Milk markups remain high, especially for imported formula

Surveys by reputable market research firms reveal that products sold by importers of powdered milk fetch a profit of 22 to 86 percent, Tien Phong reports.

Most dairy products firms evade discussion of the profits they can earn, saying only that the maximum profit is a little higher than twenty percent.

A milk products distributor in the north said that it earns seven to ten percent on liquid products and a bit over twenty percent on powdered milk.

Another producer said that enterprises that sell 100 percent fresh milk realize a profit of 15 percent. By adding reconstituted milk from powder, they can increase the profit to over 20 percent. milk, the profit would be higher. An employee of a big powdered milk company confirmed that the profit is over twenty percent for some kinds of products.

According to Nguyen Dang Vang, Deputy Chairman of the National Assembly’s Committee for Science, Technology and the Environment, a recent survey by Jaccar Equity Research of Vietnam’s dairy market showed that in making liquid dairy products, materials make up 34 percent of the production cost, packaging 15 percent and production expenses ten percent. Distributors and retailers get 13 percent of the profit and processors 28 percent.

Deputy Minister of Industry and Trade Nguyen Nam Hai acknowledges that there are many problems in Vietnam’s dairy industry. Suitable dairy acreage is limited, powdered milk prices are high, big markups are common, and the firms typically have huge advertising budgets. Thus, though milk prices have trended down on the world market, the domestic price remains at a high level.

Imported dairy products are expensive . . .

A report on the dairy market in early 2010 released by the Industry and Trade Information Centre (a unit of MOIT, the Ministry of Industry and Trade) showed that the retail price of some imported dairy products is four times higher than the invoiced import cost. Government agencies still have not found any proper way to control dairy product prices.

In 2009, Vietnam imported 72 percent of its total dairy product consumption, including 50 percent of milk material and 22 percent of finished products. The products of infant formula makers Mead Johnson, Nestle, Dumex, Wyeth, and XO, though priced two to four times higher than similar products made in Vietnam, still hold a big market share.

According to the Competition Administration Department (also MOIT), Mead Johnson and Friso infant formula in Vietnam is priced 20 to 60 percent higher than in in Thailand, Malaysia and Indonesia.

Distributors import milk powder for 65,000 dong per kilo. This suggests that their cost, after advertising and transportation to sales points is added, would be some 100,000 dong per kilo. However, the retail price is about 400,000 dong per kilo, or four times higher than the cost price.

. . . while milk products made in Vietnam are unable to find buyers

Though imported dairy products sell well despite the high prices, domestically made products still cannot find many buyers.

This is attributed to an irrational Vietnamese consumer preference for imported products. However, there are some grounds for this lack of confidence; domestic producers have been known to launch products with low nutritional value, sometimes only five to six percent protein, or even less.

Vu Quoc Tuan, Head of the PR division of Nestle Vietnam, cited Lactogen dairy product made by his company and NAN, an imported infant formula product, as an example of irrational aversion. Though it has the same content and the same quality, Lactogen has not caught the fancy of consumers, though it is cheap at 52,000 dong per box

“The sales of Lactogen have decreased after a period of marketing, while the sales of the identical import, NAN, keep rising,” Tuan said.

Tien phong

Tags: Vietnam milk imports, Vietnam milk prices