Another Failure to Reach Conclusion in Crude Oil Price Negotiations... "Resuming on the 24th" (Summary)

Dairy Farmers and Milk Companies at Odds
No Income Despite Deadline, Talks End
Discussions Continue Over a Month... Painful Negotiations Expected Until Agreement

This year, negotiations between dairy farmers and dairy companies to set the price of raw milk once again failed to reach a conclusion. Despite discussions lasting over a month, the parties have not narrowed their differences, and further difficulties are expected before an agreement is reached.

According to industry sources on the 19th, the Dairy Promotion Committee subcommittee, composed of dairy farmers and dairy industry representatives, set the day as the negotiation deadline for raw milk prices but ended the talks without any progress. Additional negotiations are planned to resume on the 24th.

Under the Dairy Promotion Act, dairy farmers and dairy companies determine the raw milk price annually through negotiations. This meeting discusses how much to set the price of raw milk squeezed from dairy cows, based on the price per liter. The Dairy Promotion Committee subcommittee began its first meeting on the 9th of last month and has been negotiating for over a month, but both sides have yet to narrow their differences regarding the rate of increase.

A citizen is selecting milk at a mart in downtown Seoul. [Image source=Yonhap News]

Minimum Increase of 69 KRW per Liter... "Aftereffects of the Linked Pricing System Accumulate"
Price Rise Criticized Despite Decreased Consumption
Change to Differential Pricing by Usage

This year, the subcommittee is expected to set the raw milk price increase within the range of 69 to 104 KRW per liter. Last year, the raw milk price was 996 KRW per liter. If negotiations conclude as expected, the raw milk price will rise to 1065?1100 KRW per liter, surpassing 1000 KRW for the first time. Until last year, the raw milk price determination method operated in a way that increased the burden on dairy companies. The 'production cost-linked system' was applied, which sets the increase rate at 90?110% of the change in dairy farmers' production costs based on the previous year's 'Livestock Production Cost Survey Results' announced by Statistics Korea. Accordingly, the raw milk price per liter rose from 922 KRW in 2017 to 926 KRW in 2018, then to 947 KRW in 2021, and 996 KRW this year.

On the other hand, dairy companies supplying products to the market based on raw milk have faced increased burdens by accepting the price hikes amid declining milk consumption. According to the Dairy Promotion Committee's distribution and consumption statistics, domestic per capita consumption of white milk decreased from 26.60 kg in 2017 to 26.20 kg last year. During the same period, consumption of processed milk excluding white milk also declined from 6.20 kg to 5.40 kg. As criticisms grew that raw milk prices were continuously raised despite decreasing milk consumption, the negotiation method was changed to a 'differential pricing system by usage' starting in September last year. This system considers not only dairy farmers' production costs but also the consumer market situation, with the increase rate set within 60?90%. In this case, including the increase in production costs, the standard increase is 69?104 KRW per liter.

The Ministry of Agriculture, Food and Rural Affairs predicted that the price increase would not be significant due to the change in the raw milk price determination system starting this year; however, even raising the price by the minimum 69 KRW per liter results in a larger increase than last year's 49 KRW. A dairy company official noted, "Even though the price calculation method has changed, the burden of the annually rising raw milk price due to the previously sustained linked pricing system has accumulated."

Consumer Price Expected to Surpass 3000 KRW if Raw Milk Exceeds 1000 KRW per Liter
Chain Price Increases Inevitable for Bread, Coffee, Cheese, etc.
Dairy Companies Struggle Amid Government and Consumer Group Pressure

If the raw milk price exceeds 1000 KRW per liter, the consumer price of white milk by dairy companies is likely to enter the 3000 KRW range. Last year, when the base raw milk price increased by 49 KRW per liter, each dairy company raised white milk product prices by about 10%. The price of 1 liter of white milk from Seoul Milk Cooperative rose to the 2800 KRW range at large supermarkets, and Maeil Dairies increased the price of its 900 ml white milk product from 2610 KRW to 2860 KRW. Based on this, the price of 1 liter or 900 ml white milk products could rise from the high 2000 KRW range last year to the 3000 KRW range. Additionally, price increases for products using milk as a raw material, such as bread, coffee, and cheese, are inevitable, raising the possibility of 'Milkflation' (milk + inflation).

Meanwhile, the government recently recommended price reductions focusing on product groups frequently consumed by consumers, such as ramen, snacks, and bread, and reportedly conveyed this stance to dairy companies including Seoul Milk, Namyang Dairy Products, and Maeil Dairies, requesting restraint on excessive price hikes. The Korea Consumer Organization recently issued a statement saying, "The three domestic dairy companies raised product shipment prices by 10.2?16.3% from last year to the first quarter of this year, more than double the increase in raw milk prices," and pressured, "Companies should not seek profits by using raw milk price increases as an excuse." On the other hand, dairy companies argue that if they do not raise product prices despite rising raw milk prices, they will inevitably bear losses.

Given the significant differences between the two sides, the raw milk price negotiations this year are expected to be prolonged. A dairy company official said, "At present, the negotiation results on the raw milk price increase must be finalized before we can clarify our stance on product prices," adding, "While the prevailing expectation is to reach a conclusion within this month, we need to monitor the progress of discussions."

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