Record wheat prices fan inflation

Starting December, Korea projected to face serious ‘agflation’


Inflationary pressures are mounting in Korea amid spiking global agricultural product prices as the nation heavily depends on imports for its grain consumption.

The rising possibility of “agflation,” where the rise in agricultural products leads to inflation, is due mainly to the spike in prices of wheat and corn from climate change effects in major exporters, according to the Korea Rural Economic Institute.

The institute predicted that agflation would affect consumer prices by year’s end. Wheat prices are projected to climb 30.8 percent, starch prices 16.3 percent and forage, a livestock feed, 10.2 percent by the first quarter of next year.

Prices of wheat and corn already set an all-time high in major grain export countries including the United States over the past few months.

According to data provided by the Korea Center for International Finance, raw wheat prices at the Chicago Board of Trade came to $8.80 per bushel on Oct. 12, up about 40 percent from the beginning of the year.

The renewed agflation fears come as food prices in Korea remain high despite the overall stabilization of consumer prices.

Food costs have been driven higher mostly by a prolonged drought last spring.

“Things are different from the agflation that the world suffered in 2008 when spiking demand led to a rise in prices,” an analyst said. “At the time, a global financial meltdown helped dampen the sometimes speculative price movements of major agricultural products.”

But there are few factors this time that could ease price hikes of corn and wheat, among other things, as their prices are mostly driven by drought and other severe weather conditions, not by strong demand, he said.

Some local policymakers as well as private think tanks are raising the possibility that the high grain prices will last for a much longer time than in 2008 when the world suffered agflation.

More and more economists are forecasting that such price hikes may continue well into next year.

A senior research fellow of the Korea Rural Economic Institute said the incumbent administration has put too much emphasis on improving business environments, thereby overlooking the importance of securing farmland.

The Organization for Economic Cooperation and Development classified Korea in its grain report as having a poor capacity to feed its own people compared to the world’s 28 developed economies.

The statistics based on 2003 figures showed that only 25.3 percent of Koreans’ grain consumption is provided by domestic producers.

The KREI researcher said that one of the reasons for the falling grain self-sufficiency rate is that the government does not have a sense of urgency regarding food security.

To maintain the grain output, the farming areas need to be protected. However, the nation’s overall farmland has been steadily declining due to growing demand for housing, roads and factories.

By Kim Yon-se (kys@heraldcorp.com)