By Eric Brand

The rising cost of raw materials in Chinese herbal medicine is a major topic these days. While fluctuating herb costs are nothing new, over the past two years prices have risen significantly and most practitioners and suppliers are feeling the squeeze. The increased cost of certain herbs and the general instability of prices are due to a number of factors, but increasing global demand and poor weather patterns have been a driving force in the rising prices. The gradual appreciation of the Chinese Yuan alone has raised the cost of raw materials by about 15% over the past few years, and the mainstream adoption of several famous herbs has caused some prices to fluctuate dramatically.

...

At first, many importers simply absorbed the rising costs by working on a tighter margin. However, these days a variety of raw herb and granule companies have had no choice but to raise their prices, sometimes dramatically. Which herbs are the most affected, and what will the future hold?

Many herbs have had their prices creep up gradually over the past several years, and only a few herbs are really experiencing ridiculous price increases. A few years ago, a variety of natural disasters affected the cost of many Chinese herbs, and this year increased demand due to the H1N1 scare and a great drought in Southwestern China have had a major impact on the prices of some herbs. The Wenchuan earthquake in Sichuan damaged the production area of many herbs such as Huang Lian, and the same year flooding caused massive spikes in the price of Dang Gui. This year, the items that are particularly notorious for gross fluctuations include Jin Yin Hua, Pang Da Hai, and San Qi.

Let’s look at the example of Jin Yin Hua. Jin Yin Hua went from being a relatively cheap product to being more expensive than ginseng in the last year alone. A huge surge in demand for Jin Yin Hua has been partially fueled by a massive Coke vs. Pepsi-style battle between two huge Chinese beverage companies, which are currently competing for market share in China for popular cooling herbal teas (liang cha). Cooling teas are incredibly popular throughout China, especially in the South, and most brands contain Jin Yin Hua. The market leader, Wang Lao Ji, is more popular than Coca-Cola in China so the impact of these big buyers on the Jin Yin Hua supply cannot be underestimated. Add to that the H1N1 scare, which had the entire Chinese population stocking up on Jin Yin Hua. Now many practitioners in the U.S. are paying over $30 a bottle for Jin Yin Hua granules that only cost around $10 two years ago.

The situation with Jin Yin Hua is inherently unstable and will likely be quickly reversed. Jin Yin Hua doesn’t take long to grow and the high price will stimulate a lot of farmers to increase their output. Thus, while its price may remain elevated to some degree, the huge surge in price will probably be short-lived. Other items, such as San Qi, are going to take much longer to turn around because they take years to mature. The same San Qi that one could buy on the Chinese wholesale market a few years ago for 100 RMB/kg now costs 300 RMB, and the price increase is already being directly felt by the end consumer.

Despite the constant rising in prices across the board, some items have stayed relatively stable with only gradual price increases. For example, for the past few years the prices of several different ginseng products that I buy in China have gone up about 20 RMB per kilogram per year. Other items are more irregular- wild cordyceps has surged from about $5000/kg to a truly astronomical $10,000-15,000/kg over the past 2-3 years. The price of raw cordyceps is only expected to get worse as a result of the devastating recent earthquake in Qinghai province (one of the traditional production areas). On the bright side, increased lab cultivation of cordyceps has caused the price of cultivated to remain stable; in fact, each year cultivated cordyceps costs less than it did the year before.

Raw material costs cannot be easily controlled, so most herb suppliers will have no choice but to raise prices over the next few years. At Blue Poppy, we are committed to keeping our prices as low as possible, and will not raise prices unless it is absolutely necessary. We maintain a very direct supply chain from the raw herbs to the final consumer, and with the introduction of the new Great Nature line we are proud to offer practitioners one of the most effective and affordable product lines on the market.