China’s food industry faces an uncertain year in 2023
Until social unrest in November forced the Chinese Communist Party to lift its strict Covid-19 controls, the country’s packaged food industry seemed in good shape to deliver solid growth in 2023.
Data from China’s National Bureau of Statistics shows that the total value of grain, oil and food products produced in China in the first half of 2022 was CNY 903.2 billion (US$130 billion), up 9.9% year-on-year. But that was before protests broke out across the country and Beijing abandoned its strict zero-Covid policy, leading to a surge in infections that will pose challenges to the Chinese economy in the new year.
A Danone spokesman said shortly before Christmas Just food “In terms of consumer behavior, the current health situation in China makes consumer trends quite unpredictable at the moment.” China’s official data continues to show low infection rates and few deaths, although media reports that hospitals and morgues are overwhelmed.
This uncertainty is underlined by the fact that some observers believe that the lifting of strict movement restrictions could actually boost the economy despite the resulting rise in infections. Dan Wang, chief economist at Hang Seng Bank (China), predicts that economic activities will return to normal after the first few months of rising infection numbers. “Restaurants, tourism, entertainment, business travel and events, which have declined the most during the lockdowns, will be the first to revive,” says Wang, boosting sales of packaged foods in retail.
Chim Lee, China/Asia analyst at the UK-based Economist Intelligence Unit (EIU), predicts that the end of China’s zero-Covid policy will have a mixed but ultimately positive impact on packaged food sales. Lee notes that grocery sales were a bright spot compared to other retail categories in 2022, as the packaged food industry benefited from people stockpiling food in anticipation of lockdowns and other mobility restrictions. However, Lee stresses that the impact was mixed across categories.
“In recent quarters, (parts of) the sector – such as some snack brands – have suffered from weak consumer sentiment as China’s economic outlook deteriorated in the wake of the ‘Zero Covid’ policy, but China’s exit from the Zero Covid policy will lead to a recovery in consumer confidence, which is ultimately likely to benefit the sector, although the short-term effect may be a bit shaky as people stop hoarding packaged foods,” Lee added.
GlobalData research and information group – Just foodThe parent company of – is also optimistic, pointing out that total packaged food sales in China exceeded $1 trillion in 2022 and are forecast to rise in 2023. According to GlobalData, meat, dairy, soy, baked goods and grains will be the largest categories in 2023, accounting for well over half of total packaged food sales in China by value.
“As consumers learn to live with Covid-19, economic and social activity will steadily improve in the second half of 2023,” said Bobby Verghese, consumer analyst at GlobalData.
“After nearly three years of financial and psychological stress due to temporary pandemic control measures, the withdrawal of the zero-Covid policy will unleash pent-up demand and boost China’s consumption engine. “The upcoming Chinese New Year celebrations will be an indicator of consumer sentiment and business confidence.”
Guiyang-based Hua Chuang Securities, which mainly provides banking investment, asset management and securities brokerage, noted in a Chinese-language stock analysis service: Stockstar Although some of the big names in China’s food and beverage industry have come under profit pressure due to the pandemic, their sales have risen steadily. However, there has been some rationalization in parts of the sector. The brokerage, meanwhile, said pressure on the cost of production factors such as packaging materials, cooking oil and sugar has eased, giving packaged food companies more flexibility for 2023.
Citing a recent survey conducted among several securities brokers, Stockstar found that a total of 30 food stocks traded on Chinese exchanges achieved an increase in net profit in 2022. Guangxi-based Yanjin Shop Food, which mainly makes and sells snacks containing nuts, tropical fruits and seafood, achieved a year-on-year profit growth of 102.3%. The service also highlighted three other companies: Sichuan-based Teway Food Group, which mainly produces hot pot ingredients (for making hot pot recipes at home), spices and seasonings; Shandong-based Delisi Food, which mainly processes and sells meat products; and Shanghai-based dairy maker Milkground (each with year-on-year profit growth of over 70%).
Although China pursued its zero-Covid policy and imposed sporadic lockdowns in major metropolitan areas, the country’s food packaging industry continued to attract investment over the past twelve months.
Multinational cheesemaker Bel has bought 70 percent of Chinese cheesemaker Shandong Junjun Cheese Co. Bubs Australia has entered the production of infant formula in China, while Thai Union Group announced plans to invest in the Chinese pet food market. Major Southeast Asian dairy group Vinamilk partially invested in its domestic production to support exports to China.
Research from GlobalData suggests that China saw a decline in dealmaking last year, but some observers say the country’s packaged food sector may be heading for a period of consolidation as the move away from the zero-Covid strategy could cause problems along the supply chain and upend consumer demand behavior.
“There will be significant supply chain disruption as workers on production lines fall ill and last-mile delivery is currently very challenging,” says Ben Cavender, managing director of Shanghai-based China Market Research Group. “In general, the overall situation should benefit the larger players who have better means to weather a very uneven consumer market over the next quarter or two and who tend to have better distribution and ability to get products into household pantries.”
“I think at the moment it’s very difficult to say how things are going to play out for the different market participants because there are a lot of unanswered questions both in terms of the supply chain and in terms of consumers.”
“China’s food industry heads into uncertain 2023 as zero-Covid policy ends” was originally created and published by Just Food, a GlobalData brand.
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