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Thailand's next govt should review price controls as living costs rise regardless

Publication Date : 07-01-2014

 

The next Thai government will likely have to reform its approach to price management as consumers continue to see the cost of living rise despite a long-standing price-control policy.

In April 2012, the government of Prime Minister Yingluck Shinawatra raised the minimum wage to 300 baht (US$9) a day in key provinces, expanding the increase nationwide at the beginning of last year. Although the government claimed the higher wages would have little impact on the cost of living, many consumers beg to differ, as food prices in particular have sharply increased. Many street vendors, restaurants, and even fresh-food markets have increased their prices.

Malee, a housekeeper at a government building, said 100 baht now was only enough to buy a meal for her family with two children. The price of a fast-food dish has increased from 20 baht-25 baht to 30 baht-45 baht.

Therefore despite a 300 baht daily income, because of higher living costs Malee has no savings.

She also complained about higher prices of consumer goods, such as detergent, shampoo, toothpaste and soap.

Although leading goods manufacturers have said they will not increase prices immediately this year because of the slow economy, if there are signs of a recovery in the second quarter, that could encourage producers to increase prices, said Thanavath Phonvichai, director of the Economic and Business Forecasting Centre.

According to a survey by the centre, run by the University of the Thai Chamber of Commerce, the cost of living is the No 3 concern for consumers after the political conflict and falling crop prices.

The centre's confidence index on the cost of living dropped from 54 points in October to 51.8 points in November. A score below 100 shows weak consumer confidence.

Consumer-goods manufacturers have endured price controls for more than three years under a policy imposed in 2011. But if the economy brightens this year, some manufacturers could increase their retail prices to cover higher costs of production and raw materials.

The Commerce Ministry's price-control policy was scheduled to be discontinued by the end of 2013. It was becoming more difficult to continue asking enterprises to freeze prices amid changing global circumstances and rising costs of fuel, cooking gas, raw materials, and labour.

With such a range of negative factors pushing up the production cost of goods, the government realises it can no longer control retail prices under by traditional means. Should it continue to rely on such measures, it would face an increasingly dissatisfied private sector.

Moreover, consumers are not happy with what they see as ineffective price controls, with many producers having shifted to making other goods and downsizing content to avoid having to jack up prices directly. So far, 205 goods and services have been earmarked for close monitoring by the Commerce Ministry. Forty-three products are under the ministry's price controls, and 315 are included in its price-labelling measure.

But it is not clear how the government can ensure price stability while balancing benefits between producers and consumers. It has no authority to order manufacturers to freeze their prices if they add value or innovations to their goods. Therefore more new products are likely to appear in the marketplace, while traditional goods that are under the ministry's controls will gradually disappear.

One project left in the government's arsenal is the "Blue Flag" scheme, which sometimes sells products at low prices to reduce the cost of living for low-income consumers.

Between October 2012 and September 2013, it spent 606.39 million baht to hold 2,003 low-price fairs under the Blue Flag programme. It was claimed that the project was able to reduce the cost of living for 6.01 million people. Also, it has provided 5,009 low-price shops selling 20 essential goods. There are also 5,953 low-price food-retail shops.

But Boonchai Chokwatana, chairman of Saha Pathanapibul, a leading consumer-goods conglomerate, said the government should be putting less emphasis on holding down prices at the retail end and more on lowering production costs with subsidies.

"Producers have to shoulder higher costs of production, and have to invest for new innovations. Producers need to shift to goods that make a profit rather than stick with traditional goods that are under price controls," he said.

Boonchai also pointed out that purchasing power had been decreasing since the third quarter of 2013 and was expected to continue slowing down in the current quarter of 2014. Most manufacturers will probably not increase retail prices in the first half of the year, but may consider it in the second half.

Pipat Paniangvait, chief executive of Thai President Foods, said sales of its Mama instant noodles increased greatly in the final quarter of 2013. This may reflect consumers' financial struggles as they buy lower-cost food.

One problem hindering the government's efforts to hold down food prices has been weak cooperation from modern traders. The Commerce Ministry had intended to cap the prices of dishes in fast-food courts at 30 baht-35 baht per dish, but annual increases in rental fees foiled the plan.

While government subsidies have not yet proved efficient in boosting crop prices, consumers have been left to shoulder a higher cost of living. Critics say that three years' experience should be sufficient to encourage the Commerce Ministry to review some of the traditional policies it has pursued, and on which huge amounts of public money have been spent to little real positive effect.

As taxpayers, consumers have the right to expect effective and sustainable measures to help them cope with the cost of living. This is the challenge the next government must face, while balancing this with the interests of producers.

 

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