A somtam index as a cost-of-living gauge

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.