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 DAIRYS 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 Dairys 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 Nams 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 & DL
66%
Others
34%
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 farms milk has cost at
5,500 VND; Dutch Ladys 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 doesnt
traditionally herd
cattle for milk, so
there arent 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 arent
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 wasnt
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. Thats 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 Finances Report , in 2013 and the first quarter in 2014, all companies correct
the milks 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
milks price always be higher than the other countries price. Average of milks
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 milks 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, factorys profit,
dealer, tax
- Cost of sell: is one
of the most expensive
cost after cost of material,
such as: promotion,
advertisement
2. Consumers needs and taste.
- Income increase.
- Population increase.
- Vietnamese usually think that the product whose price is higher will be
better.
3. Competitors price
4. When the foreign milks 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

BO CO NGNH SA
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

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Group 2:

1. Bui Van Phu

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