"Milk 1L 3000 Won" Becomes Reality... Is the Feared Milkflation Coming?

3-Month Long Crude Oil Price Negotiation Concludes
Set at 49 Won per Liter... Milk Price Expected to Exceed 3000 Won
Prices of Dairy Products, Bread, and Ice Cream Also Expected to Rise

[Asia Economy Reporter Song Seung-yoon] As negotiations on raw milk prices between dairy farmers and the dairy industry have concluded, prices of milk and other dairy products are expected to rise across the board due to this increase in raw milk prices. Concerns are also emerging about a potential "milkflation," where not only dairy products but also the cost of ingredients such as bread and ice cream containing milk will increase, leading to a rise in product prices throughout the food industry.

According to the industry on the 4th, the Dairy Promotion Board decided at its board meeting the previous day to raise the raw milk price from 947 won per liter to 999 won, an increase of 49 won. Considering the delay in the price increase, an additional 3 won per liter will be paid this year, making the actual increase 52 won per liter. From next year, the 49 won per liter increase will be applied. This raw milk price hike is the first in two years and three months since the Dairy Promotion Board decided on a 21 won increase in August 2020.

This raw milk price increase is the largest since the raw milk price linkage system was implemented in 2013, when prices rose by 106 won all at once. In 2014 and 2015, raw milk prices were frozen, and in 2016, they were reduced by 18 won. After a freeze in 2017, prices were raised by 4 won in 2018, frozen again in 2019, and increased by 21 won in 2020. At that time, considering the COVID-19 situation, the price application was postponed by one year, so the price was actually applied in August last year.

Typically, once the basic raw milk price is set, major dairy companies such as Seoul Milk, Maeil Dairies, and Namyang Dairy Products have consecutively raised milk prices. Dairy farmers and dairy companies usually start raw milk price negotiations in June and apply the new prices in August. However, this year, negotiations were delayed well beyond August due to differences in opinion over the dairy system reform plan, which involved changing the price determination system from the existing production cost linkage system to a differentiated price system by usage. Initially, dairy farmers strongly opposed the reform but changed their stance to cooperate after several negotiations. The Dairy Promotion Board meeting was held only in September this year. From September 20, raw milk price negotiations officially began, discussing price adjustments and dairy system reform plans.

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@

With the new raw milk price set at 49 won plus a retroactive 3 won, totaling 52 won per liter, consumer prices for plain milk, currently in the mid-2700 won range per liter, are expected to exceed 3000 won. Last year, when raw milk prices increased by 21 won per liter, consumer prices for plain milk rose by 150 to 200 won per liter. This is because milk consumer prices typically increase by about ten times the raw milk price increase. Considering this price hike, the increase is likely to be determined between the high 400 won to 500 won range per liter.

This is expected to raise prices not only for milk but also for other dairy products using raw milk, such as creams, cheese, and ice cream. The industry atmosphere is solidifying around the inevitability of dairy product price increases. Since the raw milk price hike was delayed more than initially expected, a domino effect of price increases is likely to follow immediately. Besides dairy products, there is also a possibility of price increases across the board in manufactured foods such as bread and snacks.

The Seoul Milk Cooperative raised prices of all cheese products by 9% in April and increased the ex-factory prices of some cheese products, including cheddar cheese, by about 20% last month. Namyang Dairy Products already raised prices of cheese products such as Da Vinci by about 10% in the first half of the year and plans to increase prices of some fermented milk and cheese products by more than 10% starting this month. Maeil Dairies raised prices of fermented milk products by 15-25% last month and also increased prices of sour cream and whipping cream by 6-7%. If price increases continue again within this year after the recent negotiations, some companies could raise product prices up to three times a year.

An industry official said, "It is highly likely that milk price increases will start as early as the end of this month or next month," adding, "Along with the raw milk price increase, the high exchange rate situation has overlapped, causing raw material costs, logistics costs, and labor costs to surge, exceeding the level companies can endure."

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