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Sunday, October 17, 2021

Winners, losers in the game

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Prices of energy commodities—such as crude oil, iron and copper ores, and lithium—have surged since early this year. So have the prices of agricultural products and input materials used in the food industry. How have the price spikes impacted Vietnam and her listed companies?

According to the May 2021 issue of the Economist’s Note, VinaCapital, a fund management company, reported that the three food giants, including Vinamilk, Kinh Do (KDC) and Quang Ngai Sugar Company (QNS) have seen their buying prices of input materials rising remarkably since early this year. However, they had bought hedge for the prices of their input materials, which partly neutralized the price hike effect.

Prices of milk powder and sugar, which account for about 30% of the input costs of Vinamilk, have risen by 35-40% year-on-year. The bought hedge for 50% of the input materials helped Vinamilk keep the price hike at 16%. However, as Vinamilk could not raise their selling prices proportionally but only part of them, its gross profit margin was adversely affected. According to VinaCapital, the dairy firm’s gross profit margin may go down by 6%.

Edible oil, one of the key products of Kinh Do, has suffered from the price spikes of soybean oil and palm oil which have been constantly on the rise. Bui Thanh Tung, CEO of Tuong An Vegetable Oil Joint Stock Company (TAC), says the annualized prices of soybean and palm oil has doubled with palm oil prices rising from VND14,000 to VND28,000-29,000 per kilogram and soybean oil from VND20,000 to VND40,000 per kilogram.

Like in the case of Vinamilk, Tuong An Vegetable Oil Joint Stock Company, whose 62% stake is owned by Kinh Do, has not raised all the prices of their relevant products to offset the rise of input material prices. “What matters is whether our product quality, production scale and business administration can reduce costs—including selling expenses, and general and administrative expenses,” says Mr. Tung.

VinaCapital projects the gross profit margin of Kinh Do’s edible oil business will plunge by 12 percentage points. Given this rate, the group may have transferred the material price spike to consumers.

In addition to the shares of Tuong An, Kinh Do also holds a big stake of two other edible oil makers, Golden Hope and Vocarimex.

Many farming households, including coffee planters,
expect to benefit from the current global price hike of
agricultural products – PHOTO: MINH DUY

Benefit enjoyed

More than 20% of QNS’s sales come from soybean products. As sugar prices have soared sharply by 35% compared with the same period last year, the company has benefited enormously. Its gross profit margin will not be seriously affected if all the ranges of products are calculated as a whole.

According to VinaCapital, the price spike of agricultural products has boosted Vietnam’s export prices in this regard. As some 40% of her work force earning their living in agriculture, higher prices of rubber, coffee, tea, black pepper and the like will raise the income of farmhands. Higher income of people in the rural areas will boost the consumption in this segment of the economy.

“Vietnam leads the world in black pepper production and export,” reported VinaCapital. “More than a half of the country’s pepper production is from farming households and small farms. As annualized pepper prices have soared by 30%, farmers planting pepper and their families will improve their sources of income and consumption.”

Prices of natural rubber have continued their rising streak despite a fall off the peak set up last month. Compared with the same period last year, rubber prices on the Tokyo exchange rose from 130 yen per kilogram in the middle of last year to 248 yen two weeks ago. After a decade, the price of natural rubber has begun a new growth cycle.

The Vietnam Rubber Group (VRG) and other listed rubber firms such as DPR, PHR and TRC have left behind the time of hardships when rubber prices fell to the bottom. Currently, in addition to sales from the liquidation of old rubber farms and the transfer of part of rubber plantations to building industrial parks, it is the exploitation and export of rubber which is the core business helping the rubber industry come to relive its glory days.

One of the enterprises which are the most unlucky in the craziest stories about the rise and fall of commodity prices during this time of pandemic may arguably be Hoang Anh Gia Lai (HAG). Three years ago, HAG spent trillions of dong clearing thousands of hectares of oil palm farms nearing the harvesting time to cultivate fast-growing fruit trees. Similarly, had HAG been patient enough to retain its thousands of hectares of rubber trees which had been grown since 2010-2011, it could now receive huge rewards. However, as a proverb goes, “Man proposes, God disposes.”

By Hai Ly

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