(VAN) Record-breaking exports and revenue notwithstanding, businesses in the rice industry continue to struggle with losses and mounting debts. Surprisingly, even among profitable companies, rice production is not the primary source of revenue.
As reported by Vietnam Agriculture Newspaper in a recent article, Vietnam’s rice exports set a new record in the first four months of 2024, reaching nearly 3.2 million tons with a value of over 2 billion USD. These figures mark an increase of nearly 12% in volume and an increase of 36.5% in value compared to the corresponding period in 2023. They also represent the highest figures achieved by the rice industry within the first four months of any year to date.
During the first four months of 2024, Vietnam’s average rice export price stood at 644 USD per ton, marking an increase of 22% compared to the corresponding period in 2023. Additionally, Vietnamese rice exports to major consumer markets including the Philippines, Indonesia, and Malaysia have seen double-digit growth compared to the corresponding period in 2023.
However, despite the overall positive outlook for the industry, the first-quarter business results from rice businesses reveal two contrasting realities. Although a minority of businesses have enjoyed significant profits; the majority have experienced declining profits or heavy losses.
Among the ten major rice businesses listed on the stock exchange that have announced their business results, four companies have reported an increase in their profits, three have reported a decrease, two have reported continued losses, and one has returned to profitability, compared to the corresponding period in 2023
The underperformance of several major businesses heavily contrasts with the remarkable growth of the rice export industry. Despite strong revenue growth from export activities, profit margins remain limited for the majority of businesses in the rice industry. Moreover, input costs such as loan interest, sales costs, fertilizers, or exchange rate fluctuations directly drain profits.
As explained by the Director of Loc Troi Group, businesses must provide upfront funds for production, seeds, among others, to farmers at 0% interest in order to begin purchasing, processing, and exporting rice. On the other hand, they are forced to acquire bank loans at high interest rates, especially during challenging market conditions, which significantly diminishes the profits generated.
Rice production is not the main profit driver for businesses
Among the major rice businesses listed on the stock exchange, PAN Group Joint Stock Company (PAN) stands out with the most positive business results in Q1/2024.
Accordingly, PAN achieved a net revenue of over 3,461 billion VND, marking an increase of 36% compared to the same period. All main business segments of the company reported growth of 30-45%, according to the group’s leaders announced at the annual shareholders’ meeting at the end of April.
Notably, the agricultural segment contributed over 38% of PAN’s total revenue and 57% of its after-tax profit, increasing by 30% and 24% respectively compared to the corresponding period in 2023.
However, similar to other businesses in the industry, PAN’s primary source of revenue and profit originates from agrochemical products, which include plant protection chemicals, disinfectants, etc.
Namely, in 2023, PAN’s agrochemical segment saw a 10% increase in revenue and over 30% increase in profit as farmers expanded their scale of production, resulting in an increased demand for agricultural inputs and plant protection chemicals. Conversely, despite utilizing significant opportunities from the high rice prices, PAN’s gross profit margin from its rice segment only reached approximately 15%.
Similarly, Kien Giang Trading Corporation (KTC) reported a total profit of 14 billion VND, marking an increase of 141% compared to the corresponding period in 2023. However, the majority of this total comprises the company’s disposal of fixed assets (4 billion VND) and profits from affiliated companies (over 5 billion VND).
Duing the first quarter of 2024, Southern Food Corporation (Vinafood 2 – VSF) emerged as a leading company among the surveyed businesses, with revenue reaching nearly 4,800 billion VND. Despite the company’s low net profit of 1.2 billion VND, this figure marked a significant improvement compared to the 7.1 billion VND loss incurred by Vinafood 2 in Q1/2023.
Notably, Vinafood 2 only returned to profitability (23 billion VND) in 2023 after over ten years of consecutive losses. As a result, Vinafood 2 has accumulated losses exceeding 2,777 billion VND by the end of Q1/2024.
Two major players in rice export facing significant losses
High-tech Agricultural Corporation Trung An (TAR) and Loc Troi Group Joint Stock Company (LTG) are renowned within rice industry for their controversies and subpar business performance.
During the first quarter of 2024, LTG’s revenue reached 3,849 billion VND, marking an increase of 57% compared to the corresponding period in 2023. This growth is primarily attributed to the company’s food segment, which saw a staggering growth of 96% from the first quarter of 2023, reaching 3,284 billion VND.
However, as the food segment accounted for 85% of Loc Troi’s revenue structure, the significant decline in profit margins in this segment significantly affected the company’s overall profitability in the quarter.
Additionally, LTG’s financial revenue only reached 33 billion VND, which marked an increase of 47% compared to the corresponding period in 2023. The increase in financial expenses by over 28% to 188.6 billion VND, primarily comprising interest expenses and exchange rate losses, significantly reduced the company’s profits.
As a result, Loc Troi Group reported a post-tax loss of 96 billion VND in the first quarter of 2024, marking a substantial increase from the 81.2 billion VND loss recorded in the corresponding period in 2023.
While LTG experienced explosive revenue growth but a profit downturn, TAR saw declines in both revenue and profit in the first quarter of 2024. TAR’s revenue reached 715.4 billion VND, marking a decrease of 23% compared to the corresponding period in 2023. Additionally, the company’s post-tax profit reached only 2.7 billion VND, marking a staggering decrease of 68%.
According to the 2024 business plan, the company has set a target of consolidated net revenue of 3,100 billion VND and a post-tax profit of 31 billion VND. Consequently, TAR achieved over 23% of the revenue target but only 9% of the annual profit target by the end of the first quarter of 2024.
Facing similar losses, another prominent rice business, An Giang Import-Export Company (Angimex – AGM), continued to report a net loss of 15 billion VND in the first quarter of 2024, raising its accumulated losses to over 175 billion VND.
Over the last nine quarters, Angimex has incurred losses across seven quarters. From late 2022 to early 2024, the company only reported profitability during Q1/2022 and Q3/2023, with a total profit of 9.9 billion VND and 1.6 billion VND, respectively. Among these quarters, Angimex reported the heaviest loss in Q4/2022, totaling 198 billion VND.
The continuous downturn for AGM occurred after Do Thanh Nhan, Chairman of Louis Holdings, was temporarily detained on charges of market manipulation on April 20, 2022. The significant losses incurred over the last two years have also transferred AGM’s stocks from the warning status to the surveillance status by the Ho Chi Minh City Stock Exchange (HoSE) starting from April 5, 2024.
Operating at a loss, in order to repay maturing debts, Angimex continued selling assets to generate cash flow. At the shareholders’ meeting on April 25, AGM approved the sale of its asset, the Binh Thanh Rice Processing Plant in An Giang province, to APC Holdings Joint Stock Company in Hanoi city through a direct sale.
According to the leadership of the Vietnam Food Association (VFA), the underlying cause for the contradicting realities between rice exports and profits is the lack of market information and subjective forecasting.
Notably, Vietnamese rice export businesses have the tendency to sign contracts with foreign partners before purchasing rice domestically to fulfill these contracts. This approach leaves businesses vulnerable to the rapidly increasing domestic rice prices, which can exceed the agreed-upon prices in their signed contracts.
Furthermore, significant fluctuations in rice prices force businesses to renegotiate delivery times with partners, which can lead to increased transportation and overall supply chain costs, thereby further contributing to the losses.
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