Advertising costs and profiteers force Vietnam's dairy prices skyhigh

 

 

Consumers expect relevant authorities to take bolder measures to control dairy imports as dubious practices have caused the price of dairy products in Vietnam to become among the highest in the world.

 

The retail price in the domestic market has been overly high and much higher than in other regional countries despite a price decrease in the world market and an unchanged import tax.

 

Ho Tat Thang, vice chairman of the Viet Nam Standards and Consumers Association, estimated that it was three times higher than that in Thailand and twice as high as in Malaysia.

 

Previously, milk importers often tried to explain the high prices by saying costs were based on multiple factors, not just the cost of raw materials. They claimed packaging, taxes and fees, distribution and marketing costs were all high in Viet Nam.

 

However, earlier this week, the MoF's inspection on a number of dairy importers showed that the high cost of advertising and marketing had driven the price up to its current high. According to regulations, businesses are allowed to spend 10 per cent of their total costs on advertising and marketing. However, many importers often use more than 30 per cent.

 

MoF's inspection results from Nestle Viet Nam showed that the company spent up to VND20.56 billion (US$1.14 million) or 38 per cent of its total business costs on advertising and marketing last year. The company's figure in the first half of this year was VND14.04 billion ($780,000) or 27 per cent of its total business costs.

 

The results were even more shocking at Mead Johnson Nutrition Viet Nam: in the second half of 2008, the company spent VND83.4 billion ($4.63 million) or 53.46 per cent of its total business costs on advertisement and it was VND52.78 billion ($2.93 million) or 36.22 per cent of total business costs in the first half of this year.

 

Due to the high advertising and marketing costs, the retail price of imported dairy products sold in the domestic market was roughly twice as high as the original cost, the finance ministry said in its report.

 

For example, in the first half of this year, the price of a 900 gram Enfagrow can distributed by Mead Johnson Nutrition Viet Nam was sold at VND266,818 while the can was imported at a price of only VND108,150 plus an import tax of VND5,407. The retail price of a 900 gram Nestle Gau 1 can imported by Nestle Viet Nam reached VND220,000 in the domestic market while its import price was VND72,361 plus an import tax of 5 per cent.

 

Consumers are still prey to exorbitant dairy prices as there remains a lack of legal regulations controlling the market while the domestic dairy market still depends mainly on imports. Foreign dairy products currently account for more than 70 per cent of the market share in Viet Nam.

 

According to current regulations, dairy importers do not have to register their retail prices with relevant authorities.

 

The MoF's Price Management Department said that although milk was one of the products the price of which needed to be stabilised, traders often found loopholes in the price controls to increase their prices bit by bit.

 

"Price controls could be triggered if prices change abnormally, such as a spike of 20 per cent within a 15-day period," the department explained.