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China. NDRC Hauls in Beer Makers over Price Hikes

The National Development and Reform Commission (NDRC), China’s top economic planner, has hauled in representatives from China’s four largest beer makers for talks over their price hikes, as it looks to tackle public concerns over soaring inflation.

On March 31, the NDRC spoke to people from China Resources Snow Breweries Co. Ltd., Tsingtao Brewery Co. Ltd. (600600.SH), Beijing Yanjing Brewery Co. Ltd. (000729.SZ) and the China unit of Belgian Anheuser-Busch InBev NV (EBR:ABI).

Those four brewers have a combined 58% share of the country’s beer market.

In the face of rising raw material costs, local beer makers are planning to increase their product prices, and another round of price hikes is expected to take place from May, a person from a mid-sized domestic beer producer told the 21st Century Business Herald.

“Since February, the cost of beer production has risen by RMB 94 per ton, which explains the beer makers’ unanimous price hikes,” the person said.

Since January, CR Snow Breweries, China’s largest brewer by volume, has raised prices by more than 10% in Sichuan, Liaoning and Anhui provinces, where it enjoys a dominant position in the market.

Tsingtao Brewery also hiked prices of several products in the following months by an average of 10%, the company announced earlier.

The beer maker is considering another 5% hike for its core products this month, according to several industry analysts and market watchers.

“Costs of raw materials have been rising since the second half of last year, and then the cost of labor also went up by almost 30% since the beginning of this year,” said an industry insider.

The NDRC said it understood the position of beer makers given their rising costs, but said gains in liquor prices were inappropriate as liquor makers’ production costs had not risen by as much as those of brewers. The commission urged both beer and liquor makers to stabilize prices.

Prompted by rising inflation in China - the consumer price index (CPI) might have risen above 5% in March according to some analysts – government bodies are trying to take measures to contain or bring prices down. The central government is targeting a 4% increase in the CPI this year.

The NDRC has also talked to and investigated major consumer goods makers including Unilever Plc. (NYSE:UL) and the Procter & Gamble Co. (NYSE:PG).

Chinese media have been reporting that many manufacturers, P&G and Unilever included, are planning to increase the prices of cleaning and personal care items by 10% on average from April.

Questions have been raised by commentators as to whether some leading industry players are colluding to raise prices.

Consumer goods makers and food and drink enterprises have been invited by the NDRC to discuss putting off their price hikes.

Resigned to rising raw materials prices, brewers are figuring out new ways to offset higher costs.

“One way of countering the costs is to reduce beer capacity by as much as 100 milliliters for a 660-ml bottle,” said the head of a local beer company.

8 Apr. 2011

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