The producer faces higher costs and fewer benefits

Ecuadornews:

In July, the cost index of the inputs required to produce in the country totaled 9 months with an upward trend. A scenario that, in the opinion of experts, talk about the lower competitiveness and the lower rents that the producer would be receiving, which this year must face a market of lower consumption and lower prices.

According to the National Institute of Statistics and Census (INEC), the annual variation of the Producer Price Index (PPI) grew 1.73% in July of this year, versus the fall of -1.31% that reported in the same month from last year. The figures are worrisome when you have a market that, according to the INEC, in July came to add 11 months with negative inflation (-0.57%), a situation that would leave little margin for the producer or industries to adjust their prices. This, explains Jorge Vera, academic director of the MBA of Espae-Espol, would be forcing certain producers to assume the consequences, with lower rents or a job at a loss. “And not only the producer is affected, but also the intermediaries (the wholesale and retail distributors) that participate in this chain,” he says.

According to the INEC, the products, whose cost had a higher incidence in the PPI, are in the agricultural and fishing sectors, and in certain manufacturing industries (food, beverages, tobacco, textiles, clothing and leather products).

Javier Andrade, director of Studies of the Chamber of Industries of Guayaquil (CIG), explains that it is difficult to determine precisely the type of inputs that have become more expensive and their impact on each sector, but ensures that in a market of low sales and high production costs, it is almost decisive a fall in profit margins of industries, especially if they are small. A decline that, for him, was pushed by two factors: on the one hand the elimination of the safeguards that had been making the supply of products more expensive or for a recent increase in international prices. “If the profits of companies have been falling, it may be because they have had to adjust their prices downwards, because these (after the safeguards) may have been falling more than their costs have fallen or because, simply, there are costs of production that have been increasing “.

Companies, in many cases, must adjust to external markets and sell according to the price they determine, and if there are increases, explains Jorge Luzuriaga, importer of raw materials, undoubtedly that affects the cost of the final product. This year, the prices of plastic resins and iron, he says, have been stable, but not those of paper. The cost of the ton, has been rising between 25% and 40%, due to a boom in the global demand for this input that serves to make cardboards. In the country, between 70 and 80% of imported cardboard is used for the export of bananas. The material is also used in the sale of flowers and shrimp.

This indicator

Rising

The annual variation in July 2018 of the PPI was 1.73%, with this this indicator added 9 months to the rise. In July 2017, this variation was -1.31%.

Farming

In this sector (including forestry and fishing) the highest increase in input prices was registered, with 0.901%. The food and beverage sector follows with 0.551%.

Supplies

The INEC does not specify what inputs generate the price increase. But in the market, there is talk of rising costs of raw materials such as paper, basic material for making cardboard. (I)

Source: https://www.expreso.ec/actualidad/cne-candidatos-organizacionespoliticas-tce-ED2324699