Ceiling price causes dip in sales of formula milk

Ceiling price causes dip in sales of formula milk

Dairy producers are complaining that the ceiling price applied over the last year has dealt another blow to sales at a time when purchases are already at a low due to the recession.

A dairy producer with an average annual revenue of VND2 trillion said the company took a loss of tens of billions of dong in 2014 because of the ceiling price applied at mid-year.

Vinamilk, the country’s leading dairy producer, also reported unsatisfactory business results because of the Ministry of Finance’s decision on imposing ceiling prices on some milk products.

Vinamilk’s chair Mai Kieu Lien said at the company’s shareholders’ meeting in late April that with revenue of VND35.704 trillion in 2014, the company could only fulfill 98 percent of the yearly business plan.

Though the pretax and net profit was equal to 101 percent of the plan, they were still lower by 5 percent and 7.1 percent, respectively, than 2013.

There were many reasons behind the fall, including low demand during the recession, stiff competition that forced the company to increase selling prices, and a decrease in exports to the Middle East due to uncertainties in the region.

High input material prices were also affected in 2013-2014, which only began falling in late 2014.

In fact, the difficulties were foreseeable. Bui Thi Huong, Vinamilk’s PR Director, said one year ago, when the ceiling price was about to take effect, that ceiling prices on five Vinamilk products would create a loss of 4 percent.

Vinamilk then estimated that it would have to lower the selling price by 21 percent on average, but could not make profits of 21 percent.

There are 709 dairy products for children under six years old in three market segments, low-cost, mid-tier and high-end, with different price levels.

“In order to compete in such a market, dairy producers have to spend big money on ads and marketing,” said a senior executive of a foreign invested enterprise, explaining the pricing structure.

Dairy producers all said they have had difficulties over the last year since the day the ceiling price became valid.

Now, as the Ministry of Finance decides to extend the ceiling one more year, they have to reconsider their business plans.

A representative of Mead Johnson said the manufacturer might stop selling some dairy products, which could cause big losses.

Meanwhile, Friesland Campina Vietnam said it had been trying to cut production costs and diversify products to offset a reduction in sales.

vietnamnet