07/03/05 - Thai President Foods Plc, the maker of Mama instant noodles,has expressed concern that an extended drought could affect supplies ofpalm oil and increase production costs, as well as dampen the purchasingpower of consumers.

Pipat Paniengvait, the company's managing director, said the country-widedrought would lead to a shortage of palm oil, which represents 12% of thetotal operation cost of instant noodle production. If palm oil pricesclimb to 30 baht per kilogramme, compared to 20 baht currently, thecompany will not be able to simply absorb the higher cost without raisingprices.

As well, reduced harvests of palm oil and other farm commodities may causeconsumer spending power to shrink, especially in provinces withagriculturally based economies, as farm families suffer from reducedincome.

Mr Pipat said that the company has two options. One is to increase theprices of its instant noodles and the other is to ask the government toallow the company to import cheaper palm oil from Malaysia. Currently, thecompany uses 1,300 tonnes per month of palm oil, a large proportion of thetotal instant noodle industry's consumption of 4,000 tonnes.

``The rising prices of petrol and diesel have had only a marginal impacton our packaging and transport costs as we can offset them with lowerprices for wheat flour, after the import tax was cut to only 5% early inJanuary, from 25% previously,'' said Mr Pipat.

The company has tried to reduce operating costs by moving its Mama papercup machinery to the Lamphun factory, whichj was formerly installed at theNong Khaem facility in Bangkok. This is to help reduce the transport costof paper cups to 50,000 baht per month, compared to 200,000 baht per monthearlier, as well as make utilisation of the machine more efficient.

``This looks to be a tough year for us, not only from the oil price hikeand the drought, but also higher interest rates and the violence in thedeep South, all of which have had an impact on consumer spending. However,we hope the higher cost of living will create more demand for Mama instantnoodles,'' said Mr Pipat.

All three of its factories in Chon Buri's Si Racha district, Rayong andLamphun are running at near full capacity. So, the company may spendanother 600 million baht to set up a new building and install additionalmachinery at its Rayong factory within the next 1-2 years.

Mr Pipat said the company's total sales last year increased 4.81% to 4.55billion baht and net profit increased 13.84% to 559 million baht. Thisyear the company projects total sales will increase to five billion baht.

The company plans to introduce two new flavours, Mama Tom Yum Pork andMama Minced Pork, both packaged in a 110-gramme bowl, within the next twoto three months. The company, which also plans to introduce new flavoursin cup-style packaging, predicts sales of all flavours this year to riseto 400 million baht, up from 330 million baht last year.

TF shares last traded on Friday, closing at 278 baht in trade worth 17.81million baht.