Starbucks triggers wider food safety clampdown
Starbucks has found itself in hot water over food safety violations at stores in China. An undercover news investigation found that two stores in the city of Wuxi in the eastern Chinese province of Jiangsu were found to be using expired ingredients.
This story has gained a large amount of traction within China and now many cities are doing food safety inspections at stores in their jurisdictions. City officials in Wuxi said they investigated 82 other Starbucks stores in the city and found 15 similar problems.
Starbucks has become a ubiquitous foreign brand in China, with over 5400 stores in the country. It is not uncommon in Shanghai to see a Starbucks on one side of the street, and then another store just 50 meters away on the other side of the street.
Food safety is a major concern in China, and this has increased in recent years. Starbucks is a major and well-known brand, so these investigations are likely to get a lot of media traction and public attention. However, despite being a foreign brand, the company tends to be a savvy operator in the Chinese market and has been good at following and even creating consumer trends.
Starbucks is also notable in the food space for having a strong rollout of vegan or plant-based products. Stores in Shanghai will typically have Oatly oat milk as an option, and a large portion of the food menu feature plant-based items including Beyond Meat.
Rising herbicide price – another concern for yields
Fertilizer price spikes in China are creating worries about yields for next year, as some farmers are forced to cut planting area or reduce fertilizer use.
While stronger fertilizer prices have gained a lot of attention in recent weeks, the dramatic price increase in another commodity could also threaten crop yields in China.
Over the past year, the price of the weed-killer glyphosate in China has risen dramatically, up from 26,031 yuan/ton to 80,250 yuan/ton, a surge of 208%.
The causes for this have similarities with the price rises seen in other products including fertilizer. A major input for glyphosate production is yellow phosphorus and the production of this chemical is very energy intensive.
Yunnan is one of the largest producers of yellow phosphorus and curtailed production in September to ration electricity use.
China faced an electricity shortage in the third quarter this year due to the country’s effort to slash coal-based carbon emissions. Many industrial activities across different parts of the country were shut as regulators ordered coal power stations to limit operations.
Taming inflation, but fertilizer price edges higher
Prices of 50 major industrial production generally fell at the start of the month, according to latest data from the National Bureau of Statistics (NBS). Out of 50 commodities tracked by NBS, 36 fell, 11 rose, and 3 were unchanged.
Notably, urea prices were up 1% relative to the end of November despite the attempts to increase supply.
The year-on-year changes still show the price increases that are fueling a record producer price index (PPI). Relatively to December 2020, costs of 44 products are higher compared to last year and only 6 are lower y/y. The average price change over the past year is an increase of 32%.
For agriculture products, rice fell 4%, hogs plummeted 47%, and peanuts were down 15%. Wheat price surged 14%, corn rose 4%, cotton spiked 36%, soybeans jumped 10%, and soybean meal climbed 10%.
Urea, compound fertilizer, and herbicides soared 32%, 43%, and 208% y/y respectively.
Rising covid risk to dampen consumption, logistics
China reported 50 new local covid cases yesterday with 45 in the east-coastal province of Zhejiang – home to one of world’s busiest ports at Zhoushan. This continues to pose risks to the global supply chains. Factories could be asked to shut down, and port operations could be disrupted.
Many cities are starting to issue guidance urging people to not travel for the upcoming holiday.
The statistics bureau said during a press conference that the restaurant and hospitality industries have slid into contraction territory in November and are still in a downward trend due to the pandemic.
Consumer spending for the restaurant industry in November was down 2.7% y/y while retail spending on store-bought food was up 14.8%.