What is happening with palm oil in Thailand?
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What is happening with palm oil in Thailand?

Anasuya Sanyal for Channel News Asia:

Thailand faces shortages of staples as the global cost of food skyrockets; the country faces shortages of cooking oil and sugar due to government price controls and hoarding.

Somporn Thapanachai in an op-ed in the Bangkok Post further explains how we got a palm oil shortage:

It has been over a year already that the Abhisit government has claimed to have excellent control over pricing of consumer goods. The government always boasts about its success in “seeking cooperation” from the private sector to keep prices unchanged. The announcement comes around every three months – the duration the government asks (read: forces) the private sector to maintain prices so politicians can say that they have done their best for the public’s benefit.

Personally, I have no belief that this extreme price maintaining policy will bring true benefits, or be sustainable in the long term. Let’s take a look at the cooking palm oil, the most consumed vegetable oil in this country, especially in all food shops.

Capping the price at 38 baht for a one-litre bottle for over a year sounded good to consumers who enjoyed paying less. However, the producers became more uncomfortable as the days passed due to rising costs of raw materials and the trend of increasing global prices. The producers requested a price increase several times, with no positive response as politicians were afraid of not being “loved” by their voters.

Finally, the palm oil producers had to play a “cruel” role by deciding not to supply the product to the market on grounds of a shortage of fresh palm nuts. Thus began the episode of “chaos”. It’s quite unbelievable that Thailand – the third largest producer of palm oil in the world – would have a shortage of this product. People were fighting just to get a bottle of palm oil!

When the situation escalated into a crisis, the government had to allow a price increase of 24% to 47 baht a litre. But the decision came too late to resolve the scarcity problem. Consumers still had to show their ID cards or get their hand stamped to ensure they would not come back and queue up for a second purchase.

The fact is that the present price is being subsidised at 9.50 baht a litre. Which means consumers who should be paying 56.50 baht for a litre are actually paying only 47 baht from their pocket, and the rest is being subsidised with tax revenues.

Certainly, the knock-on effect of this shortage has been the rising cost of ready-to-eat food at street shops that have gone up by 5-10 baht a plate. The real impact on the cost of food may not be that high, but the psychological impact carries much more weight.

Let’s try to think about solving the same problem in another scenario. If palm oil producers were allowed to increase their prices by 1-2 baht gradually over one year, the price consumers would be paying today would be the same. The difference is that people would not be in a panic, there would be no hoarding of cooking oil and food prices might not have increased as much.

New AC blogger Dan Waites explains how the politicians did it – worth reading the post in full.

BP: It is the psychological impact which does carry a lot of weight particularly when people have to wait in long lines just to buy a bottle of palm oil. It has been traded like Krispy Kremes are sold on the black market by those who can afford to wait in line and are at the right place at the right time. The question then that the public asks, why didn’t the government deal with this problem before this shortage started last year? That is what the government has to answer.

If we really look back to the “big bang” of this problem, I would blame it on politics. To be more specific, the cause of the problem is the politicians’ determination to create or maintain their “political popularity”.

It has been over a year already that the Abhisit government has claimed to have excellent control over pricing of consumer goods. The government always boasts about its success in “seeking cooperation” from the private sector to keep prices unchanged. The announcement comes around every three months – the duration the government asks (read: forces) the private sector to maintain prices so politicians can say that they have done their best for the public’s benefit.

Personally, I have no belief that this extreme price maintaining policy will bring true benefits, or be sustainable in the long term. Let’s take a look at the cooking palm oil, the most consumed vegetable oil in this country, especially in all food shops.

Capping the price at 38 baht for a one-litre bottle for over a year sounded good to consumers who enjoyed paying less. However, the producers became more uncomfortable as the days passed due to rising costs of raw materials and the trend of increasing global prices. The producers requested a price increase several times, with no positive response as politicians were afraid of not being “loved” by their voters.

Finally, the palm oil producers had to play a “cruel” role by deciding not to supply the product to the market on grounds of a shortage of fresh palm nuts. Thus began the episode of “chaos”. It’s quite unbelievable that Thailand – the third largest producer of palm oil in the world – would have a shortage of this product. People were fighting just to get a bottle of palm oil!

When the situation escalated into a crisis, the government had to allow a price increase of 24% to 47 baht a litre. But the decision came too late to resolve the scarcity problem. Consumers still had to show their ID cards or get their hand stamped to ensure they would not come back and queue up for a second purchase.

The fact is that the present price is being subsidised at 9.50 baht a litre. Which means consumers who should be paying 56.50 baht for a litre are actually paying only 47 baht from their pocket, and the rest is being subsidised with tax revenues.

Certainly, the knock-on effect of this shortage has been the rising cost of ready-to-eat food at street shops that have gone up by 5-10 baht a plate. The real impact on the cost of food may not be that high, but the psychological impact carries much more weight.

Let’s try to think about solving the same problem in another scenario. If palm oil producers were allowed to increase their prices by 1-2 baht gradually over one year, the price consumers would be paying today would be the same. The difference is that people would not be in a panic, there would be no hoarding of cooking oil and food prices might not have increased as much.