China’s food producers hike prices amid rising material prices, energy curbs

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Several leading food producers in China have announced price hikes up to 18% after surging material prices and energy curbs push up production costs.

Foshan Haitian Flavouring & Food Co. Ltd, the country’s largest sauce producer, announced on October 13 that it would raise prices of its major products including soy sauce, oyster sauce and other sauce products by 3% -7%, starting from October 25.

On November 2, Jiangsu Hengshun Vinegar Industry, the biggest vinegar manufacturer in China, announced that the prices of some products will be raised by 5% – 15%, taking effect on November 20.

On the same day, Tengxin Foods which mainly produces frozen food, said that it would raise prices by 3% – 10%, taking effect immediately, citing continuous increases in the costs of raw materials, labor, energy and logistics. Fujian Anjoy Foods, which produces hot pot ingredient products and frozen rice and wheat flour products, said it will hike prices by 3% – 10%.

Some companies raised prices twice in about a month. Angel Yeast, the largest yeast company in Asia and the world’s third largest, said on November 1 that it will raise prices of some products by 1,000 – 5,000 yuan, starting from November 8. That came after the company announced a round of price rises on September 30. 

On October 22, Qiaqia Food Co, China’s largest producer of roasted seeds and nuts, said it will raise product prices by 8% – 18%, taking effect immediately.

Most of these companies attributed the decision to hike prices to rising costs in raw materials, labour, energy and logistics. Since the start of this year, prices of bulk commodities have been surging, pushing up production costs for several downstream industries.

Take soybean as an example, the prices in the international market has driven higher the prices of China’s soybean imports. According to China’s customs data, average prices of imported soybeans increased by 22.8% in the first half of the year and in the first three quarters, the average price jumped 29.4%.

In particular in June, average price of imported soybean surged by 37.2 per cent to 3,658.5 yuan per tonne, a new high since July 2014.

In the domestic market, prices of corrugated paper, an important packaging material, had increased nearly 20% this year as of early October, according to data from the National Bureau of Statistics. Wheat prices had risen 6.42% and soybean up 5.32%, showed the data.

“We had initially thought that the long-term supply/demand fundamentals of commodities hadn’t changed much and most people believe the fast growth in Producer Price Index (PPI) would be short and its transmission to Consumer Price Index (PPI) would be limited,” said Liu Shijin, a policy adviser to the People’s Bank of China (PBOC), said at a forum last week.

In addition to surging material costs, restrictions on energy consumption also disrupted production and increased costs, according to Kaiyuan Securities.

Price hikes is expanding to consumer discretionary from consumer staples and more sub-industries will likely raise prices too, it said.

Food companies’ latest earnings reports have shown their profit squeezed by rising costs. Among the companies that have announced price hikes, Tengxin Foods’ net profit tumbled by 128.39% in the third quarter from a year earlier, while net profit at Hengshun Vinegar, Angel Yeast and Arawana Brand Cooking Oil also slid in the period.

Following the recent announcements of price hikes, shares of food processing companies listed in the A-share market have been rallying.