Three ceramics plants in Lampang province, renowned for its pottery, have closed and others are for sale because the owners can't afford expensive fuel and higher wages, says the Federation of Thai Industries (FTI).
More plants will close or be sold, says the FTI, as the operators struggle with liquefied petroleum gas prices about 60% higher than they were a year aago, and the new 300-baht daily minimum wage.
At this ceramics factory in Lampang, the workforce was cut from 100 to 45 after the 300-baht daily minimum wage took effect on Jan 1. (Photo by Aswin Wongnorkaew)
Successive governments have heavily subsidised LPG for years but prices began to rise in stages last year. The fuel now costs 30.13 baht a kilogramme for industrial users, compared with the longtime capped price of 18.13 baht.
Fuel is a major input in ceramics production, and when coupled with higher wages, the cost made it hard for many producers to shoulder, said Atiphum Kamthornworarin, chairman of the provincial FTI chapter.
Three plants in the northern province had already closed and posted "for sale" notices, he said.
Other ceramics manufacturers who were still operating were also offering to sell their factories to anyone who wants to buy them, said Mr Atiphum.
Manufacturers who had taken out loans to finance the running of their business would end up deeply in debt if they stayed in operation, he said. The best way to minimise losses and still have some money left for debt repayment or starting a new life was to sell their land and factory premises, he added.
The only ceramic plants that could survive were large-scale manufacturers using new technology that substantially lessened the demand for workers, he said. Some plants had turned to replacing employees with their relatives, reducing labour and social security fund contribution costs.
Mr Atiphum predicted that one in five ceramic plants in the northern province would be closed over the next three or four months. The only alternative would be for more than 2,000 workers to be gradually laid off over the period.
Deputy Commerce Minister Nattawut Saikuar said he was aware of the situation but added that higher wages had nothing to do with two of the plants that closed.
Deputy Commerce Minister Nattawut Saikuar: Wages not to blame. (Photo by Surapol Promsaka na Sakolnakorn)
The Department of Business Development also found out that one of the plants had been up for sale since June 2002 but there was no transaction yet, Mr Nattawut said.
Another operator, the minister said, was not selling the business but was only selling a plot of land next to the factory.
In a related development, FTI chairman Payungsak Chartsuthipol said the Thai Industries Sentiment Index (TISI) rose to 98.8 in December from 95.2 in November. However, any reading below 100 shows below-average confidence, he added.
Mr Payungsak said negative factors that could erode manufacturers' confidence included the 300-baht daily minimum wage and the persistent labour shortages.
TMB Analytics said small and medium enterprises in the northern and northeastern regions were most affected by the wage increases that took effect on Jan 1, which were 20-40% above the old rates.
The TMB Bank unit has calculated the average cost per business for 2012-13 from 70 provinces that recently adopted the new minimum wage. In the North and Northeast, business operating costs are now 3% higher than in other regions of the country, and average profits are about 2% lower.
The industries that have been hardest hit by the wage hike are construction, food retailing, consumer products, auto repairs, paper, printing, farming, building materials, garments and hotels.
TMB Analytics pointed out that the government's tax incentives were insufficient as most SMEs already paid low taxes compared to the labour cost including employment benefits and housing. As a result, they have to shoulder higher costs while struggling to cut other expenses.
It says businesses must continue to improve quality and efficiency, while the government must introduce short-term programmes to help businesses that may not benefit from tax incentives.