Beverage-makers grapple with rising costs

Major beverage-makers are taking urgent measures, including price hikes, to deal with the rising cost of sugar.

A source from the carbonated-drink industry said his company was also studying its cost structure.

"We fastened our belt very tightly to control our costs and expenses. However, the increase of sugar and petrol prices seems to be an external factor and not controllable by the company," he said.

"I cannot say right now we'll be able to keep managing those rising costs. What we can do is analyse our cost structure and raise the retail price of our product to cope with the escalating costs of ingredients and distribution."

"Under the management initiative, we'll work together as a team. We'll share information and brainstorm to find the best practices to save costs," he added.

The Internal Trade Department last year allowed all carbonated-beverage makers to raise the price of their products from Bt7 to Bt8, the first increase in seven years.

Singha Corp and other local breweries have raised their beer prices since the beginning of this year, as they can no longer bear the increasing costs of major ingredients like malt, hops and yeast.

"We have already increased the price of our Leo Beer by Bt12 per 12-pack since last quarter. The move is due to the steady increase in petrol prices, which lifted manufacturing and distribution costs by more than 15 per cent," said Piti Bhirom Bhakdi, marketing group manager of Singha Corp.

Leo Beer now sells at Bt407-Bt412 for a dozen bottles, he said.

Malt, hops, yeast and other beer ingredients are facing shortages as they have been heavily bought up and stocked by the more than 2,000 brewers in China, which naturally want to cash in on the Beijing Olympics this summer.

Tan Passakornnatee, CEO of Oishi Group, said rising costs did not affect his soft-drink company much.

"Our overall sugar cost has increased by Bt17 million from the recent increase of the sugar price in the market. Our Oishi green tea, however, has seen an increase in its cost of only 10 satang per bottle," he said.

"It's not that big a problem now. We can still adjust to the rising costs. We can see whether we can reduce any other costs that won't affect the quality of our products," he said.

The company does not see the need to change the price of any product it sells. It uses 3,000 tonnes of sugar annually, of which 90 tonnes go to its restaurant chains.

Suwandee Chaiwarut, marketing manager of TC Pharmaceutical Industries, the producer of Kratingdang (Red Bull) energy drink and Puriku white tea, said she did not have an exact figure for how much the company's costs have risen. The company is trying its best to maintain its prices.

"Like Oishi, we need to find other costs related to manufacturing that can be cut further, such as packaging and logistics costs. We have to be more cost-conscious," she said.

The company is lucky that one of its products - Puriku white tea - has seen great sales volume.

"With higher sales of our Puriku product, we can expand the production capacity of our factory, which will lead to larger economies of scale and will partly compensate for the rising cost of sugar," she added.

Food processors, which have been suffering the most from the sudden hike in the price of raw sugar, plan to call on the Cane and Sugar Board to ask for permission to use cheaper sugar from the export quota as temporary relief from skyrocketing production costs.

Paiboon Ponsuwanna, chairman of the Food Processing Industry Club under the Federation of Thai Industries, said this proposal would help those manufacturers that produce for export but did not submit applications for using sugar in the export quota, as well as for those whose products are sold in the domestic market.

He said producers of canned fruit and canned condensed, sweetened milk saw sugar growing from 10 per cent of their total production costs to 13 per cent. They have also shouldered higher costs for steel, whose price has risen about 20 per cent this year, and have been squeezed by the baht's appreciation.

"Our exporters usually receive orders from three to six months in advance. They have no time for renegotiations [on prices] and carry heavier cost burdens from the rapidly rising sugar price amid tough competition in the global market," he said.

Several factors are causing local manufacturers to lose competitiveness to imported products.

Foreign competitors can keep unit costs down by buying Thai sugar. The price of sugar for export undercuts the domestic price by more than Bt5 per kilogram.

Under recently concluded free-trade agreements, processed food imports now can come in duty-free, he added.

Vice chairman Visit Limprana said the proposal would give priority to manufacturers suffering seriously from higher sugar prices and those depending on domestic contents, such as fruit canneries.

However, it will also consider other sugar-related products such as soft drinks, which can indirectly affect consumers by boosting inflation.

Secretary-general Pravit Prakitsri said they would discuss details

with the sugar board as soon as possible. They may need to reallocate the quotas for domestic and export sugar to help those manufacturers, he said.