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Export enterprises struggle in cost storm

10:33 | 08/08/2022

VCN - Input costs for production are skyrocketing, and logistics costs have not yet dropped to pre-pandemic levels, increasing production costs of exporters significantly. Meanwhile, inflation in export markets forced enterprises to not be able to increase selling prices and reduce prices to retain customers. The consideration to ensure profits becomes a problem for enterprises.

Trung An brand rice packing line for export to Europe. Photo provided by enterprise
Trung An brand rice packing line for export to Europe. Photo provided by enterprise

Hard to break even

According to a report of the Ministry of Agriculture and Rural Development, the prices of agricultural inputs increased sharply because input materials for agricultural production mainly depend on imports, especially in the context of the Covid-19 pandemic from 2019, the Russian-Ukrainian conflict from the beginning of 2022 disrupted supply chains and pushed up material prices; leading to increases in raw materials and inputs for domestic production, as well as production costs and agricultural product prices.

According to the announcement from the General Statistics Office, on average in the first six months of the year, the CPI increased by 2.44% over the same period in 2021; core inflation increased by 1.25%. Producer price index, price index of raw materials used for production, import and export price index in the second quarter and the last six months also increased compared to the same period in 2021.

Specifically, compared to December 2021, the price of urea increased by 136-143%, DAP increased by 143-164%, potassium increased by 180-200%; the price of raw materials for animal feed increased by 30-45%, pushing the price of finished animal feed to increase by 30-35%.

Mr. Phan Van Co, Marketing Director of Vrice Co., Ltd., also said that input costs for rice cultivation and production had increased by 50-60%, of which fertilizers and plant protection drugs had the highest increase.

In addition, logistics costs were still very high. Specifically, the price of a container going to the US was currently at US$9,000-11,000, while going to Europe was US$6,000-7,000 depending on the port.

In the newly published report on the textile and garment industry, SSI Research pointed out that the average price of imported yarn had increased by 10% over the same period in 2021 due to the increase in cotton and oil prices, and logistics costs were high during the first five months of 2022. This inevitably led to an increase in fabric costs and significantly affected the gross profit margin of domestic textile and garment manufacturing companies.

Therefore, it was estimated that revenue growth of textile and garment manufacturing companies in Vietnam would decelerate in the last six months of 2022 and 2023.

Than Duc Viet, General Director of Garment 10 Corporation, said that although the company had orders until the end of the third quarter of 2022, some strong products such as shirts and vests had orders until the end of 2022. If the consumption market was slow, the inventory ratio of importers increased, and customers could adjust or cancel orders suddenly.

With the production chain, the cost of raw materials and fuel increased, leading to an increase in production costs, and the profit margin of enterprises was increasingly narrow.

Mr. Tran Van Hiep, Vice Chairman of Vinacas, said that cashew importers and processors tended to be slow in purchasing raw materials.

“This is due to many reasons, but the most common is the non-correlation between imported raw cashew prices and export kernel prices. The price of raw cashew imports from Africa has increased by 15-20% compared to the beginning of the season, while the export price of cashew kernels has decreased. Not only is there no profit, the balance to break even is also very difficult for processing plants," said Mr. Hiep.

Not only is it difficult to balance costs, but inflation in the US and Europe also affects the purchasing power in these markets. Mr. Phung Van Sam, Chairman of Hanfimex Group, said that because cashew nuts were not an essential item, while the shipping fee from Vietnam to the US and Europe was currently too high, importers here tended to replace cashews with other nuts such as almonds, walnuts, pistachios at a cheaper cost. Some Hanfimex customers even switch to Ivory Coast products because the logistics cost from Ivory Coast to Europe was only US$2,500-3,000, while the cost from Vietnam to Europe was over US$7,500-8,000.

Find solutions

Facing high input costs, Mr. Phan Van Co said the production and export of the company were mainly to maintain jobs for workers and ensure output for farmers because profits were very low.

In addition, Vrice also restricted exports to risky markets and reduced exports of ordinary rice and low-grade rice to ensure stability. According to Mr. Co, in the first six months of this year, the company’s export rice output was still stable but might decrease by 5-10% in the second half of the year. The reason was the low quality of the summer-autumn crop due to the influence of heavy rain.

In addition, the European Union warned against pesticide residues in Vietnamese rice. At the same time, the Euro depreciated against the USD also making the price of Vietnamese rice sold to Europe became more expensive.

Trung An Hi-tech Agriculture Joint Stock Company has a bold solution to reduce the selling price of its brand rice by 10% to European customers to share difficulties with consumers in the post-Covid-19 context and high inflation. Pham Thai Binh, General Director of Trung An Company, said that since the company implemented the price reduction policy from June 2022, Trung An's branded rice consumption in Europe had increased significantly. Mr. Binh also expected this to help in the eyes of European consumers and create momentum for future growth.

However, the decrease in the selling price in the context of a series of high input costs has greatly affected Trung An's profit margin. Accordingly, Mr. Binh said the company had adjusted its profit plan 2022 to only VND110 billion, nearly 82% lower than the target set at the beginning of the year.

Similarly, An Giang Import-Export Joint Stock Company has also adjusted to halve its revenue plan in 2022, to about VND3,940 billion, while profit before tax decreased by more than two-thirds, to VND25 billion compared to the figure approved at the previous annual general meeting of shareholders with VND70 billion.

Meanwhile, in the face of difficulties in the US market due to rising costs, Minh Phu Seafood Joint Stock Company is planning to reduce its market share in this market and promote sales into markets with better profits.

Than Duc Viet also said that Garment 10 Corporation was focusing on order management and production planning in line with market fluctuations.

Previously, production plans were deployed on a quarterly and monthly basis, now they had to be done on a daily and weekly basis. Flexible deployment was imperative to promptly adapt to fluctuations in politics, commodity prices and input material prices.

By Nguyen Hien/ Binh Minh