March 31, 2014

Consumer prices, particularly for vegetables and livestock, are expected to rise due to widespread drought, but authorities insist the impact will only be short-lived.

Santichai Santawanpas, deputy director-general of the Internal Trade Department, said the prices of vegetables and livestock are expected to rise by 20% because of the seasonal drought, which has also pushed up the prices of livestock such as poultry, eggs, fish, and especially pork, that are affected by porcine epidemic diarrhoea (PED) and porcine reproductive and respiratory syndrome (PRRS) outbreaks.

The Policy Committee on Pork Products and Swine Development, also known as the Pig Board, agreed to freeze the ex-farm price of a live hog at THB76-78 (US$2.34-2.41) until the end of April in a bid to curb rising pork prices caused by shrinking supply.

The Pig Board maintained the retail pork price at THB150-155 (US$4.63-4.78) per kilogramme until the end of April. Swine epidemics and rising production costs have prompted pork prices to soar, while supplies have shrunk by 4,200 hogs a day from a usual supply of 42,000 hogs a day.

Santichai said authorities are also mulling enacting price controls on finished food that uses livestock as a key ingredient to make it fair for manufacturers and consumers, as the production of finished food has continued to rise over the last few years.

The SCB Economic Intelligence Centre (EIC), Siam Commercial Bank's research house, reported the current drought is a seasonal occurrence but this year it has been unusually severe. Off-season rice planted in the dry season will be the crop most affected by these conditions, while the impact on other crops will be less severe. If drought continues into the rainy season, the EIC's outlook will change.

If an off-season drought takes place, this could result in a decline in production levels for Thailand's key agricultural commodities, leading to an increase in commodity prices and a rising inflation rate for the country.

The EIC believes shrinking agricultural production will affect farmers' revenues and also those of entrepreneurs investing in sugar, para rubber, cassava, and livestock.

If the drought becomes more severe, the EIC urges authorities to implement support policies and related measures to alleviate the negative impact of a commodities shortage. For example, the import tax for corn could be reduced. Not only would the reduced import tax rate lessen the cost burden for traders, but it would also lower domestic inflationary pressure, reported the EIC.