'Maintain Mandatory Reserve Stocks' To Prevent Palm Oil Shortages In Thailand

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PALM OIL

'Maintain mandatory reserve stocks' to prevent shortages

By Achara Pongvutitham

The Nation

Buffer stocks would enable quick decision-making for govt and manufacturers

The continued palm-oil shortage has prompted concerned agencies to propose that the government consider compelling manufacturers to maintain a reserve stock to prevent supply problems in the future.

The initiative was floated during a roundtable titled "Palm Oil Crisis: Problems and Solutions" held by Krungthep Turakij last week. Panellists supported the idea, saying it could be accomplished under the Commerce Ministry's price-list law.

Under the proposal, crushing mills, refineries and biodiesel producers would be obliged to adjust their production to maintain a pre-determined supply. Additionally, it would allow government agencies to warn these concerned parties if the stock appeared to be getting too low. All involved would brainstorm to work out the minimum safe stock to support not only household consumption but biodiesel processing.

The existence of such a buffer stock would enable not only companies but the government to make quick decisions on whether to continue production of B3, B5 or B100 diesel or change to a different percentage of biodiesel.

It has been reported that the country's palm-oil stockpile significantly dropped from its normal 120,000 tonnes to an average of 76,929 tonnes last year. In addition, lower-than-expected production of palm fruit pushed up the price of crude palm oil from Bt25.38 per kilogram last July to Bt43.80 in December.

Another concern of the private sector is that the price control by the Internal Trade Department has not reflected real production costs.

Whichai Phochanakij, deputy director-general of the Internal Trade Department, said Deputy Prime Minister Suthep Thaugsuban had raised the idea of managing palm oil like the rubber business to ensure sustainable development in the long run. However, any such revamped system should include biodiesel production, which is an important factor to absorb surplus palm oil.

The Agriculture and Cooperatives Ministry has taken responsibility to draft a law to ensure enforcement. It will focus on import-export, funding, and determining the appropriate buffer-stock quantity, among other factors.

Whichai said concerned government agencies had closely monitored both palm-fruit production and the price of crude palm oil since November. They also hoped that production in January would increase.

"That's why the ministry did not allow producers of cooking palm oil to adjust the price as requested last October. Moreover, we also worry about domino effects to other goods, particularly Mama instant noodles, margarine products and other food-manufacturing industries," Whichai said.

He stressed that it was hard to force manufacturers to bring down prices in line with production costs.

Anusorn Sangnimnuan, president of Bangchak Petroleum, said the government should set up an agency to take responsibility for the palm-oil stockpile. It should help the government closely monitor the situation from upstream to downstream. In addition, it should have the authority to decide when the country is facing a shortage so as to stop exporting or to reduce the grade of biodiesel.

"Bangchak wants to produce only a single grade of biodiesel, as having many grades means higher manufacturing costs and other problems." Anusorn pointed out that stopping production of B3 diesel - that is, fuel with 3-per-cent biodiesel content - would increase the supply of cooking palm oil on the market by 1.2 million litres.

Moreover, the government's price controls focus on the retail price rather than the industrial price, which now is about Bt70 per litre. At that price, manufacturers and biodiesel producers have little difficulty acquiring palm oil, unlike consumers.

"The palm-oil stock needs to be managed to ensure not only enough supply but also a fair price. The government should also focus on utilisation of palm oil for food as its priority, not energy production, as there are other alternative-energy sources," Anusorn said.

In addition, the Finance Ministry should amend the laws concerning biodiesel manufacture to allow more flexibility. This would allow manufacturers to adjust production without facing criminal sanctions, he said.

Wiwan Boonyaprateepart, secretary-general of the Thai Oil Palm and Palm Oil Association, said cooking-oil producers had proposed an increase in the retail price since last October. At that time, 10 major manufacturers warned of a supply shortage due to the rising price of crude palm oil.

"We asked for a Bt2-3 adjustment per litre of bottle but it was not allowed," Wiwan said. The association wanted the price to increase gradually. To cover manufacturing costs, the retail price should be Bt56 per litre.

Wiwan said some manufacturers could shift from price-controlled bottled palm oil to avoid losses. For instance, the price of palm oil contained in plastic bags or cans is not controlled by the department.

"We should consider having floor and ceiling prices, which may be a complicated process but we should be planning for [the whole supply chain] rather than focusing only on the consumer," Wiwan said.

Sudarat Techasriprasert, a palm-oil expert from the Office of Agricultural Economics, said it had closely monitored palm-oil production since last year, now checking the situation almost daily. The office has also provided production forecasts every three months. However, there are many unpredictable factors such as climate change, floods, drought, and insect infestations.

Such problems last year affected not only production of oil palm but also of coconut and soybean seed.

Although Sudarat agreed with other panellists on the need for an enforced stockpile, she warned that European experts hired by her office to help study the pros and cons of such a buffer had pointed out that it would entail costs for crushing mills that might force government subsidy.

Suphsorn Chayovan, managing director of TS Oil Industry, said stock management was the key factor of the current palm-oil crisis, which relied mostly on production forecasts. The establishment of a buffer stock and management would help prevent shortages in the future.

"As a new manufacturer of cooking palm oil, we cannot build up a huge stockpile and cannot compete with existing manufacturers as we look for consistent supply," he said.

-- The Nation 2011-02-28