[Editorial] Unjustified price hikes

The government was one step behind when it hurriedly arranged a meeting on Thursday with officials of domestic food companies to rein in soaring food prices. Food companies have already raised the prices of a wide array of products, ranging from flour and soy sauce to kimchi, tofu and soju.

For instance, Samyang Corp. raised the prices of its flour products by up to 9 percent on Wednesday. It was the last among major flour producers to raise prices. The increase in flour prices pushed cookie companies to raise prices, transferring the cost increase to consumers.

Earlier this month, Daesang FnF jacked up the prices of its kimchi products by an average 7.6 percent. Last month, CJ CheilJedang Corp. increased the prices of its soy sauces by 7.1 percent on average, while Lotte Chilsung Beverage Co. raised its soju price by 8.8 percent.

Most of the companies that joined in the rush to hike prices said their move was inevitable given the surge in international cereal prices since last summer. But this explanation does not hold much water.

Last year, the Food Price Index compiled by the U.N. Food and Agriculture Organization marked an average of 211.7, down from 227.6 a year ago. The drop was led by a sharp fall in sugar and dairy price indices. But other commodities, including cereals and oil and fats, also contributed to the decline.

In case of cereals, global prices did surge in July last year. But they have since moved southward.

The companies’ price hikes are all the more unjustifiable given the sharp appreciation of the Korean currency since last June. The won-dollar ratio stood at 1,180.3 in May but fell to 1,070.6 at the year-end.

The strong won, combined with the downward trend in global food prices, boosted the profits of domestic food companies. According to reports, the operating profits of CJ Cheiljedang, Lotte Chilsung Beverage and Daehan Flour Mill jumped by 45 percent, 68 percent and 920 percent, respectively, last year.

The Korea Rural Economic Institute recently forecast that international cereal prices would drop further due to an increase in global output. It expects import prices of beans, corn and wheat to fall by 10 percent, 6 percent and 2.4 percent, respectively, in the second quarter compared with the previous quarter.

The circumstances lead us to suspect that food companies sought to gain undue profits by taking advantage of the lax oversight by government officials during the political transition period. If cereal prices drop down the road, they will have to lower their prices accordingly.