Uprooting Inflation

Mr Hoang Tho Xuan, Director of the Domestic Market Policy Department under the Ministry of Industry and Trade, said: “The Ministry of Industry and Trade has recently cooperated with the Ministry of Agriculture and Rural Development, the Ministry of Health, the Ministry of Construction and other organs to calculate, examine and balance the demand of commodities, especially key items like food, foodstuff, fertiliser, salt, steel, cement and drugs. After the examination, we found that the soaring price was not a result of supply scarcity.”

 

Mr Pham Chi Cuong, Chairman of Vietnam Steel Association, said many trading companies have stockpiled commodities to wait for even higher price. “Irrational distribution in Hanoi caused the steel price to go up by VND2 million per tonne,” he explained.

 

Sharing the viewpoint that the cause of the soaring price is in the distribution stage, Mr Vu Vinh Phu, Chairman of Hanoi Supermarket Association, cited the unreal fever of rice. Suppliers limited the supply to force the rice price up 30 per cent, causing much pressure on supermarkets. This showed that there was a wide price difference between production and distribution stages in price.

 

The distribution market is spontaneously developed. In Hanoi, the supermarket system accounts for 10-12 per cent of total retailing revenue and the other distribution channels keep the rest. At present, only supermarkets tag prices. Thus, other retailers can easily set the price based on the investors’ sentiment and market movement. This phenomenon caused the rice fever on April 26-27, Mr Phu said.

 

According to Mr Xuan, it is very difficult to punish speculation activities. For example, cement wholesalers and retailers do not store their commodities in their warehousing systems but at cement factories. The invoices are delivered at the time of purchase. Traders will directly carry cement from factories to construction sites. Thus, distributors will set the price based on the market movement.

 

Mr Xuan said the Ministry of Industry and Trade will submit a project to consolidate the development and manage the distribution network of key commodities to ensure the stability and development of the domestic market in the third quarter of 2008.

 

Mr Xuan said there will be three major systems. The first is the distribution system of strategic commodities such as steel and cement. The second is the distribution system of consumer goods. The third is the retail system at local levels, focusing on market systems.

 

Regarding essential commodities and materials, corporations such as Vietnam Steel Corp and Vietnam Cement Corp will have to systematically and professional restructure their distribution networks. For example, steel firms will have to organise agents of first, second and third levels and have their own transport service units. In case of difficulty, the State can support them with land area or warehouse construction. Because most state-owned trading companies have been dissolved, the reorganisation and consolidation of the distribution and trading systems is very difficult. Thus, in the near future, key areas like Hanoi and Ho Chi Minh City must have influential distributors like Hapro. In addition, tagging prices on essential commodities in small markets and retail shops is also necessary.

 

These three systems, according to Mr Xuan, will have incentive policies to attract investment capital. “We must resolutely deal with this issue to improve the current escalating inflation. The price rise is partially blamed on many companies as they do not pay due attention to improving their distribution networks,” Mr Xuan emphasised.