Food companies under pressure to lower prices amid record profits
Domestic food companies, many of whom posted record profits in 2023, should lower the prices of their products as costs of flour and other imported raw ingredients have declined, industry experts and consumer advocates said Monday.
But companies are uncomfortable with such a demand, saying product prices are dependent on more than the price of raw ingredients alone and that they have already faithfully followed the government’s campaign to stabilize food prices in recent years.
The Korea National Council of Consumer Organization said it supports the Ministry of Food, Agriculture and Rural Affairs’ ongoing efforts to mitigate the rising food prices in the country.
These efforts are mostly evident in natural produce and manufactured food products.
Agriculture Minister Song Mi-ryung and Vice Minister Han Hoon have been visiting retail stores nationwide and companies’ manufacturing factories in the past weeks to check the prices of fruits, vegetables and manufactured goods.
The consumer organization said that the prices of flour and cooking oil — like wheat and soybean oil — have been declining since the third quarter of 2022, which food companies should see as a reason to lower their products’ prices.
“Whenever raw ingredients’ prices have increased, the companies promptly applied that to their pricing by increasing the prices of their consumer goods,” Huh Son-young, an official at the organization’s market price monitoring bureau, said. “Likewise, now that the raw ingredients’ prices are slowing down, they should lower their prices accordingly.”
The drop of raw ingredients’ prices has been mentioned by the Food and Agriculture Organization (FAO) of the United Nations as well. FAO’s Food Price Index last month stood at an average of 117.3 points, a decrease from 118.2 points in January. The decline has been continuous since July 2023, when it was recorded at 124.6 points.
FAO’s cereal price index last month was 113.8 points on average, a 33.1 percent decrease from March 2022 when it was 170.1 points and just weeks after Russia invaded Ukraine.
The vegetable oil price index last month stood at 120.9 points on average, more than halved from March 2022 when it peaked at 251.8 points.
“To stabilize food prices, not just the government but food producers and distributors must contribute to the goal by promoting price discount events or price reductions,” Song said on March 10 when she visited a store of Korea’s major supermarket chain Nonghyup Hanaro Mart in Seoul.
On Monday, Han visited Orion’s manufacturing plant in Cheongju, North Chungcheong Province, to make sure the major food company won’t hike its product prices and promised tariffs on potatoes and sugar the company imports will remain at zero for a further period.
Major food companies in Korea, meanwhile, saw record sales last year, with some of them seeing their operation profits increase from the previous year.
Orion’s operating profit stood at 492 billion won ($369 million) last year, up from 467 billion in 2022. Nongshim and Samyang Foods also saw their operating profits last year rise from 112 billion and 90 billion won in 2022 to 212 billion won and 147 billion won, respectively. Binggrae and Pulmuone also saw record operating profits of 112 billion won and 62 billion won, respectively, in 2023.
Along with the boosted performances came wage increases. Orion’s average yearly salary last year was 88 million won, a 10 percent year-on-year increase. Binggrae raised it by 11.8 percent to 60 million won and Lotte Wellfood by 7.1 percent to 56 million won.
Huh said behind those record performance figures could be the companies’ “unjust” intentions to use their profits out of consumers to cover their costs for raw ingredients.
Han last Wednesday gathered representatives of the country’s 19 major food firms and requested them to support the government’s food price stabilization campaign.
“We understand the situation the government is in right now,” an official from the food industry said. “But our products’ prices are more complicated than the raw ingredients alone, as they involve all kinds of manufacturing costs like labor wages and logistics. We’ve been supporting the government’s food market stabilization policy for the past two years. It would be difficult for us to further lower the prices.”