The situation of having both raw materials and finished products provided by international suppliers makes it difficult to control prices of dairy products in the domestic market, experts say.
Do Kim Tuyen, head of the Ministry of Agriculture and Rural Development's Plan and Finance Division, told Thanh Nien Weekly that Vietnamese dairy producers had been trying to gain a larger part of the pie for many years, but had only managed the current 20 percent.
Tuyen said it was difficult for Vietnamese producers to find suppliers of raw materials in the country after investing in increased capacity to meet growing demand.
The development of dairy farming in the country has been slow and lags behind consumption growth, he said.
Raf Somers, chief technical advisor of the Vietnam Belgium Dairy Project, said the retail price of liquid milk in Vietnam was the top of the world with the highest at US$1.4 per liter last year. The 2.8-million euro project, financed by the Belgian government, aimed to improve dairy farming in Vietnam. It ended in February.
About 115,000 cows were raised in Vietnam last year, yielding 280,000 tons of milk in a country with a population of 86 million people. Tuyen compared this with the Netherlands, which has a population of more than 16 million people, raising five million cows.
Vietnam's per capita milk consumption is estimated at 15 kilograms compared to the Asian average of 35 kilograms, according to the ministry. The United Nation's Food Agriculture Organization says that globally, the annual consumption of milk is around 102.6 kilograms per person.
This shows the very high potential for dairy producers in Vietnam, said Jan Bles, managing director of FrieslandCampina Vietnam.
Bles said the market was growing but it was not easy for dairy firms to increase their capacity if they depended only on local suppliers for raw materials.
He said the firm has to supply its factories with 75 percent of imported materials. What the firm worried most about was the quality of milk that it collected directly from Vietnamese farms, which are mainly small-sized, not using advanced, more hygienic farming techniques, he said.
FrieslandCampina, formerly known as Dutch Lady in Vietnam, is the first foreign investor in the country's dairy industry in the last 15 years. It has invested $125 million in two factories in Ha Nam and Binh Duong provinces in the north and south of the country respectively.
Bles said Vietnam needs big farms to raise cows on a large scale and produce a stable volume of milk to supply processing factories.
But the country lacked large areas of grass to feed cattle, said Tuyen, adding dairy farming was underdeveloped in Vietnam where little machinery was used in raising and milking cows.
He said the country's dairy industry aimed to increase capacity to meet 30 to 40 percent of domestic demand for raw materials by 2020. For this, 500,000 cows would be needed to produce more than a million tons of milk.
Nguyen Phuoc Trung, deputy director of Ho Chi Minh City's Agriculture and Rural Development Department, said the municipality would develop high tech agricultural areas for dairy farming in Cu Chi and Hoc Mon districts with support from the Israeli government.
The city targets high quality, not quantity, in the dairy industry, said Trung. The plan is to reduce the herd to 75,000 cows in 2020 and 70,000 cows in 2025 from the current 78,000, he added.
Meanwhile, local firm TH Milk is set to become the country's biggest dairy farm, raising 9,000 cows in the central province of Nghe An. The cows were imported from New Zealand. The $148 million firm has said it would increase its herd to 10,000 cows by the end of this year and 40,000 cows in another couple of years.
Vinamilk, the country's largest dairy producer, has also imported 350 cows from Australia to its farm in the same province, increasing its herd to 1,200.
Last month, FrieslandCampina announced a $10 million expansion in its factory in Binh Duong Province, and that it is also considering an investment in the central region.
All this is happening even as the government tightens control over production and trading in dairy products.
The Vietnam Chamber of Commerce and Industry was quoted by a local newspaper as saying dairy companies have hiked their prices by 3 to 10 percent every two to three months this year.
The government has asked businesses trading in children's formula to register their sales prices with authorities starting this month.
The Ministry of Finance has named 150 companies that must register their prices with the authorities, including major foreign-owned dairy firms like FrieslandCampina, Nestlé, Mead Johnson, Meiji and 3A Pharma, the official distributor of Abbott brand products in Vietnam.
The General Statistics Office said the country imported $551 million worth of milk and milk products in the first nine months of this year, up 49.2 percent from the same period last year.