Government Discusses Reforming Milk Price Determination Structure: "Current System Does Not Reflect Supply, Demand, and Consumption Changes"

[Image source=Yonhap News]

[Sejong=Asia Economy Reporter Kim Hyunjung] The government appears to be discussing plans to reform the milk price determination structure. Despite the sharp decline in milk consumption, the current system allows the dairy industry to push for and decide price increases, which is seen as problematic, prompting calls for a fundamental change in the decision-making framework.

According to the Ministry of Economy and Finance and the Ministry of Agriculture, Food and Rural Affairs on the 17th, the government is internally reviewing measures to restructure the milk price system. A government official stated, "We see problems with the current price determination system that raises prices based on production costs regardless of the declining milk consumption, and we want to prepare reform plans." The official added, "We plan to brainstorm with the dairy industry by the end of the year to explore reform measures."

This is in light of the fact that the government currently has no direct mechanism to intervene in the milk price increase scheduled for this month, decided by the Dairy Promotion Council last year. The dairy industry decided to raise the raw milk price by 21 won to 947 won per liter starting from the 1st of this month, but this has not yet been communicated to each milk company. The government is raising concerns about the 'raw milk price linkage system,' which purchases milk at prices reflecting increased production costs regardless of market supply and demand. This system was established to support dairy farmers after the foot-and-mouth disease outbreak, but because prices are determined this way, they do not adjust downward and continue to rise.

Another issue is that the price determination structure and system have not kept pace with changes in consumption patterns. A government official pointed out, "During last year's board discussions, there was consensus that there were problems with the dairy system and structure, and agreement to work together to fix them going forward. However, due to opposition from producers, no progress has been made so far, and only raw milk price increases are being pursued." The official also explained, "As consumption of drinking milk has significantly decreased and processed dairy product consumption has surged, the production, distribution, and price determination structures need to change accordingly, but the old system remains in place."

In fact, drinking milk (white milk) is left unsold. Last year, per capita consumption of white milk was 26.3 kg, the lowest since 24.6 kg in 1999. Meanwhile, powdered milk stockpiles reached 12,109 tons as of February this year, the highest in 4 years and 5 months since 12,609 tons in September 2016. This phenomenon is due to the continuous decline in school-age population and changes in consumer preferences, compounded by school meal suspensions caused by the COVID-19 pandemic.

If the raw milk price increase is finalized as is, prices of not only milk but also dairy products, coffee, ice cream, confectionery, and bakery items will rise consecutively. A government official emphasized, "Except for cases using powdered milk as raw material, price increases of fresh milk are reflected in processed food prices in real time. Since the system reform discussed alongside the price increase has not been implemented, which is partly the responsibility of producer groups, further discussion and consultation are needed rather than immediately raising prices."

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