Who benefits, who suffers in the wave of global food price increases

Rice exports will benefit in terms of quantity and price.

Rice and sugar get high prices

Trung An Hi-tech Agriculture Joint Stock Company has won a bid to sell two shipments of brown rice to the South Korean market with a total volume of more than 22,222 tonnes. This is the second time Trung An has won a bid to sell rice to South Korea since the beginning of the year. The winning bid price reached a high level, from US$570-580/tonne.

According to the Food and Agriculture Organization of the United Nations (FAO), the food price index in April continued to increase by 1.7% compared to March 2021, to 120.9 points, 30.8% higher than 2020. This is also the highest increase since May 2014. Disrupted supply, low stockpiles of agricultural products and a weakening dollar could be to blame for the recent high food prices. This price trend is forecast to continue to increase as the outlook for the 2021 crop is affected by adverse weather and a faster-than-expected recovery in China boosting demand for food.

Meanwhile, in Vietnam, an analysis report of VNDirect Securities Company shows rice and sugar prices have increased by 18.6% in line with world food prices. The Covid-19 pandemic has also forced many countries to increase their food reserves, especially rice. Supply is showing signs of tightening in rice exporting countries, and importing countries are also stepping up imports, pushing up rice prices. The increase in demand and selling price is expected to help rice producers expand their gross profit margin in the future on low-priced inventories.

Loc Troi Group Joint Stock Company has seen domestic and international fixed orders in February, June and September every year. Therefore, the increase in world rice prices will support the company's export revenue and improve the profit margin of the rice segment. In addition, in 2021, Loc Troi will focus on export orders to the EU with Jasmine 85 fragrant rice to enjoy 0% tax incentives within the framework of the EVFTA Agreement.

Huynh Van Thon, Chairman of the Board of Directors of Loc Troi Group, assessed that after many years of restructuring the rice sector, the competitiveness of Vietnamese rice has significantly improved. Along with progress in negotiations, Vietnam's export rice prices have improved a lot, helping improve the profits of both Vietnamese enterprises and farmers. Information announced by Loc Troi also said the average unit price of rice for export in the first three months of 2021 jumped by 18% compared to the same period last year, reaching about US$540/tonne.

With the sugar sector, the domestic sugar price has also risen by 31.8% compared to the beginning of the year. The International Sugar Organization (ISO) forecasts the world sugar market in 2020-2021 will shift from oversupply to undersupply with a shortfall of 3.5 million tonnes. Therefore, the world sugar price will continue to increase in 2021.

Quang Ngai Sugar Company has the second largest cane material area for sugar production, so it can take advantage of the trend of increasing sugar prices and expand the gross profit margin of this segment. The application of anti-dumping tax on Thai sugar will also help reduce competitive pressure on the firm and increase the selling price of sugar in the country.

Worry about rising costs on meat, milk, cooking oil

While rice and sugar enterprises benefit from the trend of increasing global food prices, firms producing milk, animal feed, cooking oil and meat "worry" when input costs are higher. Most Vietnamese enterprises are importing powdered milk, grains and oil to produce milk, animal feed and cooking oil.

At Vinamilk, nearly 70% of its fresh milk ingredients are imported from the US, Europe and Oceania. Therefore, Vinamilk's gross profit margin will be hurt by the increase in global powdered milk price. However, according to VNDirect, the impact of the price increase will be evident in Vinamilk's raw material costs in the second half of 2021 because the company has fixed the price of powdered milk until June 2021 from the end of 2020 at a price close to remaining unchanged from the same period last year.

The price of input materials for animal feed production has also increased sharply since August, with corn prices up by 45% and soybeans rising by 50%. The main reason is due to the sudden increase in demand for animal feed from China as the size of the pig herd in this country recovered after the African swine fever. This high price level is set to continue as production demand in other countries will recover from 2021.

Feed manufacturers such as Dabaco and Masan MeatLife Joint Stock Company will be affected because the increase in input material prices cannot be converted into selling prices as they still have to compete with other foreign companies. Higher feed prices could harm the pig production business of Dabaco and Masan MeatLife as pork prices are forecast to fall by 19% in 2021 from their highs during the African swine fever period.