Thailand may be unique in handling the domestic prices of products and services. Whenever manufacturers and business operators shoulder higher production costs and ask state units for permission to raise their prices, the Internal Trade Department always rushes to call a joint meeting with them.
Most of the time, the manufacturers and operators come to an "agreement" to maintain prices while authorities monitor the market.
In one recent instance, seven manufacturers and distributors of baby and adult diapers talked with the department and agreed to maintain prices, even after announcing to the local media their plan to increase prices starting in March, in line with rising production costs.
What is happening here? Do these companies have a choice in determining prices?
Chakra Yodmani, deputy director-general of the department, explains the government's guidelines for the prices of goods and services in the country, while the private sector recommends letting supply and demand determine market prices.
Q: Why doesn't the Thai government allow companies to raise prices when their costs increase?
According to Mr Chakra, the department's main mission is to supervise and ensure fair pricing and adequate supply, preventing consumer exploitation by exercising its authority under the Price of Goods and Services Act of 1999.
The department believes in promoting free trade and letting the market determine the price of goods and services based on cost of production, supply, demand and competition, he said.
However, for "essential goods and services for the livelihood of the people", the Central Committee on the Prices of Goods and Services, with the approval of the cabinet, has designated 56 controlled items (51 goods and 5 services), using measures to control their prices.
The strictest measure is a price ceiling, which currently applies only to medical face masks produced domestically, with a maximum price set at 2.50 baht per piece.
Other products have less strict measures, such as fertilisers, pesticides, instant noodles, milk and canned fish, for which adjustment of price, size or production formula requires prior approval of the department's chief, serving as secretary-general of the central committee.
For some goods, the manufacturers are required to notify authorities of their product prices, quantities, storage locations and production costs.
Mr Chakra said for these goods essential for people's livelihood, the Commerce Ministry requests cooperation from both producers and distributors to cap prices to keep living costs reasonable for those affected by the economic impact of the pandemic.
In 2022, the department allowed price adjustment for three products -- fertiliser, instant noodles and milk -- to avoid a shortage as producers may have been unable to sell goods domestically. Permission to adjust prices for each product is based on a variety of factors, he said.
For example, fertiliser is almost entirely imported, said Mr Chakra. Its price is allowed to follow higher global market prices caused by rising energy prices for both crude oil and natural gas, which significantly affect the production cost of important chemical fertilisers such as urea, ammonium sulfate and diammonium phosphate. The critical component is ammonia, which comes from natural gas, and higher energy prices led to a spike in fertiliser prices since the beginning of 2021, with the trend expected to continue.
The Russia-Ukraine war, which erupted in early 2022, has caused oil, natural gas, cereals and transport costs to rise. The fertiliser industry has felt the pinch from increased production costs, he said.
To prevent a shortage, the department considered increasing the price structure, in line with higher production costs, to ensure adequate supply for distribution in Thailand, said Mr Chakra.
He said the department also allowed standard-sized instant noodle packages to increase prices from 6 baht to 7 baht based on higher costs for wheat flour, palm oil, electricity and labour.
The ex-factory price of raw milk rose by 1.50 baht per kilogramme following a cabinet resolution on Aug 23, 2022, before reaching the processing plant (from 19 baht to 20.50 baht).
"The price adjustment follows the win-win model, in which consumers receive minimal impact while entrepreneurs can maintain their businesses," said Mr Chakra.
When the cost of products decreases, entrepreneurs have cut prices, with the price of urea fertiliser dipping by almost 30%, he said.
The department still requests cooperation from operators for some essential goods to stabilise prices, reducing the cost of living for the public, said Mr Chakra. While this may result in lower profits for producers, they have mostly been willing to cooperate with the department's request.
In addition, many business operators do not want to raise product prices because they are afraid such a move could affect sales, especially if there is stiff competition, he said. Promotional campaigns and regular sales at various shopping centres make raising product prices a gamble, said Mr Chakra.
Q: Does the government offer any compensation if a company is willing to maintain prices despite higher production costs?
The government is responsible for public welfare, he said. The majority of business operators recently chose to cooperate to maintain the prices for goods and services.
The government stepped in where necessary to assist in terms of quantity and price, such as helping to procure 425,000 tonnes of fertiliser from Saudi Arabia last year, said Mr Chakra. Entrepreneurs also bought more goods from Russia and China, with the ministry facilitating imports, resulting in increased fertiliser stocks, higher competition and lower costs, he said.
Another government project involved animal feed, dubbed the "pig-rice programme" from November 2021 to February 2022, promoting the use of domestic raw materials, such as brown rice and quality animal-feed rice. When animal feed producers buy raw materials from farmers or rice mills, it helps reduce costs.
The Internal Trade Department and International Trade Promotion Department also helped coordinate imports of corn for animal feed from Myanmar to address high prices and a shortage, said Mr Chakra.
Temporary import relief measures were issued from April to July 2022 to enable the corn shipments. Thailand typically follows regulations for maize for animal feed, including a World Trade Organization quota of 54,700 tonnes maximum through the Public Warehouse Organization, with a tax rate of 20%. The relaxation allowed private entities to import up to 600,000 tonnes tax-free.
The Commerce Ministry usually requires importers of wheat purchase domestic maize at a ratio of 1:3. This requirement was temporarily waived, though the combined import of animal feed corn and wheat must not exceed 1.2 million tonnes.
With these relaxations, imports of the two products totalling 1.04 million tonnes helped to ensure sufficient raw materials for local entrepreneurs, he said.
In addition, Mr Chakra said the ministry supported distribution channels for producers by organising various projects such as the "Price Reduction for Commerce! Help the People" and "Mobile Commerce Price Reduction! Help the People".
These projects provide opportunities for producers to sell their products, with the state providing logistical support and cost management for sales, he said. Companies and producers benefit from increased sales and revenue, while the ministry promotes exporters, generating sales and creating an economy of scale to raise revenue, said Mr Chakra.
The Finance Ministry has a state welfare card project to provide assistance to low-income and underprivileged people in coping with living costs. The assistance includes help with household utilities, transport fees, and energy costs, such as stabilising diesel prices and preventing LPG price manipulation that may affect households.
Q: If these companies do not cooperate, what are the consequences?
The first consequence can be a negative impact to their business, such as decreased sales if competitors do not raise their prices.
There can also be legal consequences if producers raise prices without permission. According to the Price of Goods and Services Act, adjusting prices of controlled goods without first receiving permission carries a penalty of imprisonment for up to five years, a fine of up to 100,000 baht, or both.
If the price is deemed unreasonably high, regardless of the product, the adjustment could also be considered a violation under Section 29 of the same law, which carries a penalty of imprisonment for up to seven years, a fine of up to 140,000 baht, or both.
Q: Will this government intervention actually reflect the Thai inflation rate or affect state credibility?
Mr Chakra said last year Thailand's inflation rate was 6.08%, ranking 33rd out of 129 economies that announced figures, lower than the US, UK, Italy, Mexico, Laos, the Philippines and Singapore.
The Trade Policy and Strategy Office calculated the inflation rate according to international standards by collecting price data for goods and services in various categories, such as food and non-alcoholic beverages, transport, communication, housing, healthcare, personal services, entertainment, tuition, cigarettes and alcoholic beverages.
Academic research from Puey Ungphakorn Institute for Economic Research identified the main drivers of Thai inflation as energy (comprising 87.9%, attributed to gasoline, electricity and cooking gas prices), while the food category contributed 8.9% of inflation.
Therefore, requesting cooperation from producers to fix prices of consumer goods is considered to have a minimal impact on Thailand's inflation rate, considering the drivers, said the institute.
Q: Can state price control lead to product scarcity?
State price control measures may make domestic prices of some products lower than those in the global market, causing manufacturers to increase exports to earn more revenue, said Tanit Sorat, vice-chairman of the Employers' Confederation of Thai Trade and Industry.
"If businesses do not produce goods for export, the manufacturers may need to reduce production, which will lead to a shortage of some goods," he said.
To avoid this unpleasant possibility, Mr Tanit urges the government to let supply and demand determine market prices. Authorities would be better served focusing on goods sold in monopolistic or oligopolistic markets, he said.
"Price control is a very outdated method," said Mr Tanit.
Q: Will goods become unfairly expensive without price control?
This is a possibility if there is imperfect competition in a market, allowing some producers to somewhat control goods prices, said Montri Mahaplerkpong, vice-chairman of the Federation of Thai Industries.
A market with few manufacturers is prone to price collusion, he said. Even a market with a company commanding more than a 30% market share may run the risk of price distortion, said Mr Montri.
However, if goods are produced and sold by many entrepreneurs, their prices should be allowed to rise and fall freely, he said.
"Don't be worried manufacturers will sell products to consumers at unfair prices," said Mr Montri.
He said he believes many producers are able to keep prices low through better cost management.
"They are satisfied with little profit in order to gain long-term benefits in a market," said Mr Montri.
