Price rises attracting investors to China

- Last updated on GMT

Related tags: Cent, Investment

China is becoming an increasingly potent force in the worlds food
market, with sales continuing to grow each year in line with
substantial gains in consumer spending power, writes Chris
Jones.

According to data from the Chinese State Bureau of Statistics, sales of food, ingredients and related products reached RMB1.6 trillion last year, with exports accounting for some RMB40.3 billion - both up 26 per cent year-on-year.

The data was published to coincide with a recent food trade show in Shanghai.

The figures also show that while investment by foreign companies has increased, it remains relatively low - just 6.67 per cent of the total investment in China's food industry came from overseas companies in 2004.

Certain sectors are showing high levels of foreign investment - dairy, for example, is becoming increasingly attractive, with companies such as Danone, Fonterra and Nestlé returning to the market after the relative failure of their initial investments there in the late 1990s. Beer is another sector with a high foreign presence, with almost all of the world's leading brewers investing there over the last few years and just a handful of major beer makers remaining under Chinese control.

One of the factors attracting foreign companies is the steady rise in consumer prices. Back in the 1990s, many foreign groups decided to build their own production facilities as the low price of land and materials made this the most cost-effective method of investing there. But companies also had to create distribution networks and logistics platforms to get their products to market, all of which meant that they tended to focus on high-margin premium products, beyond the pocket of most Chinese households.But with income levels rising, at least in the more populous and advanced eastern part of China, consumer prices are starting to rise, making it easier to expand sales of premium products - in turn bringing back international investors. Official statistics show that Chinese food prices increased by 9.9 per cent on average in 2004 compared to the year before, with gains of 9.1 per cent in the urban areas and 11.5 per cent in the rural parts, suggesting that rural income levels are rising particularly fast.

China is also stepped up its own quality food production, particularly at the primary material level. For example, the statistical office said that a 5 per cent increase in the country's fruit output in 2004 and the 1.7 per cent increase in vegetable production was due mainly to the expanded used of high quality varieties,

Related topics: Business, East Asia, Industry growth, China

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