| dc.description.abstract | Recently, food prices have been highly fluctuating. In particular, prices of imported agricultural products, e.g., cereals, used as raw materials for processed food have been soaring. This is predicted to put pressure on Korea’s processed food prices. This study was carried out to identify the trend of changing agricultural food prices, analyze the primary factors of rising prices of raw materials for processed food fueled by rising prices of imported raw materials and the effect of changing global raw material prices on Korea’s processed food prices, and present a direction of countermeasures that could be taken by the Korean government and the private sectors.
Chapter 2 of this report will describe the trend and changes in food prices and prices of imported agricultural products to review the primary factors behind the changing prices of imported agricultural products. Chapter 3 will describe the proportions of raw materials by major processed food types to estimate the effect of rising raw material prices on the processed food prices (the cost) during the period from January to May 2011 based on an investigation of food processing companies and the food price index. The effect of changing global raw material prices in the first half of 2011 on Korea’s processed food prices (the cost) in the second half will be analyzed with the Input-Output Table. Chapter 4 will describe the effect of rising food prices on consumer households and the psychology thereof by investigating consumers and household expenditure. Chapter 5 will describe the prospect of supply and demand and prices of global raw materials in the future and possible countermeasures that could be taken by the Korean government and the private sectors.
Prices of agricultural and fishery products of Korea have risen since the second half of 2010 to be 16.7% higher than last year in the first quarter of 2011. The prices of imported agricultural and fishery products were 32.5% higher than last year's in the first quarter of 2011 due to soaring prices of global agricultural products. The prices of Korea’s processed food affected by the prices of Korea’s and global agricultural and fishery products did not rise much, but were 6.0% higher than last year's in May this year, showing a faster speed of rise lately. Exemplary processed foods showing highly fluctuating prices since 2005 include processed cereal and meat products, oil, processed fruits and vegetables.
The prices of imported agricultural products, e.g., cereals and sugar, continued to rise sharply from the second half last year to April this year and the prices are still at high levels. The price of imported agricultural products is highly fluctuating. The price of global agricultural products is rising as both production and stock decreased while there is more demand from China and India and the demand for energy, e.g., ethanol, is increasing. In the meantime, highly fluctuating production due to abnormal weather is contributing to highly fluctuating prices.
Major processed food are produced and processed with the mixed raw materials of flour, sugar, oil and fat products, dairy products, livestock products, etc. An investigation of agricultural products of 15 food processing companies shows that the cost of raw material accounted for 40~60% of the total cost of producing processed food, and the types and proportions of major raw materials were identified for each item. By using the relative importance of raw material cost to total cost for each item, fluctuation rates of price of each raw material as compared to last year, and raw material composition ratio of each item, it was estimated how much the cost of processed food increased as raw material prices changed (rose) from January to May. It was shown that the potential rate of increase in the production cost due to increase in the price of raw materials for each item is more than 20% for orange juice, processed meat products (ham) and vegetable cooking oil, more than 10% for instant coffee mix, instant noodles and soft drinks, and more than 5% for ice pops, instant noodles, breads, and confectionery as compared to last year.
The global prices of raw materials such as cereals and sugar increased in the first half of 2011 compared to the second half of 2010: 43% for corn, 21% for beans, 14% for wheat, and 10% for sugar. According to the analysis of the Input-Output Table, it is predicted that such rising global raw material prices will lead the processed food prices (cost) of Korea to an additional increase of 1 to 11% as compared to the last first half. In particular, it is predicted that the biggest pressure to increase price will be put on starch and sugar (10.8%), followed by flour (9.9%) and oil and fat products (6.6%).
A questionnaire survey was conducted in early May, 2011 on 300 residents in the capital region to analyze the effect of psychological attitude toward rising product prices on consumption. The response was that 68.7% of the respondents thought that the price of food and non-alcoholic drinks increased the most this year (January to April) and 62.0% said the rising prices of food and non-alcoholic drinks was psychologically most burdensome. The level of psychological burden over all items was higher in the low-income groups whose income is below 2 million won than the group whose income is above 4 million won. Consumption expenditure showed that the low-income group exhibited higher increase rates of spending than the high-income group with respect to the purchase of raw and processed products of vegetables, seaweed, meat, confectionery and sugar, grains, fruits, fat and oil, spices and other foods.
In spite of the price rise, exemplary food products that showed either an increase or almost no change in consumption were raw and processed products of grains, marine products, dairy products and roe, vegetables, seaweed, sugar and confectionery, coffee and tea, and other drinks including juices. It is considered that the result for coffee and tea and other drinks which are not essential food items reflects the recent increase in demand resulting from an increase in income and changing preferences.
Consumers obtained price and shop information from leaflets (49.0%), the Internet/smart phone (42.3%), shop advertisement (37.7%), and TV/radio (21.7%). It was investigated that consumers reduced the purchase of a food product and bought a similar product from a different company when the price increased by 5 to 10%.
It is predicted that global grain prices will continue to rise while fluctuating, thus significantly affecting the supply and demand and price of Korea’s processed food and causing confusion in the consumer's expenditure. Therefore, the Korean government and the private sectors should take measures and develop schemes to stabilize the supply of imported agricultural products, produce alternative crops, revitalize the related processing industry, enhance food assistance for lower income groups, tighten the monitoring of food companies’ actions on prices, develop an observation system for global cereals and processed food, etc. Meanwhile, stabilized supply of imported agricultural products will be ensured through flexible application of quota tariffs, introduction of a public reserve system, use of the futures market, and introduction of international cooperation systems, etc.
Researchers: Yong-Sun Lee, Meong-Hwan Sung, Hak-Kyun Jeong,
Hye-Mi Jeon
E-mail Address: yslee@krei.re.kr | - |
