Report

Group 2:

1. Bui Van Phu

2. Nguyen Le Tan Yen

3. Nguyen Hoan Vu

4. Dao Duy Thuan

5. Dien Minh Hoang

Milk Market in Vietnam

Basic Microeconomic

Master: Mr. Ngo Quang Trung

GROUP 2: VAN PHU – TAN YEN – MINH HOANG – HOAN VU – DUY THUAN CLASS: SB0963

1 Milk Market in Vietnam

Outline:

I. INTRODUCTION:

II. VIETNAM DAIRY’S INDUSTRY: 1. Milk War:

2. Milk Industry Development

III. THE DEMAND FOR DAIRY IN VIET NAM:

IV. PRICE OF MILK:

V. THE FACTORS AFFECT TO THE PRICE AND

MAKE THE PRICE HIGHER AND HIGHER

VI. GOVERNMENT POLICIES:

• SIGNS OF MARKET MANIPULATION (CARTELS)

VII. CONCLUSION AND RECOMMENDATIONS:

RECOMMENDATIONS:

REFERENCES:



I) Introduction:

Milk is a white liquid produced by the mammary glands of mammals. It is the

primary source of nutrition for babies of the mammal species before the babies can

digest different foods.

Milk is an important food for human milk contains many nutritional ingredients.

People have to know the species of animal husbandry for milk from a nutritional so

long. Components of fresh milk each for

each species, but whether milk from

species does contain significant amounts

of saturated fat, protein. Protein quality

is very important to the human body

fight disease, renew cells, building

muscles, helps maintain healthy hair and

strong nails. That is why your diet

should provide enough protein. Milk is

rich in protein food sources needed.

Milk fat helps form the essential fatty

acids are important for the body's cells.

Milk also contains a large amount of

calcium helps bones well muscled, it

also contains carbohydrates (source of

carbohydrate in milk is lactose helps provide a lot of energy to the body), vitamins

(including vitamin D, A, B, K) and many other minerals (phosphorus, Zn... )

Across the world, there are more than 6 billion people are using milk and dairy

products, most of them in developing countries . More than 750 million people

engaged in dairy farming. In 2010, more than 710 million tons of milk were

produced worldwide. India is the largest milk producing country in the world, is

also the largest consumer of milk in the world (especially India -style production

self-sufficiency, absolutely not export or import of milk). New Zealand, Australia

and the EU exporters of milk and milk products from the world's largest one.

Meanwhile, China, Mexico and Japan are the countries that import of milk and



milk products from the world's largest. Milk is a very important food to improve

nutrition and contribute to improving food security, especially in developing

countries.

Dairy Vietnam is a platform to exchange information on the dairy sector in

Vietnam, including milk production, dairy processing, dairy trade and

consumption. The combined information is your gateway to information and

statistics on the domestic dairy industry, ranging from production to consumption.

The rate of milk consumption in countries around the world in 2006

II) Vietnam Dairy’s Industry:

1. Milk War:

A few years ago, we only a few milk brands such as Dutch Lady, Vinamilk or

Storm. Now dozens of milk brands appear on the shelves of supermarkets and

retail stores, with prices differ not much.



With a longer development, Dutch Lady and Vinamilk are 2 model in milk

industry. In 2012, their total profit is about 66% total profit of Viet Nam’s milk

industry. Therefore, It is simply impossible for any young brands want to compete

with them. The fact is that,

customers are too familiar

with two of these brands.

That is the reason for why

they usually choose them

without caring about their

prices. In addition, people

have a higher trust for them,

so they are used to wondering

that those new brands are

worthy to buy or not. All of that explains why it is impossible for every young

brand in milk industry to compete with either Dutch Lady or Vinamilk. Now, I will

tell you how is their price war:

For instance, in An Phu supermarket, the price of the product vinamilk at around

33,300 per 1 liter box contracts while the price of the same products from the TH

True Milk brand, Love 'Farm in, or Dutch Lady, Lothamilk priced from 27,600

VND to 34,000 VND.

VNM & DL66%

Others34%

Vinamilk and Duchlady market share



Meanwhile, the milk brand imported from abroad have much higher rates when the

product line for sterilized milk (UHT).They mainly come from Europe, Australia

and New Zealand.

Emmi Swiss Premium milk, originating from Switzerland, has the highest price

with 69.709 VND per liter box.

The products carry the brand as Ariba Milch imported from Germany costs

44,900VND; Lactel milk from France cost 50,500 VND; Basan Breston costs

46.100 VND for 1 liter box products.

Meanwhile a New Zealand product, namely milk Fresh Medow, is priced from

43,700 VND or more.

Twin Cow brand of Vinamilk is imported from factories that the company has

holdings in New Zealand at the same price is 34,700 / 1 liter box.

Australia's biggest milk company, Devondale, is also official presence in Vietnam

from May 8-2013, with prices well from 40,000 VND / liter.

A company representative said the company entered the market only in the

premium segment, with a capacity of 60 million liters / year.

Devondale aims to capture 30% market share in the premium segment of UHT

milk which had an average growth rate of 18% / year in the near future.

However, after about 6 months officially available in the market, Devondale

representatives said it was too early to talk about business performance.

In the box type with

a capacity of less

than 180 ml, the

competition is

mainly from

domestic

manufacturers, as

Vinamilk, Dutch

Lady, Love in

Farm, TH True

Milk ... The highest

price is TH Milk

products with two



additional lines of dairy and calcium supplements collagen rates up to 58,400 VND

/ 4 cyclone box.

Meanwhile fresh dairy products with the same capacity 180 ml of TH Milk is

priced at 28,000 VND / 4 cyclone box, not marginally better than the same

products.

In the dairy segment bag, Vixumilk of Wing Chun seems to be lower than the price

at 4,800 VND / bag of 200 grams while the Board of Management has

approximately 5,600 VND / bag. In this segment, Love in farm’s milk has cost at

5,500 VND; Dutch Lady‘s milk has cost at 5500 VND.

Dozens of brands, such as Vinamilk, Dutch Lady, TH True Milk, Moc Chau, Ba

Vi, Dalatmilk, lothamilk, Vixumilk, Nutifood, Hanoi Milk, are competing on a

liquid milk market valued at about 1 billion U.S. dollars.

Even Corporation Cocoa Vietnam also joined the lineup playing with its milk

cocoa and its price is about 30,000 VND/5 cyclone boxes.

All of that showed us that each milk brands is trying for their best to give a best

competitive price. Their chance in making prices will directly affect to customers

in which kinds of milk they will choose. Maybe, in the future, there will have a

subversion of the some young brand to the old brand.

2. Milk Industry Development

Vietnam doesn’t

traditionally herd

cattle for milk, so

there aren’t any

specialized breed of

milk cows. Milk

cow breeding began

to appear in

Vietnam at the start

of the 20th century.

Throughout the

tough times of the



country, milk cow breeding had helped tremendously in supplying the necessary

food and nutrition for the growth of the country. However, the industry have only

truly became an industry from the 1990s onward.

1920-1923:

The French brought heat-tolerant breeds of cows likes the Red Sindhi( commonly

known as Sin cows) and Ongle( commonly known as Bo cows) into Tan Son Nhat,

Sai Gon and Ha Noi in order to try breeding for milk to be used by the French

people in Vietnam. However the number of cows was meager( about 300) and

production was low( 2-3kg/cow/day)

1937-1942:

A few number of milk farms have been set up in the South, around the Sai Gon-

Cho Lon area, everyday production goes up to thousands of liters and total

production is over 360 ton/year. 6 breeds of cows have been brought into the

South: Jersey, Ongole, Red Singhi, Tharpara, Sahiwal and Haryana. Also in the

South at the time, the Australian government helped build a Jersey-only milk

center at Ben Cat with around 80 cows, but due to war situation the center was

later disbanded. Genetically engineered for-milk cows and tropical milk cows

would later on be raised at Tan Binh, Go Vap, Thu Duc at small scale private

farms, each consisting of 10-20 cows, milk production is mainly for restaurants

and for direct costumers.

1954-1960:

In the North, the government started to care about herding, including milk cows.

Many state-owned fields started to be built like Ba Vi( Ha Tay), Moc Chau( Son

La), Than Uyen( Nghia Lo), Tam Duong( Lao Cai), Huu Nghi( Quang Ninh), Ha

Trung( Thanh Hoa)... together with stations purposed to study about herding and

breeding techniques for milk cows. 1960, a breed of black and white Beijing cows

was brought into Vietnam for the first time in order to test the fertility at Ba Vi, Sa



Pa and Moc Chau. During the 70s, the Cubanian Government provided Vietnam

with 1000 Holstein Friesian( HF) for experimental breeding at Moc Chau. The

Cubanian goverment also helped built the ox seed center Moncada to produce

frozen ox semen.

1970:

Vietnam imported a number of milk cattle Murrah from India. These cattles are

bred at Phuong Thuong, Song Be and a few other places. However, breeding milk

cattle seemed to be unapropriate for Vietnamese conditions and thus there aren’t

many Murrah cattle left today. From 1976, a number of HF cows were transferred

to be bred at Duc Trong( Lam Dong). The movement to breed and herd milk cows

also took wind at the South East area and Ho Chi Minh City. However, before the

80s, the whole Vietnamese herd of milk cows were only bred at state-owned farms

and other government-controlled areas. The scale of the farms were typically 100

cows per farm, the biggest was the Moc Chau farm with 1000 cows. Due to lack of

breeding experience, inappropriate management policies, production protocols and

lack of market interest, many farms were forced to disband because it wasn’t

efficient to breed milk cows. The herd of cows decreased since.

1986-1999:

from 1986 Vietnam started the “Doi moi” movement and 3 years later from a

country lacking supply turned into a country with exports. Improved economy

created increasing demand for milk. Because of that, the herd of cows in Ho Chi

Minh city, neighboring cities like Binh Duong, Dong Nai, Long Anh, the suburbs

of Ha Noi and the neighboring area also increased exponentially in number. From

1986 to 1999, the herd increased at the rate of 11% per year. Private milk farms

started to prosper and grow.



2001:

The government decided to support the growth of milk cow breeding by passing

the 167/2001/QD/TTg bill about milk cow breeding policies during the 2001-2010

period. According to this bill, from 2001 to 2004 a number of areas (Ho Chi Minh,

An Giang, Binh

Duong, Thanh Hoa,

Tuyen Quang, Son La,

Hoa Binh, Ha Nam…)

imported a large

number( over 10000)

pure breed HF cows

from Australia, USA,

New Zealand. A

number of Jersey cows

were also imported

from USA and New

Zealand within this

time period. Overall, the milk cow industry grew strongly from 1990 to 2004,

thanks to the aforementioned 167 bill.

From 2008 to now, there are many investment plans into building large-scaled

concentrated breeding farms and using technology from foreign countries, namely

the milk farm of the Milk for the future LTD company- 100% foreign funded at

Tuyen Quang, a number of large-scaled Vinamilk farms at Tuyen Quang, Nghia

Dan - Nghe An,

Binh Dinh… and

especially the

extremely large -

scale investment

project of the CP

TH True Milk

company at Nghe

An.



III) The demand for dairy in Viet Nam:

Viet Nam is developmental country, the average income of Vietnamese is decrease

quite quickly and

their educational

level gets better and

better. It makes

appear trend of

improving health

and stature so

nutritional demand

is cared so much.

On the other hand,

that government

launches a

nationwide family

planning movement

made every family

just has from one to two children thus parents can take care of their babies better

and spend them a lot of nutrition. When everybody thinks about nutrition, they will

think milk immediately because this is amazing beverage and it has high

nutritional value. That’s main

reasons cause demand for dairy to

decrease on strong way. It always

is kept high degree. As data of

Food and Agriculture

Organization of the United

Nations (FAO), in Viet Nam,

everybody uses about 15 milk

liters in a year (2010) and this

amount can will be increased near

2 times in 2020( about 28 liters/1

year/ 1 person). Children are from

one to six yearsold drink about



600ml milk or 90 gram powdered milk on a day. Quantity of powdered milk

demand grow up so fast, in 1994 level was 3.7kg/person, in 2000 level was

6kg/person and in 2007 level was 12.3 kg/person. Researchers predict level in

2020 will be 20kg/person.

IV) Price of milk:

The situation in Vietnam today is different than 5 or 6 years ago. Follow Ministry

of Finance’s Report , in 2013 and the first quarter in 2014, all companies correct

the milk’s price for the children who are below 6 years old from 2.4% to 30.6%.

All of these film had profit from 20% to 30% in 2013. Besides that, Vietnam

milk’s price always be higher than the other countries’ price. Average of milk’s

price in Vietnam is $1.4/lit, in China is $1.1/lit, in India is $0.5/lit, in Europe is

from $0.5 to $0.9 per lit. Although Vietnamese income is too low, the milk’s price

is too high.

V) The factors affect to the price and make the price higher and

higher

1. Total Cost:

- Technology and production line.



Picture: Production line of

Vinamilk

- Cost of material

(sugar, formular,…)

- Cost of produce,

pack, factory’s profit,

dealer, tax…

- Cost of sell: is one

of the most expensive

cost after cost of material,

such as: promotion,

advertisement…

2. Consumer’s needs and taste.

- Income increase.

- Population increase.

- Vietnamese usually think that the product whose price is higher will be

better.

3. Competitor’s price

4. When the foreign milk’s price increase, the Vietnam milk will increase

because the producer will get more profit. The fact that in this case Vietnam

producer want to take advantage of the situation and foreign firms do not affect

anything in the price.

5. The law set that in 15 days the sellers can increase the price 1 time and this

price can not be higher than the price before more than 20%. Exploiting this law,

the sellers wait for 15 days and increase the price 1 time, and in 1 month they can

increase 2 times but it is accepted.

6. The distributers of foreign milk in Vietnam put the “tag” is “Food

supplement”, and when this product appear in Vietnam, the distributers can set any

price which they want.



VI: GOVERNMENT POLICIES:

Following a directive by the Prime Minister, the ministry and the Ministry of

Industry and Trade investigated the price regulations and taxes at five milk

producers and traders from March 10 to April 10. These firms were 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.

According to the investigation report released on Tuesday, last year and during the

first three months of this year, these companies increased the prices of milk

products for children less than 6 years old.

All five increased the prices by 2.4 per cent to 30.66 per cent last year, while two

of them, Vinamilk and Nestle Viet Nam, raised the prices by 5 per cent to 14 per

cent.

• SIGNS OF MARKET MANIPULATION (CARTELS)

5 biggest companies hold more than 75% market share of milk products:

- Viet Nam Dairy Joint Stock Company (Vinamilk)



- 3A Nutrition (Viet Nam) Ltd Company

- Nestle Viet Nam Ltd Company

- Friesland Campina Viet Nam Ltd Company

- Mead Johnson Nutrition (Viet Nam) Ltd Company

With these major companies increasing prices in less than a month, some

analysts and experts have suggested that the businesses had reached an

agreement that they would all hike prices to manipulate the market.

So it could be a cartels (Oligopoly)

control price of milk products. If those

suggests is true, mean their violation of

the competition law. It is illegal.

To protect customers The Prime

Minister approved the Ministry of

Finance's proposal on applying a price

ceiling on milk

products for children.

So those companies have to adjust their cost to optimize the price.

VII:Conclusion and recommendations:

We asked whether milk markets in Vietnam are competitive or monopolistic in

nature. Given the range of choice available to consumers and the number of

market participants, we concluded that the market is competitive. But they

are not “perfect” markets as described in economics textbooks. Most

importantly, consumers do not have access to complete information about the

products that they buy. “Screening” of product quality and safety by

government agencies is deficient. Consumers therefore rely on “signaling”

from producers. Signaling takes the form of investment in brands and relative

pricing

Can price registration and control succeed in lowering or stabilizing dairy

prices in a competitive, imperfect market? Our conclusion is that it will not. The

immediate impact of the new policy will be to increase prices. There is already

Picture: A corner of milk products in a city supermarket. The Govenment will apply a price ceiling on mild products for children in order to stabilise the domestic market.



evidence that dairy companies have raised prices ahead of the implementation date

of the new circular to avoid the need to re-register prices after the policy comes

into effect. Moreover, the administrative costs of registering input, output,

wholesale and retail prices will be substantial. It is unrealistic to expect that dairy

companies will not pass these additional costs on to consumers.

RECOMMENDATIONS:

- Improving government screening and inspection

- Companies have to reduce on advertising and promotion

- Changing customers thinking and behaviors

- Increasing domestic milk resource



REFERENCES:

http://www.tapchitaichinh.vn/

http://hcm.24h.com.vn/

http://www.dairyvietnam.com/

The Economics of Milk Production in Hanoi, Vietnam, with Particular

Emphasis on Small-scale Producers PPLPI Working Paper No. 33 Otto

Garcia, Torsten Hemme, Luong Tat Nho and Hoang Thi Huong Tra

BÁO CÁO NGÀNH SỮA

NIAH, 2011; Nancy, 2008, FAO, 2009

FAOSTAT, 2011

The Evolution of Milk Pricing and Government Intervention in Dairy

Markets by Eric M. Erba and Andrew M. Novakovic

http://www.dairyvietnam.com/

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