Ejiao products on sale at a drugstore in Yichang, Hubei province.[LIU JUNFENG / CHINA DAILY]

Traditional Chinese medicine costs rise sharply as donkey herds dwindle, says top company official

A dwindling supply of raw material is forcing a leading traditional Chinese medicine producer to shift its business in a different direction: The fresh meat and catering industries.

Dong-E-E-Jiao Co Ltd, whose major product is ejiao－a TCM made from donkey hide－h(huán)as agreed to join forces with Shandong Lvbang Catering Co, the donkey meat producer and caterer, to launch a donkey meat hotpot brand and a donkey-meat steamed bun product.

The Shenzhen-listed firm closed at 56.98 yuan ($8.8) per share on Monday, up 10 percent from Friday.

Ejiao is essentially donkey hide gelatin, and has for 3,000 years been said to improve blood circulation and boost energy levels.

As more Chinese consumers have become aware of the nutritional value of ejiao, however, the supply of donkey hide gelatin products has started falling short of demand, because of a lack of interest by farmers to raise the beasts. As a result, Dong-E-E-Jiao has raised its prices 16 times in the past decade, and last month it announced it was increasing the price for its major products again, by 15 percent.

China's animal husbandry industry statistics yearbook calculates the number of donkeys raised by farmers dropped to 6.36 million at the end of 2012, compared with 9.44 million in 1996, and nearly 13 million in the mid-1950s.

And Qin Yufeng, Dong-E-E-Jiao's president, said numbers are now falling at a rate of 3 to 5 percent annually.

"The ejiao industry is facing a major challenge due to the shortening supply of donkey hide. It's hard for us to expand capacity," Qin said.

As well as the two new food brands, over the next three years Shandong Lvbang also plans to open 3,000 restaurants in China and globally, including 200 in major cities, which are likely to cost 1 billion yuan ($154 million).

Along with China Minsheng Banking Corp Ltd, Dong-E-E-Jiao and Shandong Lvbang have already created a 180 million yuan fund to support the meat and restaurant expansion.

Mao Zhifang, an investment manager at Beijing-based Hejun Consulting Co, said: "Although time-honored Chinese brands have many advantages, and have been diversifying their business, many also face tough competition from emerging foreign and domestic giants."