The rise in input costs has hit manufacturing industry
Although the companies have witnessed an escalation of demand for their commodities, they are yet to experience a hike in the prices of raw materials.
Last month-end, Vietnam Cashew Association reported that their members received only 50% of contracted raw cashews from West African suppliers because the prices shot up due to poor harvests— leading some nations there to temporarily halt exports.
Orion Food Vina has opted for green solutions and eco-friendly packaging in the cost reduction drive.
This year, it intends to reduce advertising costs, make investments on its distribution network plus local raw material sources which can contribute in paring down the country's dependence on imported goods.An illustration: cocoa prices have quadrupled from last year, it stated.
In the year to date input costs have grown in double digits, it added.
Nguyen Ngoc Luan, founder of the Meet More coffee brand, said it is struggling since coffee prices have doubled from a year ago.
"In previous years coffee prices did not fluctuate so much, and so procuring raw materials was never as challenging as this year."
An investigation carried out by the American market intelligence firm S&P Global for its purchasing managers' index (PMI) unveiled that in May new orders obtained by Vietnamese firms marked a second consecutive month of growth.
At the same time their costs grew sharply, with nearly one-fourth of firms reporting cost increases; 26% said input costs were up.
Manufacturing companies are looking to control costs through other means — which could include reducing output or raising prices.
May saw them first increase prices since February this year, the PMI said.
While exports dipped Meet More had to reduce its output by 30-40% because buyers shifted their preference to India and Indonesia due to high prices.
Even in the local market it is not increasing price and enduring losses instead, Luan added:
"If we raise prices equal to the increase in our costs consumers will not buy."
Orion Food Vina has chosen green solutions and environmentally friendly packaging that enables them to cut costs.
By the end of this year, it is also going to reduce advertising costs and invest in developing its distribution channels. In addition, the company plans on using local raw materials with a purpose of decreasing dependence on imports.
Many companies have turned to reduced labor. The human capital utilization index in HCMC manufacturing fell by 5.7% during the first five months this year compared to the same period in 2023, notes the municipal Statistics Office.
The sector lost workforce for a second month in a row according to S&P Global.
“Vietnam’s PMI data presents mixed signals,” noted Andrew Harker, economics director at S&P Global.
A bright side was noted that the number of new orders has been sharply increasing which reflects a growing demand.
But if there is a decrease in the workforce this would limit production capacity of firms and the high cost of inputs could result into high prices leading to reduced demand warned.
Turning to the rest of 2024, prices of raw materials and fuels are expected to show highly volatile behavior according to international organizations.
In April the World Bank said that if conflicts in the Middle East escalate, the prices of energy (which is important to production and transportation) plus other critical goods might increase.
Moreover, until the U.S. central bank provides a clear guidance on when it will lower interest rates, the strong dollar will continue keeping import prices high.
Yun Liu, ASEAN economist at HSBC, said many Southeast Asian currencies are including Vietnamese dong under the pressure of strong dollar. "Everyone is still waiting for the [U.S.’s] final decision." The interest rates might be cut once this year and possibly three times next year but possibly not until the end of the third or fourth quarter.
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