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Issues found

Released at: 07:59, 28/07/2014

Issues found

Minister of Finance Dinh Tien Dung discusses the recent decision to cap the milk prices of major dairy companies.

by Do Huong

Minister of Finance Dinh Tien Dung

How have dairy companies been dealt with after violating the law when calculating retail milk prices?

    According to ministry inspections of milk prices conducted in 2013 and the first three months of this year, five dairy companies were found to have increased the retail price of their products. One company was fined after not registering the increase and the four others paid VND10.2 billion ($474,418) in arrears. We also directed the companies to review business costs, because at four companies the spending on advertising, discounts and marketing worth VND386 billion ($17.9 million), which is part of general business costs, exceeded the regulated level under the Law on Corporate Income Tax.

Why are dairy items being subject to such a cap?

    Milk products for children under six years of age are among the items requiring price stabilisation under the Law on Pricing. The inspections revealed unreasonable issues in prices and production costs at these five companies. Doing business and managing milk prices are based on the market mechanism but also need State management. Applying this measure aims to ensure a balance between the benefits for enterprises, the State and consumers. This cap is not in violation of international commitments such as the WTO and ensures competition between domestic and foreign companies. The government has the right to regulate price stabilisation measures. Following the results of the inspections the government approved the price cap proposed by the ministry.

Why did the ministry choose to cap the prices of only 25 dairy products when there are hundreds in the market?

    We conducted inspections of these five dairy companies, which account for 90 per cent of total market share. The 25 dairy products account for more than 60 per cent of all sales of milk for children less than six years old. This is the first step and we will gradually announce other measures to stabilise prices. In the new regulation the prices of other products outside of the list must be based on the list of ceiling prices and methods for registering with the price management agency. We also will continue to recognise ceiling prices of subsequent registered products based on reasonable factors.

Establishing a price for milk is not straightforward, as changing the package size or the fat content also sees the price change. Is the ministry certain that the ceiling prices are reasonable?

    Enterprises changing the packaging, content or name of products must register these changes with the price management agency. The agency will check costs based on two methods: costs and comparison. At the same time we will cooperate with other relevant agencies to inspect the quality of milk to ensure the two methods are consistent with regulating reasonable ceiling prices. The announced ceiling prices are to apply throughout the country and we have based our calculations on specific issues, such as the same dairy product being sold in the same location. To check and review the application of the ceiling prices requires a role be played by State agencies at lower levels in cooperation with the ministry in supervising implementation. We will immediately conduct an inspection when retail prices are higher than the ceiling prices.

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