China faces beer price rise

- Last updated on GMT

Related tags: Brewing, China

China's growing band of beer brewers is claiming that rising costs
of ingredients coupled with rising production costs is likely to
put between 10 and 20 per cent on the price of a beer during the
course of this month, a factor that is likely to have far-reaching
implications for the industry.

According to reports circulating in the China national press, about 22 domestic brewers are currently in discussions regarding the signing of an alliance which will enable them to implement the price hike.

However in response to the reports China's largest domestic brewer, Beijing Yanjing Beer Group, has said that it has nothing to do with the alliance and has made no decision to raise its prices significantly in the coming weeks.

Indeed a company spokesman was quoted as saying that the company had finished buying up its ingredients for 2004, fixing the prices for raw materials such as malt. This, the company said, means that any rise in ingredients costs in the coming month would not have much affect on their individual status on the market.

However, Tsingtao, which in recent years has been building up brand recognition on a global basis and has subsequently become China's best-recognised beer export, has said that it plans to raise the price of its premium beers by 5 per cent in some cities, according to reports which quoted the company's president, Li Guirong.

Production costs are also being hit by rising energy costs and packaging costs, a factor that is now starting to affect many industry sectors in China. But it is energy costs that are hitting hardest. At the end of last year inflation hit 3 per cent, the majority of which was attributed to rising energy costs. In 2003 demand for energy rose by 15 per cent, a factor that is causing energy consumption to make huge investments in new projects.

On the ingredients front bad weather has meant that agricultural harvests of raw ingredients have been hard hit across the board. Indeed, such is the demand from China on the world food commodity markets, that the country's shortages are having a significant impact on global prices.

For beer producers in particular prices of malt have risen dramatically. China brewers still largely rely on exports, mainly from countries such as Canada, France and Australia. Averaging around $130 at the beginning of last year, prices of malt are now hovering around the $245 mark as global demand for malt imports continues to rise.

Analysts believe that as prices continue to rise, beer producers are undoubtedly feeling the pressure. However such is the intensity of the competition between both domestic brewers and all the major international brewers now trying to increase their footprint in the country, many analysts believe that brewers will be willing to sacrifice profitability in an effort to preserve precious market share.

However, some analysts believe that recent increases in ingredients prices may well prove to be temporary as many major crop harvests for this year are forecasts to improve, both on a domestic and a global basis. On this basis, the belief is that the brewing industry is waiting to see if there will be a let-up on malt prices in the coming months.

Currently the China beer market produces around 250 million hecolitres of beer a month. In recent years the market has experienced rapid expansion with current yearly per capita consumption runs at 19 litres. However, this figures pales when compared to the EU average which comes in at 75 litres and the US average of 84 litres, but also indicates that market growth potential remains significant.

Related topics: Markets, East Asia, China, Beverages

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