Rising fuel price, depreciating kip harming Lao producers

Skyrocketing fuel prices and the continuing depreciation of the kip are ramping up pressure on producers due to soaring production costs, according to a recently unveiled study.
Conducted by the Ministry of Industry and Commerce, the research paper stated that the Russia-Ukraine conflict had interrupted the global supply chain, leading to a rise in the price of fuel, gas and animal feed.
Rising production costs have in turn led to higher prices in markets, especially for beef, pork, fish and vegetables, creating further hardship for the general public. 

The paper stated that the price of fuel jumped by 28 percent from US$77.97 per barrel at the end of 2021 to more than US$100 per barrel in April.
The slow recovery of the global economy from the Covid-19 pandemic has severely impacted small economies, including Laos, which rely on fuel imported from other countries.
According to the paper, the kip depreciated by 6 percent against the US dollar and 5 percent against the Thai baht on April 8 compared to the figures recorded on January 4.
BCEL exchange rates on April 18 stated that US$1 bought 11,890 kip and sold for 11,916 kip, while one baht bought 382.28 kip and sold for 385.16 kip.
The spiralling price of oil and the depreciation of the kip are among the main factors driving year-on-year inflation in Laos, which rose from 6.25 percent in January to 8.54 percent in March. 
Pig and chicken farmers have been hard hit by the increased price of animal feed purchased from Thailand. The cost of feed for piglets rose by 29 percent, the cost of feed for chicks rose by 8 percent, and the cost of fish feed surged by 60 percent.
The figures were collected in April to compare with those recorded in January, to indicate how rising costs are affecting producers and farmers in Laos.
The research paper recommends steps to be taken by the government, particularly financial measures in response to these challenges.
These include raising the interest rate to attract foreign currencies into the banking system; strictly regulating exchange rates; encouraging transactions for exported goods through the banking system; and ensuring that trade in goods and services in Laos is done using kip.
The paper suggested that the sectors responsible should strongly promote domestic production in order to minimise imports, especially of goods that can be made in Laos.
The Ministry of Industry and Commerce’s paper emphasises that it is essential to strongly promote domestic production for the purposes of export, saying this would help to boost foreign currency reserves and stabilise exchange rates in the long term.

By Somsack Pongkhao
 (Latest Update April 19, 2022)