Ha Noi (VNA) -- Counter to general expectations on commodities in the post World Trade Organisation (WTO) accession environment, executives predict the price of milk will rise by 10 percent next year as input materials become more costly.
Executives have warned that, though most consumer goods enjoy import tariff reductions brought on by WTO reforms, milk prices will likely rise due to a 40 percent increase in imported input materials next month.
Tariffs on finished dairy products will fall by 5 percent over the next five years to 25 percent, while duties on powdered milk products will see a mere 2 percent reduction to 18 percent.
Viet Nam has to import 80 percent of the powdered milk used in local production. Therefore, the heavy reliance on imports and surging costs will keep domestic prices high in the near future, says Mai Kieu Lien, director general of market-leader Viet Nam Dairy Joint Stock Company (Vinamilk).
The situation in the dairy industry is not new. Under the ASEAN-AFTA framework in 2005, the country cut tariffs to 5 percent, which resulted in large dairy producers entering the domestic market. More competing firms, though, did not drive prices lower.
The same thing is expected to happen with the WTO accession. More new companies are likely to join the market, but industry insiders are cautious about prices moving lower.
"Foreign-made dairy products will not flood into Viet Nam, but more and more foreign investors are expected to enter the market, which will lead to fiercer competition among producers," says Trinh Thi Le, director general of Nutifood.
As Viet Nam applies WTO reforms, local farmers will also face difficulties competing against foreign fresh milk producers.
Countries like the US and Japan still subsidy dairy farmers to varying degrees, which ensures their profitability even when fresh milk prices are low.
Japan is considered a leader in offering direct financial support with farmers receiving about 8 USD per milch cow per day. In 2004 alone, the country allocated 4.3 billion USD to support cow husbandry.
Observers say that the burden on Vietnamese farmers would be eased if other countries reduced their subsidies.
If the Doha round of talks proves successful, developed nations would be forced to remove subsidies, creating an equal playing field for Vietnamese dairy farmers, according to Lien.
"Once the subsidies are removed, dairy prices will more accurately reflect market prices, which are higher than current levels. If this were allowed to happen, the price of locally supplied fresh milk will also rise, which benefits Vietnamese farmers," she says.-Enditem
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