The Ministry of Finance has sent official letters to dairy firms registering price increases and relevant state offices in efforts to stabilise milk prices. According to letter 2078/BTC-QLG, since the start of the year, many milk firms have announced price hikes due to high production costs. A Viet Nam News reporter interviewed a Government official, a researcher and a consumer rights advocate on the issue.
What are the reasons for milk companies increasing their prices so much in recent years?
Nguyen Anh Tuan, Deputy General Director of Price Control Department, Ministry of Finance:
Milk is among the list of items in essential commodity groups that require price stabilisation efforts. So all petitions from milk enterprises asking for price increases must follow Circular 154/TT-BTC dated October 1, 2010, promulgating regulations on the pricing of assets, goods and services.
|Nguyen Anh Tuan |
In 2011, milk enterprises asked to increase prices twice. Once in March due to increased input costs as well as rises in electricity and gasoline prices. The second time was at the end of the year due to increases in materials prices and changes in the salary policy.
In principle, enterprises can decide on their prices once they are in accordance with Government regulations. However, the central agency still has tight control over prices. If there is a real significant increase in input costs, enterprises are allowed to increase their price. If not, and in the case that we find out that enterprises just want to pursue higher profits or follow increases by other enterprises, we will stop them. For instance, Nestle recently asked to raise the price of three dairy products. After careful examination, we found that only one registered product saw changes in pricing factors so we allowed the company to increase only that product's price. Pricing factors for the two other products were unchanged so we did not allow the increase.
Nguyen Minh Phong, Director of the Economics Research Department, Ha Noi Institute of Socio-Economics Development:
While a range of factors influence the price of milk, the main factor is increased input costs. Other important factors are high import taxes and the rising cost of advertising.
|Nguyen Minh Phong |
Some enterprises in Viet Nam used high global prices for materials as an excuse to increase their prices. However, during the first few months of 2012, the global milk price decreased by 2.5 per cent by about US$100 per tonne, so it is unreasonable to use increased material prices as an excuse for further increases in the domestic market.
What measures have been applied to stabilise milk prices?
Tuan: Each commodity has different characteristics. As for milk products, there is an external factor in that domestic materials cannot meet demand for milk production. Such outside factors need flexible policies. Again, we need to respect the right of producers to decide on the price of their products. The Government can only interfere when there appears to be an unreasonable change in prices. We always carry out research on whether the price increase is reasonable or not.
When enterprises apply for price increases, we will take two days to check and examine all criteria in the application to decide whether the proposal is reasonable or not. The increase can then be applied right away. But we still have the responsibility for post-checks on whether the new price matches rising input costs. For instance, if pricing factors increase by 10 per cent due to rising input costs and changes in import tax, it is not reasonable to allow a 20 per cent increase. In this case, we will ask enterprises to provide necessary documents to prove their proposal is reasonable. But if the proposal is to raise prices by 10 per cent, then that is reasonable.
Which agency takes responsibility for supervising prices for milk products?
Tuan: In fact, under Circular 122/2010/TT-BTC, the Price Control Department of the Ministry of Finance is in charge of prices of seven enterprises, including Mead Johnson, Nestle, Abbott, Tien Tien, FrieslandCampina, Meiji and a South Korean one. These companies have to register their prices with the finance ministry. Other firms fall under the jurisdiction of local departments of finance.
There are about 100 enterprises involved in producing milk products, so management must be decentralised. To be honest, the initial phase in milk production still has many problems. The management agency can only supervise wholesale enterprises and major retailers. For the over 3,000 milk retailers, it is very difficult to control prices.
Phong: The price of milk depends on factors in many sectors, including finance, health, agriculture and customs. But according to my observations, it should be the Price Control Department of the finance ministry that takes the main responsibility.
Nguyen Manh Hung, vice president and general secretary of Viet Nam Standard and Consumers Association (VINASTAS):
Under Government Decree 75/2008/ND-CP dated September 6, 2009, the finance ministry is assigned to regulate and promulgate measures to stabilise the prices of commodities and services that belong to the groups in the country and the region.
As a result, I think the finance ministry is the agency that takes main responsibility regarding milk price control. It is obvious that the change in milk price is due to a range of different reasons so the finance ministry cannot stabilise the price alone. The market price is not only formed by pricing factors but also depends on the demand-supply relation. If enterprises operate with a sole focus on prices with calculations on expenses and interests, there will never be losses.
Is there any possibility that consumer boycotts of milk enterprises may happen if they continue raising prices, similar to the boycott of Vedan some years ago?
Hung: I think such a possibility is not likely to happen since in the case of Vedan, customers had many other options for similar seasoning products made by other companies. But milk is an essential daily food for children and patients. So in general, we cannot boycott all diary products. But the boycott against a company or a certain product is completely possible.
What do you think about the claim that one reason for the increase in milk prices is because of the preference for foreign products among Vietnamese customers?
Tuan: The customers' preference for foreign products sometimes directly helps foreign companies when they join the Vietnamese market. In my opinion, enterprises should reduce their expenses reasonably to increase their competitiveness.
Right now, Vietnamese customers are still confused a lot by advertisements so the milk market has become less competitive.
|Nguyen Manh Hung |
Phong: In the powdered milk market, the foreign firms account for 80 per cent of market share. Most of the milk enterprises are sole importers. Since this is regarded as nutritious food, their prices can easily be heightened due to customer thinking. Many mothers when hearing about an increase in milk prices will deliberately go to buy and stock a lot of milk for their children. This also causes further price hikes.
Hung: Marker researchers will have the most appropriate answers. In my opinion, this is a periodical phenomenon. The demand-supply relation is an important factor in forming prices in the market. The phenomenon that consumers prefer foreign products is because in the past, we had backwards technology so domestic products are not of a high quality. But now, take milk products as an example, with advanced technology, imported materials, the quality is good, there is no point to run after foreign products with higher prices.
What are your recommendations for better controlling milk prices?
Phong: The management agency should consider listing milk products as special commodity group products that need price controls. Once on the list, the milk price can be controlled by law. This price control will help to check on whether monopolies exist or not.
Secondly, the management agency should provide more information for consumers on the milk products. Right now consumers just can't get enough information through advertisements, which normally cannot reflect all the truth about products. Consumers will also be provided with information about the material factors so that they can buy milk with competitive prices.
Also the management agency needs to check and inspect import prices, pricing and discount rates for retailers of milk enterprises.
Hung: At the moment, VINASTAS is actively contributing to the draft Price Law. Milk products are still in the commodity group that requires stable prices. However, the draft law just limits "milk" as "powdered milk for children under six" so we propose to use "milk" in general since there are also milk products for the elderly, milk for patients and also milk for children above six that also require price controls. — VNS