Korean gov’t pressures milk producers to refrain from raising prices

[Photo by Yonhap]

The South Korean government has recently asked local dairy companies to refrain from increasing the milk prices amid concerns that a hike may lead to higher prices of foodstuffs across the board, according to sources.

Sources said Tuesday that the request was made in a meeting last week between the Ministry of Agriculture, Food and Rural Affairs and about 10 dairy companies, including Seoul Dairy Cooperative, Maeil Dairies Co., and Namyang Dairy Products Co.

The government’s request comes after efforts to curb the prices of ramyeon, or instant noodles.

Inflation could intensify if milk prices rise next month to more than 1,000 won ($0.77) per liter for the first time ever. If the price of raw milk rises, it is likely that the prices of processed foods such as bread, snacks, and ice cream will also soar.

According to sources, a subcommittee of the Korea Dairy Committee has been discussing the extent of increase in raw milk prices since June 9. The subcommittee, which is composed of representatives from dairy companies and dairy farmers, determines the price of raw milk every year according to relevant laws.

The price set by the subcommittee takes effect on August 1 after approval by the board of directors of the Korea Dairy Committee.

This year, the subcommittee plans to decide the increase with a range of 69 won to 104 won per liter. Currently, the price of raw milk is 996 won per liter and is expected to increase to 1,065-1,100 won after the negotiations are finalized.

Raw milk prices rose from 922 won per liter in 2017 to 926 won in 2018, followed by 947 won in 2021 and 996 won this year.

The agriculture ministry has maintained that the increase in raw milk prices will not be significant because the system for setting the price of raw milk has changed this year.

Until last year, the price of raw milk was determined by the “production cost linkage system” that only considered the increase and decrease of dairy farmers’ production costs, but this year, the “differentiated pricing system by use,” which takes into account not only production costs but also the consumption market conditions, has been introduced.

However, even if the price of raw milk is raised to the minimum level of 69 won per liter this year, the increase is steeper than last year’s 49 won.

Even with a 69 won increase, the consumer price of 1 liter of milk is expected to exceed 3,000 won from the current 2,800 won.

Milk prices are already high even though the expected increase in raw milk prices has not yet taken effect.

According to Statistics Korea, the year-on-year price growth rate of milk has remained high at 8~9 percent this year.

The dairy industry is in a bind after the ministry’s request to refrain from raising dairy prices. While agreeing with the government’s intention to stabilize prices, dairy companies say that it is difficult to unilaterally bear losses in a situation where a significant increase in raw milk prices is expected.

“The government should first convince farmers to reduce the price increase as much as possible so that there is room (for dairies companies) to refrain from raising prices,” said a dairy industry official who requested anonymity.

The agriculture ministry is expected to convey to dairy farmers in a meeting on Wednesday that the increase in raw milk prices may not be as large as they would like. The dairy industry‘s position is that the increase in raw milk prices should be minimized as demand for dairy products is declining. Dairy farmers, on the other hand, argue that higher feed prices have increased their production costs, making it inevitable to increase raw milk prices.

There is a possibility, however, that the price of raw milk may not be increased next month, given that the subcommittee of the Korea Dairy Committee is having difficulty reaching an agreement on the amount of the increase. The subcommittee was supposed to conclude the negotiations by the end of last month, but disagreements between dairy companies and farmers pushed the deadline to July 19. If an agreement is not reached after the deadline, the price of raw milk may not be set within this month.