Baijiu has been a part of Chinese holidays since time immemorial. But if price raises continue, China's distinctive clear liquor may soon enter the ranks of luxury goods.
(Ecns.cn)--Baijiu is a central part of Chinese holidays. Gifted to friends, family, coworkers, and even the occasional boss or two, the clear, stingingly alcoholic liquid is about as central to Chinese holidays as turkey and cranberry pudding are to Thanksgiving. But recent trends in China's liquor prices are threatening to reverse this trend, making the stuff a luxury good affordable only to progressively higher levels of China's steeply tiered society.
Recent price increases have reach near-epic proportions, with Moutai baijiu, a high-end brand that hails from Guangxi's Maotai County, increasing as much as 40% this year alone and Wuliangye, a competitor whose name translates roughly to "five-grain night," up 300 RMB (about $47 US) per bottle and considering a further increase by as much as 30% per bottle in anticipation of the Mid-Autumn Festival next month (according to reports by industry insiders). These raises have brought average baijiu prices to record highs, with a bottle of Wuliangye retailing somewhere in the neighborhood of 1380 RMB (around $216 US) and an equivalent bottle of 104 proof Moutai fetching as much as 2080 RMB (about $326 US).
Perhaps even more impressive than these awesome prices is the regularity with which China's baijiu manufacturers have succeeded in raising their prices. According to a report by the Xinhua news agency, average annual profits within the industry have increased by around 50% annually over the last five years, while profits by baijiu manufacturers themselves grew by roughly 60% annually during the same period –tremendous increases for any industry and especially so for one that has been established as long as this one.
Is it the costs?
These steady increases in price and profit have of course lead to questions as to where exactly these increases are coming from. One of the most commonly-implicated culprits is rising costs incurred by baijiu manufacturers during both manufacturing and transportation, with one industry insider telling reporters that "The primary reason this year's alcoholic beverages are so much more expensive than in previous years is that raw materials, transportation, and labor prices have all increased."
However, other sources deny this, with Zhou Siran, a consultant for CIConsulting, telling reporters that "Although many of the constituent costs involved in Baijiu production have definitely increased, on the whole those increases have been reasonable and companies could implement cost saving measures to make up for the difference." Moreover, Zhou's opinion is borne out by a recent report produced by the International Financial Times which concluded that "under conditions of profits as high as these, cost increases can be completely absorbed internally – rising costs are just an excuse to raise prices."
Another similar explanation for the rising price of baijiu is that increases in demand have outstripped supply, resulting in greater scarcity and higher ultimate prices for the beverage. Clearly, this explanation has some merit. China's annual growth has been the envy of the world for decades and increases in individual buying power and standard of living has created broad demand for goods that previously could only be had by a privileged few. Moreover, this explanation jives particularly well with the sudden, dramatic price raises that have become the rule around China's Mid-Autumn and Spring Festivals, as consumers looking to stock up for the holidays create an ever greater demand for already scarce resources.
However, this explanation too seems insufficient to account for the full magnitude of recent price spikes. Reports suggest that not only do baijiu manufacturers have an ample supply of baijiu in stock, but that supply is expected to grow over the next several years, with one industry insider who asked that his name be kept confidential telling reporters that "Conservative estimates suggest the market currently has roughly 10,000 tons of Moutai baijiu on hand and will increase its stocks to 30,000 within the next several years." With so much stock of just one of China's many brands of baijiu on hand, it seems unlikely indeed that true scarcity is the real drive behind China's recent price increases.
