Despite good intentions, the Department of Internal Trade's (DIT) latest move to instruct retailers to mark up prices of cooking palm oil aimed at boosting palm nut prices is imprudent.
Due to oversupply, the price of domestic fresh palm nuts hit a 10-year low in April of 1.80 baht per kilogramme. Still, while the price has shored up to 2.7-3.5 baht/kg over the past few months, the rate that the DIT says it should rise further to reflects a retail price of cooking palm oil at 34-36 baht per litre, instead of the 24-26 baht as its currently sold in supermarkets.
DIT director-general Whichai Phochanakij claimed he did not order supermarkets to increase the palm oil retail prices but just sought their cooperation. Nevertheless, he warned that those which do not cooperate could be deemed in violation of the Trade Competition Act for dumping.
The department is supposed to prevent unfair rises in the prices of goods. But this time, it has forced retailers to increase consumer product prices without a clear justification. Mr Whichai cited a "likelihood" that old crude palm oil stocks will soon run out which would justify increased production costs as a reason for lifting cooking palm oil prices.
Why has the DIT based its decision on a "likelihood"? A decision which affects a large number of consumers should be made based on comprehensive data. If its assumption is proved wrong, those who will get the windfall of the 10baht hike will not be farmers, but retailers.
In addition, it is uncertain whether palm nut prices will rise after the cooking oil price hike. But what is certain is an increase in both food prices and the costs of living.
The increase of fresh palm nut prices is a result of a rise in crude palm oil prices during the past few months. But, during that time, cooking palm oil was still sold at 24-26 baht per litre. This indicates that the factor that influenced the pricing of cooking oil is not the price of palm nuts but demand and supply.
According to the Office of Agricultural Economics, palm nut production in May stood at 1.54 million tonnes with 278,000 tonnes of raw palm oil produced, lower than the production in April which was at 1.71 million tonnes with 309,000 tonnes of raw palm oil. The increase in palm oil prices was also attributed to the government's policy to increase the use of crude palm oil to produce biodiesel B20 and B100 and for electricity generation.
The retail price intervention means the department is asking consumers to foot the bill to rescue oil palm growers. But is there an assurance that once fresh palm nuts prices increase cooking oil prices will be reduced to ensure fair treatment for consumers?
In 2011, when cooking palm oil prices sharply rose due to a shortage in supply, the DIT, instead of easing consumer burden, lifted the cap price, allowing the price to skyrocket to 47 baht per lire.
Palm oil is a highly politicised good. Many players in this industry, from growers to manufacturers, form political bases for certain parties and politicians, particularly in the South.
In a new cabinet line-up, the Democrat Party is tipped to take control of the Commerce Ministry which runs the DIT. Jurin Laksanawisit, the Democrat party leader, who is expected to be named commerce minister, should be more prudent in dealing with the palm oil price issue. The DIT must act in a transparent manner to ensure that the measure cannot be perceived as being politically motivated.
-- Bangkok Post
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Founder of i2Matrix. A market strategist, private trader and sought-after financial speaker and trainer in the Asian Region, Benny Lee has coached hundreds of professional and retails traders and investors in Malaysia, Singapore, Hong Kong, Thailand, Vietnam, Pakistan for more than 13 years. His passion in trading and chart analysis leads him to develop trading strategies that have helped him and many others to trade and invest successfully in the financial markets.
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