Milk price hikes not rational: analysts

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Several dairy firms have recently raised their prices by up to 10 percent based on claims of higher input costs, a move industry insiders suspect was made to increase profit margins.

A Dumex representative said the French brand has held back price hikes for more than 18 months. Now, they cannot do this any longer due to a 30 percent increase in prices of imported materials and a 20 percent surge of the dollar against the dong over the past year.

Prices of 17 Dumex milk powder products have increased by 10 percent. FrieslandCampina Vietnam, owner of the popular Dutch Lady brand, also hiked up its prices by around 6 percent.

Thu Phuong, director of Nam Duong Ltd., the distributor of South Korean milk brand XO in Vietnam, said her company has told the Ministry of Finance that it plans to raise prices of XO powdered milk products by 2.5 percent as it can no longer handle the pressure of the exchange rate and sales costs.

But some industry insiders think these are not convincing reasons.

Pham Ngoc Chau, director of Hancofood, said there are several reasons behind the recent milk price hike, including higher input costs, a stronger dollar and lower profits than expected in the first six months. He noted, however, that both the input cost and exchange rate do not strongly hinder local dairy firms and there are no immediate plans to raise prices.

Tran Huu Duc, public relations manager for Nutifood, said local companies often refrain from raising prices because revenue targets do not matter as much as market expansion.

Other dairy firms increase prices because they need more income to offset high costs for advertising and commissions for sales agents, Duc said.

Experts said raising prices is a way to help dairy firms increase their revenues during tough times. Price hikes of between 10 and 15 percent last year led to many companies posting sharp increases in revenues.

A milk company director who wished to remain unnamed said most dairy firms have a cycle for price hikes in a year and recurring reasons cited for the hikes are packaging changes, new substances, a higher exchange rate and distribution costs.

"Although there is an upward pressure on prices, companies should cut costs for advertising and sales instead of passing the load on to consumers," the director said.

Vietnam has imported US$394 million worth of milk and other dairy products as of mid July, compared to around $269.45 million recorded during the same January-July period last year, official statistics showed.

According to the General Department of Vietnam Customs, the prices of milk powder on the international market have fallen since hitting a peak in May. Full cream milk powder prices in Vietnam's main import markets including Europe, Australia and New Zealand now stand as low as $3,200 per ton, compared to $4,000 per ton in May.

Vu Thi Bach Nga, head of the consumer protection department at the Ministry of Industry and Trade, said tax rates on imported milk products are much lower than those in the region, at around 5 percent. As a result it's not reasonable that milk prices in Vietnam are far higher than in other countries, she said.

The Price Management Department at the Ministry of Finance said it will tighten regulations further to control prices of milk products in the country.

Regulations will be amended so that dairy companies have to register prices and the authorities can take measures to stabilize the market when prices are hiked unreasonably, Nguyen Anh Tuan, deputy head of the department, told Thanh Nien.

There is a legal shortcoming that only allows authorities to take measures to stabilize prices if prices surge by 20 percent or more, he said. "Dairy firms dodged the rule by raising their prices by 5-10 percent at a time and the authorities were not able to interfere."

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