1. In the past decade, the overall price trend of the Chinese herbal medicine market has been on the rise, with an annual average growth rate between 9.5% and 9.6%, slightly higher than the national GDP increment.
2. The Chinese herbal medicine market experiences a price fluctuation cycle every 3 to 4 years. During this cycle, the period following the lowest point is often the stage of the strongest rebound. When the market reaches its peak value, the following year usually sees another high-value phase after the decline, meaning that after the market reaches a high position, it will continue at a relatively high price in the second year.
3. Market conditions are significantly affected by sudden events and the overall economic trends of the country. For example, the market upturn in 2003 was related to factors such as national inflation and the SARS outbreak; while in 2009, the impact of the H1N1 flu pandemic was very evident.
4. Before the market movement in 2009, there was a super-low point, which reached the lowest level in nearly 10 years. According to the rules, 2008 should have been a period of slow recovery, but due to the influence of the global financial crisis that year, the overall national economy declined, thus suppressing the emergence of this market movement.
5. Even without factors like H1N1 in 2009, the market should have experienced a significant rebound. According to the statistical patterns over the past decade, the reasonable rebound amplitude should exceed 20%.
6. In November 2009, the price index curve reached its highest peak in nearly 10 years and showed a continuing upward trend, which was an extraordinary surge.
7. The market conditions for Chinese herbal medicines in 2010 should show a gradual downward trend, but compared to other years, 2010 still holds significant advantages. Without any special circumstances, by 2011 to 2012, the overall market should fall into the lowest point in the past four years.
Sudden situations play a role in exacerbating fluctuations
Especially the continuous spread of influenza pandemics has already added many uncertainties to the Chinese herbal medicine market in the short term, because with the development of the pandemic, the demand for traditional Chinese medicine is no longer rigid but elastic. How much supply-demand gap would the pandemic cause to Chinese herbal medicines? It's hard for anyone to draw a conclusion now, as how many people will be infected with the flu is still unknown. According to data provided by the Southern Medical Economics Research Institute, the sales of national traditional Chinese medicine enterprises increased by 43% compared to the same period last quarter. If we conservatively estimate that 30 million people will be infected with H1N1, more than 15 million people will use traditional Chinese medicine for treatment. Not counting the public's preventive use of Chinese medicine, the consumption of Chinese herbal medicines this year needs to increase by more than 300,000 tons. Especially for Chinese herbs used to fight viruses, each variety will see an additional consumption increase of 5,000 to 10,000 tons or even more (note that this is the increase based on the original consumption volume). Take Forsythia suspensa as an example, the total production of new and old Forsythia suspensa this year is only about 5,000 tons, already down by more than 50% compared to previous years. Calculated by the current consumption volume, the existing stock will not last for more than five months. If the pandemic continues to expand, the situation will become more complicated. There will also be a continued increase in the shortage of large varieties such as honeysuckle and Isatis root, and manufacturers must take measures such as limiting production to ensure resources are not exhausted prematurely. This is the serious problem facing our traditional Chinese medicine industry, which should attract the attention of relevant national departments and prompt them to find solutions as soon as possible.
The current market clearly has components of overvaluation
After entering the 21st century, China's economy rarely experiences the kind of big ups and downs and rapid inflation seen at the end of the 20th century. In 2003, there was a small-scale inflation, where the price index increase for agricultural products did not exceed 4.6%. Chinese herbal medicines are raw materials that protect public health and affect the national economy and people's livelihood. Rapid price increases will inevitably lead to many negative effects. Excessive drug prices are unacceptable to both the government and the public, so it cannot be ruled out that the competent authorities may intervene to stabilize the market. Through the analysis of historical trends of multiple varieties, we can clearly see that some varieties recently have obvious overvalued components. Except for some anti-virus and previously low-priced varieties, these price-increased varieties can be divided into several situations: first, some home-cultivated large varieties whose production capacity has already exceeded demand, this year’s consumption volume has not significantly increased, yet their prices have risen along with the overall market trend, suspected of taking advantage of the chaos; second, the actual consumption volume has indeed increased, but the excess production and old inventory are sufficient to offset this increase in consumption, and the price hike is merely for speculative purposes or to sell at a good price during the market trend; third, funds are invested to monopolize the supply of medium and small-sized Chinese herbal medicine varieties, then the price is raised arbitrarily. Although the prices of these varieties will eventually decrease, they have temporarily pushed up the overall market trend for Chinese herbal medicines.
Increased circulation is also one of the drivers of high prices
In the past few years, due to the overall downturn in the market, many medicinal material inventories were stored in the hands of real estate merchants or local operators. With the warming of the market this year, the turnover rate of Chinese herbal medicine varieties has significantly increased. Sources are distributed from the place of origin to local operators, market operators, enterprises, and even speculators. Circulation generates output, and each link adds costs. Here are some specific examples: varieties closer to the traditional stir-fried goods areas are more likely to increase in price, such as Trichosanthes from Anguo, Saposhnikovia from Fangfeng, Platycodon from Bozhou, Chrysanthemum, Zhejiang's Zhebei, Yuanhu, Xuan Shen, etc., whereas southern medicinal herbs lack the tradition of stir-fried goods, and many varieties remain at low prices year-round; varieties with higher popularity are more likely to increase in price, even if there is no supply-demand gap, since everyone in the market believes it will rise, you buy it and others buy it too, ultimately leading to a rapid increase in price.
The rising prices of various raw materials further worsen the current situation
Recently, coal, electricity, gas, and petrochemical products are either currently or are preparing to increase in price. Although the National Bureau of Statistics believes that the expectation of inflation in the domestic economy this year is decreasing (the price index has slightly decreased in the past two quarters), the overall price index increase for the whole year should be around 2%. However, the increase in prices of agricultural products and other raw materials will inevitably be transmitted to downstream industries. A simple example is that when coal and electricity prices rise, the cost of processing goods will inevitably increase; when oil prices rise, the cost of transporting goods will also increase accordingly; and grain price increases will lead to higher labor costs, etc.
Based on the above analysis, I believe that the overall trend of this year's market rising is inevitable, but some varieties clearly have bubble components within. As the pandemic develops and the market gradually returns to rationality, varieties with supply-demand gaps may experience sustained price increases; while those varieties that raise prices or hoard for speculation will inevitably face the process of having their bubbles squeezed out. However, the current state of the market may accelerate the adjustment steps of the traditional Chinese medicine industry, promote the development of large-scale warehousing logistics, warehouse receipt trading and other emerging things, and bring good opportunities for the informatization development of the traditional Chinese medicine industry. (By Fu Qingzhu)