Food firms face tough times

Many food businesses are finding it hard to source capital amid the persistent wave of interest rate spikes and a growing concern that many businesses may not make it through the current tough time.

Pham Khanh Ngoc, deputy general director of Janbee Corporation, a medium-size firm based in the southern province of Binh Duong, said that the company is currently experiencing a lull in sales as their order intake has dropped 30-40 per cent since the fourth quarter (Q4) last year.

Janbee is set to put its new seed pressing plant into operation in Q2 this year, as well as introduce two new products to the market, soya sauce and vegetable seasoning.

In Q3 and Q4 this year, the company aims to expand it export markets to several countries in the region.

“For new expansion projects, currently about 60-70 per cent of the equity used is our own, the remainder is raised through financial leverage. Janbee needs to borrow over $30 million, but the investment efficiency seems modest with the current spiking interest rate,” said Ngoc.

Meanwhile, Phan Can Co, marketing director of Vrice Group based in Ho Chi Minh City, revealed that the company has formed an alliance with local farmers and cooperatives to promote production and needs to pay an advance sum to farmers for the purchase of seeds and fertilisers.

“The rice harvest is around the corner, so we are in bad need for capital to pay farmers and be ready to export in Q2 this year,” said Co.

Similarly, Quan Trung Dieu, director of Long Chen-Sai Gon Mi Ltd. is resorting to various means to facilitate the capital needs of food production.

“Instead of using the debt policy as we have previously, we now offer customers a 10-15 per cent discount upon cash payment, thereby helping firms increase capital circulation in this difficult time. In addition, the company has also been making efforts towards production optimisation with reduced reliance on labourers,” said Dieu.

Food businesses usually use up their provisional funds to ensure a stabile supply during the Lunar New Year holiday, leading to the current capital struggles.

According to the Vrice Group executive, the company’s capital source can now feed about 60 per cent of production requirements, but plans for expansion have to be put on hold due to the spike in borrowing costs.

“Input costs have surged from 10-30 per cent, even more. The costs of processing administrative procedures and leasing seaport infrastructure are all going up, meanwhile export prices have risen by just 3-5 per cent. With the high borrowing costs, we have actually lost money on one recent batch of exports, so we need to just focus on large orders,” said Co.

Small and medium size firms are encountering numerous hardships. Dieu from Long Chen-Sai Gon Mi, said that offering discount schemes to entice buyers to settle early brings its own problems down the line.

“In the long-term, this makes it rather difficult to earn enough profit for reinvestment purposes,” Dieu said.

Echoing this mindset, Ngoc from Janbee commented, “Unless timely measures on interest support are introduced along with softening the strict regulations concerning lending, many firms may not survive these tough times, causing critical effects on food supply to the market”.

Source: Vietnam Investment Review