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PRODUCTION COSTS

Pressure builds for price rises

Manufacturers seek hikes this year

Published on November 3, 2007



The Commerce Ministry may need to allow manufacturers to raise the prices of their goods before next year, because exorbitant increases in oil prices have pushed up production costs.

Some private companies say they are unable to maintain their prices for the rest of this year as instructed by the ministry. This is a view shared at a recent meeting between the Commerce Ministry and a joint private committee consisting of representatives from the Board of Trade, the Federation of Thai Industries (FTI), the Thai Bankers' Association and the National Shippers' Council.

They pointed out that consumer-goods manufacturers were facing losses because of the skyrocketing oil price and rising costs of major raw materials.

As such, the Commerce Ministry will fail to contain the Kingdom's inflation rate at 2.5 per cent, due mainly to cost increases, particularly oil.

FTI chairman Santi Vilassakdanont said many consumer-goods manufacturers would register big losses next year from higher production costs.

"To ensure that manufacturers can survive in business, the government may need to allow price increases for some products," said Santi.

Products hurting the most are petrochemicals and construction materials.

Santi, who is also in the top management of the Saha Group, said Mama instant noodles would sell for a higher price next month, because the group could no longer absorb higher raw-material costs. The group will try to freeze retail prices for other products.

FTI vice president Payungsak Chartsutipol said some manufacturers must be allowed to raise prices soon, because they faced a heavy burden, particularly from oil prices.

"Notably, manufacturers have announced lower profits and turnover since the third quarter," he said. "The effects will continue to be felt to the end of the year, resulting in a domino effect, with lower revenue collected by the Revenue Department."

Board of Trade vice chairman Pongsak Assakul said enterprises were facing more difficulties as the oil price climbed and was expected to surge to US$100 (Bt3,400) per barrel early next year.

He said the long price-freezing measures of the government should be lifted for some products, because companies could not bear the burden into next year.

Commerce Minister Krirk-krai Jirapaet said the government would seriously consider allowing some price increases. However, he pointed that this was not a suitable period to increase retail prices, because consumers were facing a higher cost of living and a slowdown in economic growth.

Based on reasonable, fair and gradual conditions, the ministry will consider allowing price increases, but this may not take effect until next year, he said.

Despite a prediction of 4.5-per-cent economic growth for this year, that is not a rate suitable for increasing prices of goods, which would lead to slower consumption in the Kingdom, said Krirk-krai.

Private companies shared similar views that export expansion next year would grow only 10 per cent, because of several negative factors, particularly higher oil prices and an economic slowdown among Thailand's trading partners.

In addition, both sides discussed measures to prevent circumvention problems in order to take full advantage of Thailand's free-trade pacts. They also agreed to seek measures to increase income in the International Trade Promotion Fund for promoting export growth and to foster closer cooperation between the private sector and the government, in order to facilitate business growth.

The private sector also asked for the government to speak with insurance companies about lowering their premiums in the deep South, because the financial burden of companies in that area have gone up, but their income has dropped.

Petchanet Pratruangkrai

 The Nation


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