Opportunism Behind Higher Milk, Steel Prices

An investigation by the Finance Ministry has found that all dairy and steel producers took advantage of higher input costs to raise their prices in the first half of the year.

Milk and other dairy products go up by 4-11 percent in the first half of the year

Milk and other dairy products went up by 4-11 percent in the period.
To find out why, the ministry investigated five companies: Vinamilk, Dutch Lady Vietnam, NutiFood, 3A Pharmaceutical Co. - the sole distributor of Abbott milk powder, and Tien Tien Co. - distributor of MeadJohnson.
The results, which have just been submitted to the Prime Minister, show that sales expenses made up the second biggest portion of the higher dairy prices, while promotional expenses accounted for anywhere from one to 19.2 percent.
In fact, Dutch Lady and Vinamilk overspent on promotion well above the permitted 10 percent cap (19.2 percent and 12.9 percent respectively).
Also according to the report, Dutch Lady, Tien Tien Co. and 3A Co. raised their prices by 9 percent, 6.5 percent and 5 percent respectively. A few brands soared to dizzy heights, like Enfagrow Vanilla, up 30 percent, and Ensure liquid’s 250 ml can, up a hefty 43 percent.
Five steel companies were also investigated: Thai Nguyen Iron and Steel Corp, Vietnam Steel Corp., Vinakyoei, Vinausteel and Dinh Vu Steel Co.
The ministry concludes that these companies had taken advantage of the higher import price of steel ingots to raise their selling prices disproportionately.
Vinakyoei claimed that it had paid US$477.89 per ton for imported steel ingots in the first half, an increase of US$59.51 since last year. Yet the company had raised its price for finished steel by over US$71.51 per ton.
After the investigation, the steel companies pledged to hold their prices steady, a hasty promise they soon broke. In the past two weeks, they have raised their prices yet again in response to the US$30-35 per ton higher cost of imported raw steel.
It seems the lower import tariffs on milk and steel have made little difference.
Nguyen Tien Thoa, head of the Finance Ministry’s Price Control Department, says the reduced import duty on milk adversely affected some products but not others, depending on the proportion of imported ingredients.
For instance, Vinamilk and Dutch Lady use both domestic and imported ingredients so the import duty accounts for only 6.4-7 percent of their input costs. The best they could get from a 50% tariff cut was a 3-4 percent drop in their selling prices, according to Mr. Thoa.
The purpose of the tariff cuts was to help producers lower their input costs, but the producers calculated they would get fewer benefits from the reduced duty than the pricing authorities did.
Even before the investigation was announced, Mr. Thoa said, the milk producers had been planning to raise their prices.
If the input costs of dairy companies stay the same or begin to fall, yet selling prices fail to follow suit in September and October, Mr. Thoa’s ministry will try to get back the money the producers saved thanks to the lower import tariff.
With steel, whose prices threaten to climb even higher, the Finance Ministry is seeking the prime minister’s permission to cap the price of construction steel at a level that won’t harm the producers.

By Quoc Vuong, Ha My – Translated by Yen Chuong

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