A somtam index as a cost-of-living gauge

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STREETWISE
A somtam index as a cost-of-living gauge
Achara Deboonme



BANGKOK: -- What are the criteria to indicate purchasing power parity (PPP)? If a new metric is sought for use only in Thailand - to determine the PPP of Thais - I propose the price of somtam.

Although an Isaan dish, the famous papaya salad can be found in all parts of Thailand and even abroad. But although it is made from the same ingredients, entirely locally sourced, it comes at different prices in different parts of the country.

About 10 years ago, one somtam vendor in Phuket quoted her price at Bt30 per dish. That was outrageous given that the spicy salad generally cost Bt25 in Bangkok.

Now, a vendor in Phu Wiang, a district in Khon Kaen renowned for its roasted chicken, sells the salad at Bt25, compared to Bt35 in Bangkok. (We will not take into account the prices at "boutique" somtam shops like Tam Maur or Tam Laek, which are usually higher.)

Somtam should be as good a pointer as a Big Mac in determining PPP, given that it is a local staple - unlike snacks, beer, milk, fish sauce or other items sold at convenience stores nationwide at the same prices.

Since 1986, The Economist has used the Big Mac to compare the relative strengths of different currencies, and hence the purchasing power of people in one country over those in other countries. PPP is obtained by dividing the price of a Big Mac in Country A (in its currency) by the price of a Big Mac in another country (in its currency). This value is then compared with the actual exchange rate; if it is lower, then the first currency is undervalued (according to PPP theory) compared with Country B's currency. Conversely, if it is higher, then the first currency is overvalued.

For example, the average price of a Big Mac in America in July 2013 was US$4.56; in China it was only $2.61 at market exchange rates. So the "raw" Big Mac index says that the yuan was undervalued by 43 per cent at that time.

In Thailand, at Bt89 or $2.85, at the exchange rate of 31.27 per dollar, the Big Mac Index suggests that the baht is undervalued by 37.5 per cent. In other words, because of the exchange rate, for the same amount of money, an American can buy one Big Mac in the US, and nearly half again if he or she buys the burger in Thailand.

While the Big Mac Index suggests different PPP for people in different countries, a somtam index could be used to suggest the different PPP of people in the 77 provinces of Thailand, and hence the cost of living in respective provinces.

But like the Big Mac Index, a somtam index could contain a flaw. The Big Mac Index does not take into account different tax rates. Likewise, a somtam index might not take into account the varying cost of fresh ingredients - mainly papaya, tomato and chilli. These three products are not commercially grown in the South. They are transported mainly from Bangkok, the country's largest distribution centre for fresh produce. Although the diesel price remains capped at Bt30 per litre, transportation costs take into account the depreciation of trucks and other costs.

But roughly, somtam prices in the provinces lead to the assumption that the cost of living in Phuket is the highest in Thailand. From that assumption, arises the big question of how workers in Phuket support themselves financially on the Bt300 minimum wage, as they earn the same amount as workers in provinces with a relatively lower cost of living. Notably, before the wage policy took effect, workers in Phuket earned the highest minimum wage.

The blanket wage policy is here to stay. But in the transition period, the government may need to work harder to help the poor. I suggest more Blue Flag fairs in Phuket than in the Northeast. Certainly, if street vendors in Phuket can buy cheaper fish sauce and vegetable oil, this should help them maintain profit margins without having to raise food prices.

Failing to do so could threaten economic prosperity. What if workers in Phuket flee to other provinces, where they can take the same job for the same pay but with lower expenses? The province's economy could come to a standstill. To over 10 million visitors who descend on the province each year, it would be very inconvenient if restaurants there can't find waiters and waitresses. If they choose to raise salaries, that would lead to a spiralling of costs, which may in turn scare away businesses and visitors.

Somtam prices could tell us that much.


-- The Nation 2013-07-30

[kurnell]

I always regret buying a Big Mac on the once yearly occasion that I feel like one (usually drunk at 2am).

[ChrisB87]

Why not an i-phone index? or did they not eat somtum for 6 months to pay for it?

[marioc]

I always regret buying a Big Mac on the once yearly occasion that I feel like one (usually drunk at 2am).

,,,same....

[theblether]

A bar fine index would be of more use to many members.

[coobah666]

It used to be a can of coke

[keeniau96]

To much variability in som tom. Add black crabs? cabbage leaf or green bean on side, maybe a bit of tomato. What about the sticky rice on the side ... homw much of it and what price.

I prefer green chicken curry แกงเขียวหวาน as an index, obtainable almost anywhere in the LOS.

As for Big Mac, it may be a good international index but absolutely sux to eat one.

[Sayonarax]

Why not an i-phone index? or did they not eat somtum for 6 months to pay for it?

You clearly don't get the use of a big mac as a economic example..

[noitom]

What a clever way to gauge economics. Looking at "renowned" street vendors and "boutique" sellers. Boy oh boy these Thais. They are renowned and have boutiques offering this delicious entree.

[NeverSure]

I totally disagree with using the Big Mac to say that certain currencies are under/over valued.

Workers at a McDonald's in the US make on average $10 an hour and some as much as $15. There are also the payroll taxes that an employer pays which can add 30% to that.

It's simply not apples to apples. It has nothing to do with currency value, but rather the cost of doing business.

That's not to mention the vast difference in the quality of the beef patty in the US burger.

[Hunter s somtam]

I'm all for it .Have you ever noticed how nobody ever eats the tomato ,but they put them in everytime .despite the name that's the only bit I eat.

[Pib]

Wow...I sure hope this news reporter has reached his word count quota for the week so he can get paid; I would hate to see more useless articles from him this week. Oh no, I just heard he came up short on the word count...he's now writing an inflation article on a bowl of noodles.

[jpeg]

40 baht on Phuket. 50 if you want khao niaow with it.

[Bakseeda]

A bar fine index would be of more use to many members.

a fine bar would be better.....

[HUAHIN62]

I totally disagree with using the Big Mac to say that certain currencies are under/over valued.

Workers at a McDonald's in the US make on average $10 an hour and some as much as $15. There are also the payroll taxes that an employer pays which can add 30% to that.

It's simply not apples to apples. It has nothing to do with currency value, but rather the cost of doing business.

That's not to mention the vast difference in the quality of the beef patty in the US burger.

Are you sure its beef? The crap takes 2 weeks to go through your system.

But I agree the BM index is not a true reflection of living costs. In Thailand beef is expensive but other food stuff is much less expensive than in other parts of the world. The BM index can however over a priod of time reflect the increase in the cost of living in a country, but not between countries. Interesting to note that beef and mutton prices have been coming down over the last 3 years in our area. Bought a whole fillet steak the other day for B 350/kg (few years back the cheapest was around B 850/kg). Stuffed the steak and did it on the rotisery for Thai friends, they nearly had a heart attack, the first time they have seen a 2 kg piece of meat BBQ.

[Neilly]

I always regret buying a Big Mac on the once yearly occasion that I feel like one (usually drunk at 2am).

[Hunter s somtam]

the books always better 55555

[Hunter s somtam]

the books always better 55555