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HCM City inspections shed light on baby formula markups
The retail prices of dairy products in Vietnam are sky high because suppliers deliberately sell them dear, at a price which is twice their cost, say HCM City inter-ministerial inspectors after an inspection tour.
Import cost: 1 dong, retail price: 2 dong
Dairy product prices have been increasing continuously since 2007, especially imported milk products. The paradox is that the dairy products’ prices in Vietnam keep rising while the price of milk powder, the input material for making dairy products, has dropped by 60 percent since 2007 and is 40 percent below the peak price in 2008.
Inspectors representing a number of HCM City agencies on June 25 toured establishments which trade Jilac brand canned milk (Binh Minh Company), various Dumex milk products (Thong Thinh Company), Meije powdered milk (Hoa Tim Company) and Enfa A+ baby formula (Mead Johnson Vietnam and Tan Tien Distribution Company).
Mead Johnson Vietnam mainly imports baby formula products from Bristol Myers Squibb Thailand. Its Enfa A+ brand has been launched onto the market through Tan Tien Company.
The inspectors found out that Mead Johnson tells Tan Tien sell to consumers at a 200 percent markup from Mead Johnson’s import cost. For example, Mead Johnson sells Enfa Pro A+ (400 gram), which it acquires for 64,000 dong per carton, to Tan Tien at 102,000 dong and proposes that Tan Tien market the baby formula to consumers at over 140,000 dong per carton, or 220 percent of the cost price.
Similarly, Mead Johnson invoices its imports of Enfa Pro A+ (900 gram) at 130,000 dong, sells it to Tan Tien at 207,000 dong, and ‘forces’ Tan Tien to retail at 286,000 dong, or 200 percent of the cost price (See the table below).
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The markup of Enfa A+ baby formula |
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Product items |
The cost to Mead Johnson Vietnam (Importer)
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The price at which Mead Johnson sells to Tan Tien (Distributor) |
The “suggested retail price” |
SRP compared to import cost |
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Enfa Grow A+ 900 gr |
nearly 113,000 |
Over 200.000 |
nearly 277,000 |
+ 245% |
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Enfa Mama A+ 400 gr |
nearly 47,000 |
nearly 84,000 |
over 115,000 |
+ 245% |
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Enfa Pro A+ 400 gr |
over 63,000 |
nearly 102,000 |
over 140,000 |
+ 222% |
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Enfa Pro A+ 900 gr |
over 130,000 |
over 207,000 |
nearly 287,000 |
+ 220% |
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Enfa Pro A+ 1.8 kg |
over 207,000 |
Over 365,000 |
Nearly 505,000 |
+ 245% |
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Enfa Kid A+ 900 gr |
over 107,000 |
Over 172,000 |
over 237,000 |
+ 220% |
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Advertising costs push price up
At Thong Thinh Company, the distributor of Dumex brand name dairy products, inspectors found out that the cost of organizing customers’ workshops and training courses were all higher than the ceiling levels stipulated by the Ministry of Finance. When retailing Dumex dairy products, Thong Thinh sells them at the price set by VNC, the provider of Dumex products to Thong Thinh, and enjoys a margin of 12 percent on turnover.
The inspectors found out that in the first quarter of 2009, the transport cost and expenses on salaries and office leasing of Thong Thinh Company were no higher than in previous months, while the prices of six Dulac Gold dairy products were increased by 4.5 to 7.5 percent.
The inspection at Mead Johnson Vietnam also found out that in the fourth quarter of 2008, the expenses on advertising and promotion campaigns amounted to 56 percent of total marketing expenses (53.5 of 95 billion dong). In the first quarter of 2009, these expenses had fallen to 33 percent of the total expenses (29 of 88 billion dong).
An irate consumer
Phan Thi Thu Huong, an HCM City housewife, said when hearing the result of inspection that “we have been defrauded by dairy producers for a long time”.
Huong said that she chose Enfa A+ for her two children when there were infants. “I bought Enfa A+ because I believed that the products provided the best nutrition for my children,” she said.
However, she admitted that her belief in the high quality of Enfa A+ was just based on the advertising she read.
Huong says government agencies should act to ‘bring dairy products’ prices to their actual values,’ which she thinks will help protect consumers, domestic dairy producers and farmers as well.
Under the Decree 75/2008, milk products are subject to the government’s price stabilization policy.
The Ministry of Finance stipulates that if the milk price increases by 20 percent or more within 15 days, government agencies will take measures to stabilize prices. They can impose fines on those who raise prices too sharply and require them to compensate customers.
However, dairy product importers and distributors have been wise enough not to raise prices only gradually to avoid the fines.
Nhu Minh
vietnamnews
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