Unsettling Agricultural Product Inflation... Table Food Prices Likely to Rise Even After Seol Holiday

Government to Manage International Grain Prices for Wheat, Soybeans, and Corn
"Expand Agricultural Support Funds, Lower Interest Rates, and Apply Tariffs if Necessary"

Hong Nam-ki, Deputy Prime Minister and Minister of Economy and Finance, speaking at the 29th Emergency Economic Central Countermeasures Headquarters meeting held at the Government Seoul Office on the 10th. (Photo by Ministry of Economy and Finance)

[Sejong=Asia Economy Reporter Moon Chaeseok] Although the government has started managing the prices of major grains such as wheat, soybeans, and corn, it is expected to be difficult to curb the rising trend even after the Lunar New Year. This is because global supply has decreased and demand has increased due to the COVID-19 pandemic. The government plans to expand support funds for the agricultural sector, lower interest rates, and apply emergency tariff quotas on some items if necessary.

On the 11th, Deputy Prime Minister and Minister of Economy and Finance Hong Nam-ki held an emergency economic central countermeasures meeting at the Government Seoul Office and announced the trends in major raw material prices and response directions. Measures were established for the supply and demand of imported grains such as wheat, soybeans, and corn, which have low self-sufficiency rates.

Deputy Prime Minister Hong explained, "To ensure stable procurement of imported grains such as wheat and soybeans with low self-sufficiency, we have been expanding financial support since last month, including lowering the loan interest rate for overseas grain business ventures from 2% to 1.5%."

He added, "We will hold public-private joint meetings on grains and other raw materials, which were held quarterly, on an as-needed basis, strengthen price monitoring and information sharing among agencies, and reorganize the early warning system for raw materials by next year."

[Image source=Yonhap News]

The reason the government has taken steps to manage grain prices is due to concerns that not only Lunar New Year seasonal products such as eggs and fruits but also grain prices could continue to rise in the long term. In the worst case, prices of major items such as grains, oils, and meats could rise across the board after the Lunar New Year holiday.

Wheat, soybeans, and corn are used both for food and livestock feed, significantly affecting the cost of living. Domestic self-sufficiency rates are extremely low, while prices are soaring.

According to the Korea Customs Service, as of the 9th, the import price of kidney beans was 972 KRW per kilogram, up 12.2% compared to the analysis period (January 14 to February 3). Corn rose 5.6% to 279 KRW, and milling wheat increased 0.5% to 307 KRW.

On the other hand, domestic self-sufficiency rates are 0.7% for wheat, 26.7% for soybeans, and 3.5% for corn. South Korea imports 17 million tons annually. The amount produced directly overseas by Korean companies and sent domestically accounts for only 0.6% of imports, or 110,000 tons.

Globally, supply is decreasing while demand is increasing. In South America, the world's largest producer of soybeans and corn, abnormal weather phenomena such as drought and La Ni?a are occurring. La Ni?a refers to a phenomenon where sea surface temperatures in the equatorial eastern Pacific remain below normal for more than five months.

Productivity is declining due to the impact of COVID-19. Brazil is experiencing over 50,000 daily COVID-19 cases, and exports from Argentina have been cut off due to prolonged strikes.

On the demand side, rising income levels in countries such as China, India, and Brazil have led to a surge in meat consumption. Naturally, demand for feed grains such as soybeans, corn, and wheat is also increasing.

The "International Grain Futures Price Early Warning Index" operated by the Agricultural Outlook Headquarters of the Korea Rural Economic Institute under the overall coordination of the Ministry of Agriculture, Food and Rural Affairs. (Data from Korea Rural Economic Institute)

The government may raise the international grain futures price early warning index from 'stable' to 'caution.' This would be the first time since the index was created in 2014.

If raised to 'caution,' related ministries such as the Ministry of Economy and Finance, Ministry of Agriculture, Food and Rural Affairs, and Ministry of Oceans and Fisheries will consider measures such as national essential vessel deployment and expedited customs clearance for major grains.

According to the Korea Rural Economic Institute, the index recorded its highest ever value of -0.23 in December last year. The price during the 2007 grain crisis (agflation - inflation caused by soaring grain prices) is set as '1.' Values below 0.0 indicate stability, 0.0 to 0.5 caution, 0.5 to 1.0 warning, and above 1.0 severe stage.

An official from the Ministry of Agriculture, Food and Rural Affairs said, "Currently, the industry has requested expedited customs clearance for imported grains arriving domestically, and we are reviewing this matter. If international grain prices rise further, we plan to increase policy funds supporting the industry and farmers, lower interest rates, or apply emergency tariff quotas on some items in consultation with related ministries."

Source=Korea Rural Economic Institute

In the agricultural sector, concerns are growing about 'agricultural product-driven inflation,' where prices of grains, oils, meats, and other items rise across the board in the long term. According to the Ministry of Agriculture, Food and Rural Affairs, the Food and Agriculture Organization (FAO) world food price index has risen for eight consecutive months since May last year, right after the first COVID-19 pandemic.

The government views the rise in the global food price index as a result of strengthened investment sentiment rather than supply and demand instability. A government official said, "Next month, South America's crop yield figures and the U.S. planting area will be released, allowing us to check the overall supply level. Once actual supply-related figures are confirmed and demand from China also calms down, we expect there will be no sharp index surge as feared."

Experts say that fundamentally, the ability to self-supply major grains must be strengthened to raise the level of 'food security.' According to the government, 34% (38 kg) of per capita grain consumption is wheat and soybeans.

Kim Wan-bae, Professor Emeritus of Agricultural Economics at Seoul National University, advised, "Considering South Korea's reality where 100% food self-sufficiency is difficult, long-term development of varieties and seed cultivation technologies to increase productivity per unit area is necessary. Along with this, support such as long-term low-interest loans should be provided to increase the import of international grains by Korean companies operating overseas."

This content was produced with the assistance of AI translation services.