January 7, 2008

China's meat processors in a pickle as consumers reject higher prices

Even as Beijing's meat processors see rising demand in the run-up to the Olympics, processors are struggling to persuade consumers to accept higher prices.

Surging inflation are a rising problem not only for China's consumers but also for its meat processors as well, as customers have refused to accept price increases.

Meat prices have jumped nearly 40 percent in recent months, and the rapid increase has left processors struggling to make profits.

Even as the Olympics presented the perfect chance for China to make its grand debut on the global stage, politicians and business inside the country are struggling to contain surging inflation.

Rising prices have helped boost many farmers' incomes, but ordinary consumers are complaining that soaring inflation is hurting them.

Meatpackers and retailers say they have not been able to pass on the increased cost of cows and sheep to their customers.

Some economists believe that the yuan is undervalued and say that is a big culprit behind the inflation. The yuan trades within a narrow range controlled by the government.

That has allowed manufacturers to sell their goods more cheaply in overseas markets than they would have leading to a record trade surplus which dumped massive amounts into the Chinese economy. The situation is further exacerbated by speculation on China's property and currency markets. 

The ever-swelling money supply makes more funds available to lend for industrial production, which churns out more products, keeps prices low and supports exports, continuing the cycle.

Speculators expect China to let the yuan continue its appreciation this year to contain rising inflation.