Inspections of some dairy importers and distributors carried out Thursday in a bid to tighten control over the dairy market in HCMC found huge margins being chalked down the line.

The inspection showed Mead Johnson Vietnam, which imports the Enfa-branded products from Bristol Myers Squibb Thailand, had asked its distributor, Tan Tien Company, to sell the products to consumers at as much as 245 percent of the cost price, online newspaper VietNamNet reports.

For example, Mead Johnson Vietnam buys a 400-gram tin of Enfa Mama A+ milk powder at VND47,000 (US$2.64) but sells it to Tan Tien at VND84,000 and suggests the company retail it at VND115,000 ($6.46).

At the Thong Thinh Company, distributor of Dumex brand, the inspectors found that though the company’s labor, rental and transportation costs had not increased in the first quarter of this year, prices of six Dumex Dulac Gold products had increased 4.5-7.7 percent, according to the Phap Luat Thanh Pho Ho Chi Minh (HCMC Law) newspaper.

The company attributed the hike to the new packaging done by Vietnam Nutrition Company, which imports Dumex products.

Though milk prices on the global market have dropped more than 40 percent since they peaked in the third quarter last year, the prices of milk products have continued to rise in the domestic market, provoking public anger.

High marketing costs

Inspectors found milk importers were pouring a large amount of money into advertising and promotion campaigns, which also led to high milk prices.

In the last quarter of last year, Mead Johnson Vietnam spent VND53.5 billion (US$3 million), or 56 percent of its operational costs, on advertisement and promotion. Such activities cost VND29 billion, or 33 percent of the firm’s overall costs in the first three months of this year, VietNamNet said, citing the inspectors.

The inspectors also found that Thong Thinh Company had poured more money into customer meetings [to promote the product] than allowed by finance ministry regulations, the online newspaper said without elaborating.

Pham Ngoc Chau, deputy general director of Hancofood, said foreign dairy products have attracted customers through a blitzkrieg of advertising campaigns.

“After several months, milk importers launch new products, with a 5-10 percent hike in prices,” he said. “To ‘regularize’ the increases, they advertised they’d added new nutrients or increased the quantity of existing ones.”

“In fact, the additional ingredients account for a tiny cost but retail prices are raised disproportionately. Many consumers do not know the whole story.”

Foreign is better

Though there is no remarkable difference between local and foreign milk products in quality, many Vietnamese still choose the latter thanks to a mindset that everything foreign is good or of better quality, despite a big pricing gap, insiders say.

They note that although consumers complain about expensive foreign-branded milk products, they still prefer to buy them over local ones.

Huynh Huu Tuan, manager of the Citimart supermarket chain, said though foreign-branded milk is 2-3 times more expensive than locally-branded milk, the former sells like hot cakes.

Demand for imported milk, especially Abbott brand, is 2-3 times higher than domestic products, Tuan said.

Statistics from Vinamilk show that the domestic dairy market was worth VND8 trillion ($458 million) last year, with foreign producers holding an 80 percent market share.

Nguyen Mong Hung, chairman of the HCMC Committee to Protect Consumers’ Rights, said if a child needs four 900-gram milk tins per month, its parents would have to spend more than VND1.4 million to buy foreign products but only VND600,000 for local ones.

Tran Bao Minh, deputy general director of Vinamilk, Vietnam’s top dairy firm, said after including taxes and other expenses, imported milk products should only be 10-15 percent more expensive than local products.

But milk importers take advantage of the customers’ preference for foreign goods, add some nutritional supplement such as DHA (an essential fatty acid that promotes brain development) and ARA (an omega 6 fatty acid), and retail it at double the cost price, Minh said.

Minh also said the how such nutritional supplements contribute to children’s health and brain development is yet to be tested in Vietnam.

Meanwhile, the Vietnam National Institute of Nutrition has said there is no difference in quality between domestic and foreign milk products, especially in terms of protein, lipid, vitamin, and mineral content.

Out-of-control prices

Hung said foreign milk producers typically choose only one distributor in Vietnam, so the two sides can easily set the prices they want.

He also said milk companies can now set their own prices without any control from the government, and the authorities have yet to check whether milk pricing is reasonable or not.

The authorities currently accept the prices that dairy firms declare, without looking at the prices in other countries, he said.

Earlier this month, the Vietnam Milk Association had asked the government to curb the out-of-control milk price hikes that have sparked public outcries across the country.

Le Xuan Dai, deputy head of the HCMC Market Management Bureau, said import taxes should be adjusted to help lower unreasonable profit making by milk importers.

Source: TN, Agencies