Behind the rising food prices in Korea are major processed food companies that have continued to raise prices of their monopolistic or oligopolistic products such as soy sauce and red pepper paste.
These companies with overwhelming market shares are facing mounting public backlash for driving up food prices despite increased earnings, with many calling for stronger government efforts to stabilize prices.
“The government should come up with tougher penalties against companies caught for price rigging. The fines they pay now are less than the profits they gain, so they keep doing it,” said Yang Seung-ryong, professor of food and resource economics at Korea University.
“To encourage more competition, the government should also tighten monitoring of large companies to keep them from obstructing new firms’ market entry and make it easier for small new players to enter the food business by easing related rules.”
Ordering the food companies to freeze prices, as the Lee Myung-bak administration did, has only temporary effect and can’t be a good solution because the companies later end up raising the prices at once, Yang said.
Processed food companies with monopolistic or oligopolistic status have grown rapidly over the past five years. Fifteen food companies, up from eight in 2007, each made more than 1 trillion won ($927 billion) in sales last year.
Coca-Cola, which controls 80 percent of the cola market in Korea, raised product prices by up to 9 percent in August after raising them twice in 2011. The company’s sales nearly doubled from 2007 to 910 billion won last year. In the same period, it went from 7.4 billion won in losses to 90.9 billion won in operating profit.
CJ CheilJedang, the nation’s largest food company which posted a 45 percent on-year operating profit growth for 2012, lifted the prices of its flour products by 8.8 percent in December, following a hike two years ago, and red pepper paste by over 9 percent in November, after an 8 percent increase in 2010.
Sempio Foods raised the price of its soy sauce, a must-have condiment in Korean households, by 9.9 percent last week for the third time since 2010. It was hiked by over 10 percent on annual average for the past three years, when the annual inflation rate was between 2 and 4 percent.
During that time, Sempio’s operating profit shot up 50-fold from 2010 to 12.4 billion won last year. Sales of the company, which commands more than half of the domestic soy sauce market, surged 16 percent to 227 billion won last year.
Price hikes of basic food items such as sugar, flour and soy sauce push up the prices of other foods including bread and biscuits as well as restaurants.
CJ slightly lowered sugar prices last year after the government announced plans to directly import sugar. The government ended up importing only about one-ninth of the initially planned 45,000 tons of sugar after CJ cut prices, stirring speculation that it gave into opposition by domestic sugar refiners.
Thanks to the strong oligopoly of CJ CheilJedang, Samyang and TS Corporation ― which were earlier penalized for colluding to fix factory prices and domestic supply volumes of sugar for 15 years since 1991 ― domestic sugar prices stayed high last year despite falling international raw sugar prices.
The Food Ministry said that instead of directly interfering in the market, it will ease import barriers through quota tariffs to induce direct sugar imports by private companies in a bid to stabilize prices.
Confectioneries are skeptical, however, about the measure having any significant effect on major sugar refiners in Korea.
“Because it is important for confectioneries to secure a stable supply source for sugar, only one or two large confectioneries will be bold enough to purchase from private importers that rely on temporary quota tariffs instead of CJ or other major refiners,” said an official at a local confectionery.
About 60 confectioneries that used the sugar that the government directly imported will have to resume trading with major sugar refiners like CJ once the imported sugar has been used up, he said.
All 15 food companies that posted over 1 trillion won in sales last year have a monopoly or oligopoly over products that are consumed on a daily basis. Because of the constant demand for such items, price hikes immediately lead to increased sales.
Among the 15 are Lotte Chilsung Beverage (drinks), Nongshim (snacks), Hite Jinro (beer and soju), Lotte Samkang (frozen desserts), Maeil Dairies (dairy products), Daesang (general foods), TS Corporation (sugar), Dongwon F&B (general foods), Ottogi (general foods), Dongsuh Food (coffee, tea, cocoa), Paris Croissant (confectioneries), Our Home (general foods) and Namyang Dairy Products.
By Kim So-hyun (
sophie@heraldcorp.com)
