---
title: "Why Golden Arowana, an Oil Seller, Earns Less Than Haitian, a Soy Sauce Maker"
description: "Golden Arowana, a well-known edible oil company, has a huge market presence but low profitability, with a net margin of less than 3.2% in 2019. This is due to high raw material costs and limited pricing power, stemming from government price controls and product homogeneity, unlike high-margin businesses like Moutai and Haitian."
author: "巴九灵"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2020-10-20"
language: "en"
canonical: "https://xinjignxiao.com/en/articles/why-golden-arowana-an-oil-seller-earns-less-than-haitian-a-soy-sauce-mak-fd67c673/"
markdown: "https://xinjignxiao.com/en/articles/why-golden-arowana-an-oil-seller-earns-less-than-haitian-a-soy-sauce-mak-fd67c673.md"
original_source: "https://mp.weixin.qq.com/s/EWsuvsNbF8PpExyR9wsAlg"
translation: "https://xinjignxiao.com/zh/articles/%E5%8D%96%E6%B2%B9%E7%9A%84%E9%87%91%E9%BE%99%E9%B1%BC-%E4%B8%BA%E4%BB%80%E4%B9%88%E4%B8%8D%E5%A6%82%E5%8D%96%E9%85%B1%E6%B2%B9%E7%9A%84%E6%B5%B7%E5%A4%A9%E8%B5%9A%E9%92%B1-fd67c673.md"
attribution: "New Distribution — https://xinjignxiao.com/en/articles/why-golden-arowana-an-oil-seller-earns-less-than-haitian-a-soy-sauce-mak-fd67c673/"
usage_policy: "https://xinjignxiao.com/ai-policy.txt"
---

# Why Golden Arowana, an Oil Seller, Earns Less Than Haitian, a Soy Sauce Maker

> Golden Arowana, a well-known edible oil company, has a huge market presence but low profitability, with a net margin of less than 3.2% in 2019. This is due to high raw material costs and limited pricing power, stemming from government price controls and product homogeneity, unlike high-margin businesses like Moutai and Haitian.

**To be benevolent is not to be rich; to be rich is not to be benevolent.**
**——From "On Salt and Iron: Expanding the Land"**
Text by Ba Jiuling, Source: Wu Xiaobo Channel
On October 15, a "Golden Arowana" swam into the ChiNext board.
The edible oil company we are familiar with just entered the capital market and ranked among the top three in market value on the ChiNext board with a market value of 265 billion yuan.
The company's full name is Yihai Kerry Arawana Holdings Co., Ltd. (hereinafter referred to as Golden Arowana).
However, Golden Arowana has a very obvious contradiction: it has a large scale but does not make much money.
In 2019, Golden Arowana achieved operating revenue of 170.7 billion yuan and net profit of 5.4 billion yuan, **with a net margin of less than 3.2%.**
Also in agricultural product processing, Moutai, which sells liquor, obtained 41.2 billion yuan in profit from 88.8 billion yuan in revenue, while Haitian Flavoring, which sells soy sauce, obtained 5.3 billion yuan in profit from 19.8 billion yuan in revenue.
Compared with Moutai and Haitian, Golden Arowana earns only hard-earned money.
Why is Golden Arowana's business so difficult?
**-01-**
**Squeeze Every Drop**
To answer this question, we first need a basic understanding of Golden Arowana's business.
Besides selling oil, Golden Arowana also sells rice and flour. By-products such as soybean meal formed after soybean oil extraction can be sold as feed ingredients to aquaculture enterprises.
Golden Arowana classifies rice, flour, and oil into one category, called kitchen food; by-products such as soybean meal, soybean skin, and rice bran are classified into another category, called feed ingredients; in addition, Golden Arowana relies on its own processing technology to expand into oil technology business, which can process palm oil and other oils into fatty acids, soap granules, glycerin, and other chemical products.
This entire processing flow from agricultural products to finished products is called the "squeeze every drop" processing model by Golden Arowana, which maximizes profit extraction.
Source: Prospectus
But feed and technology products are only supplements; whether in terms of revenue scale or gross profit, kitchen food is the main pillar of Golden Arowana.
In 2019, 63.9% of Golden Arowana's revenue was contributed by kitchen food, while feed and technology businesses accounted for only 35.8%. The gross margin of kitchen food was also 4 percentage points higher than that of feed and technology products, at 12.64% and 8.68%, respectively. Thus, kitchen food contributed over 70% of gross profit.
Data source: Prospectus
Among kitchen food, edible oil products generated revenue of 81.5 billion yuan in 2019, accounting for 75% of the kitchen food business segment, while rice, flour, noodles, specialty oils, animal fats, and other products accounted for the remaining 25%.
At the company level, edible oil accounted for 47.8% of total operating revenue, making it the company's most important product category.
Given this, our analysis below will mainly focus on edible oil.
**-02-**
**Why Is Golden Arowana's Business So Hard?**
From the gross margin of about 10%, it can be seen that Golden Arowana is doing a tough business.
Raw materials increase in value after processing by the company, and the gross margin reflects the proportion of value added after raw materials pass through the company's conversion system.
In 2019, Golden Arowana's overall gross margin was 11.4%, meaning that for every 100 yuan of soybeans, no matter how they are squeezed dry in Golden Arowana's conversion system, whether made into edible oil or soybean meal for feed, they can only increase in value by 11.4 yuan.
So, what factors limit Golden Arowana's value-added capability?
Looking at it from two sides: one is high costs, and the other is inability to sell at high prices.
First, let's talk about the inability to sell at high prices. There are two reasons for this: external factors are policy, and internal factors are industry characteristics.
In the prospectus, Golden Arowana states:
> Currently, the company has independent pricing power for its products, and product price adjustments do not need to be reported to the price authorities. However, when the market price of kitchen food rises sharply and has a significant impact on consumers' daily living expenses, to manage inflation, the price authorities may take temporary price intervention measures.
**Key point: When the prices of rice, flour, and oil rise and affect consumers' lives, the price authorities may take temporary measures.**
At the end of 2010, the National Development and Reform Commission held a symposium requiring leading edible oil companies, including Golden Arowana, not to raise prices for the next four months.
Apart from policy factors, the homogeneity of edible oil products makes it difficult for companies to raise prices.
The process flow for edible oil mainly includes pressing and refining.
To facilitate residents' purchase, small and medium-sized packaged edible oil (below 5L) adds blending and filling processes. Blending and filling are nothing more than changing the proportion of different oils (Golden Arowana's famous advertisement is the 1:1:1 blended oil) and bottling the oil, with low technical barriers.
Pressing and refining are actually not difficult either.
According to Golden Arowana's prospectus, in the past three years, Golden Arowana purchased about 50 billion yuan of bulk soybean oil annually, and sold about 30 billion yuan of bulk oil externally.
Bulk soybean oil includes products from the pressing and extraction process—crude soybean oil—and products from the refining process—refined oil.
Source: Prospectus
After more than a dozen processes, the semi-finished products can be exchanged with other manufacturers. In addition, Golden Arowana's edible oil revenue in 2019 was 82 billion yuan, and the scale of intermediate product trading is so large, indicating that product differences among different manufacturers are not significant, and the degree of homogeneity is high.
Homogeneity is almost synonymous with difficulty in raising prices.
Combining internal and external factors, the price of soybean oil has hardly increased since 2007.
Soybean oil prices in 36 large and medium-sized cities
Data source: NDRC, Radish Investment
Grain and oil products are related to national livelihood, and prices are difficult to raise, but raw material cost fluctuations do not consider these factors.
The prices of agricultural products such as soybeans, wheat, and rice are affected by climate, natural disasters, global supply and demand, policy regulation (minimum purchase prices, subsidies), trade frictions, and other factors, with a much larger fluctuation range than edible oil.
In the past five years, soybean prices have reached a high of 4,940 yuan per ton and a low of 3,607 yuan per ton, with a fluctuation range of over 30%.
Data source: National Bureau of Statistics, Radish Investment
According to China Oils and Fats Network, in 2019, due to rising soybean prices, oil processing and sales enterprises once suffered losses of more than 2,000 yuan per ton of small packaged edible oil.
Golden Arowana's raw material costs account for 88% of main business costs, and price fluctuations are equally unbearable. To hedge against price fluctuation risks, Golden Arowana uses financial instruments such as futures and foreign exchange forward contracts for hedging.
In 2016, due to fluctuations in soybean futures trading, Golden Arowana suffered a loss of 3.405 billion yuan in commodity derivative financial instruments, ultimately resulting in a profit of only 511 million yuan for that year.
Under the pincer attack of costs and selling prices, every cent of Golden Arowana's profit is hard-earned.
**-03-**
**Conclusion**
From a tax policy perspective, liquor companies need to pay additional consumption tax, calculated on both volume (0.5 yuan per jin) and price (20% of sales revenue); soy sauce companies pay taxes normally; and according to the preferential policy for primary processing of agricultural products, edible oil companies are exempt from corporate income tax.
But from a profitability perspective, high tax rates have not affected the profitability of liquor, and tax exemption has not helped edible oil. It is said that the consumer industry is easy to make money, but there is a world of difference between easy and effortless.


---

## Copyright and AI use

This article is sourced from New Distribution. Search, quotation, summarization, and model training are permitted, but every use must credit New Distribution and retain the canonical source URL.

Contact: zhaobo258@gmail.com · +86 158 5481 7671