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Bad Infusions

A wave of speculation has caused huge price fluctuations in the medicinal herb market. The whole system needs reform from the ground up, experts say

By Xie Ying , Niu He Updated Dec.1

Vendors of traditional Chinese medicine (TCM) shop around for herbal ingredients at a wholesale market in Bozhou, Anhui Province, September 8, 2023 (Photo by VCG)

Despite being a slack season due to the difficulty of storage in hot and wet weather, this summer saw prices of raw materials used in traditional Chinese medicine (TCM) unexpectedly soar. The latest data from yt1988.com, a platform that gathers information on TCM ingredients, showed that prices for more than 200 common plant ingredients had risen by more than 50 percent year-on-year, with that of 25 products for wholesale up by 200 percent. Certain plants such as abrus, a plant in the pea family, hit an astonishing 400-900 percent rise.  

“I’ve never seen such a huge price rise in my 20 years of sales,” Zhang Li, a 53-year-old vendor in Yulin, Guangxi Zhuang Autonomous Region, told NewsChina. “Last year, licorice (used as a cough remedy) was 20 yuan (US$2.9) a kilo, but now it’s 40-50 yuan (US$6-7) a kilo,” she said. 

According to Jia Haibin, deputy general secretary of the Farming Commission under the China Association of Traditional Medicine (CATM), the summer price hikes were unusual, even though TCM ingredients experience fairly predictable price cycles caused by farming trends, weather and production issues, experts said.  

“The prices of TCM plant ingredients generally have a small cycle of three years and a big cycle of nine years, but we’ve been seeing price fluctuations for 11 years, with very high prices for the last three years,” he told NewsChina.  

‘Through the Roof’ 
Analysts believe the most recent price hikes were caused by speculators who, amid a slowing global economy, are investing in TCM as an alternative to financial products. Underneath this, long term structural and systemic issues across the TCM medicinal herb industry are the root causes of price volatility, which cannot be solved without government intervention, they said.  

Herbal ingredients for TCM like roots, seeds and other plant parts can either be used to manufacture drugs, or they can be processed into compound formulas to make herbal teas and infusions. All of those medications are available at hospitals, clinics and drug stores.  

Lin Hao, who owns a TCM store in Anguo, Hebei Province, the biggest TCM herb market in North China, told NewsChina that Chinese caterpillar fungus, an already expensive ingredient collected on the Qinghai-Xizang (Tibet) Plateau used to reinforce the kidneys and lungs, has shot up in price this summer.  

“It’s gone through the roof. It’s shot up by more than 40,000 yuan (US$5,714) per kilo to 90,000 yuan (US$12,857) per kilo,” he said, adding that high-quality fungus can go for up to 160,000 yuan a kilo (US$22,857).  

Chen Yun, who has been selling TCM ingredients in Anguo for 30 years, told NewsChina that the price of wild jujube seeds, used to treat heart palpitations, has jumped to a record high of 950 yuan (US$130) per kilo, three times more than in early 2022.  

Data from zyctd.com, another TCM information website, shows that a number of TCM plants and even other ingredients, like animal bones, have seen their price multiply between early 2020 and the end of 2022. Flatstem milkvetch (semen astragali complanati), used to reduce blood pressure and lipids, soared from 24 yuan (US$3) per kilogram to 150 yuan (US$21). 
“June is hot and rainy, which means higher storage and transportation costs, so it’s usually a slack month. But this June, we saw an unprecedented increase in prices for many more plants and herbs,” Jia said, adding they observed the highest increases in plant ingredients for basic medications that are covered by government medical insurance. “It indicates that the market is nearly out of control, and this could heavily impact the country’s strategic safety net [for TCM drugs] and the stability of the social medical insurance system,” he warned.  

“The influence of the price rise has already spread to end users. Many patients complain that TCM meds are increasingly unaffordable, so I sometimes have to reduce the dose or swap it out for a cheaper one,” An Wanjun, a doctor at a TCM clinic in Hangzhou, Zhejiang Province, told NewsChina.  

“Often, we see prices of a few herbs go up, but rarely like this summer, when so many have gone up,” An said.  

Sales of some ingredients, like wild jujube, have stalled due to the high prices. Chen Yun said that patients are asking for cheaper substitutes. For example, codonopsis pilosula, a plant in the bellflower family, is used to replenish energy, but it can be replaced by the much cheaper false starwort (radix pseudostellariae).  

Zhang Li has seen her direct sales to pharmaceutical companies decline. “We used to sell a great deal of licorice every year, even over 100 tons in golden periods... But after the price rise, my store only sold a total of 20-30 tons of [all types of] herbs from January to June,” she said. 

Cold storage facilities in Anguo normally used for fresh produce are full of medicinal plants bought at top prices, many dealers told NewsChina.  

Zhang Cheng, who grows TCM herbs in Anguo, told NewsChina that cold storage facilities had previously struggled to turn a profit, but now space is at a premium. A nearby facility raised its monthly fee from 105 yuan (US$15) per ton to 150 yuan (US$21). “But some plant ingredients go bad in long-term storage and they can only be sold for use in animals, where the price is only one-tenth of human medications,” he said.  

Speculation and Standards 
Deng Yong, a professor at Beijing University of Chinese Medicine, believes that speculation is the direct cause of rising prices in the TCM market. “They collude with dealers and consulting companies that hold information about the production, transaction and price fluctuations of TCM ingredients. The infusion of cash is used to hoard herbs and hype up the price,” he told NewsChina.  

Zhang Li said that many medicinal herbs had not been sold to pharmaceutical manufacturers but were exchanged between middlemen or speculators. “They manipulate the price and when it goes up, they sell,” she said.  

According to Jia Haibin, the fluctuation margin of the Composite 200 Index of TCM herbs (an indicator of the TCM herb market calculated based on the price of 200 leading varieties of TCM herbs) has hovered around 28.8 percent on average over the past five years, much higher than in other investment fields. In a sluggish economy, it is an attractive option.  

“In the past three decades, whenever the price of TCM herbs goes up, speculators flock to invest. They treat it like a financial product. A few million yuan invested will cause a variety of herbs to multiply in price,” a TCM analyzer who asked for anonymity told NewsChina. “In the past two years, speculators have put in probably a few billion yuan, maybe more, in hot money. How could it not send prices soaring?” he added.  

Deng Yong believes the main cause is an imbalance between supply and demand.  

“There’s been a marked increase in the number of TCM prescriptions following the pandemic,” An Wanjun said.  

Social media site Yishuo Yiliao, which gives updates on medical care news on video platform Bilibili, found that while the price of TCM herbal ingredients had climbed since 2019, it suddenly increased at the end of 2022 when China relaxed Covid restrictions and the number of Covid cases saw a huge spike. The report found that ingredients for Covid remedies saw a rapid price hike, which led to wider increases in other herbal ingredients due to speculation.  

“People are more concerned about their health due to the pandemic and more and more people prefer TCM to improve their health,” An said, adding that because TCM is now available in sachets of compound granules, it is easier to take than having to boil herbal ingredients into a “tea.” Many Chinese people believe that TCM can help balance their physical conditions, while Western remedies can treat imminent health problems. The Chinese government started promoting the use of TCM as an alternative to Western medications around a decade ago, which may also have spurred demand.  

Set against this, supply has decreased due to bad weather, growing productions costs and a decrease in acreage for TCM herb farming.  

Data from zyctd.com showed that TCM supply has been lower than demand since 2021, while acreage for TCM herbs for the first time decreased in 2022.  

Farmer Chen Ming, from Jilin Province, told news portal Economic View under the China News Service that many farmers in Northeast China have quit growing medicinal crops due to the rising cost of land rent in favor of more profitable crops, like corn or wheat, which attract subsidies from a government program to ensure food security. Chen grows radix sileris, a root used to treat fever and relieve pain. He said that annual rent for farmland in Northeast China has quintupled to 15,000 yuan (US$2,143) per hectare in the past three years, likely because of the government measures, including subsidies, to encourage the farming sector.  

Chen said he would rather store his radix sileris and wait for prices to rise than sell at a loss, and he might shift to other agricultural products.  

Deng said that stricter requirements on TCM quality have also squeezed supply. In 2019, health authorities revised the Drug Administration Law, tightening quality supervision on drugs and increasing penalties for violators. The next year, the authorities released a new revision of the Chinese Pharmacopoeia, the country’s official list of approved drugs, which proposes higher quality standards for TCM herb farming and production. This led to medication producers sending back many shipments of herbal ingredients due to excessive pesticide residues or because the level of active ingredients was too low.  

“Substandard herbal ingredients are banned. This is an important move for the government to improve the quality of TCM, which we doctors as well as patients have long been calling for. But of course, this will cause a decrease in the amount of finished products,” An said.  

In order to lower prices for patients, healthcare authorities implemented central purchasing in 2021 for processed TCM drugs, only to find that the price of raw ingredients kept climbing.  

Jia said that because the government publishes a list of medications for central purchase, it has the opposite effect and drives up prices as speculators know which herbal ingredients to buy and hoard, creating a vicious cycle of speculation and price hikes.  

A barista prepares a cup of coffee infused with the medicinal herb matrimony vine, which lowers blood pressure and cholesterol levels, Tongrentang Zhima Health Store, Beijing, August 20, 2020 (Photo by VCG)

Farmers pick the herbal ingredient radix bupleuri, in a village in Yuncheng city, Shanxi Province, May 25, 2023 (Photo by VCG)

Root Cause 
Jia provided data that shows the prices of herbal ingredients for many popular TCM remedies included in central purchasing jumped in June, with those of the top 20 varieties rising by 40 percent on average. At the top end, prices of some raw ingredients jumped by up to 160 percent.  

The fault lies in long-term systemic issues in the sector, Jia and other experts agree.  

“Production and the end market is much larger and more advanced than downstream farming, which is still largely concentrated in scattered, small rural households,” Jia said. “We have ignored the source of the industrial chain and the stability of the supply chain for too long.”  

When there are price fluctuations, growers rush to plant, causing a glut and subsequent price drops, Jia said. Before 2018, there was a craze to plant gardenia, the fruit of which is considered anti-inflammatory. The government used to give farmers an allowance, but this caused the price to slump to only 5.5 yuan (US$0.8) per kilogram in 2019. After many farmers suffered losses, they quickly abandoned gardenia, leaving tracts of land desolate, and causing the price to climb to 38 yuan (US$5.4) per kilogram.  

That is why the TCM market is said to experience a cycle of a three-year slump following a three-year rise, as farmers flock to plant popular herbs when prices rise, but quickly exit when the rise ends.  

Zhang Li said that now, due to the price hikes, many young people from his village who shied away from the TCM ingredient business are considering returning. “We’re seeing more newcomers in this industry, but a lot don’t know anything about TCM herbs. They just want to get a piece of the action,” she said, revealing that even a logistics person she knows has hoarded more than 10 tons of licorice.  

“The latest long-term abnormal rise in herb prices will surely negatively influence the healthy development of the whole industry,” warns a document by the CATM on July 8.  

Experts have been calling for reform of the TCM industry for years, with more government oversight needed across the board.  

Liu Hongwei, a farming expert at the CATM, argued that the government should not treat TCM crops as just another agricultural product.  

“TCM herbs should be put under national strategic administration as staples,” he wrote in an article for paohe. cn, an e-commerce platform for TCM herbs in Guangdong Province. He suggested establishing a separate strategic reserve for TCM herbal ingredients to help balance demand and supply and ease violent price fluctuations.  

“I think about 220 varieties of herbs need to be put under national administration. We have to implement a locked and traceable administration to ensure the material supply of traditional medicines covered by government medical care,” he wrote.  

Wu Xiangjun, a delegate to the National People’s Congress and general manager of a pharmaceutical enterprise in Shijiazhuang, Hebei Province said during the annual government meetings in 2020 that authorities should increase their oversight of the TCM herb market and encourage large-scale mechanized farming of TCM plants.  

Many other experts propose there should be an easily accessible and transparent national database for growers to damp down the space for speculation and squeeze out middlemen. CATM suggested that pharmaceutical enterprises should establish their own farming sites.  

“It will take a long time to achieve normal development of herb farming and to optimize the industry structure. Right now, the priority is to use government levers to stabilize the price, and ease speculation and hoarding by encouraging direct sales between farmers and producers,” Deng Yong said.