figure 7: BERNAS rice
In
conclusion, rice is the primary staple for the nations. Most importantly, it is
a necessity good for Malaysian, therefore when the price of rice increases,
people is still willing to consume rice, only small number of the consumer will
shift their consumption to other substitutes. On authority of government,
BERNAS is responsible to maintain the National Rice Stockpile for the nations. To
fulfil the obligation as the rice importer monopoly, BERNAS ensure there is
sufficient supply of rice and security at fair and stable prices. BERNAS will
try their best to fulfil their responsibilities and role in the rice industry.
( 1589 words)
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