Opaque distribution behind apple price hike
The rise in atypical weather patterns and subsequent disappointing crop yields are apparently the main reasons for the hike in apple prices here. However, a closer examination uncovers that inefficiencies and an opaque distribution system are also key factors in exacerbating the issue.
According to the Korea Agro-Fisheries Trade Corp. (aT), Thursday, the retail price for a box of 10 apples was 23,776 won ($17.9) as of Wednesday, marking a 0.2 percent increase from the previous day. The price had surpassed 30,000 won on March 7 but has been trending downwards since then, entering the 20,000 won range by March 14. Currently, it is fluctuating within a small margin.
The primary factor behind this unusual price hike is the abnormal climate conditions being experienced here. The unpredictable weather last year resulted in poor crop yields, causing apple production to drop by 30 percent compared to the previous year and by 22 percent compared to its average.
However, it has been pointed out that the opaque pricing structure in the distribution process has further exacerbated the price increase, well beyond what would be expected from a reduction in supply alone.
Apple prices are determined exclusively by domestic production volume, with no reliance on imports. This underscores the significant impact of the distribution structure on pricing.
Typically, the wholesale price of fruits, including apples, is decided by auctions at wholesale markets.
Given the auction system’s susceptibility to fluctuations based on supply, the sharp decline in apple production from the previous year has led to a rising price.
Furthermore, the journey of apples to the consumer involves a four-tier distribution chain, with each layer adding a markup of between 10 percent to 30 percent. Market observers noted that this opaque process, often combined with practices such as hoarding and collusion, significantly inflates the final price.
Investigations by aT in November 2022 have revealed that apple prices at each stage increased as follows: from the producer stands to make 2,200 won per kilogram, the local auction house makes 2,490 won, then the wholesale market charges 3,400 won, followed by large distribution and retail companies who set it at 4,050 won, and ultimately reaching the consumer at 6,000 won.
The government has issued a warning against potential unfair trading practices.
“In case of excessive price increases, collusion or any actions that disturb the market and lead to unfair profits, we will ensure a firm response,” President Yoon Suk Yeol said, Monday.
The government has pledged ongoing policy support to combat the volatility of agricultural product prices. This includes setting aside a 150 billion won emergency fund, which is dedicated to price stabilization efforts and increasing the supply of imported fruits, such as cherries.
“Until agricultural product prices stabilize to average yearly levels, we will comprehensively implement supply price and discount support without restrictions on duration, item type or scale,” Yoon said.
While the government’s heavy investment has led to a temporary decrease in the apple’s retail price, forecasts indicate that prices are expected to remain high until the next harvest this summer.
This situation raises concerns that the budget allocated for discount support this year could be depleted by the first half of the year, even without effectively controlling inflation.