Rice firms to see profits fall as input costs grow
In this article (5)
Vietnam’s rice firms are having to lower their profit plans and targets this year as input costs rice and demand falls.
Prior to the annual meeting of its shareholders, the Trung An Hi-tech Farming JSC adjusted profits down to VND100 billion ($4.3 million), six times lower than its earlier plan.
An Giang Import Export Company expects pre-tax profit to fall to VND25 billion, or less than half of last year’s VND57.6 billion, and revenues halved to around VND2 trillion.
The Loc Troi Group has lowered its profit estimates by 4 percent to VND400 billion for this year and the next.
The fall in profit is happening because fertilizers, which accounts for over 50 percent of agricultural inputs, have seen prices increase by double-digit or even triple digits over last year.
Fertilizer and animal feed price hikes are placing huge financial burdens on farmers and firms, the Ministry of Agriculture and Rural Development has acknowledged.
Vietnam National Seed Group said adverse weather would be another concern this year, with earlier monsoon in the Mekong Delta and heavy flooding in the central provinces.
Restructuring of land use and shortage of human resources due to urbanization and industrialization further inhibit cultivation and other post-harvest processing, it said.
Rice firms also expect transportation costs to eat into their profit. Trung An said transport fees to Asian locations have doubled, and to Europe have tripled from last year.
Local demand has fallen by 15-20 percent year on year as consumers stop stockpiling commodities in the aftermath of the Covid-19 pandemic peak, Du Phuc Thinh, modern trade sales manager of Lotus Rice Company said.
“Gasoline, transport and input costs have all surged to unprecedented levels and showed no signs of decrease […] which have forced firms to raise prices, while demand has been low,” Thinh said.
But demand may start to recover in the second half of this year as the year-end shopping spree gets underway, he added.
In the first five months of this year, Vietnam exported 2.86 million tons of rice, fetching $1.39 billion, according to preliminary data from the Ministry of Industry and Trade.
Vietnam will export 6-6.2 million tons of rice this year, the Vietnam Food Association has estimated.
Questions & Answers
Q.Which specific cost increases are primarily responsible for the projected fall in rice firm profits?
Which specific cost increases are primarily responsible for the projected fall in rice firm profits?
The primary drivers are significant increases in fertilizer prices, which have seen double-digit or triple-digit rises. Transportation costs have also doubled or tripled for some firms, alongside general surges in gasoline and other input costs.
Q.Beyond rising input costs, what other challenges are Vietnamese rice firms facing this year?
Beyond rising input costs, what other challenges are Vietnamese rice firms facing this year?
Firms are also contending with adverse weather, including earlier monsoons and heavy flooding. Restructuring of land use and a shortage of human resources due to urbanisation and industrialisation further inhibit cultivation and processing.
Q.How have consumer habits impacted local demand for rice, according to the article?
How have consumer habits impacted local demand for rice, according to the article?
Local demand has fallen by 15-20 percent year on year. Consumers are stopping stockpiling commodities after the peak of the Covid-19 pandemic, which has contributed to lower demand despite firms raising prices.
Q.What are the estimated rice export figures for Vietnam for the current year?
What are the estimated rice export figures for Vietnam for the current year?
Vietnam is estimated to export 6-6.2 million tons of rice this year, according to the Vietnam Food Association. In the first five months, 2.86 million tons were exported, generating $1.39 billion.
Reader pulse
How will these cost pressures affect Asian rice prices?
20,584 votes so far