Bracing ourselves for higher produce prices

We must take food inflation in stride through smart
consumer behavior.

Kim Sang-hyoThe author is the head of the Office of Agroindustry Trend Analysis of the Korea Rural Economic Institute. Produce price inflation, owing to supply disruptions from climate and pathogens, and the spike in international commodity prices has been hardening people’s daily lives. The prices of agricultural commodities soared 20.9 percent in February and 20.5 percent in March on year. Prices, which rose 5.7 percent on month in February, fortunately eased to an on-month gain of 1.3 percent, bolstered by a package of government actions to stabilize farm staple prices.

Korea’s agricultural sector faces greater insecurity in line with deepening geopolitical risks, volatility in the global price of raw materials and the impact of climate change. The old Korean saying that “It is the sky that does the farming” cannot feel truer than it does today. Farmers wrestle with frequent freezes and heat waves, heavy rains and snow throughout last year. As farm produce is basically at the mercy of the climate, there is a limit to the extent to which we can complement agriculture staples with factory products.

Therefore, immediately increasing the output of agricultural produce in response to a spike in prices is impossible. Importing farm products to tame prices at home also takes time due to the required quarantine and other procedures. Because the agricultural supply primarily hinges on climate and natural conditions that are beyond human control, price stability in staple foods becomes a top priority for any government.

Agricultural produce inflation is expected to significantly ease this month. But headline food prices will likely stay strong and volatility will likely remain fixed. How should Korea address and respond to highly inflated agricultural produce prices in the era of climate crisis?

First of all, the perspective on farm produce prices must change. When yields fall due to climate disruptions, prices are bound to rise as production and distribution cannot be immediately stretched. Price volatility must be accepted as a demand-supply factor in the market.

Consumers are also sensitive to fresh food prices because they buy them more frequently than they buy other goods. But farm produce makes up just 3.84 percent of the consumer price index. The price run-up also tends to be transitory. Farmers and the government must accept that the problem cannot be solved easily.

Second, consumers need to turn to smart and frugal shopping by seeking out diverse platforms and cheaper alternatives. When we build a habit of comparing prices among marketplaces, government-subsidized grocery chains, big-box stores and online shopping malls, we can economize to some extent.

Provincial governments also run food outposts and marketplaces that match direct purchases from farms. Online marketplaces can save distribution costs for producers and provide quality food at cheaper prices for consumers. Consumers should also make the most of the farm, livestock and fisheries discount vouchers the government provides to combat inflation.

Third, researchers must study future demand for and supply of fresh food to protect consumers and industry in the era of uncertainties. They must work closely with the government to ensure that their recommendations are swiftly reflected in public policy. The efficacy of budgetary spending will rise if such policies are founded in a long-term road map to deal with items particularly susceptible to insecurity and volatility.

The government must prepare a manual detailing quick actions to take when prices jump. Its item-specific action plan can help to mitigate social confusion during times of insecurity. Support measures also should be readied for low-income demographics during periods of high inflation.

Food inflation is worrying governments and farmers around the world. High inflation poses hardships for consumers as well as farmers whose livelihood depends on smooth sales at reasonable prices. We must take such phenomena in stride through smart consumer behavior to defend the food industry and food security.

Translation by the Korea JoongAng Daily staff.