December 13, 2006

 

Vietnam dairy prices to increase in WTO era

 

 

Industry players in Vietnam have predicted an increase on milk and dairy prices once it formally joins the World Trade Organisation on January 11 next year.

 

Although most consumer goods enjoy import tariff reductions due to WTO reforms, milk prices will likely rise due to a 40 percent increase in imported input materials next month, according to the Vietnam News Agency.

 

Tariffs on finished dairy products will fall by 5 percent over the next five years to 25 percent, while duties on powdered milk products will see a mere 2 percent reduction to 18 percent.

 

Vietnam's reliance on imports--accounting 80 percent, particularly powdered milk used in local production--will keep domestic prices high in the near future, says Mai Kieu Lien, director general of Vietnam's biggest milk producer, Vinamilk. 

 

The situation in the dairy industry is not new. Under the ASEAN-AFTA framework in 2005, the country cut tariffs to 5 percent, which resulted in large dairy producers entering the domestic market. More competing firms, though, did not drive prices lower.

 

The same thing is expected to happen with the WTO accession. More new companies are likely to join the market, but industry insiders are cautious about prices moving lower.

 

Nutifood director general Trinh Thi Le said foreign-made dairy products will not flood Vietnam but more foreign investors are expected to enter the market, which will lead to fierce competition.

 

Local farmers will also face difficulties competing against foreign fresh milk producers under the WTO.

 

Countries like the US and Japan still subsidise dairy farmers to varying degrees, which ensures their profitability even when fresh milk prices are low.

 

Le said once subsidies are removed, dairy prices will accurately reflect market prices which are higher than current levels. Subsidy cuts, said Le, will increase the price of locally supplied fresh milk which will benefit Vietnamese farmers.

 

Japan is considered a leader in offering direct financial support with farmers receiving about US$8 USD per milk cow per day. In 2004 alone, the country allocated US$4.3 billion to support its cow husbandry sector.

 

Vietnamese dairy leaders will push for subsidy removal in the next round of WTO talks in Doha to create an equal playing field for Vietnamese dairy farmers.