Source of concern

Caption: Shoppers in China cried foul at the ‘premium’ offering available in Japan

Traditionally, soy sauce is a simple mix of soybeans and wheat, water and salt. The beans are soaked before being added to wheat flour. The mixture is allowed to ferment; salt and more water are added; and the resulting liquid is aged for months, although some recipes are left for several years.

Manufacturers can also opt for faster and cheaper methods to make soy sauce, however, churning out the product over a few days instead of months. But the trade-off is that the fragrance and flavour that comes from a longer fermentation is lost in the production process. To that end, much of the soy sauce sold in supermarkets contains extra colouring and flavour additives.

China’s biggest condiment maker Haitian has been making soy sauce for more than three centuries (it was formerly known as Foshan Jianyuan until a restructuring in 1955). But the company was recently embroiled in a row over what was being added to the condiment.

The controversy started in early October, when netizens realised that Haitian’s soy sauce in Japan was made from natural ingredients – i.e. water, soybeans and wheat – while the Chinese version of the sauce included a number of flavour enhancers, preservatives and sweeteners.

The revelation quickly led to a public outcry, with consumers complaining that the sauce maker was imposing “double standards,” reserving its premium products for an overseas market while selling the lesser-quality stuff at home.

Some shoppers even posted videos on social media showing them pouring Haitian’s sauce down the drain in protest.

Haitian, with a 20% share of China’s soy sauce market, dismissed the accusations as a smear campaign, saying that it complies with food safety rules and stressing that food additives are common to the industry and don’t imply inferior quality.

“China is Haitian’s largest market. Meeting the diversified needs of consumers while ensuring the quality and safety of products requires the domestic product line to be more diverse,” the Foshan-based producer said in a statement.

The company added that all of its products are subject to regular inspections by the authorities and that food additives are used and labelled in full compliance with local regulations.

Some consumers in China weren’t convinced by the response, however. Even though there was no suggestion that the additives in Haitian’s products are unsafe, investors were worried too. Shares in Haitian Flavouring and Food, which is listed in Shanghai, have lost about 13% since late September.

Industry insiders have come to Haitian’s defence. Bo Wenxi, chief economist at marketing solutions provider Interpublic Group China, told Yicai Global that Haitian’s ‘double standard’ problem is due to differences in industry standards between China and Japan. It was unlikely that it was the company’s choice to use two different recipes, he added.

“As long as Haitian adheres to industry standards in the country where the products are made and sold, any differences in the ingredients lists are legal,” Bo said.

For the last 25 years, Haitian has enjoyed its ranking as China’s bestselling soy sauce brand, with its market value climbing to as high as Rmb705 billion in 2021, even surpassing oil major Sinopec.

The jump in share price also turned company chairman Pang Kang into the 15th richest person in the country, according to the 2021 New Fortune 500 Rich List, just behind tech tycoons like Bytedance’s Zhang Yiming and JD.com’s Liu Qiangdong.

But even prior to the recent public relations challenges, Haitian had been struggling to maintain its growth rate. In the first half of this year, the condiment maker recorded a 1.2% gain in net profit to Rmb3.4 billion ($472.3 million), while revenues climbed 9.7% to Rmb13.5 billion. Soy sauce accounted for the majority of its business, contributing 59% of its sales (the company also produces other condiments such as oyster sauce, vinegar, cooking wine and hotpot soup bases).

Financial blogger Kanjian Caijian reckons that at Rmb60 billion in sales in 2020, China’s soy sauce industry has already reached saturation point too, so there is little room for growth in topline sales. On the other hand, the rising costs of raw materials is likely to put pressure on Haitian’s bottom line.

Meanwhile, consumers are seeking out healthier options. After Haitian’s ingredients hit the headlines, soy sauce brands claiming to contain no preservatives have enjoyed a jump in sales. Qianhe Condiment, which boasts zero preservatives in its soy sauce, saw its share price repeatedly trade up to the 10% daily limit on the Shanghai Stock Exchange, for instance. Another smaller producer called Song Xian Xian, which also makes soy sauce without any preservatives, told 36Kr that it had stopped promotional activities, focusing solely on replenishing the supplies for its fast selling-out sauce brand too.

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