Equity Tuesday : Ramblings On Veggies, Eggs and Toilet Paper

17 Nov Indonesia Announces Fuel Subsidy Change

“The price of subsidized gasoline increased to 8,500 rupiah ($0.70) a liter from 6,500 rupiah, and diesel will climb to 7,500 rupiah a liter from 5,500 rupiah.”

Bank of Indonesia Raises Key Rate After Fuel Price Increase
http://www.bloomberg.com/news/2014-11-17/indonesia-s-widodo-increases-subsidized-gasoline-diesel-prices.html

21 Nov Malaysia Scraps Fuel Subsidies as Najib Ends Decades Old Policy

http://www.bloomberg.com/news/2014-11-21/malaysia-scraps-fuel-subsidies-as-najib-ends-decades-old-policy.html

That is not good news for Singaporeans although it will scarcely make a dent in our headline CPI numbers.

The wanton mee hawker was just telling me 2 weeks ago that egg prices have gone up again and green chillis have tripled in price.

Yet it is logical to make those subsidy changes now with oil at current levels which greatly lessens the impact of the changes to the lives of the citizens and curbing demand for fuel (which will drive prices lower), changing patterns and habits.

The only sure thing we can be certain of is that this is the best time to raise all prices and blame it on the fuel which will surely extend to Singapore suppliers as well because much of our food imports come from Indonesia and Malaysia.

Guess where we get all our food from ?

 

Pork, fish, chicken, fruits and vegetables are sourced mainly from our neighbouring countries which makes the fuel subsidy cut a definite shadow on our bottomlines, and maybe waistlines too.

It is not just pork and fish, beef prices are at all time highs as the Chinese acquire a taste for red meat.

Our end prices are not showing much signs of inflation as yet with marginal hikes that escape our notice.

CPI IN COFFEESHOP 1CPI IN COFFEESHOP 2

And food outlets have contrived ingenious ways to procure cheaper produce (perhaps of lower quality) and reducing portions to match.

The biggest killer for most business operators, besides the cost of food and labour, would be rents and that is the reason why we are seeing those familiar old chinese restaurants like Teochew City in Centrepoint giving up the business along with popular joints like Au Jardin.

KS Seetoh, Singapore’s prominent foodie, was quoted in Cold Storage’s  Savour magazine envisaging that hawker prices will have to go up and I thoroughly agree. For as a child I have often wondered how a hawker can wake up at 4 am to prepare those braised ducks that he then sells for 3 bucks a plate when the Western food hawker can wake up at 8 am to throw some frozen chicken into the deep fryer for the same price.

As Indonesia and Malaysia continues on their path to economic reforms, we can only expect some catching up to Singapore and their people will just have to endure some short term pain for long term gains as their wages and standard of lives improve.

That surely means that Singaporeans cannot take the status quo for granted anymore.

Yet from this springs endless possibilities and opportunities but opening another new age bistro serving up Reuben sandwiches is not the answer although I am partial to the one served at the Provision Shop in Everton Park (14 bucks = 4 chicken rice ?).

The opportunities lies therein for local food chains to takeover the hawker landscape – the Food Republic‘s (owned by Breadtalk) and the Select Kitchen’s (in which Ezra has a stake), both listed on the stock exchange, noting that these are not stock recommendations of mine.

Further down the road, we should see some integration of the food supply chain with say, NTUC and the other supermarkets offering cooked food services which makes absolute sense although I do not advocate serving expired products.

Corporations with staying power, pricing power and bargaining power will take over as the little guys keel over.

Now, what about hedging the toilet paper prices ?

Indonesia and Malaysia have set themselves up for higher onshore inflation in the coming months and Indonesia has already pushed through a rate hike in anticipation of that.

Besides the rate hikes that we can expect, the over riding benefit would be a drastic improvement in their deficits, budgetary and current account (on anticipation of lower imports). That bodes very well for their currencies as investment destinations particularly from the likes of asset hungry Japan and China.

We should be seeing ratings upgrade and positive investor sentiments especially for Indonesia where the funds will be channeled into growth projects and that will ultimately boost GDP.

Thus we can be sure asset inflation in the works, relative to Singapore.

The currencies are worth a look versus the Singapore dollar, giving a decent carry advantage even if we just invest in the short term bills and we are talking of Indonesia above 6% and Malaysia at around 3.5% for those 3 month tenors.

Having less mature and less liquid property markets especially Indonesia, where foreigners are pretty much shut out, those investments will warrant closer scrutiny.

But hey, we were just talking about the fuel prices. How did we end on this note ?