Dairy products’ prices will drop with less advertising

If advertising expenses are capped at 10 percent, dairy products’ prices would decrease sharply – up to 30 percent, Deputy Head of the Price Control Department Nguyen Anh Tuan affirmed.

Tuan, in an interview given to Tien Phong newspaper, observed that some dairy producers reported losses of tens of billions of dong, but still paid nearly one hundred billion dong on advertisements and sales promotions.

“We will have to take action to stabilize dairy products’ prices,” Tuan stated.

Tien Phong: Could you please tell us why Vietnam’s dairy products are always more expensive than in other regional countries?

Nguyen Anh Tuan: As t head of the inspection delegation at Mead Johnson, I noted that the sales expenses of the enterprise are too big. As for Mead Johnson, while the Corporate Income Tax Law stipulates that enterprises can only pay 10 percent of total revenue on advertisements, it spent 30 percent.

The dairy products’ price is formed by three factors, the materials price, the expense on research and development and the marketing budget. The material price is decided by supply sources and influenced by the world’s market. The two other factors are decided by dairy producers, but inspectors believe that it is completely possible to set a cap on them to help reduce prices.

A paradox exists that though reporting losses, enterprises can still pay big sums of money on advertisements and they are ready to pay tens more billions of dong for corporate income tax.

TP: A lot of dairy producers have announced price increases as of January 1, 2010. Some other producers, including Mead Johnson, have also affirmed that they won’t slash prices because of the high material price and the dong/dollar exchange rate. Does this mean that the proposals by inspectors (to cut down expenses and slash prices – VNNB editor) do not make sense?

Tuan: Under the Inspection Law, enterprises must implement proposals by inspectors. Inspectors’ conclusions have legal value for businesses to implement.

I can say for sure that if businesses cut down expenses, they would be able to save 10 percent at the very least.

TP: As far as I know, the Ministry of Finance is drafting a document, under which dairy products will be one of the 20 product items that producers and distributors must register prices with management agencies. Is it reasonable to put dairy products into the list of the products subject to compulsory price registration? Will it violate Vietnam’s commitments as it integrated into the world’s economy?

Tuan: We are respecting the rights of businesses and we are respecting commitments we made when joining WTO. However, every country reserves the right to stabilize prices of key and essential goods and, to some extend, set measures to control prices. Dairy products are essential goods.

The most important provision of the document is that all enterprises have to register their prices to management agencies.

Why have we proposed to cap marketing at 10 percent? Because we believe that this is the reasonable level that allows them to lower dairy products’ prices to levels equal to that in other regional countries, while prices would be still high enough to ensure profits.

TP: Are you sure that the dairy products’ prices will decrease in the time to come?

Tuan: If advertisement expenses are capped at 10 percent, production costs would decrease by 30 percent.

VietNamNet/TP

Tags: Vietnam dairy products' prices, Vietnam Dairy sector