Climate change raises agricultural product price volatility in Korea

[Photo by Lee Chung-woo]

South Korea is seeing a rapid decline in the areas where national fruits grown in temperate climates are raised as the country rapidly becomes subtropical.

According to the Korea Meteorological Administration, the annual average temperature in Korea rose by 0.2 degrees Celsius every 10 years from 1912 to 2020, which is three times faster than the global average.

The rate of increase in sea surface temperature in the country was also 2.6 times the global average during the cited period.

The climate change has led Korea to experience the highest volatility in agricultural product prices among major countries.

From 2001 to 2023, Korea’s annual agricultural product price volatility (standard deviation) was 7.8, ranking top among 13 major countries, including the United States, Japan, and France.

Its small land area allows frequent occurrences of extreme heat, heavy rains, and typhoons in the country to cause nationwide agricultural damage. In particular, import-restricted items such as apples face severe supply shocks due to climate change as supply channels are blocked.

The areas producing popular fruits are shrinking rapidly in Korea.

According to Statistics Korea, the nationwide area for open-field apple cultivation decreased by 35.4 percent over the past 30 years (1993-2023), from 52,297 hectares to 33,789 hectares.

The cultivation areas for pears and grapes also decreased significantly during this period, declining by 12.7 percent and 34.3 percent, respectively.

The production of subtropical crops in Korea, on the other hand, has tripled over three years.

An analysis by Maeil Business Newspaper of data from the Rural Development Administration showed that the area for 18 subtropical crops, including mango, papaya, banana, and coffee, increased by 9.9 percent from 303 hectares in 2019 to 333 hectares in 2022.

The production of subtropical crops also grew to 14,600 tons, a 2.6-fold increase, but the total production area of these crops is only 0.6 percent of that for apples, pears, and grapes, not enough to replace the mainstay fruits.

The issue is that climate influence on agricultural production is expected to grow moving forward.

The Bank of Korea estimates that if the monthly average temperature rises by 1 degree Celsius above the long-term average of 1973-2023, agricultural product prices would increase by 2 percent, and overall consumer prices by 0.7 percent after a year.

If unusual weather events disrupt the supply of main agricultural products in the country, the problem of consumer price inflation could worsen.

Although the weight of domestic agricultural prices in the overall consumer price index is low at 3.8 percent, their impact on perceived inflation is significant.

The living cost index, comprising 144 frequently purchased items such as food, clothing, housing, transportation, and communication, includes 23 agricultural items, such as apples, grapes, and cabbage, representing the largest proportion.

The gap between official inflation figures and the public’s perceived inflation has widened as agricultural prices continue to rise.

“Supply stability is key to stabilizing agricultural prices,” said Im Jeong-bin, a professor of agricultural policy and trade at Seoul National University. “The government should improve its supply and demand forecasting capabilities and promote capital-intensive agriculture, such as smart farms, to ensure supply stability.”

Kim Jung-sik, professor emeritus of economics at Yonsei University, pointed out the need to “focus on increasing supply by strengthening support for facility investments as fruit supply areas decrease due to global warming.”

Experts also suggest reducing production costs by applying differentiated minimum wages, given that a significant portion of farming costs involves hiring foreign labor.

The management system for reservoirs and weirs, primarily focused on drought response, should also be shifted to prevent flooding, with stricter management standards, experts noted.

The Ministry of Environment estimated that the economic losses due to heavy rains and heatwaves from 2012 to 2021 amounted to 3.7 trillion won ($2.66 billion). The cost of disaster recovery was estimated to be two to three times the size of the losses.