·         Global prices of raw milk and sugar (two main raw materials of dairy producers) have increased since 2020 (the first year of Covid-19 pandemic era) to the present. In 2022, rising energy prices are accelerating leaving dairy producers (e.g. VNM, IDP or MCM) under weaker gross margin in 2H2022. MCM is expected to suffer a lower effect from rising raw milk prices but a higher impact from rising sugar prices as it does not import raw milk.  In contrast, VNM will bear a lower negative effect from higher sugar prices since it owns a sugar company – Vietnam Sugar Jsc.

·         Rising energy prices also push up logistic costs, resulting in higher total selling expenses, signaling lower operating margin for dairy producers. On Mar 23^rd 2022, WTI crude oil prices reached USD 110.07 per barrel (+87.9% YoY; +19.5% MoM), while the Baltic Dry Index was flat at 2,575 points (+13.4% YoY; +14.8% MoM). Dairy companies who distribute their products through both domestic and oversea channels, likes VNM or IDP, will face heavier logistic costs pressure than others. However, the companies who own an extensive global distribution network such as VNM can pass a part of higher costs onto global selling prices, easing negative effect of rising costs.

·         Vietnamese dairy makers are expected to have weaker net profit margin in 2022 due to 1) upward trend of raw milk prices because of increasing demand from China, decreasing dairy cow herds, and cost-push inflation; and 2) the risk of rising logistic cost from Russia’s war in Ukraine and the unknowns about the Covid-19 pandemic. In case of soaring energy prices, we expect that Vietnamese dairy producers will experience negative growth in 2022.