Currencies to squeeze profits of ASEAN food firms
Currencies to squeeze profits of ASEAN food firms
SINGAPORE (Reuters): The financial turbulence sweeping Southeast Asia will hit the bottom-line earnings of food companies this year and next, participants at an ASEAN food conference in Singapore said yesterday.
"Profits will surely be squeezed by the currency crisis," Goh Seng Aun, manager of Malaysia's Food Ingredients Specialities, a unit of Nestle S.A., told Reuters.
Goh was attending a four-day ASEAN food conference which started in Singapore on Monday.
"We feel there maybe a slowdown on food consumption in Malaysia...due to the depreciation of the ringgit by 20 to 25 percent," he said.
Commodities traders said costs of imported feed grains, oilseeds, and flour have increased due to sharp slide of regional currencies against the U.S. dollar.
Higher costs will in turn sour the appetite of consumers, leading to a slowdown in sales, the executives said.
"Sales of Nestle Malaysia is expected to grow by 3 to 5 percent from 7 to 8 percent this year," Goh said. Last year, sales grew by 10 percent," Goh said.
The devaluation of Southeast Asian currencies has eroded the purchasing power of the middle and lower income classes, they said.
"With devaluation, these people will just buy what they need most," an executive in a Western softdrinks company said.
Other executives in food firms across the region agreed.
"Fastfood chains across the region will suffer most from the currency crisis as the lower and middle class economize by eating more at home," said Ric Pinca, director for corporate affairs of the Philippine's General Milling Corp. said.
"We expect food companies in the Philippines to feel the pinch of peso depreciation until the first quarter next year," he said.
The peso has shed 25 percent of its value against the U.S. unit since the currency meltdown first erupted in July.
Some Southeast Asian firms have trimmed budgets for advertising to cut on costs.
"We have cut down advertising by 10 to 20 percent this year. And we are cutting back (on other) expenses," Goh said.
ASEAN, the Association of Southeast Asian Nations, groups the Philippines, Malaysia, Singapore, Thailand, Brunei, Vietnam, Indonesia, Myanmar and Laos.