The Ministry of Finance is planning to impose annual cap prices on dairy products for children this month after getting the Prime Minister's approval.

The ministry affirmed that the price cap is feasible and will help lower product prices.

Vietnam News Agency spoke to Nguyen Trong Nghia, director of the ministry's Department of Legal Affairs, on the issue.

Nguyen Trong Nghia, director of the ministry's Department of Legal Affairs

The investigation report on five major dairy traders and producers has shown that the firms implemented price hikes in spite of making huge profits. Can you elaborate on the issue?

Through investigations of the price regulations and taxes at five milk producers and traders, namely the Viet Nam Dairy Joint Stock Company (Vinamilk), 3A Nutrition (Viet Nam) Ltd Company, Nestle Viet Nam Ltd Company, Friesland Campina Viet Nam Ltd Company and Mead Johnson Nutrition (Viet Nam) Ltd Company, from March 10 to April 10, the Ministry of Finance discovered some wrongdoings [related to the expenditure on advertising, discounts and marketing].

More importantly, the authorities have found that it is time to take necessary measures to stabilise milk prices in general, especially those for children under 6 years of age.

The Ministry of Finance has agreed with the other relevant sectors to take a number of measures to stabilise milk prices, including the application of price caps on dairy products for children under 6 years of age.

Why did the ministry propose these price caps?

The inspection showed that the prices of dairy products sold by the five major milk traders and producers in the reviewed period only increased and never decreased. Particularly in 2013, some dairy products reported a very high price hike of up to 30.7 per cent. In the first quarter this year, Vinamilk and Nestle Viet Nam also increased their prices by 5 to 14 per cent.

The ministry also discovered that the expenditure on advertising, discounts and marketing, which are part of the business costs, at four firms, except Vinamilk, exceeded the regulated level under the Law on Corporate Income Tax for milk products for children in the said age group. The high spending on these activities forced the prices of the milk products up by 2.18 per cent to 16.39 per cent. The move forced the finance ministry to cap the prices of milk products.

The cap is in accordance with the Pricing Law, which states that the Government will decide and entrust the finance ministry to take measures to stabilise the market in case there is unexpected volatility.

The measures to stabilise the prices of milk products for children under 6 years of age include pricing registration and price cap regulation. The price caps will be imposed within 12 months of the approval of the regulation. Different traders and producers can list the same product at different prices, but these must be lower than the regulated ceiling prices.

Before making sales, the milk traders and producers will have to register their prices with the pricing management authorities in their locality.

Is the price cap regulation feasible as the domestic market has hundreds of dairy products traded and produced by several firms?

There are roughly 200 milk traders, importers and producers in the domestic market, who distribute many kinds of dairy products. Of course, it will cause certain difficulties when the price cap is applied.

It will not be feasible if the price management agency caps the price of each kind of milk product. Therefore, we only need to determine the ceiling price of some products and consider it as the standard price for the remaining ones.

The ministry will also focus on milk traders and producers with large market shares, especially the five firms mentioned above. It will set the cap prices for the five firms' products, which make high profits and have a high consumption rate. If we adopt this method, I think the price cap regulation is quite feasible. — VNS