Multiple factors determine a restaurant’s food price, economists tell Rafizi

(FMT) – Economic affairs minister Rafizi Ramli’s view that restaurants should lower their prices in line with the falling cost of raw ingredients is off the mark, say economists.

Universiti Malaya’s Nazari Ismail, who described Rafizi’s comment as “difficult to understand”, said that the country’s market mechanism meant that restaurants that charge unreasonable prices will naturally lose customers to those that charge reasonable prices.

He noted that apart from raw ingredients, other factors such as rental, wages and transportation costs also come into play when determining prices.

“So despite a reduction in the price of some ingredients, restaurant owners may still choose to maintain their menu prices to make sure their finances are all right,” he said.

Meanwhile, Center for Market Education CEO Carmelo Ferlito suggested that Rafizi may be out of touch with the concept of economics in the modern context.

He said that Rafizi “has not yet understood” that the cost of production alone does not determine selling prices.

“This approach has been abandoned in economics since the 1870s,” said Ferlito.

“Prices are determined by supply and demand, not because the cost of production is high.

“High demand is caused by factors such as festive seasons, increased expenditure as a result of pent-up demand over the past few years (during the Covid-19 pandemic), and higher employment costs, which is unsustainable as it has been generated by fiscal expansive policies.”

He added that the excess of money in circulation due to prolonged low-interest rates, and various aid packages since the pandemic started, also played an important role in creating the high demand.

Speaking to reporters in Kuala Terengganu on Friday, Rafizi said that while the cost of various ingredients had declined, the prices of food at some restaurants and stalls continued to increase.

He advised consumers to avoid food outlets that charged unreasonable prices.

Another economist said the real intention of Rafizi’s statement may have been lost in the way it was communicated.

Barjoyai Bardai of Universiti Tun Abdul Razak (UNIRAZAK) said that while he agreed with Rafizi’s sentiments, he felt the minister should have presented his point in a more “refined” manner.

He noted that high prices were bound to occur as many food operators are looking to recoup lost revenue during the pandemic, and thus, a decrease in the price of raw ingredients would not necessarily equate to a reduction in the price of food.

Barjoyai said the government should work towards inculcating “rational consumers” who are more sensitive about prices, are conscious about the various choices they have in the market, and are aware of concepts such as supply and demand.

He added that in the long term, the government should also remind businesses of the role they play in society and the need to serve a greater good – and not just think about profit.

“The profit will come naturally in the long run. Sellers who are greedy are only thinking of short-term gain,” he said.

“In the long run, they won’t survive.”