Chinese food giants raise prices as costs rise
Several Chinese food giants have announced higher retail prices for their products as rising production costs and a higher Producer Price Index (PPI) erode profit margins.
Companies including Foshan Haitian Flavoring & Food Co. Ltd. (603288.SH), Jiangsu Hengshun Vinegar Industry Co. Ltd. (600305.SH) and Chacha Food Co. Ltd. (002557.SZ), increased their prices by up to 18% last month.
The giant vinegar producer Jiangsu Hengshun said on Wednesday that the price of some products would be between 5% and 15% higher, from November 20, due to a “significant” increase in the costs of raw inputs and transportation of merchandise.
âHigher retail prices may not lead to better profits, as they also affect sales volumes, associated with increased production costs,â Jiangsu Hengshun added in the statement. exchange deposit (link in Chinese).
At least three other food producers posted similar announcements this week. Fresh food manufacturer Haixin Foods Co. Ltd. (002702.SZ) and seasoning producer Fu Jian Anjoy Foods Co. Ltd. (603345.SH) announced a retail price increase of between 3% and 10%, as well as lower discount rates during promotions. Giant yeast producer Angel Yeast Co. Ltd. (600298.SH) also issued an opinion (link in Chinese) on Monday to disclose higher retail prices, just over a month after raising prices for the first time in late September.
These three companies also blamed the rising costs of gross inputs.
Recent extreme weather conditions in many producing areas have damaged crops and caused vegetable prices to soar, while pork prices have also increased.
From October 18 to October 24, the average weekly price of supervised vegetables reached 5.57 yuan ($ 0.87) per kilogram, marking the fifth consecutive weekly increase and an increase of 24% from five weeks earlier, according to data from the Ministry of Agriculture. During the period, the average wholesale price of pork jumped 13% from two weeks earlier.
At the same time, the average price of imported soybeans jumped 29.4% year-on-year in the first three quarters, reaching an eight-year high in June at 3,658.5 yuan per tonne. Soybeans are ground for use as fodder for livestock, while its oil is a key input in many food products. Soybean imports accounted for more than four-fifths of the soybeans consumed in the country in 2020, according to figures released by the National Bureau of Statistics (NBS).
Other bulk products are also becoming more expensive. Prices for corrugated paper for packaging materials have jumped 19.58% this year through mid-October, according to NBS figures. The price of wheat rose 6.42% and the price of soybeans jumped 5.32%.
âThe impact of rising bulk commodity prices will shift from producers to consumers in the long run,â Liu Shijing, vice director of the China Development Research Foundation, said at a summit on October 26.
In addition to raw materials and ingredients, companies also spoke of other pressures, such as rising energy, labor and freight costs.
The producer price index (PPI) for September increased by 10.7% compared to the previous year, a growth rate never before seen in official data dating back to 1996, when the food industry index rose 0.7% year-on-year, according to the NBS. The PPI reflects how manufacturers set their selling prices to the consumer.
Higher production costs appear to have hurt the financial performance of food companies. For the third quarter, Haixin’s net profit plunged 128% year-on-year; Hengshun fell 91.19%; and Angel Yeast fell 35.23%.
On the other hand, the announcement of the increase in retail prices turned out to be positive for investors. Stock prices of food producers surged on Tuesday, with Anjoy Foods shares surging 8.13%, Angel Yeast 7.59% and Haitian 6.3%.
The rise in stock prices came a day after a notice from China’s Ministry of Commerce raised concerns about the food supply when it ordered local authorities to tell households to stock up on basic necessities. for winter in case of emergency. Sources later pointed out that the notice was a regular seasonal ad.
Tang Ziyi contributed reporting.
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