Gov’t aims to control apple supplies directly

[Photo by MK DB]

The South Korean government is pushing for direct control over the supply and demand of apples as distribution profiteering was pinpointed as a current cause of “applflation,” a portmanteau of “apple” and “inflation.” There is currently no official mechanism for the government to control prices when they surge as the private sector controls most of the supply, with wholesalers and distributors effectively controlling all pricing decisions.

According to sources from relevant ministries on Tuesday, the government is considering including apples as items subject to government stockpiling.

Government stockpiling is a system where the Ministry of Agriculture, Food and Rural Affairs purchases and stores agricultural products to stabilize prices. It consists of purchase stockpiling, which purchases Korean-produced products, and import stockpiling, which purchases and stores foreign agricultural products.

When there is a need to manage the supply and demand of a government stockpile, the government can stabilize prices by releasing the stockpile into the market. The stockpiling system is funded by the Agricultural Price Stabilization Fund.

Apples are currently not subject to government stockpiling. Although they are included in the target items specified in the government’s stockpile management regulations implemented in March 2023, they are not actually managed by the government.

[Graphics by Song ji-yoon and Yoon Yeon-hae]

The government can control the quantities grown under contracts between the government and farmers, but this amounted to only 49,000 tons in 2023, or just one-fifth of the total. The Korea Rural Economic Institute estimated the quantity of apples stored at 203,000 tons at the end of the year.

The government’s move is attributed to a perceived lack of transparency in the private distribution structure. Market watchers have pointed out that distribution profiteering, along with bad weather, has contributed to the rise in apple prices.

President Yoon Suk Yeol also emphasized the need for strict measures against excessive price hikes, market manipulation, and unfair practices when he announced agricultural price stabilization measures the previous day.

According to a survey by the Korea Agro-Fisheries & Food Trade Corp. (aT) in November 2022, the price of apples more than tripled from the production area in Yeongju, North Gyeongsang Province, to Garak Market in Seoul. While the producer‘s price for 1 kilogram of apples was 1,850 won ($1.38), the wholesale market price was set at 2,900 won, including transportation, packaging, and commission fees. Subsequently, additional charges such as delivery fees and indirect costs raised the wholesale price to 3,900 won, and the final retail price paid by consumers increased to 5,850 won.

If the government does decide to stockpile apples, it will most likely rent private warehouses for apple storage. There are currently 14 government stockpiling bases nationwide, but over 60 private warehouses are being rented due to limited storage space.