As China's inflation-wary government tries to clamp down on rising food prices, makers of instant noodles, a staple of the local diet, are getting squeezed.
Like packaged-food manufacturers around the globe, China's biggest instant-noodle companies are being hit by rising prices for wheat and other farm commodities. But the central government in Beijing, worried about the political fallout from higher grocery bills, is pressuring companies to keep prices down.
Earlier this month, China's powerful National Development and Reform Commission, which sets industrial policy, declared that several noodle companies had agreed to an illegal coordinated price increase and ordered them to slash prices. Officials at the agency later named two of China's three largest noodle makers -- Tingyi (Cayman Islands) Holding Corp. and Taiwan's Uni-President Enterprises Corp. -- as part of the pricing alliance, which the NDRC says is still under investigation.
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China is the world's largest producer and consumer of instant noodles; few food products are more popular in the nation. From factory dormitories in the south to highway rest stops in the northwestern territory of Xinjiang, on railcars, construction sites, college campuses and in corporate cafeterias, the packaged noodles are ubiquitous. The nation's factories cranked out more than 46 billion packs last year -- more than half of global production, analysts say.
But raw-materials prices are rocketing. The cost of palm oil, a main ingredient, soared nearly 70% in the 12 months through June, in part because of demand from the alternative-fuels industry, which is increasingly using palm oil as an additive. Poor wheat harvests have driven up the price of the other main ingredient, flour.