Agreement on Dairy System Reform... Price Increase of 'Drinking Milk' Inevitable

As consumer prices continue to rise, there is an emergency regarding grocery prices. On the 19th, citizens were shopping at a large supermarket in Seoul. Photo by Mun Honam munonam@

[Asia Economy Sejong=Reporter Son Seon-hee] A 'differential pricing system by usage' that sets different prices for raw milk produced domestically according to its use will be introduced starting next year. The purpose is to lower the price of milk used for processed foods such as cheese to secure price competitiveness against cheap imported milk.

However, this is expected to inevitably lead to an increase in the price of drinking milk to compensate dairy farmers' income. Dairy farmers and the dairy industry have immediately entered into negotiations on raw milk prices.

According to the Ministry of Agriculture, Food and Rural Affairs on the 17th, the Dairy Promotion Board held a board meeting yesterday afternoon and unanimously approved the dairy system reform plan with this content. A working-level consultative body involving dairy farmers, dairy companies, and the government will be operated for detailed system discussions. After this process, it is scheduled to be implemented abruptly from January 1 next year.

The differential pricing system by usage was proposed by the government to reconsider the declining milk self-sufficiency rate and has been actively persuading the related industry. The current cost-linked system determines prices solely based on dairy farmers' production costs regardless of demand, so market conditions were not reflected at all. As a result, despite the decrease in demand, milk prices continued to rise, weakening the competitiveness of domestic raw milk in the dairy processing market.

Initially, dairy farmer groups strongly opposed the introduction of the differential pricing system by usage, fearing it could reduce their income. However, after persistent government persuasion, they changed their stance and agreed to the system reform.

The Dairy Promotion Board will begin negotiations to set raw milk prices according to the new system. The first negotiation table is scheduled for the 20th. The negotiation committee will have an equal number of representatives from producers and dairy companies.

Since it is the first year of introducing the differential pricing system, the existing price negotiation framework is expected to be applied to some extent. Under the current cost-linked system, raw milk prices are set within a ±10% range of the production cost changes over the past one (or two) years. Considering that raw milk production costs increased by 52 won per liter in the year before last and last year, the negotiation range for raw milk prices is about 47 to 58 won per liter.

If the raw milk price rises by 52 won, it is expected that the consumer price of milk could increase by 300 to 500 won per liter. The dairy sector argues that a price increase is necessary considering the recently steep rise in feed costs.

Some speculate that the government allowed the raw milk price increase to appease the dairy industry for introducing the differential pricing system by usage, but the government strongly denied this. The Ministry of Agriculture, Food and Rural Affairs stated, "The government has not agreed with the dairy industry on a significant increase in raw milk prices, nor has it started negotiations on raw milk price increases between producers and the dairy industry. There have been no discussions between the government and the dairy industry regarding raw milk price increases so far, and the government's consistent position is that raw milk prices should be decided through negotiations between producers and dairy companies."

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