Prime Minister Nguyen Tan Dung approved a Finance Ministry plan, Tuesday, designed to impose one-year price caps on children's dairy products, after researchers reported the major firms had implemented price hikes in spite of huge profits.
A ministry report released at a government meeting said that after raising their profits an average of 23 percent last year, the five largest dairy firms Mead Johnson, Nestlé, FrieslandCampina Vietnam, Vinamilk and 3A Nutrition JSC (a distributor) raised prices by up to 30 percent per product since last December.
The five provide 90 percent of dairy products for children under six in Vietnam -- a group that numbers ten million or one ninth of the country’s population.
During the meeting, PM Dung said the hikes were steep and have meant considerable profits for the companies, VnExpress reported.
The new regulations require the companies to hold prices for six months and set a price ceiling for 12 months.
Nguyen Van Nen, the government spokesperson, said the regulations can reduce prices by VND50,000-70,000 a box, or some ten percent.
“The companies must share, and collect a moderate profit,” Nen said.
Investigators found that Nestlé had not informed the authorities about some of the new prices, which earned it an extra VND5.2 billion (nearly US$247,000) by the end of March, while the other four did not make proper tax declarations.
Vice minister Vu Thi Mai said Nestlé was fined VND45 million while inspectors have collected more than VND10 billion in further taxes from the rest.
Inspections by the finance ministry have discovered no transfer pricing abuse at the firms, but found “unreasonably” mammoth spending on advertising has added to price hikes.
Mai said the advertisement expenses at four foreign companies exceeded regulated levels by nearly VND400 billion and had pushed prices up by 2.18-16.4 percent.
The advertising cost at Vietnam’s largest dairy firm, Vinamilk, accounts for 21 percent of its retail prices, she said.
Nen called on related authorities to closely follow dairy import prices to better control retail prices.
A Tuoi Tre investigation found that imported infant formulas had been sold at three or four times their import prices since companies were paying doctors and nurses to recommend their products to pregnant women and new mothers and promote them at medical conferences.
A price cap to stabilize child dairy prices was also suggested in March by Nguyen Anh Tuan, head of the ministry’s Price Management Department, after the ministry launched its investigation into the pricing policies at the five firms.
Businesses now have to register their wholesale prices with the ministry, also listing their expected retail prices.
Inspectors found that the firms markup their products by some 30-40 percent.
Tuan said the big markup makes it hard to control retail prices, but the ministry is working to fix that.
He told Tuoi Tre newspaper one solution could be publicizing the registered wholesale prices.
High dairy costs act as a dampener on the physical growth of Vietnamese children, with middle-income parents saying formula costs eat half their salaries.
Last October, the government announced it would delay a $10-billion program to increase the average height of the population by providing free milk at nurseries and primary schools in the country’s 62 poorest districts between 2014 and 2020.
The program was expected to benefit two million kids, offering them a chance to enjoy milk two times at their schools per day.
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