Regulatory curbs driving Chinese food inflation

Food inflation in China is extremely high, said Shaun Rein, founder of China Market Research.

Pegged in at 10.5% for January 2012, food inflation is expected to settle to around 4% over the next few months, but measures are required to lower this, Rein told FoodNavigator-Asia.

Overall inflation in the country is decreasing, he said, adding that it is just the food sector that is experiencing rising prices.

Regulatory curbs​

The increases have been informed by government crackdowns aimed at ensuring food safety and quality - with subsequent company closures and pressure to fulfill production standards proving costly for local manufacturers, said Rein.

The costs are then being reflected in end product prices, added the analyst.

In 2011, around 2,000 arrests were made and about 4,000 companies closed in the regulatory offensive, with half of China’s dairies closed.

“When 50% of dairies were shut last year, this caused a spike in the price of dairy products in China as there were fewer companies producing,”​ he noted.

Consumers are also wealthier and willing to spend more money on food and beverages that are better quality and safer, he said, and the market is playing into this and hiking prices.

Salary hikes​

China’s government has tried to offset this price inflation by increasing minimum wages, Rein said, which to an extent has worked as wages are rising faster than food prices. However, more needs to be done, he noted.

“Food inflation is a government concern – they go know that it is an issue that needs to be addressed, but it will require a fine balance to stabilize it,”​ he continued.

“Take Vietnam for example, inflation has been rising by 20% each year for the past few and this is just unsustainable. China shouldn’t go that way,”​ Rein said.

Global impact​

Chinese consumption and spending trends will begin to impact global markets, said Rein.

He cited the fact that China is importing more pork and other food products from the US and forcing farmers to adapt products to suit Chinese consumer preferences.