China Food & Agribusiness Bimonthly November/December 2021

Pressures from the nationwide power rationing vary across China’s F&A sectors. The production of staple foods is not greatly affected, as electricity supply remains relatively stable, but the pressure on processing and related sectors, particularly packaging and logistics, will continue to rise. Even prior to the power outages, several F&A sectors had already seen cost inflation but, in the shadow of Covid-19, found it extremely difficult to pass costs along to consumers. For the mass market, a further price increase would likely lead to even weaker consumption. Competition will become more intense, and F&A players may have to bear the additional costs by further improving productivity and efficiency or be forced out of the market.

The main highlights include:

  • - Farm Inputs: The Chinese government is restricting exports of nitrogen and phosphate fertilizers, potentially lifting prices in the global market. Meanwhile, China’s new potash supply contracts are still pending.

  • - Grains & Oilseeds: In 2021/22, Chinese domestic corn production is expected to rebound, on the back of acreage expansion and yield recovery, particularly in the northeast. Harvest pressures could weigh on domestic corn prices until Q1 2022. Thereafter, corn prices will remain at relatively high levels throughout 2022. Weak livestock farming margins and government policies are restricting soymeal use in feed rations.  Soymeal prices might stay muted, with weather presenting major uncertainties.

  • - Animal Protein: Pork prices strongly rebounded in October, up 50% in three weeks. That is still below break-even points for many producers, though some well-managed players earned thin profits. Consumption is still pressured by new Covid cases across the country. Poultry demand has been weak due to Covid-related restrictions on gatherings and group dining. Poultry imports are expected to remain weak in the short term.

  • - Dairy: September saw the first visible deceleration in dairy import growth in a while. However, with ongoing domestic milk production strength and demand weakness, further slowdown or decline is needed to drive destocking.

  • - Beverages: Health and wellness remain key drivers for beverage companies, and plant-based beverages are riding this wave. Demand for alcoholic beverages is lower than expected and will take time to rebound.

  • - Consumer Foods: China’s foodservice sector registered a 3% YOY rise in September, reaching value sales of CNY 383.1bn. We expect weak foodservice demand will extend into Q4, though seasonal holiday consumption in Q4 could partially offset the slowdown. Total accumulated food-related retail sales of enterprises above designated grew by a value of 10.3% YOY in September. Price competition on the retail shelf further impacted food processors’ margins.

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  • Ping Chew

    Head of RaboResearch Food & Agribusiness - Asia
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  • Sandy Chen

    Senior Analyst - Dairy
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  • Chenjun Pan

    Senior Analyst - Animal Protein
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  • Lief Chiang

    Analyst - Grains & Oilseeds
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  • Stacie Wan

    Analyst – Supply Chains and Beverages
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  • Michelle Huang

    Analyst – Consumer Foods
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