KUALA LUMPUR (Feb 7): A think-tank says the government’s RM3.9 billion subsidisation of food items sold in the re-introduced Kedai Rakyat 1Malaysia (KR1M) 2.0 would distort competition in the market.

Institute for Democracy and Economic Affairs (Ideas) said some of the items such as cooking gas, oil and flour would be sold below market prices at KR1M 2.0 outlets.

“When the government is subsidising the food items and sell it at KR1M, this will distort competition in the market,” said IDEAS economist Adli Amirullah .

“It is unfair for small businesses that have to sell the same items at market price while KR1M have the privilege to sell it at a lower price with government subsidies,” he said.

Adli added that the move is anti-competitive in nature because KR1M may crowd out small businesses in the long run.

The first KR1M was set up in June 2011 with 185 stores nationwide by the government to tackle rising costs of living and prices of daily goods by offering items 30% to 50% cheaper than market prices.

It was operated by MRT Retail Sdn Bhd, a subsidiary of Mydin Mohamed Holdings Bhd that owns the Mydin supermarket chain.

The KR1M stores were later closed down by the government to improve the initiative, and offer cheaper daily provisions and choices.

The second generation KR1M, spearheaded by Perbadanan Nasional Bhd, was launched on Sunday with new strategic partners — Pahang-based retail supermarket chain Tunas Manja Group and KK Super Mart.

Adli said if KR1M continues to exist in the future, local entrepreneurs would have no motivation to invest any capital to open grocery stores amid price control and anti-profiteering laws.

He said the entrepreneurs allegedly know they will lose to their competitor who is the government that sells goods below market price.

“This will lead to less supply for food items in the market and ultimately cause prices to increase even higher in future,” he said.

Adli added that governments should continue playing the role of regulator in a market.

“If the government wants to reduce the burden on the rakyat, they should find other alternatives to reduce the costs of living instead of participating as a market player,” he said.

Ideas is an independent not-for-profit think-tank that promotes market-based solutions to public policy challenges.

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First published in The Edge Markets, on 7 February, 2018.