Wednesday, December 19, 2007 Industry wants advance payment
WITH the peso possibly appreciating to P40 against the dollar before the year ends, an official of the seaweed industry’s organization is advocating for a change in the payment terms to cushion the sector from the effects of lower sales on exports.
Seaweed Industry Association of the Philippines (Siap) president Benson Dakay said he will advocate to its members to implement the cash before delivery (CBD) or prepayment with order (PWO) schemes with its clients.
“The time we get paid is the time we establish the price,” he said, describing the prepayment term as an “open-ended account.”
Dakay said usually export transactions are completed in 45 to 60 days. The period covers the time the raw materials are processed until the time the clients pay the supplier.
Dakay admitted, in an interview, that the PWO scheme may be “critical” to the survival of the Philippine seaweed industry, given the huge probability that exporters will lose 70 percent of their foreign buyers due to unpredictable price increases.
“Be ready to lose 70 percent of customers if we force them to pre-pay,” he warned exporters.
Dakay said that with the continued strengthening of the peso against the greenback, the option of lowering prices of local seaweed in the international market will even be a “more drastic” move compared to losing customers.
“At this stage, there is no point running the company and going bankrupt,” he said. “(Even) with the low prices, it’s cheaper to close a factory,” he added.
Dakay said the volatility of the foreign exchange rate, which is causing Philippine export products to become more expensive abroad, has left export players with only two choices--lose customers or go bankrupt.
With the raise in prices, buyers, he added, are now looking for substitutes for carrageenan, such as modified starch, Xanthan gum and Konjac from China, CMC from Norway, Aghor-aghor from Thailand, Gelatin and Gluten, among others.
He said these substitutes used to be more expensive than the Philippine carrageenan, but the weakening of the dollar has made the alternative products more affordable.
Effectivity
Dakay, president and chief executive officer of Shemberg Marketing Corp., said to be the world’s largest supplier of carrageenan, announced that effective Dec. 15, the company will implement the PWO scheme to all its customers.
“Because of the rapid and daily appreciation of the peso, we are also changing our payment terms to CBD or PWO,” the advisory read.
“It’s the most unconventional way to do business,” Dakay said, expressing his discontentment of the payment term but added this is the only way deemed to keep the Philippine seaweed industry afloat.
He said the increase in the value of the local currency from P55 to P41 to a dollar has resulted to an estimated 50 percent adjustment in the prices of exports since January, and a 30 percent revenue loss for exporters.
In August, Shemberg raised prices of processed seaweeds to 15 percent, where prices of cotonii seaweed, which has the biggest demand among the seaweed species, has increased from $600 per ton last year to $1,100 per ton at the prevailing buying rate.
Factors
Dakay also blamed external factors like global warming, which causes the temperature of the sea to rise, adversely affecting the growth of seaweeds, bringing about an industry “shakeout” in the first semester of 2007.
In connection with this, he said five seaweed processors- Dahon Dagat Inc., King Agro-Marine Products, Geltech Hayco Inc., Philippine Carrageenan and Natum Corp. - have decided to close shop.
Dakay earlier said internal and external problems hounding the seaweed processing industry in the country have led to the displacement of now 30,000 farmers and workers of small and medium enterprises.
Refusing to retrench his workers, Dakay said Shemberg has opted to run only 40 percent of its plant utilization capacity. (MMM)
