[Editorial] Food prices too high

Distribution cost must be reduced; Time to consider opening the market

Food is 56 percent more expensive in Korea than in member countries of the Organization for Economic Cooperation and Development, according to a Bank of Korea report last week.

Prices of clothing and shoes were 61 percent higher than the OECD average last year. Housing was 23 percent more expensive.

On the other hand, electricity, natural gas and water bills were 36 percent cheaper than the OECD average. This is largely because the government suppresses the prices artificially for political reasons.

Particularly, prices of fresh food were outrageously high.

Apples were nearly three times (279 percent) more expensive than the OECD average.

Prices of potatoes and pork were more than twice those for the organization, marking 208 percent and 212 percent, respectively.

Beef and cucumbers were 176 percent and 165 percent more expensive, respectively.

Korea’s high housing expenses are largely attributable to soaring real estate prices. The house price-to-income ratio, which measures how many times larger house prices are than average annual incomes, was 25 in Seoul. It was much higher than 11 for New York City in the United States and nine for Copenhagen in Denmark.

The problem is, the Korea-OECD gaps in food prices and utility bills have widened.

In 1990, domestic food prices were 20 percent more expensive than the OECD average, then the difference grew to more than 50 percent in 2023. Public utility charges were about 10 percent cheaper than the OECD in 1990, then the gap widened to more than 30 percent last year. The price structure is deformed. This must be redressed.

Experts predict household ability to consume will increase by about 7 percent if domestic food and clothing prices fall to the level of major economies. If public utility rates are raised to the OECD average, the consumption ability is expected to fall by 3 percent.

Rhee Chang-yong, governor of the Bank of Korea, said last week that it was difficult to bring down the high costs of living through monetary policy alone. The government needs to pay attention to his view that it should shift focus from monetary policy to structural problems.

As reasons for Korea’s high food prices, the bank cited low productivity in the agricultural sector, excessive distribution margins for farm produce, and restrictions on imports.

Korea’s agricultural labor productivity is one of the lowest among OECD member countries mostly due to small-scale farming and the aging of farmers. Productivity should be raised through the advancement of farming technology.

Distribution costs of fresh farm produce should fall for consumers to benefit, but instead they have increased, rising from 39 percent of the retail price in 1999 to 49.7 percent in 2022. Inefficient elements in distribution channels should be removed. Online wholesale and retail markets need to be promoted to foster competition. Authorities must crack down on unfair trade practices.

The bank emphasized diversification of supply channels, and the point of this is opening the market to imports. The United States, a world leader in agriculture, imports 70 percent of total fruit supply in the US, while the figure is less than 40 percent for Korea.

It is commonplace to see prices of apples, pears and peaches jump when their yields slump due to abnormal climate patterns. This is largely because imports of those fruits are banned.

Whenever Korea negotiated with foreign countries on free trade agreements, lawmakers elected in farming districts put pressure on the government to exclude fruit grown there from import items. If prices of such farm produce soar, the government responds with quick-fix measures.

The government has announced that inflation has stabilized -- recording 2.7 percent last month -- but outrageous food prices mean consumers are a long way from feeling that way. It is becoming difficult to accept a policy that puts consumer benefits behind farmers’ interests. Now is the time to reexamine the policy of protecting local farm produce.

By Korea Herald(khnews@heraldcorp.com)