Food for thought

“Food Prices Keep Rising”. “Malaysia Preparing to Face Food Crisis”. “Food Inflation to Continue”. These are some of the recent media headlines, highlighting a growing concern that the rising cost of food is affecting Malaysia.
To address this, the Government and the private sector have been looking at various initiatives to enable Malaysia to be self-sufficient in essential food items and that the items remain affordable.
For instance, the Government is looking for a food manufacturer to produce and sell infant formula milk below the market price to alleviate the plight of the lower income group. In another initiative, a major plantation conglomerate is diversifying into rice planting in east Malaysia.
These initiatives highlight the need for closer co-operation between the Government and the private sector to achieve the desired objectives. An important tool is the introduction of tax incentives to encourage private sector participation in food production.
In recent years, the Government has added group relief and accelerated capital allowances to the existing basket of tax incentives in the agricultural and food production sectors. These sectors are reviewed annually by the Government to introduce incentives that address key areas of need.
An overview of the current suite of incentives for the two sectors reveals that they are directed at encouraging mainly export-oriented activities such as aquaculture and chicken and duck rearing as opposed to activities for local food consumption. This suggests a need to introduce more incentives to spur local food production, particularly essential food, as a measure to mitigate the rising cost of food production in Malaysia.
Consideration should also be given to imposing conditions on incentives, whereby businesses are required to pass on cost savings to Malaysian consumers. These conditions would need to address the entire food supply chain from agricultural farmers and planters to food manufacturers, from processors to wholesalers, and from retailers to consumers.
Key cost factors which drive food prices such as fertilisers, raw materials, transportation and utilities would also need to be taken into account. The ultimate objective is to benefit Malaysian consumers without burdening the rest of the food supply chain.
Tax incentives for research and development (R&D) in the agricultural and food sector are already in place to support initiatives to develop and implement new farming technologies to increase crop yield, particularly in rice production. Nevertherless, the effectiveness of these incentives in encouraging greater participation in farming technology should be evaluated regularly.
The administration of these incentives should also be reviewed by experts in the relevant fields to ensure that only applicants with viable R&D value propositions are considered. These steps are paramount if these incentives are to have an impact on increasing Malaysia’s self-sufficiency level in rice production, for instance.
The Government has recognised the private sector’s role in corporate responsibility (CR) by introducing incentives which promote culture and arts, assist the unemployed and the disabled, etc. Nevertheless, there is room for these incentives to be enhanced and directed toward alleviating the impact of rising food prices on the poor and the needy. For example, incentives can be given to encourage food manufacturers and producers to set aside a small portion of their monthly food production to be collected by non-governmental organisations for distribution to deserving parties.
In some developed countries, the concept of “food banks” is already well established and was set up with the good intention of helping the poor where food is concerned. This may be a new concept in Malaysia but definitely a CR initiative that corporations may want to adopt, given the impact to the society, with inflation and cost of living on the rise.
There would undoubtedly be numerous initiatives and ideas on controlling and reducing the rising cost of food in the coming months. Tax incentives have been used as a tool to support and sustain initiatives and ideas in the past and careful thought should be given to ensure that these incentives lead to the desired impact as mentioned. It is also hoped that the upcoming Budget will include tax incentive proposals to initiate and drive the various efforts to address the rising cost of food.

By HEATHER KHOO
Heather Khoo is an executive director at PricewaterhouseCoopers Taxation Services Sdn Bhd