Many dairy companies have hiked up the prices of infant formula in the new year citing the weaker dong and higher wages, but the government said their huge marketing costs are, in fact, inflating prices.
Mead Johnson, Abbott, and Dutch Lady prices are up by 7-10 percent.
The Ho Chi Minh City-based Tan Tien Ltd., the official distributor of Mead Johnson, raised the price of Enfa A+ products by 7-9 percent, while 3A Pharmaceutical Product Ltd. said it would raise the prices of Abbott products by an average of 7.4 percent.
Friesland Campina Vietnam, which makes Dutch Lady, said its Dutch Lady Friso would cost 10 percent more in powder form and 2 percent more in case of milk.
Le Viet Ha, chairman of the food producer and distributor Hanco, said global raw material prices have risen by over 80 percent in last 12 months while the dong has fallen to 18,500 to the dollar after being devalued by more than 5 percent last November.
"This is the reason that we have to increase our prices," he said. His firm has raised the prices of baby formula by around 10 percent.
Most of the formula sold in Vietnam is either imported in semi-processed form or processed using imported raw materials.
But a recent inspection by the Ministry of Finance found the reason for the cost hikes lie elsewhere - in the huge advertising and marketing costs the dairy companies run up.
While the government caps spending on advertising and marketing at 10 percent of overall cost for all companies after their first three years of existence, the ministry said dairy makers are spending more than 30 percent.
Some analysts are calling for action to rein in formula prices. Vu Dinh Anh, deputy head of the Ministry of Finance's Institute for Market and Price, said, "[We] need special measures to control their prices, especially considering the recent price hikes.
"Consumers should consider carefully before buying because they have to pay for not only the products but also the huge advertising expenditure.-
The government's Circular 104 to direct Decree 170 - which regulates the prices of some products, including milk - gives official agencies the authority to step in and control prices if they rise by more than 20 percent in a 15-day span.
But dairy makers put up prices by not more than 10 percent every time, thus keeping on the right side of the law.
The Ministry of Finance is drafting a new circular, which will consider input costs, to replace the existing. It will do away with the minimum interval between price hikes and price-hike caps.
It is now collecting opinions from ministries and other agencies for the purpose.
Once the circular is passed, authorized agencies will conduct inspections and order dairy makers to roll back prices if they increase them in an irrational manner.
The ministry's Tax Policy Department said imported baby formula is being sold at 20-60 percent higher prices than in neighboring countries like Thailand, Malaysia, and Indonesia.
Since milk products are not among items whose prices the government regulates, firms can set their own prices.
Vu Cong Chinh, deputy head of the ministry's Price Management Department, said, "We can calculate the retail prices based on the cost of the imported raw materials. [But] the prices are regulated by the market and not the government.-
He urged consumers to carefully consider prices before making the decision to buy.
The price hikes by foreign brands indicate they may be using their market leadership to manipulate the prices.
Vu Ba Phu, deputy head of the Ministry of Industry and Trade's Competition Management
Department, said his agency has checked the recent price hikes in baby formula. "There may be use of their domination position by some firms to set the prices,- he said.
Statistics from the domestic dairy company Vinamilk show that the market was worth VND8 trillion ($421.1 million) in 2008, with foreign producers holding an 80 percent share.
Foreign dairy firms typically choose only one distributor so that the two sides can easily set the prices they want.
Ho Tat Thang, vice chairman of the Vietnam Standard and Consumers Association, exhorted people to buy Vietnamese milk products, which are just as healthy as their foreign counterparts, to save money and boost the local economy.