Tag Archives | Vietnam

Price Control on Milk Products in Vietnam

By Hiren Doshi

A price cap on milk products in Vietnam led to shortages, illegal production and distribution, distortions in the market and a dramatic drop in profitability of manufacturers. 

In 2014, The Ministry of Finance in Vietnam set ceiling prices on 25 milk products (which was later increased to cover almost 600 products) for children below the age of six in a move to contain constant price hikes on the dairy market. This move was in response to hyperinflation in price of milk powder in few years preceding 2014 and was aimed to help make the milk for children affordable for the citizens. Vietnam has around 10 million children below the age of 6 and was considered price sensitive to milk prices.

The price of powdered milk had approximately increased 30 times since 2008 until 2014, at between 3-20 percent at a time. The retail price of powdered milk in Vietnam was about 1.4 per litre USD and almost 1.5X as compared with Thailand and Malaysia making it among the highest in the world. Powder milk market in Vietnam was very competitive, with almost 800+ milk products catering for children under 6 years old, forcing the manufacturer to routinely spend far in excess of permitted advertising and marketing cost which then translated into higher cost for the consumers.

The regulation which was to be in effect for 12 months brought down the recommended wholesale price ceiling 15-20% below the prevailing wholesale prices. The price ceilings were based on three grounds: the results of inspection at five dairy firms, price developments of the dairy market and prices of similar products on regional markets. Retailers were also mandated to reduce their costs, be reasonable with their profit margins and charge retail prices which did not exceed 15% over the wholesale ceiling.

Milk Price Hiren

Some of the consequences in response of price ceiling were as below:

1.    Some milk suppliers in Vietnam pulled products whose prices was to be capped under the regulation from shelves and replaced them with new ones a week before the ceiling prices become effective. They worked around the regulation by launching new products with new labels but similar ingredients at much higher prices, and reducing weights of products.

2.    Even though the ceiling on advertising spend for milk products was abolished, spends on advertising and marketing by milk producers came down due to limited margin after the price ceiling.

3.    According to the research carried out by Nielsen in 2015 in Hanoi and HCM City, it indicated that milk products for children less than six years old were reduced 10 percent and 9 percent in terms of quantity and price, respectively against the previous year, after enacting the price ceiling. This means the consumption actually went down after the price ceiling was in force. This was counter intuitive to the very reason of putting the price ceiling in place.

4.    After price ceiling was extended for one more year after being in effect from June 2014, Nielsen noted that milk prices in Vietnam have been no higher than prices found in the middle group in Asia. Its statistics in July 2015 revealed that average milk prices in the high end segment in Vietnam were similar to those in other countries in the region, such as Malaysia, Thailand and Philippines.

5.    In April 2015, the European Union removed milk production quotas which existed for more than 30 years, leading to the worldwide drop in milk prices. In 1984, quotas were applied to limit the over-abundant supply in Europe, and milk farms that produced over their quotas were fined. This made the cost of importing powder milk cheaper than sourcing milk from local cow farmers.

6.    In early 2016, prices of milk sourced from cow farmers in Vietnam were about VND12,000-14,000 (US$0.54-0.63) per kilo, nearly double that of milk shipped from the U.S., Australia, New Zealand, and European countries, which sold for about VND7,000-9,000 ($0.3-0.4) per kilo.

7.    One interesting outcome of locally sourced milk becoming non-competitive was that local cow farmers sold record number of cattle in the last 12 months. For instance, in Cu Chi District, Ho Chi Minh City, nearly 10,000 cattle of 40,000 being reared were sold in the last 1 year.

Price ceiling on milk products for children under six was introduced in response to large and frequent price increase of milk, making milk prices in Vietnam one of the highest in the world. It was meant to increase the consumption of milk and help reorganize the milk industry ecosystem which keeps the low prices sustainable. In the end this move did not make any of the stakeholder happy – consumers continued to complain about high prices, manufacturer’s sale & profit dropped while the poor cattle suffered change of ownership during the worst crisis for local cow farmers.

Hiren Doshi is a GCPP-13 alumnus. 

[This and the other two essays on Price Controls was submitted as part of the Economic Reasoning coursework. The question asked students to identify instances of price controls in the world; who the intended beneficiaries were; and what were the unintended consequences of the price control. The 3 best answers were picked. The other two were on Price Control on Prescription Drugs in Europe and Price Control on Gasoline in the US in the 1970s].

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India: A vital player in South China Sea

South China Sea is one of the most difficult and contentious maritime conflicts in the Asia Pacific. Several scholars have echoed the sentiments that the South China Sea conflict would be worst case threat to peace and stability in the region. The concerns are further strengthened with China’s continued military build up, despite the 2002 Joint Declaration on the conduct of parties in the South China Sea. China’s assertive posture in the South China Sea is of great concern especially with India unfolding its Act East Asia Policy.

The Modi Government has realised the importance of the South China Sea both in terms of its geo-economic and strategic interests. To further strengthen the relationship with South East Asian countries, India pledges to be a credible  security provider. At the  2014  East Asian Summit, India along with the United States and Vietnam affirmed its support to safeguard maritime security and freedom of navigation. Further, India has been very vocal in the settling the dispute through peaceful means and in a accordance with the UNCLOS.

south china sea

Several reasons have been attributed to India’s interest in the South China Sea (SCS) (1) The increased trade with East Asia and the sense for recognition on the Sea Lanes of Communication (SLOC) from the Indian side beyond its geographical expanse and the importance of the Indo-Pacific region (2) Reducing dependency on the major powers for India’s avowed maritime needs (3) India’s fear of growing China’s assertiveness in the Indian Ocean region (4) The importance of forward maritime presence and naval partnership  is seen critical to deter India’s adversaries in the region (5) Securing the trade-transit route which passes through the South China Sea all vital to India’s growing trade, energy and security interests ( Raja C Mohan, Samudra Manthan).

As India unfolds its  maritime security posture and interest, there is a strong commitment from the Indian side to realign with several South East Asian countries. India is seen as a a vital player in the region, and Southeast Asian countries are keen to partner with India both economically and strategically. India’s inertia to expand towards to East unfolds, this is also a step to contain China’s expanding maritime interest. India’s participation in several East Asian forums is seen as a counter balance move initiated by the Southeast Asian countries. Thus India is welcomed as an external balancer along with the Untied States.

Indian Navy 2007 Doctrine defined “South China Sea as an area of strategic interest” for India and the recent Act East Asia strategy has further reiterated India’s commitment to move beyond the Indian Ocean into the South China Sea. At several occasions India stated that it could or would deploy India Navy to the South China Sea to defends its energy interests.

With India’s maritime discourse expanding and 55% of India’s trade passing through this region, it is imperative that India pursues its interest in the region. The Indo-Pacific trilateral with India, Japan and United States further revitalises India’s presence in the region. Thus the adoption of  the Indo-Pacific region into the strategic framework has cumulatively  summed up the  relevance of South China Sea for India.

Priya Suresh is a Research Scholar@Takshashila. Priya tweets @priyamanassa.

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China deploys missiles to contested South China sea islands

China has recently deployed the  advance surface-to-air missile system to one of its contested islands in the South China Sea. The recent satellite images show tow batteries of eight surface-t0-air missile launchers as well as radar system on woody island, a part of the Parcel island chain in the south china sea. There are several claimants to the dispute and the Woody Island has been claimed by Taiwan and Vietnam. On several occasion there has been agreement on the peaceful settlement of the dispute. The missiles arrived in the Woody Island over weeks and according to news reports the missle were visible from 14 February.

Heightened tension and anxiety is seen among the claimants countries as well as United States. Recently president Obama and Association of South East Asian Nations (ASEAN) had several rounds of discussion to  ease the tension, but none of the dialogues ever had a mention of China’s assertive posture in the region

Though there have been several mechanism to thwart the tension and halt to the construction and militarisation of the disputed areas, the tension continues. US has pledged to conduct the freedom of navigation patrols for a free and smooth passage of ships were several countries like Vietnam, Malaysia, Brunei, Philippines and Taiwan have their contested claim over the isalnd.

China sending its missile is not something unusual and it has deployed missiles on several occasions. The South China Sea issue intertwines several countries to dispute with China. Several countries like  Brunei, Vietnam, Philippines, Taiwan, Malaysia and China are intertwined in the dispute over the South China Sea. Since 1950 China has laid its  claim over the Woody Island and the recent deployment probably is seen as a provocation.

US  has raised concern over the deployment, Japan and Vietnam have joined hands with US in condemning this deployment. South China Sea is a contested area with countries competing over the trade routes and mineral deposits. Does this deployment by China confirms China’s assertiveness  or as the Chinese Foreign Minster Wang Yi claims that an act to distort China’s image by the western media.

Priya Suresh is a Research Scholar @Takshashila. She tweets at priyamanassa

 

 

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