Depressed Root Price, Demand Hurts Ginseng Suppliers

January 9, 2006

2 Min Read
Depressed Root Price, Demand Hurts Ginseng Suppliers


Depressed Root Price, Demand Hurts Ginseng Suppliers

RICHMOND & VANCOUVER, British ColumbiaAsNorth American ginseng suppliers closed their recent financial quarters, avolatile market for ginseng root continues to cause increased costs and lossesrelated to excess inventories and decreased revenues.

Ginseng buyers are hesitant to buy root and reluctant tocarry inventory due to root prices remaining volatile, said William Zen,chairman and chief executive officer (CEO) of Chai-Na-Ta Corp. (OTCBB:CCCFF), the largest supplier of North American ginseng.In order to stimulate sales, Chai-Na-Ta realized an average selling price of$10 per pound in the first nine months of 2005, a decrease of 58 percent overthe average price for the same period last year.

Despite a significant increase in revenue for the period,gross margin plummeted to 5 percent from 36 percent a year ago, net losswidened, and cash deficit from operations fell substantially lower compared tothe same quarter last year. Zen noted the company (www.chainata.com) alsowrote-down $2.9 million (Canadian) in inventory during its fiscal 2005 thirdquarter to reduce the carrying value to its estimated net realizable value. He noted the company should be able to satisfy its host-termcash needs with the reduced price inventory sale, as well s the support of itsprincipal shareholder. However, relative to growing and market conditions, hestated, In light of the continued province-wide rust problem and the downwardprice pressure on ginseng grown in British Columbia, Chai-Na- Ta has decided tostop planting in British Columbia in 2006 and thereafter and close itsoperations after the final harvest in 2008.

Imperial Ginseng Products Ltd. (OTCBB:IGPFF), a smallersupplier, logged no ginseng root sale for its fiscal 2006 first quarter, postingonly fractional revenues from retail sales of its value-added products, whichactually generated a stronger gross margin. Likewise, selling and administrativeexpenses were lower and net loss per share was halved, compared to the sameperiod last year.

Imperial (www.imperialginseng.com) reported it expects worldginseng root price to remain depressed over the next two quarters, but itrecommenced its planting and harvesting activities during first quarter andexpects to meet the challenges in the forthcoming selling season. It furtherexpressed belief world ginseng root prices will recover beginning in the fourthquarter fiscal 2006 and will continue to strengthen within the next two years,when the demand for and the supply of ginseng should once again reachequilibrium.

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