This will be exacerbated by the implementation of a national licensing system for industries that the government blames for harming the environment, which will without doubt have a substantial influence on China’s polluting sweeteners industry.
China’s new Environmental Protection Tax Law was revealed on December 25, and will come into effect in the beginning of 2018. It will mainly replace the current pollution discharge fee levied by the government with a new centrally and locally administered environmental protection tax.
This new law is the first of its kind in China, and aims to tackle its critical problem of pollution. It sets out to convince companies that they could uncover tax benefits by establishing environmentally friendly production and discharge systems.
For example, a farm with 30% lower noise, air and wastewater pollution than the average would be liable for a 25% tax rebate. If it can maintain a pollution level of 50% below average, that rebate increases to 50%.
Chinese sugar manufacturers have performed poorly over the last financial year, blaming increasing production costs, rising sugar prices and decreasing volumes.
Area devoted to sugarcane has decreased over the last two years, leading to a shortage of sugar—the main reason for the current high sugar prices. Heavy rains last year also reduced the quality of the sugarcane, increasing costs once again.
Indeed, costs have been growing even faster than the price of sugar, leading manufacturers to report sizeable losses. A growing trend for downstream manufacturers to find cheaper substitutes to sugar have also led to sales volume declines.
Analyst CCM now predicts that Chinese sugar prices will continue rising. This view is backed by a depreciating renminbi, limited growth in sugar output, as well as expected decreased imports.
Any price rises will, however, be limited due to the launch of national sugar reserves, a predicted increase in sugar production and booming popularity for sugar substitutes.
Sucralose prices doubled last year in the wake of short supplies, caused once again by the impact of environmental protection laws. It is expected that manufacturers ramp up production this year to replenish supplies, serving once again to shrink prices.
When JK Sucralose was forced to suspend production, it had an impact across the industry, with many end-manufacturers finding they lacked supply inventory.
JK had been forced to cut production after an environmental order notified that its wastewater treatment of the facility didn’t meet the required standards. As China biggest sucralose manufacturer—and number two in the world, with a capacity of 2,000 tonnes per year—it still outproduces its competitors even though this cut in production reduced volumes by some 40%.
Furthermore, rises in the sugar price have an knock-on effect on sucralose, which is made from sugar. According to sucralose manufacturers, further sucralose price hikes are very likely, if sugar keeps on along that trend.
China’s corn starch industry finally ended 2016 on the up after several game-changing factors combined to contribute to growth.
First, falling corn prices significantly contributed to reduced production costs for corn starch manufacturing. At the same time, volumes increased by up to 56%, fuelled by demand from the food and paper-making industries.
Finally, rising export volumes also strengthened China’s corn starch industry. Indeed, exports nearly doubled between January and November 2016.
In China, the world’s biggest potato producer and consumer, potato starch is the main processed outcome of the crop. Yet producers have been facing challenges, in particular in the midst of current overcapacity, which should eventually be solved by embracing China’s staple food strategy.
In 2015, China put forward a new strategy of "promoting the potato as staple food", aiming to increase consumption of potato products by more than 30% by 2020. According to its thirteenth five-year plan for the potato processing industry, output of potato vermicelli is expected to reach 400,000-600,000 tonnes in 2020, up by up to 71% over the target set during the 2010-2015 five-year plan.
China has capacity to produce 2.3m tonnes of potato starch a year, though demand levels are only in the 600,000-tonne region. With just 350,000 tonnes produced last year, any earlier overcapacity has since been eased, though producers still face fierce market competition, high transportation costs and pressure from environmental policy.
Food industry sales account for almost 80% of China’s potato starch market. The ingredient is used commonly in desserts and as a thickening agent in Chinese cuisine. Yet despite its obvious benefit to food companies, high prices have traditionally cooled down its industrial popularity.