A recent government proposal to increase import tariffs on dairy materials may not be the right move to help domestic farmers and could hurt millions of consumers, analysts warned.

“The Ministry of Finance always follows market trends and is willing to adjust tax rates in favor of local production as long as the adjustments comply with international regulations,” Vu Van Truong, head of the ministry’s Tax Policy Department, said Tuesday.

“This is not the first time a proposal for tax hikes on imported dairy ingredients has been submitted to the ministry,” Truong said.

But since an increase in dairy prices can have an impact on vulnerable consumer groups like older and sick people and children, the earlier proposals were shot down, he said.

“Tax policies can have both good and bad sides… It must be considered if raising import duties on dairy products would really help increase consumption of locally produced milk.

“A tax hike needs to be reconsidered even if it benefits farmers but millions of consumers are affected.”

Hoang Kim Giao, head of the Animal Husbandry Department under the Ministry of Agriculture and Rural Development, said the ministry proposed the tax hike on 15 dairy products since producers favor imported materials, leaving dairy farmers in distress.

Giao said many of them do not want to buy fresh milk domestically because it is 30 percent cheaper to use imports.

Last month, the ministry asked dairy companies to try and buy all their milk from farmers at agreed prices. The request came as dairy farmers in Hanoi and Vinh Phuc Province had to pour their fresh milk stocks in the streets, prompting ministry officials to call a meeting to discuss solutions.

Giao said Monday that if import duties on dairy products are not raised, the dairy farming industry would not develop and farmers would not increase their milk production.

Local dairy farmers now supply only 28 percent of the milk needed for processing dairy products, and the ratio is expected to reach 40 percent by 2020.

But economist Nguyen Van Nam said dairy farmers can only benefit from a tax hike if they can supply around half the raw materials.

Raising the import tariff would not reduce demand, he said without offering an explanation.

Truong said local farmers’ inability to sell their milk is a result of the recent melamine scare.

“Some dairy producers cannot sell their products because consumers are afraid of melamine in milk. As sales drop, these producers have to stop buying from local farmers.”

Industry sources said since more than 70 percent of the raw materials for dairy production are imported, a tariff hike would cause a price increase of a similar magnitude.

Tran Bao Minh, deputy general director of dairy giant Vinamilk, said locally sourced milk is only enough to make fresh milk while all the materials to make milk powder are imported.

“Instead of raising import tax on dairy ingredients, the government should subsidize costs for dairy farmers so that they can improve quality and lower prices to be competitive,” Minh said.

Nam said a tax hike is not an appropriate measure since it would not solve the fundamental problem of husbandry productivity.

“Protectionism is never the best strategy to develop a domestic industry,” he said. “There will possibly be more dairy farmers, but the industry will not modernize.”

“What we need now are small-and medium-sized firms that can buy fresh milk from local farmers and sell on the spot.”

But Nguyen Xuan Duong, deputy head of the Animal Husbandry Department, said increasing tariffs on imported dairy materials is only a temporary measure but is necessary now to give the dairy farming sector breathing space.

Source: TT, SGTT