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China’s F&B stocks rebounded slightly, Jan’s CPI rose set off alarm
CKN
2020/02/18 09:27:59
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Feb 18, 2020 (China Knowledge) - Last week, China’s food & beverage sector underperformed than most, and ranked twenty-first among 28 others in terms of price performance, up only 0.7% overall in spite of major indices returning to the pre-epidemic crisis. Of all the counters in the F&B, 57 companies’ shares rose, but 37 fell. The price recovery can be seen as the sector may resume normal operation in foreseeable weeks; if not, a month or so. If further government measures to contain the coronavirus involving extending homestay quarantine, restricting access to work, and other steps to limit human mobility the F&B together with most sectors will be hard hit once again.

The past month's significant prices increases are mainly due to compulsory homestay that boosts demand for meat products and large-scale work resumption of baijiu companies. Little has spurred the dine-in or takeaway volume across the country during this long homestay quarantine.

As a matter of fact, China experienced panic-buying of food and other essentials at the early stage of the outbreak, leading to temporary food shortages and prices spike. In Jan, China’s CPI rose 5.4% YoY, of which 4.4% was caused by retail food prices, which rose by 20.6%. In the food sector, pork prices rose the most, up 116.0% YoY, while other meats such as beef, mutton, chicken and duck increased by 10.4% to 20.2%. Prices of fresh vegetables and eggs were up by 17.1% and 2.8%, respectively.

In the next few months, CPI could rise continuously, but less rapidly. Abrupt disruption to prices relies on the efficiency of epidemic prevention and control. Another key indicator to watch is the production process of crops, such as corn, wheat, and vegetables that might be delayed by planting which has remained inconclusive as yet. This could threaten the domestic food supply.

Fortunately, the Chinese government has been quite clear with policies to ensure the supply of food, including reducing or exempting taxes or levies related to agricultural credit guarantees, fund provision for agricultural production and disaster relief, as well as financial assistance for refrigeration and preservation of agricultural products. China’s Ministry of Agriculture has recently established an online platform to provide service of farming machinery for this spring planting.

Since is this the first massive containment of the epidemic by China, tackling these challenges will require unprecedented financial burden, nimbleness and intelligence of a whole nation – both government and its citizens.

To download this “China Food & Beverage Weekly” published on Feb 18 you can download from any major financial terminals including S&P Capital IQ, FactSet, Bloomberg and Reuters Research Bank.

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