Vietnam Dairy Products Joint-Stock Co (Vinamilk), the country's leading dairy, Sunday scaled up the buying price from 5,000 dong to 6,500 per kilogram. Another major dairy processor, Dutch Lady, last Saturday increased the price to 6,400 dong (US$0.40) per kilogram.

Three weeks ago, Dutch Lady Vietnam joined the race with other dairy companies by increasing the buying price for fresh milk from 4,600 dong to 5,000.

Dairy companies have also brought out more incentive policies for farmers, such as providing loans and technical assistance, to encourage farmers to continuing raising cows and selling milk to them. Nguyen Dang Vang, head of the Livestock Farming Department, has blamed the rising domestic prices for fresh milk on the strong increase in world reconstituted milk prices.

World prices of reconstituted milk have doubled to US$4,800 a tonne since mid-2006. When imported into Vietnam, the price of this material is US$5,000 a tonne, forcing dairy processors in the country to turn to local dairy farmers.

Nguyen Tuan Khai, general director of the International Dairy Corp (IDC), said such price increases were previously rarely seen in the industry, and that reconstituted milk would be marked up even more. Developed countries are not offering subsidies to dairy farmers, causing prices to leap. the upward spiral of local fresh milk prices would continue because they were currently lower than import prices of reconstituted milk, Khai said.

Last year, the country's total output of fresh milk reached 198,000 tonnes, only 20% of the dairy processing industry's demand. Of that amount, Vinamilk was the biggest consumer with 49%, among Vietnam's 10 dairy processors. Some 470,000 tonnes of milk equivalent was imported last year, with import turnover put at US$311 million. Economic forecasts show that by 2010 Vietnam will import 710,000 tonnes of milk, while the domestic output of fresh milk will rise to 350,000 tonnes.