Will formula milk price caps benefit consumers?

Monday, Jun 02, 2014 08:31

The caps, set to take effect on June 11, are 10-15 per cent lower than the current wholesale prices of the products and, in some cases, 20 per cent lower than market rates.— Photo khampha


In late April the finance ministry examined the country's five largest formula milk producers and decided to cap the prices of the 25 most popular products in an attempt to protect consumers.

The five companies — Vinamilk, Nestle Vietnam, Mead Johnson Vietnam, Friesland Campina Vietnam, and 3A Nutrition Vietnam, the authorized distributor of Abbott — together hold 90 per cent of the market for formula for children under six, who number 10 million.

Among the products whose prices will be capped are Enfamil A+1 900g, Enfamil A+2 900g, Dielac Alpha 123 HT 900g, IMP Friso Gold 3 1,500g, NAN 2 BL InfMPwdr LEB011A-2 800g VN, Enfagrow A+3 vanilla 1,800g, and Grow G-Power vanilla 900g.

The caps, set to take effect on June 11, are 10-15 per cent lower than the current wholesale prices of the products and, in some cases, 20 per cent lower than market rates.

To put it in money terms, many of them are VND20,000-30,000 higher than the proposed ceiling prices.

Once the caps take effect, it is hoped prices will come down.

Many consumers have welcomed the move since formula prices have a history of rising giddily. Dairy companies have said they are ready to make the price changes on schedule. But it is not clear how much consumers will actually benefit since sellers have already begun to look for ways to circumvent the caps.

Dealers claim they will make huge losses since their stocks were bought at higher prices.

Some companies have reduced the quantity of the contents in the tin.

Some others have stopped selling the products that are in the capped list, and launched products with new labels but similar ingredients at much higher prices.

According to Dau Tu (Vietnam Investment Review) newspaper, on May 27 many supermarkets in HCM City, Ha Noi, and Hai Phong had few of the Mead Johnson products that are in the list.

A major Mead Jonhson agent in Ha Noi admitted to Dau Tu that the company has asked it to stop selling old products and prepare for selling new ones.

Mead Jonhson Nutrition (Viet Nam) has just launched Enfamil A+360 Brain Plus to replace Enfamil A+ and Enfagrow A+ at VND50,000 higher than the latter ones.

All this means consumers are unlikely to be able to buy formula at 15-30 per cent lower prices than now.

This also means that authorities' formula price stabilisation measures are not too efficacious and their goal of securing the interests of both producers and consumers will be difficult to achieve.

At a press conference on May 28 Nguyen Anh Tuan, director of the Price Management Department, promised that his agency would take all necessary measures to prevent dairy companies from using legal loopholes to avoid the price caps.

Mob psychology

The domestic gold market has been stable this year, with the gap between local and international prices narrowing sharply to reach a record low of around VND1 million per tael of 37.5 grammes.

However, domestic prices have soared in recent weeks. For instance, on May 14 it went up by VND600,000 per tael to over VND36.5 million.

On May 20 it jumped again by VND500,000 to nearly VND37.2 million.

During this period the global price increased just a little — by a mere 0.5 per cent — to US$1,293 per ounce of 31gm (equivalent to VND33 million per tael).

This meant that within a week the gap between global and domestic prices jumped up VND1.2 million per tael to VND3.5 million.

On May 29 globally the metal dropped by $40 per ounce to $1,250 but the domestic rate declined by only 400,000 per tael to VND36.45 million. As a result, the price gap rose to VND4.4 million.

The central bank has said there is no major volatility in global gold prices or supply and demand.

Analysts blame the rise on psychological and speculative factors triggered by the East Sea tensions.

Unlike many other countries in the world where gold is mainly used for making jewellery, physical gold in Viet Nam is used for saving and investment.

And a mob psychology rules Vietnamese gold buying and selling activities.

Over the last decade prices have increased to as much as VND49 million. Most of the biggest price fluctuations were caused by "sensitive" events and this very psychology.

Realising this, the central bank has advised the public to stay vigilant against rumours circulated by ill-intentioned elements about the gold, foreign currency, and monetary markets to avoid losses and harming the economy.

The State Bank of Viet Nam is also keeping a close eye on the market and has said it is ready to intervene in the gold market if necessary.

It also said it has large stocks of bullion and can auction them at any time to ensure supply in the market.

Analysts have advised against investing in gold now since the difference between global and domestic prices is too big and investors are likely to make big losses since the central bank will be able to sell gold to bring the price down.

Besides, the real estate market is showing signs of recovery and would soon become an attractive asset class, they said.

Real estate stocks

Very attractive profit targets for this year have made property companies'shares the darlings of the securities market in recent days.

Many of the companies expect the market to recover significantly this year and so have outlined ambitious profit targets.

Pacific Real Estate and Infrastructure Development Joint Stock Company (PPI) eyes pre-tax profit of VND49.9 billion compared to a mere VND136 million last year.

It is confident of achieving this because of its 20 years of experience in transportation projects, long relationship with ministries and local authorities, and the stability of the market.

Phat Dat Real Estate Development Corporation (PDR) expects to make a pre-tax profit of VND50.4 billion.

Other big names like VPH, PTL, THD, and ASM also have high growth and profit targets.

Of course, no one knows yet if these companies can achieve these targets, but investors remain hopeful, especially since the housing market is seeing green shoots of recovery.

FLC Group Joint Stock Company has seen massive volumes of dozens of millions of shares traded in recent days.

Sai Gon Thuong Tin Real Estate Joint Stock Company (SCR) is another share with huge liquidity.

It reported an increase in turnover of 900 per cent in the first quarter and net profit of VND13.97 billion , a year-on-year increase of 905 per cent. — VNS

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