E-Malt.com News article: China: Beer price hikes may take place in the second half of the year - analysts

Beer producers in China are planning to raise product prices as they fight soaring raw material costs and low profit margins. The price hikes may take place in the second half of the year, analysts say, The Southern Metropolis Daily reports.

Prices of barley, a main ingredient for beer production, surged 43.5% between November and March, according to industry sources.

“Rising costs of barley will inevitably affect beer enterprises’ profits this year, and I think they [beer enterprises] have to take into account the increased investment needed for beer production,” Bai Pu, an industry analyst and professor at Beijing University of Agriculture, is quoted as saying.

“I think apart from rising production costs, there’s a more important reason for Chinese brewers to raise prices: the decreasing profit margins repeatedly seen in the industry for the past 5 years,” Li Baojun, president of private data house Societ, Insights & Decision (SID), said at a beer forum last weekend.

Li also said beer makers’ margins are taking a hit from other costs, and they would need to raise prices to continue operating. “Brewers also have to spend a fortune on marketing and human labor, but given the cutthroat competition and shrinking profit margins, I don’t think they would be able to hang on there without raising product prices.”

In January, China Resources Snow Brewery Co. Ltd., China’s largest brewer by production volume, hiked its product prices by more than 10% in several provinces. A few months later Tsingtao Brewery Co. Ltd. followed suit, raising the prices of several of its products by an average of 10%.

In early April the National Development and Reform Commission (NDRC), China’s top economic planner and price-setting agency, stepped in to call a halt to brewers’ price hikes amid rising inflation concerns.

The NDRC held talks with the country’s 4 biggest breweries - CR Snow, Tsingtao, Beijing Yanjing Brewery Co. Ltd. and Belgium-based AB InBev NV - and said that while it “understood” the cost pressures being faced by beer makers, it would still advise them to stabilize prices - without saying for how long.

China’s top 4 beer makers have a combined market share of 58% and account for more than 70% of the industry’s profits.

Chinese brewers have answered the NDRC’s call by postponing price hikes, and some have adopted coping measures such as reducing per-bottle beer volume to offset higher production costs.

Food producers and makers of consumer goods have also been asked by the NDRC to delay raising their prices. Inflation in China hit a 34-month high of 5.5% in May, pushing the inflation rate for the first 5 months up to 5.2%, way above the government’s 4% target for the whole year.


22 June, 2011