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MOF planning stronger measures to control milk prices   2010-08-09 - Thoi bao Kinh te Vietnam

Another wave of milk price increases has angered the public.  The Ministry of Finance (MOF) has promised that it will establish effective price controls.


Few consumer issues are as sensitive as the high prices charged for milk products, particularly infant formula, which many Vietnamese view as essential to infant health.  The Price Control Agency has been under a lot of public pressure and now seems at last on the verge of taking action, reports Thoi bao Kinh te Vietnam.


MOF has minimized recent the price increases, saying that only three dairy products companies raised prices this time, and these are firms that did not raise prices during the previous wave of increases. However, Nguyen Anh Tuan, Deputy Chief of the Price Control Agency, a unit of the Ministry of Finance, now admits that the reasons that milk companies cite when they raise prices are not reasonable, and that the timing of such increases is “really sensitive.”


The dong/dollar exchange rate fluctuations have a negligible impact on dairy product prices, Tuan says, nor have there been significant changes in input material costs.


Tuan confirmed that MOF is drawing up a scheme to control the sales prices of milk products based on the production cost.  Spending on advertisements will be curbed at 10 percent of total revenue at maximum.  Dairy product makers and distributors will have to register their sales prices. As such, management agencies will be able to discover the enterprises that are charging unreasonable prices and take suitable action.


The Price Control Agency official stressed that the draft regulation will still ensure a competitive market.  It will not violate Vietnam’s WTO commitments.  “Dairy products are essential goods, essential to the health of growing children.  Therefore, not only in Vietnam, but also many other countries are applying measures to control the dairy market,” Tuan said.


Though the Price Control Agency has high hopes for the new regulation, some analysts think that the tool that the agencies are going to use is not practical and will simply increase “red tape.”


MOF says the new regulation, if approved, will cover all companies, no matter whether they are state owned, privately run or foreign invested enterprises, that manufacture and trade specified milk products. These enterprises will have to register their sale prices to management agencies.


Circular No 104, currently in force, stipulates that the State may apply the measures to stabilize prices of any commodity when the price fluctuates by a certain percentage during a certain period. Meanwhile, the new decision will stipulate that the State may apply the measures at any time that prices change so sharply that the interest of the State and of consumers is harmed.


Analysts say it will not be easy to control dairy prices this way. The new price calculation formula is really complicated. Every dairy producer has many different products and sales levels. If the new regulation is applied, for every product, enterprises will have to report a ladder of prices: import prices, wholesale prices, retail prices and the prices quoted to for sales agents and shops.  It will not be easy for the Price Control Agency to manage a large number of companies and products.


Besides, every producer maintains a nationwide distribution.  Some producers apply the same prices for all provinces and cities, while other producers apply different prices for different localities.


Forseeably, every milk company will have to reserve staff just to report prices to MOF, pushing up management costs and in turn pushing up the cost to the consumer.


The director of a dairy company comments that it is not necessary for management agencies to think of such a complicated management method.  He said that they’d do better to control companies’ spending on advertising and promotion of their products.  Truth in advertising is what’s needed, he believes.


If the outrageous competition in sales promotion is restrained, the cost of milk products is more likely to reflect their real value.  Dairy products companies may then focus on competing in prices and improving their distribution network and services.

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