Caps have been set by the Ministry of Finance on certain dairy products in a bid to exert control over wholesale prices.
With the goal of stabilising milk prices, the Ministry of Finance (MoF) has decided to implement the strongest price management measures to date from June 1. It will cap the wholesale price of 25 dairy products for children under 6 years of age from five enterprises: Mead Johnson Nutrition Vietnam, the Vietnam Dairy Joint Stock Company (Vinamilk), Nestle Vietnam, Friesland Campina Vietnam, and 3A Nutrition Vietnam. The wholesale price must be per the new regulation by June 10 at the latest and the retail price by June 20. Some of these enterprises have expressed surprise at the new measure, as it was introduced without their comment being sought.
The highest wholesale price is VND692,000 ($32.95) for Similac GainPlus IQ 1.7kg, followed by Grow G- Power vanilla 1.7kg at VND610,000 ($29.04). The price for IMP Frisolac Gold 1 will be capped at VND406,000 ($19.33) per 900g, while the ceiling prices of IMP Frisolac Gold 2 and 3, the most expensive products in the 900g category, are VND400,000 ($19.05) and VND365,000 ($17.38), respectively. Other types, including Enfamil A +1, A +2 and Enfagrow A +3 vanilla 900g, will have wholesale ceiling prices of VND309,000 ($14.71) to VND381,000 ($18.14). For products with a net weight of 400g, prices range from VND72,000 ($3.43) for a can of Vinamilk’s Dielac Alpha 123 HG to VND196,000 ($9.33) for IMP Frisolac Gold 1.
According to a representative from MoF, management of the capped price will be implemented within 12 months. Dairy enterprises must register their product prices as stipulated within the next six months. For other types of dairy products in circulation as well as new products yet to be sold in the market, dairy companies and traders must set retail prices on the basis of these ceiling prices and the ministry’s pricing methods, and send them to the ministry’s price administration division. “The maximum retail price is determined by the maximum wholesale price and related costs but must not exceed 15 per cent of the wholesale price ceiling,” he said.
Responding to the MoF decision, Mr Do Thai Vuong, Head of Public Affairs at Abbott Laboratories S.A Vietnam, said that the company will cooperate with government agencies to clarify the decision and other issues relating to its products. Ms Gift Samabhandhu, General Director of Mead Johnson Nutrition Vietnam, said that capping the maximum wholesale price on these dairy products would create a significant burden for domestic traders, retailers and supermarkets. “These wholesalers and retail agents have a large number of our dairy products already in stock,” she said. “They paid the market price for these products at the time of purchase and are now being forced to sell at a loss.”
Most of the enterprises are seeking an opportunity to meet with MoF to understand the basis of the price calculations and how they can be implemented in a manner that avoids any negative impacts on wholesalers and retail agents. Responding to these concerns, the MoF representative explained that the management agency considered the issues carefully and delayed implementation to June 20 for the retail market.
Agreeing with the MoF decision, Dr Ngo Tri Long, former Director of the MoF’s Price and Market Research Institute, said that introducing the ceiling price is an essential measure. He explained that, previously, the dairy market saw repeated price increases and prices often exceeded customers’ income or were sometimes higher than prices in the region and around the world. The ceiling price is based on the results of recent inspections of the five dairy enterprises. “Authorities may have found that these enterprises’ profits were very high while many unreasonable costs were included in the price, such as expenditure on marketing and advertising,” he said. “The measure forces enterprises to reduce their costs in order to lower their product prices.”
He added that, of the 25 dairy products subject to the new ceiling price, most are popular among consumers so capping their price will be welcome, but “it is only an administrative management measure,” he said. In the long term, “this will be an effective measure but it must be applied together with other policies, such as price declaration, price registration, and close inspections and monitoring,” he added. The ministry previously proposed a price cap on milk formula products but failed, with industry insiders saying that using the ceiling price mechanism is the most difficult means of controlling prices in the formula market. Before the MoF’s price cap was approved, two of the five dairy companies launched new products with lower volumes compared to existing products but with the same price. This is a common tactic of dairy companies when they intend to increase prices.
Mr Jonathan Pincus from the Fulbright Economic Teaching Programme told VET that “the government should regularly and randomly test milk products to guarantee safety. That is a large and important task. But they try to regulate the price instead, which is not necessary.”
“According to the MoF proposal, two methods have been selected to determine the price of milk, which is on the list of items in the essential commodity group requiring price stabilisation: comparative and cost methods. The comparative method is implemented through price calculations based on analysis and comparative results among prices and economic and technical features greatly affecting the price of similar goods in the domestic market and the reference price in regional and international markets.