Hammered by higher materials costs, producers call price hikes unavoidable

Many Vietnamese enterprises that produce consumer goods are considering raising prices to offset higher costs of production. Price increases are expected to begin in April and to be between five and 15 percent, reports Thoi Bao Kinh Te Saigon.

Producers say that price increases are unavoidable because they have already accepted lower profits and cut down expenses as far as they can. The problems that they need to consider now are when and how much to increase the prices of their goods.

The pressure from electricity, water and materials

Cao Tien Vi, Chairman of Saigon Paper Company, said that the latest dong/dollar exchange rate fluctuations have raised the cost of import materials by about two percent.  “We’ve reduced the imported component in our products to ten percent,” Vi explained, “down from thirty percent two years ago.  We can’t go any lower.”

Vi cites water and electricity rate increases as additional factors driving up the cost of paper production.  “Water and electricity prices have increased by seven percent on average, which translates to a one percent rise in our cost of production,” Vi said.

According to Phan Van Thien, Deputy General Director of the bun and confectionary maker Bibica, production costs have increased by five to seven percent. “The cost of the milk, flavorings and additives we use has surged by twenty percent due to higher world prices and higher dollar prices,” he explained. Meanwhile, the company’s power bill has risen by 200 million dong more per month.

In the garment industry, producers say that fabric prices have increased by ten to twenty percent which translates into a cost of production increase of 15 to 25 percent.  “Retailers are pressing us to give them discounts of one percent or more, complaining that they have to pay more for electricity, water and wages,” a garment producer added.

Cutting down profit, expenses, raising sale prices

Producers all said that they cannot avoid raising prices, having already done all they can to reduce expenses and accepted lower profits.  The only uncertainty is when, exactly, to raise prices and by how much.

Thien of Bibica said that cost-saving measures are reducing the firm’s production cost by two to three percent, but “Bibica will still have to raise our price to retailers by five percent in April, though we well know that purchasing power is now weak.”

Nguyen Huu Toan, a garment manufacturer, said that his firms ‘Sanding’ products will increase by 10-15 percent in April.

Meanwhile, a representative of the Saigon Paper Company said that the company intends to hold the lid on its prices in the short term to retain customers who are tightening their own belts. “However, a price increase has become inevitable, ,” he said, “perhaps at mid-year”.

According to Ly Truong Chien, head of the Tri Tri consultancy firm, price increases will ripple through the Vietnamese economy throughout this year.  Consumer goods are likely to be seen in the first and second quarters of the year, while import products will increase in accordance with the dong/dollar exchange rate. Chien predicted that for all of 2010, prices will rise by approximately ten percent.

VietNamNet/TBKTSG

Tags: Vietnam markets, Vietnam prices 2010