Food, consumer businesses to bear brunt of war impact

CONSUMER GOODS and food manufacturing businesses in the Philippines will likely be the most affected by a potential price shock in oil and commodities if the Russia Ukraine war escalates, analysts said.

The Philippines is currently affected by the Russia-Ukraine war mainly through the surge in oil and food prices, and supply chain disruptions, Security Bank Corp. Chief Economist Robert Dan J. Roces said.

“More significant to the Philippines is that Russia and Ukraine are major commodities producers, with wheat from both countries accounting for around 30% of global exports, and thus making food production input costs jump globally,” Mr. Roces said in a Viber message.

First Metro Investment Corp. Head of Research Cristina S. Ulang said food processing firms that heavily rely on imported raw materials and some power generation companies will be hurt by rising costs.

“Strains [are] evident in gross profit margin compression, and pressure to increase prices versus competition, which can weaken sales volume and capacity utilization,” Ms. Ulang said in a Viber message.

Union Bank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion in a Viber message said industries like transport and manufacturing that use petroleum will also bear the brunt.

Mr. Asuncion said micro, small and medium enterprises (MSME) that are dependent on transport to sell their goods will also be affected by the higher fuel prices.

Headline inflation jumped to a six-month high of 4% in March, already matching the upper end of the central bank’s 2-4% target band. This reflected the surge in global oil prices since the war started on Feb. 24.

Latest data from the Department of Energy showed gasoline, diesel, and kerosene prices increased by P15.45, P27.35, and P21.55 per liter since the year started.

Mr. Roces said oil traders and energy-generating companies are more “vulnerable in the sense that inputs are more costly.”

“Commodity traders, notably steel, cement, fertilizers are also risking costly inputs. Same with flour and wheat importers as well as freight/cargo organizations,” he added.

Mr. Roces said the war has dampened global business confidence and created more investor uncertainty, which will weigh on asset prices and may potentially drive capital outflows from emerging markets.

On the other hand, the war in Ukraine may present opportunities for some industries.

Mr. Asuncion said potential “winners” include companies that are “high on electric-based

products or ones seeing potential in renewable energy; firms with production not skewed to petroleum-based inputs.”

Coal, nickel and gold miners are also among potential winners, Ms. Ulang said.

Global supply has faced disruption due to the war as Russia is a major exporter of metals.

In a note on Monday, Moody’s Investors Service said nonfinancial companies in Asia-Pacific may face deepening risks caused by rising prices and economic disruption as the war in Ukraine escalates.

“The credit implications for companies depend on their direct exposure to each channel, and their capacity to mitigate shocks,” Moody’s said.

Moody’s noted that a quarter of rated Asia-Pacific companies will likely be at risk in case of a global recession and a severe liquidity squeeze in case of a prolonged war.

“A small number of rated companies face material credit pressure under our baseline scenario because of refinancing risks amid current market volatility. However, under a more severe downside scenario, more than 27% are vulnerable, particularly speculative-grade companies and those with limited balance-sheet buffers or exposed to a supply chain shock,” Chris Park, a Moody’s associate managing director, said in a statement.