NDRC moves to check edible oil prices

The National Development and Reform Commission (NDRC), China's economic planner, recently summoned the top five edible oil processors and asked them to report pricing periodically, a move analysts said Thursday is aimed at containing prices in the holiday intensive second half of the year.

The NDRC convened five largest cooking oil processors, including China Oil & Foodstuffs Corp (COFCO), Yihai Kerry, and Shandong Luhua Group Monday and set up a price reporting system, the 21st Century Business Herald reported Thursday, citing information from the NDRC.

Under the system, the five processors, which account for about 80 percent of the market, are required to report regularly their factory, wholesale and retail prices, starting from Wednesday, said the report.

"We are indeed facing huge operational pressure due to rising costs," reads a COFCO statement sent to the Global Times Thursday.

COFCO will try to offset rising costs by increasing productivity and efficiency to contain prices, the company said.

"The consultation and reporting system is a signal that the market regulator intends to stabilize prices of edible oil, an item of daily necessity," Sun Guangmei, an agribusiness analyst with Sublime China Information, told the Global Times.

Sun said prices of cooking oil have been rising consistently, and the NDRC's move is understandable as it tries to contain inflation and relieve people's living costs.

Due to the rising costs of raw materials, including peanuts and soybeans, many processors intend to hike prices on the occasion of holidays and festivals in the second half of this year, including Mid-Autumn Festival, National Day and New Year holidays when there is a higher demand and consumption of edible oil, Sun said.

Prices of peanuts used for cooking oil reportedly increased by 20 percent at the end of July compared with a year ago. Soybean prices are about 14 percent higher than the same period of last year, Sun said.

The price of Arawana Brand peanut oil, a product of Yihai Kerry, went up by 8 percent in July, and Luhua peanut oil is reportedly up 15 percent.

The profit margin of processors will be further eroded if imported soybean prices keep their upward trend as a result of the drought in the US and Argentina, two major soybean exporters to China, she noted.

The NDRC had convened COFCO and Yihai Kerry in April and July over prices.

Many smaller processors went bankrupt as a result of the NDRC's intervention by allocating subsidies to the large oil processors in order to stabilize the market prices, said Xiang Jianjun, an analyst with the CIC Industry Research Center.

"The NDRC's intervention works in the short term, but not in the long run," Xiang said, noting that large scale bankruptcy of smaller processors will reduce supply which will push up the prices eventually.