Soy sauce is an essential ingredient in most Chinese dishes. It is the country’s most consumed condiment, with annual production of about 5m tonnes. Foshan Haitian Flavouring is the biggest maker of soy sauce. Its decision to raise prices will affect millions of households. Consumer inflationary pressure has hit the kitchen table.
The $72bn company says retail prices of its products will go up 7 per cent to make the business more sustainable. Raw material costs are rising. Chinese coal prices are at a record high.
Earlier this year, consumer prices appeared more sustainable. In August, food prices in China dropped 4 per cent on the previous year. However, this was mostly due to a 45 per cent drop in pork prices amid oversupply.
China’s energy crisis is ramping up the price of other products, from vegetables to cooking oil. Fish prices are up almost 50 per cent compared with last year.
The autumn harvest season for crops such as soy is already being disrupted by power outages. Further food shortfalls and higher prices are expected.
Foshan Haitian’s price rise is too late to shore up profits hit by rising energy costs. Its gross margins have been falling for four straight years. Smaller peers Jonjee Hi-Tech Industrial and Jiajia Food Group are in even worse shape. The latter’s operating margins have halved since the end of last year. Shares of all three are down more than a quarter this year.
But the fact that soy sauce is crucial to Chinese food means that further price increases will be difficult, even if raw material costs continue to rise. Beijing has historically been sensitive to food inflation, implementing strict price controls when prices rise beyond a certain threshold. That means local companies are left to absorb losses.
International markets should pay attention. China’s two largest food export markets, the US and Japan, import more than $10bn worth of food a year. Both can expect the bitter taste of inflationary pressures of their own.
Source: Economy - ft.com
