A steep rise in grain prices on the global market is heightening the need for officials here to be more acute in preempting its possible inflationary pressure. More fundamentally, the soaring prices should provide an occasion to check whether Korea is prepared for another food crisis.
Though local food companies say they have enough stocks of grains such as corn and soybeans to absorb price rises for months, it is feared that global supplies will plunge due to poor harvests this year.
Crop yields in the agricultural areas of the U.S., the world’s leading grain producer and exporter, are expected to fall sharply amid the worst drought in more than half a century. A lack of rainfall in Russia and some Central Asian countries is also set to exacerbate grain shortages.
With meteorologists forecasting the U.S. drought to continue into this fall, Chicago corn futures soared to a record $8.24 per bushel last week, or $324 per ton. International traders expect the price to exceed $9 next month. Benchmark soybean prices also hit a record $17.77 a bushel last Friday.
Though the global supply of wheat remains relatively plentiful, its prices also increased by more than 40 percent over the past five weeks, with its demand expected to surge to substitute corn uses.
The Food and Agriculture Organization has said it would convene an emergency meeting this year if global crop prospects deteriorate further.
Depending on imports for most grains consumed here, except for rice, Korea remains particularly vulnerable to international supply shortages and price hikes. The country imports 91 percent of its soybeans and 99 percent of its corn and wheat.
The rising grain prices are expected to begin to affect local food prices in about six months, according to industry experts here.
A 1 percent rise in imported wheat prices will lead to increasing prices of flour and confectionary products by about 0.6 percent and 0.045 percent, respectively, according to estimates by the Korea Rural Economic Institute. If imported soybean prices gain 1 percent, cooking oil prices are estimated to go up by around 0.25 percent.
The grain price rises are set to strengthen inflationary pressure on the national economy, hampering efforts to revitalize it amid the deepening global economic slowdown.
Government and industry officials are required to make thorough preparations for further deteriorations in global crop conditions.
It appears to be an easy stance for local food companies to delay additional grain purchases, anticipating the prices to fall when what they see as an overanxious mood is subdued.
An association of Korean food manufacturers tasked with importing corn has been watching the market since it bought 55,000 tons in June. Though there are sufficient corn stocks to meet local demand until December, it may have to be considered to purchase more in preparation for continuous price hikes.
Government officials are required to guide companies to keep sufficient stocks and avoid being tempted into excessively increase food prices through price-fixing.
Experts say the world is unlikely to face a food crisis similar to the one in 2007-08 as crops of wheat and rice, the two commodities crucial for food security, remain little affected.
The mounting concerns over reduced yields of corn and soybeans that have prompted their price rallies, however, should make officials here check against the country’s preparedness for more severe situations.
Korea should strengthen efforts to diversify sources of grain imports. Currently, it depends on the U.S., Ukraine and Australia for 95 percent of its wheat and relies on the U.S. and Brazil for the same proportion of corn.
Now importing 60 percent of corn, wheat and soybeans through the world’s major grain traders, the country also needs to nurture a large grain trader, taking into consideration Japan’s example.
