January 6, 2012

 

 

State-owned China Grain Reserves Corporation (Sinograin) has tapped into small-package edible oil sector in a response to the government's macro control over edible oil prices.

 

It launched small-package edible oil in December last year under Jinding brand in Shanghai, Jiangsu, Zhejiang and Tianjin, expecting to enter 20,000 supermarkets and retail terminals.

 

Sinograin Oils Co Ltd, a wholly-owned subsidiary of Sinograin, plans to increase the production capacity to one million tonnes per year in the next five years with annual sales of RMB10 billion (US$1.59 billion) so as to seize a 10% share of domestic edible oil market.

 

Sinograin, which focuses on policy-oriented purchase and storage of grain and oil reserves, has a lot of oil storage facilities in major oil production regions and also commissions other enterprises to store oil for it, which can support it expansion, analysts said.

 

The Chinese government paid more importance to reserves of corn and wheat reserves rather than soy and oil before 2008, which resulted in great dependency on foreign oil companies. Multinational grain and oil companies have participated in or controlled 64 Chinese oil companies out of all 97 and dominated over 75% of oil raw materials, processing and edible oil supplies in China. The country's dependency on foreign edible oil exceeds 70%.

 

The National Development and Reform Commission began talking to four leading grain and oil companies since late 2010, asking them to cap the oil prices in a bid to stabilise the market prices and reduce inflationary pressure. However, this did not seem to have substantial effect, analysts said.

 

Sinograin can act as a vehicle to regulate edible oil, experts said. Moreover, the production of packaged edible oil can help Sinograin with de-inventory of grain and oil reserves by 20%-30% per year.

 

The Chinese government will gradually eliminate bulk oil in the market and boost consumption of packaged edible oil on food safety concerns triggered by swill-cooked dirty oil. This promises larger space for the development of small package edible oil.

 

However, Sinograin, struggling against foreign competition, may face challenges over oil marketing channels and brand recognition as the thresholds for downstream oil retail are very high and it has little knowledge of the oil retail market.

 

At the early stage, it primarily markets Jinding-brand edible oil in grain and oil shops, traditional agricultural and trade markets and small supermarkets rather than shopping malls and hypermarkets that large oil companies usually prefer.

 

Sinograin plans to retail small-package edible oil in regionally leading supermarkets and shopping malls in 2012, said vice general manager Wang Qingrong. It will primarily expand in Jiangsu, Zhejiang, Anhui and Shanghai, where supplies will come from its oil processing plant in Zhenjiang city with an annual bottling capacity of 200,000 tonnes.

 

It will then expand presence in Tianjin, Beijing, Hebei and Shanxi, Wang said, adding that the Jinding-brand edible oil will be promoted in Guangdong, Guangxi, Jiangxi and Hunan in August this year.

 

Sinograin has cost advantages over rivals as its newly-built oil processing facilities can improve oil extraction rate and reduce production costs by 7%-8%, Wang said.