Will drastic measures curb price increases?

VIET NAM - The move by the government to reduce import tax rates on a lot of key products is not likely to curb inflation.
calendar icon 9 August 2007
clock icon 3 minute read

Market remains hot…

Meat prices are not expected to decrease due to the current supply and demand imbalance. According to Bui Duy Duc, Director General of Vissan, the supply of food is short not only in Vietnam but also in the world. In Vietnam, the herd of pigs has become smaller as farmers have reported losses from pig breeding, while the blue ear epidemic has broken out. In the world, China needs more pork; therefore, it is not so easy to import pork to meet the domestic demand.

Meanwhile, most dairy producers say that prices will not fall, in spite of the import tax reduction. Le Viet Ha, Chairman of Hancofood, the owner of Dollac trademark, said that prices might not go down as a result of the tax reductions because taxes made up just a small proportion of selling prices.

In the contruction trade, steel producers says that lowering the selling prices of finished steel products would be an ‘impossible mission’ in the context of skyrocketing ingot steel price. The import ingot steel price has climbed to over $500/tonne, up by $60-70 over last year’s average level.

According to Le Thiet Hung, Deputy Head of the Market Division under the Vietnam Steel Corporation, the tax reduction on ingot steel will help reduce production costs by $15/tonne only.

… but price fever will be eased

Although the tax reduction is not likely to have much impact on rising prices, it may still help ease price fever.

The director of a dairy company said that his company did not plan to raise selling prices until the end of the year. Tran Bao Minh, Deputy Director General of Vinamilk, also said that Vinamilk was considering delaying its plan to raise prices and also lowering the price increases compared to its initial plan.

Mr Minh said that Vietnam was a market with big potential. Currently, only 20 per cent of the population uses dairy products. Therefore, producers should aim to expand their market shares and attract more customers rather than raise selling prices.

Other experts have acknowledged that the tax reduction would not have big impacts on local producers, but would force distributors of imported products to reconsider their pricing policies.

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