Subsidy removal: Slight increase in egg prices expected, but not drastic for companies
Given the stabilisation in production costs and the adequate supply of eggs, the decision to allow egg prices to float and to gradually reduce subsidies was widely anticipated. — Bernama photo
KUCHING (May 2): The federal government's decision to end the egg subsidy and ceiling price did not come as a surprise to analysts as the move aligns with stabilised domestic egg production and a decline in key input costs.
In a media statement, the Ministry of Agriculture and Food Security announced the removal of egg price controls, along with a reduction in the egg subsidy from 10 sen to 5 sen per egg effective May 1.
The ministry said the subsidy will then be fully phased out by Aug 1, 2025.
The statement said nearly RM2.5 billion was spent on egg subsidies between February 2022 and December 2024.
Following the removal of the subsidy, the government is expected to save approximately RM1 billion annually.
To recap, the previous subsidy was set at 10 sen per egg, with ceiling prices capped at 42 sen, 40 sen, and 38 sen for Grade A, B, and C eggs respectively.
This translated into retail prices of RM12.60, RM12, and RM11.40 per tray (30 eggs).
Given the stabilisation in production costs and the adequate supply of eggs, the decision to allow egg prices to float and gradually reduce subsidies was widely anticipated.
Researchers with TA Securities Holdings Bhd (TA Research) noted that chicken feed remains the largest cost component for poultry producers, accounting for approximately 70 per cent of total production costs.
'Corn constitutes about 75 per cent of chicken feed, while the remainder is primarily soybean meal. We believe current commodity prices remain supportive for poultry companies, with corn, the primary feed component, continuing to trade at relatively low levels,' it commented in an analysis.
'Should commodity prices increase in the future, poultry producers are expected to leverage their improved pricing flexibility to pass on higher costs to consumers. As such, we anticipate that the impact of the full removal of the egg subsidy and ceiling price in August will be manageable for the sector.'
With the current 5 sen subsidy set to continue until July 2025, TA Research does not anticipate a drastic increase in egg prices in the near term.
Looking ahead, it said any significant rise in feed costs would likely necessitate upward adjustments in ex-farm prices to preserve producer margins.
'For context, a study by the Department of Statistics Malaysia (DoSM) in 2022 indicated that the production cost was 48 sen per egg, during a period when soybean meal and corn prices had soared to their peak.
'Ultimately, we believe the floating egg price mechanism is a step in the right direction, as it allows for more accurate price discovery driven by market fundamentals. Over time, this should support a more sustainable and balanced supply-demand dynamic within the poultry sector,' said the research house.
According to data from the Department of Veterinary Services, retail egg prices ranged from 42 sen to 46 sen per egg between July and October 2022, when subsidies were not in place. Since eggs continue to be the most affordable source of protein, the research firm expect the price impact from the subsidy removal, effective August 2025, to be modest.
'We estimate an increase of only 2 sen to 4 sen per egg, mainly driven by cost pass-throughs rather than fundamental changes in supply or demand. As such, we forecast retail egg prices to remain rangebound around 41sen to 45 sen per egg in the near term, similar to 2022 levels when the 5 sen subsidy was still in effect,' it said.
Meanwhile, Malaysia's annual egg consumption averages 11.6 billion units, translating to approximately 968 million eggs per month. On the supply side, production reached 16.7 billion eggs in 2023, reflecting a 15.8 per cent year on year increase.
This indicates a healthy oversupply in the market. Furthermore, the country's poultry egg self-sufficiency ratio has consistently exceeded 100 per cent.
TA Research expects supply to remain resilient despite the subsidy withdrawal, with demand continuing to hold firm as eggs remain the most cost-effective protein source for consumers. ceiling price egg subsidy TA Research TA Securities Holdings Bhd
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