19/02/2011 (The Nation) - Over the past few months, all supermarkets in the country have not had enough bottled cooking oil on their shelves to meet the consumer demand, largely because hoarding abounds.

In particular, bio-diesel companies, which use palm oil as an ingredient in B3 and B5 diesels, have hoarded the raw material in anticipation of a higher price.

Currently, B3 and B5 bio-diesels have 3 per cent and 5 per cent palm oil contents, respectively. The products are an essential part of the government's policy to promote the use of bio-fuels to reduce dependence on petroleum-based fuels.

As a result, there is a growing but competing demand for agricultural crops that are both edible oils for humans and bio-fuels for motor vehicles.

In the case of palm oil, prices have shot up to a high of over Bt70 per litre, while the government continues its policy of capping the diesel price at Bt30 per litre.

Economically, it doesn't make sense to use the more expensive palm oil in bio-fuel that sells at less than half the former's prevailing price.

In addition, the domestic shortage of palm oil for cooking has been worsened by hoarding, as most of the earlier imports of 30,000 tonnes of palm oil from foreign sources have not been bottled for households and food vendors, resulting in the empty shelves at most supermarkets.

While the Department of Special Investigation has started to take action against those who hoard palm oil and other cooking oils, another short-term solution is to suspend the bio-diesel promotion policy for a certain period of time.

Finance Minister Korn Chatikavanij has suggested that the government may resort to B0 or B1 diesels for a while, so as to help alleviate the shortage of cooking oil in the country.

B0 diesel means no palm oil will be added, but this may hurt the bio-fuel policy in the long run. In his opinion, B1 diesel is a better alternative since it keeps the bio-fuel promotion intact while leaving more palm oil for human consumption.

In fact, the tight supply of palm oil has also hit Malaysia and Indonesia, which are among the world's largest producers, resulting in export restrictions in those countries.

In the global market, the demand for agricultural commodities, especially those for foods, has been on the up-trend, so have the prices - largely due to the high demand growth in China and other emerging markets, alss because of climate change affecting global farm output.

As a result, Thailand's bio-fuel policy as it stands today is not sustainable and will have a significant negative impact on the country's food supply chain in the long run.

This dilemma has also affected other countries where bio-fuels are heavily promoted at the expense of the food supply chain, resulting in upward pressures on the prices of food crops that are used as raw materials for ethanol production.

Ethanol is made from sugar cane, corn and other farm crops. In Thailand, it is marketed as gasohol, which is cheaper than regular and premium gasoline and is subsidised by the government in a way similar to bio-diesel. However, its impact on the domestic food supply chain is not yet as severe as bio-diesel, in which palm oil is mainly used as the key ingredient.

In the end, policy-makers need to ensure that the increasingly widespread use of bio-fuels will not hurt food supply in the long run.