The world market for powdered milk is experiencing a rise in prices. Over the past years, the growth in world prices for dairy products has accelerated as much as possible. The price growth is due to several factors, such as a slow increase in the production of dairy products, a raise in demand, as well as a reduction in powdered milk reserves in exporting countries. High prices on advertising and promotion, high percent of import duty, as well as a specific pricing policy of large dairy companies lead to the increase in prices for milk products in Vietnam (Khoi et al., 2018). The price increase for powdered milk for children under six years old in Vietnam is sharp. The rate of price growth largely depends on the further development of the diary market. Therefore, Vietnam’s domestic milk prices need to be reviewed in the appropriate context.
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Domestic powdered milk prices vary from country to country. While in Europe and South America prices are comparatively low, in some importing regions such as East and Southeast Asia prices are higher (Khoi et al., 2018). Vietnam’s milk prices are among the highest in the world since it is one of the importing countries with moderate trade protection. The majority of Vietnamese dairy farmers have small-scale farms and little opportunities to increase output with the existing production structure (Pincus, 2010).
However, the consumption of powdered milk and other dairy products is growing. This paper describes the correlation of powdered milk prices in the Vietnamese market compared with other countries. It analyzes the existing market regulatory policies and the importance of the application of price control regulations and price stabilization measures in the Vietnamese market.
According to official statistics, the production of milk and dairy products in Vietnam is increasing. The growth of local production is associated with a growth in demand for dairy products. Despite the raise in production, Vietnamese farmers provide only up to 30% of total demand for milk, and the country imports about 70% of all dairy products mainly from the USA, New Zealand, and the EU (Davis et al., 2018). Powdered milk is in high demand, as it is used in the processing sectors of agriculture and the production of food, including infant formula. According to the Ministry of Industry and Trade information, the price of infant formula in Vietnam is 20-60% higher than in other countries of the region.
The reason is that Vietnam’s non-preferential import duty on milk powder is 15%. There is also market orientation and guidance on the pricing policy of large world dairy companies (Davis et al., 2018). Distributors recommend to sell imported milk products to consumers at two times higher than direct cost of goods sold. That is why Vietnamese people buy milk, diary products, and infant formula at the highest price. Moreover, promotion costs make up 30% to 50% of the total cost which is also one of the reasons why the price of powdered milk is too high in Vietnam (Pincus, 2010). However, according to Circular 122/2010, manufacturing, sales, and distribution companies are required to register prices for infant formula and dairy products for children under six.
This document was concluded to enable companies to prove that the selling price is acceptable before the product gets to market. The government’s goal was to register and control prices and apply stabilization policy to lower prices; however, it did not work for several reasons. By requiring companies to register prices has not lowered costs or improved consumers’ access to information. This law has also imposed a large administrative burden on many companies which could have led only to the increase in prices (Pincus, 2010). However, the government can reduce prices on dairy products and powdered milk in several ways.
First of all, it should set clear safety standards and improve inspection procedures. Secondly, it may reduce taxes and prices for advertising and promotion. Finally, the government should remove obstacles and help to modernize this sector.
The country expects a radical increase in powdered milk production which will lower the prices, although dairy products must go through a lot of changes to integrate into the global economy. In recent years, the dairy industry, among others, has shown good growth and potential for development. Vietnam currently produces 70 varieties of milk and dairy products. Over the past 5 years, the number of cow herds has grown by 14% every year (Ngo et al., 2019).
Moreover, Vietnam has joined a free trade agreement with the European Union and will have to undergo significant changes in production and business due to the growth of imports of dairy products and the introduction of import tariffs on them. Under the free trade agreement, duties on dairy products are reduced to 0% immediately after the agreement enters into force (Nguyen et al., 2017). In this case, producers from the Eurasian Economic Union will gain a competitive advantage.
According to the Department of Livestock under the Ministry of Agriculture, the new tariff deals will significantly lower prices and the volume of imports will increase. This means that entrepreneurs will lower the purchase price for farmers (Nguyen et al., 2017). That is why the Vietnamese cow farms now have to learn to manage their farms so successfully that they can guarantee the milk producers and processors the right amount of supply to keep their business going (Ngo et al., 2019). The industry needs to introduce modern technologies in large farms and farmers need to improve their feeding methods. Due to free trade agreements, farmers who keep cows have to form milk production and marketing cooperatives to defend their interests.
To sum up, the high share of imports greatly affects the development of the local dairy industry and the production of farm products in Vietnam. So far, milk producers and processors import the bulk of dairy products, including whole milk powder and skimmed milk powder. The problem of high prices for dairy products could not be solved by the application of price stabilization measures and price control regulations in Vietnam.
As a rule, not the individual but the group benefits are taken into account, so many companies try to lobby the policy for the group benefit. However, costs on dairy products and powdered milk can be reduces in several ways. Clear safety standards, better inspection procedures, free trade agreements, and the decrease in taxes and prices for advertising and promotion should help to stabilize prices.
Davis, C. G., Cessna, J. G., & Blayney, D. P. (2018). Southeast Asia’s import demand for skim milk powder: Implications for US exporters. Journal of Dairy Science, 101(5), 4676-4689.
Khoi, N. V., Yen, H. T. H., Van Khai, T., Duc, N. T., & Hoa, D. T. P. (2018). Dairy value chain in Vietnam: Evidence from Bavi area. Agricultural Value Chain.
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Ngo, H. Q., Nguyen, T. Q., Long, N. T., Van Tran, T., & Hoang, T. M. (2019). Factors affecting brand and student decision buying fresh milk: A case study in Ho Chi Minh city, Vietnam. The Journal of Asian Finance, Economics and Business (JAFEB), 6(3), 247-258.
Nguyen, M. H., Duteurtre, G., & Moustier, P. (2017). What shapes the governance of the dairy value chain in Vietnam? Insights from Ba‐Vì milkshed (Hanoi). World Food Policy, 3(2-1), 57-81.
Pincus, J. (2010). Milk price registration and regulations in Vietnam: Will it lower milk prices? Policy Case Study, Harvard Kennedy School-Fulbright Economic Teaching Program, pp. 1-21.