China Food & Agribusiness Quarterly – Q3 2022

While Shanghai’s Covid situation is becoming less dire, there have been more partial lockdowns in numerous regions in China. Economic uncertainties further weakened consumer sentiment, resulting in cautious spending and trading down. While food consumption is relatively resilient, rising input costs continue to pressure margins. We expect most food and beverage companies in downstream sectors will see margins decline in 2022, but the degree of impact will vary, with some sectors more resilient compared to non-discretionary segments. Foodservice is bearing the brunt of ongoing lockdowns.

The main highlights include:

- Farm Inputs: Market turmoil, seasonal weak demand, and declining raw material costs are depressing domestic fertilizer prices in China. The Chinese government continued to curb fertilizer exports, and might ban urea exports up to April 30, 2023, except for government-to-government deals. Phosphate exports will be subject to quota allocations.

- Grains & Oilseeds: Underpinned by rising farming costs and the prices of other energy grains, Chinese spot corn prices will stabilize before the new crop is available. Prices of domestic soymeal and soy oil will largely follow CBOT soybeans, subject to US weather in the coming months. Soy oil prices will also be influenced by volatile palm oil prices.

- Animal Protein: Pork prices have increased tremendously, driven by tight supplies and improved demand. Strong prices will continue in 2H 2022, supporting a rebound in imports. Poultry prices have rebounded since April, but slaughtering continues making losses. Slowing production and the decline in breeder imports will lead to tight supplies in 2H 2022.

- Dairy: Despite high milk production growth, falling imports are slowing down supply growth. However, dairy demand remains low, impacted by Covid-related lockdowns and weakened consumer sentiment. Farmgate milk prices continue to weaken. This decline, coupled with higher feed costs, is severely eroding farming profitability and could reduce incentives to invest going forward and possibly slow production from 2H 2022 onward.

- Consumer Foods: In June, the foodservice sector declined by 4%, revealing a slow recovery trend compared with May. However, the sector faces uncertainty due to constant Covid controls across the country. In June 2022, food-only retail sales rose by 9% YOY. Beverage retail sales showed a sluggish growth trend, up by only 1.9% YOY.

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  • Lief Chiang

    Senior Analyst - Grains & Oilseeds, Farm Inputs
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  • Sandy Chen

    Senior Analyst - Dairy
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  • Chenjun Pan

    Senior Analyst - Animal Protein
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  • Michelle Huang

    Analyst – Consumer Foods
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  • Dirk Jan Kennes

    Head of RaboResearch Food & Agribusiness - Asia
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