Vietnam dairy prices may rise, producers cite higher input costs

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A woman checking a can of milk at a supermarket in downtown Ho Chi Minh City. Photo by Diep Duc Minh

The Ministry of Finance has ordered customs to make a "post-clearance check" into transfer-pricing abuse by an unnamed foreign dairy firm, which is one of two to seek permission to increase prices citing rising costs.

Despite a government order last November that dairy firms cut costs to bring prices down, retail prices are rising again, with producers blaming expensive inputs.

Nguyen Xuan Truong, the official in charge of managing agriculture, forestry and aquaculture prices at the ministry’s Price Management Department, said two out of six dairy firms in the country have asked to raise their prices.

One filed the request December 12 asking for a 6-8 percent price hike, furnishing documents showing import prices rising by 12 percent.

The ministry gave the green light for hiking the prices of 10 of the company's 35 products while ordering the transfer pricing inspection, Truong said without identifying the company.

But a Thanh Nien investigation suggests that it could be Mead Johnson, which hiked prices by 5-7 percent as recently as in December.

Nguyen Anh Tuan, director of the Price Management Department at the finance ministry, said the other distributor asked for a 3-6 percent price hike, but the ministry refused since it was not convinced about high input costs.

Truong Van Toan, legal and foreign affairs director at FrieslandCampina, which produces Dutch Lady, said company executives plan to meet next week and are likely to increase prices since ingredients cost more.

Local dairy firms have also announced plans for price increases for the same reason.

The country’s largest dairy producer, Vinamilk, said global prices of food products, including milk ingredients, have kept rising since the third quarter last year and many suppliers of dairy raw materials now only sign short-term deals.

Vinamilk used to sign contracts for a year at a time, but is now treated like any other company and only gets short-term deals, it said.

While 70 percent of dairy production depends on imported raw materials, the global prices of major ingredients such as milk powder and butter have increased by 30-57 percent this year compared to a year ago.

Skim milk powder is imported to Ho Chi Minh City at US$4,900 a ton, up around $1,250, while whole milk powder is up $1,555 to $5,155 and butter oil is up $1,096 to $5,746.

Vinamilk said it has also had to pay dairy farmers 22 percent more since late last year for fresh milk.

“Adjusting prices is likely to be inevitable.”

Tuan, the price management official, said if raw-materials supply proves to be a serious problem, the ministry would step in with a series of price stabilization measures.

“Consumers also need to show their power by switching to another brand if this brand increases prices, and they will be able to put pressure on the distributor,” he said.

Economists said regulation of the dairy industry is ineffective.

They said the November order only forces dairy firms to list their prices but fails to get a hold of their import prices and production costs.

Current regulations allow companies to raise prices by 15-20 percent with a gap of at least 15 days between two hikes.

Tran Quang Thang, director of the Ho Chi Minh City Economics and Management Institute, said allowing such large hikes within such short periods makes it easy for dairy firms to increase prices at will.

Tuoi Tre (Youth) newspaper reported last year that imported infant formulas were 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 or at medical conferences.

By using doctors, dairy companies can circumvent regulations to get at consumers’ pockets as Vietnamese regulations ban the advertisement of formula as the main source nutrition for children under two in an effort to advocate breastfeeding.

Insiders say the differences between import and retail prices are bigger for famous brands like Abbott and Mead Johnson.

Dairy costs have been a burden on the physical growth of Vietnamese children, as middle-income parents said formula for their children costs half of their salaries.

The burden officially became national when the government last October announced it would delay a $10 billion program to increase the population’s average height by providing free milk at nurseries and primary schools in the country’s 62 poorest districts.

The program, which aims to raise the average height of the populace by around three centimeters by 2020 and four centimeters by 2030, may be delayed even further as the Ministry of Labor, War Invalids and Social Affairs cited a cut in government funding.

An average Vietnamese man measures 164.4 centimeters (5 feet 4 inches) and woman, 153.4 centimeters (5 feet), according to a survey by the National Nutrition Institute, which said the figures put Vietnamese among the shortest people in the region.

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