Input cost rise makes export growth unprofitable

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Exports are growing and their prices are rising, but a faster rise in input costs is canceling export profits.

Exporters worry that the development is expected to continue in 2012, alongside a narrowing of markets for some export products brought about by the continuing global economic recession.

The director of a garment company in Hung Yen Province said that despite his firm's export growth of 20 percent since early this year, he only brought in profits of 4 percent.

"We were lucky to reap even this profit," he said, speaking on condition of anonymity. "We conduct outsourcing contracts with big customers from the US and the EU, so increasing imported material prices, as well as high banking interest rates, haven't affected our business as much as others."

Other producers are losing money as stiff competition has prevented them from increasing their prices in line with their rising input costs, which have jumped by some 60-70 percent over the past year, he explained.

Duong Ngoc Minh, vice chairman of the Vietnam Association of Seafood Exporters and Processors, said exporters are facing losses despite the sector's export value growth of 27 percent in the first nine months of this year.

Some seafood producers have refused orders from customers due to material shortages as farmers are now not interested in expanding production due to higher input costs, he said.

Nearly 150 firms have stopped processing and exporting seafood to pursue other kinds of business since the beginning of this year, according to the association.

The situation is the same in many other sectors such as footwear and woodwork.

General Secretary of the Vietnam Timber and Forest Product Association Nguyen Ton Quyen said the price of wood materials has increased by 15-20 percent since early this year, while many foreign trade partners agreed to increased prices only on contracts signed late last year.

Quyen said many local firms no longer want to sign big contracts, as large orders take at least four months to fulfill, meaning higher risks if input costs continue to rise.

Vietnam has reaped export turnovers of US$78.03 billion since the beginning of this year through October, a year-on-year rise of 34.6 percent, according to the General Statistics Office.

Pham Tat Thang, policy advisor at the Ministry of Industry and Trade's Trade Research Institute, said Vietnam's exports of food products are expected to benefit from price hikes amid forecasts of bad weather and poor harvests next year.

"Our export growth in 2012 has been predicted to hit 20 percent at least," he said.

However, the country's exporters may face many challenges next year, including a lack of material supplies, Thang said.

"Earlier, China focused on the export of medium quality products with low prices, but now it has shifted to high quality products with reasonable prices. To this end, it has strengthened importing raw materials from other countries, including Vietnam," he said. "The strong flow of Chinese products into the US, EU and Australia has put great pressure on our exporters."

Meanwhile, the demand for some Vietnamese products such as garments and woodwork is expected to reduce in the context of the global recession.

Pham Xuan Hong, vice chairman of the Vietnam Textile and Apparel Association, said the number of orders to the US and EU has decreased, and is expected to fall some 10-15 percent each month in the last quarter. Many small and medium firms have seen fewer orders, and have had to reduce production.

The situation may continue in 2012, as big importers such as the US and EU face continuing economic difficulties and consumers continue to cut spending.

Meanwhile, some industry insiders say Vietnam is facing the risk of a US anti-dumping investigation of the country's woodwork industry, as well as accusations from the Environmental Investigation Agency of timber smuggling between Vietnam and Laos, which could affect the sector's exports in the coming time.

Thang said the US and EU will still be major export markets for Vietnam. However, the EU is not expected to recover much next year, so Vietnam should seek more markets.

The country should also pay attention to tapping Japanese markets, which have strong demand for products like construction materials and woodwork products to serve reconstruction efforts after the tsunami, he said.

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