Dairy Farmers Expect Better Gross Profit Margin in Second Half | Company

A worker checking products at a Vinamilk processing plant. (Photo courtesy of Vinamilk)

Hanoi (VNS/VNA) – Dairy farmers faced lower profits in the second quarter of 2022 due to weaker demand and high material prices.

However, recent falls of raw milk price and product price increases in the first half of the year should help companies improve their gross profit margin over the rest of the year.

Consumption of dairy products remained low, said ISS search. After remaining stable in the first quarter, consumption of dairy products increased slightly in the second quarter, according to data from AC Nielsen.

In the structure of fast-moving consumer goods, milk has continuously grown at a slower rate compared to other commodities. Of which, the growth of milk consumption was positive in the rural market, while the reverse in the urban market.

Moreover, the competitiveness between dairy farmers becomes more and more intense. Vinamilk’s board confirmed it faces increasing competition from competitors, including domestic and imported brands, resulting in lower revenues across all product categories since the start of the year , with the exception of condensed milk.

The war between Russia and Ukraine has also weighed on the market, driving up commodity and oil prices since February. According to SSI Research, major dairy company materials all surged, as milk powder prices rose 30-40% year-on-year and sugar prices rose 30%.

Higher costs affected their gross profit margin despite sales price hikes of 2-5% to pass the additional costs on to consumers.

Rising selling costs due to rising fuel prices driving up transportation costs is another pressure dairy farmers face, while fierce competition dramatically increases promotional costs and sales support for maintain their market share.

Most companies posted profit declines in the second quarter and first half of the year. Of which, Vinamilk recorded a 5% drop in revenue to 14.93 trillion VND (637.4 million USD). Its after-tax profit for holding shareholders fell 26% to nearly VND2.1 trillion, the lowest in 5 years due to a lower gross profit margin but higher selling expenses. For the first six months of the year, Vinamilk’s turnover remained stable at 28.8 trillion VND, with a net profit of 4.3 trillion VND, down 20%.

Similarly, Seed Moc Chau Dairy Cattle Corporation JSC’s second-quarter revenue rose another 6% to VND839 billion, but profit after tax remained nearly flat at VND90 billion. In the first months of 2022, its profit increased by 28% to reach VND 175 billion thanks to exceptional growth in the first quarter.

International Dairy Products JSC announced that its second quarter revenue reached more than VND 1.5 trillion, up 23%. Gross profit margin fell from 44% to 39% while selling expenses increased, resulting in a 5% drop in profit after tax to VND 216 billion. In the first six months, the company’s revenue and profit grew 17% and 11.5% year-on-year, respectively.

SSI Research believes that demand for milk will strengthen in the second half of 2022. In the first half of 2023, trade channels are expected to fully recover with the full reopening of hotels, restaurants and cafes and an increase in the number of foreign tourists which is driving demand. Growth should therefore return to normal from the second half of 2023.

Meanwhile, prices for whole milk powder (WMP), skimmed milk powder (SMP) and anhydrous milk fat (AMF) have been adjusted downwards from March, according to the World Food Organization. dairy trade.

Regarding sugar prices, in June the world price of sugar reached 0.185 USD/lb, up 20% compared to the beginning of the year and 7% year-on-year. The supply shortage will continue to support sugar prices for the remainder of 2022.

However, in Vietnam, the average price of refined sugar remained unchanged compared to the same period of 2021 in the first half of the year, hovering between 16,500 and 17,500 VND per kg. SSI Research said domestic sugar prices were under pressure due to the amount of smuggled sugar and Thai sugar moving through ASEAN countries and then Vietnam.

With higher average selling prices in the first half of 2022, SSI Research estimates that the gross profit margin of dairy companies could improve from the fourth quarter./.


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