Distributors milking consumers, dairy insiders say

Dairy products have become more expensive of late but industry insiders claim the price hikes are a marketing ploy by producers and distributors.

Distributors have increased the retail prices of milk powder by VND10,000 to VND30,000 for a 900-gram pack over the past few weeks.

But global prices of skimmed milk powder and whole milk powder have actually fallen by US$1,000 per ton since mid-year to respectively $2,000-2,500 and $2,400-2,900.

Pham Ngoc Chau, deputy director of Hancofood, said distributors and local milk producers have increased their prices because they want to make up for marketing and advertising costs.

“When they say they’ve added new components, it’s simply an advertising trick,” Chau said.

A manager of one of the top milk companies, who wished to remain unnamed, said the recent melamine scare has led to consumers not “trusting” products at lower price ranges.

His company, for instance, was unable to sell its VND70,000 products but sales improved significantly when distributors decided to double the price, he said.

Local retailers say the competition among big names like Abbott, Mead Johnson, Dutch Lady, Dumex and even Vinamilk is mostly in the upscale products segment, including milk products advertised to be able to bolster children’s immune systems and smartness.

With customers in this market segment highly loyal to brands, sellers raise prices without fear of alienating them.

Bui Bich Thy, who works for an insurance company, now spends at least an additional VND100,000 every month on milk powder.

“I had no choice but continue to buy Pediasure,” she said. “My kid just won’t drink any other milk.”

Le Huu Binh, deputy director of 3A Pharmaceutical Joint Stock Company, one of the main distributors for Abbott milk products in Vietnam, said Abbot’s Pediasure now retails at VND329,000 for 900 grams, nearly 9 percent higher than a few months ago.

The price was hiked partly because of Pediasure’s “new, impressive formula that will help kids add height and weight.”

A market insider said, “When [a company] sees another increasing price, immediately it has to figure out a way to do the same.”

MILK PRICES TO SURGE DUE TO LIMITED LOCAL SUPPLY A Vietnamese household consumes 900 grams of milk per month, including fresh milk, condensed milk and milk powder. As local supplies cannot meet the demand, Vietnam imports a large quantity of milk products from around 40 countries, mainly the Netherlands, New Zealand, the US, Malaysia, Thailand, Poland and France. The annual growth rate of imported milk and milk products was around 27 percent in the period from 2002 to 2007. In the first eight months this year imports of dairy products were worth US$356.7 million, almost the same as the whole of last year. According to the Animal Husbandry Department, the prolonged cold spell early this year killed more than 30,000 heads of cattle in the northern and central regions, where most of the country’s milk is produced. As a result, local businesses had to increase import of milk products. Following the Chinese melamine-tainted milk scare, consumers have cut their spending on fresh milk and other dairy products, even though Chinese milk products only have a 1 percent market share in Vietnam. Both dairy farmers and producers have been hit hard by this. Under its WTO commitments, Vietnam has lowered tariffs on dairy imports. Exporters in China and Southeast Asian countries get especially preferential treatment. But they have not succeeded in expanding their market shares here despite being more competitive. With the melamine scare fading away and businesses launching many promotions to boost demand, the consumption of milk products will increase again soon, especially with the living standards of consumers improving. But local supply will continue to fall short of increasing demand. As a result, Vietnam will still need to depend on milk products imported from the Netherlands, New Zealand, the US, Poland and France. By Ngo Vi Dung* (TBKTSG) * Ngo Vi Dung is a researcher at the Information Center for Agriculture and Rural Development (Agroinfo), an arm of the Ministry of Agriculture and Rural Development.

Source: TT, SGTT