January 18, 2011

Vietnamese dairy companies battle new pricing directive

Vietnamese dairy producers are causing a pandemonium after finding out that they are required to justify any price increase to the ministry, after a decision was made on December 31 by the Ministry of Finance.

Under the new ministry regulation, regional offices would weigh the need for the increases against the real impacts on consumers before approving any proposed price increases. The new regulation has also required regional offices to step up supervision of market prices.

General Director of dairy products distributor, IDP Co's Nguyen Tuan Khai said his company did not plan any price increases prior to the Tet (lunar new year) holidays, but intended to increase prices afterward since it could not afford to continue absorbing higher input costs and the impacts of the Dong's weakness against the US dollar.

However, ministry's figures have indicated that raw material prices were largely unchanged for dairy products and that foreign exchange rates were stable - suggesting a lack of justification for a further increase in dairy retail prices.

But Hoang Thanh Binh, head of sales for a Hanoi-based milk importer, disagreed with these findings, noting that one major source of imported raw materials, New Zealand, had seen bad weather conditions which had reduced total milk production in 2010 by 3% from the prior year.

Binh also said the unfavourable foreign exchange rate continued to trouble dairy importers. "We can't afford to keep going if the price isn't allowed to increase," he commented.

"Our appeal to the finance ministry hasn't been approved yet, but the price should be permitted to increase after Tet," he added.

Leading domestic dairy producer Vinamilk has already announced increases of up to 6% to the prices of some Vietnamese dairy products.

The company had submitted the proposed increase to the Ho Chi Minh City Finance Office and received the approval, said Do Thanh Tuan, head of Vinamilk's foreign affairs department.

The products subject to price increases were mostly those which had seen prices unchanged during 2010, Tuan said.