[The Complex Equation of Rice Prices] Consumption Halved but 'Rice Prices Should Rise'... The Complicated Economics of Rice Prices

The long-standing controversy over ‘rice prices’ has resurfaced. Although the government maintained the ‘harvest season rice price at 200,000 won per 80kg sack,’ the price of rice at production sites has fallen below 200,000 won after the harvest season. The saying ‘living on the strength of rice’ is now outdated, as domestic rice consumption has halved over the past 30 years, which is the main reason for the decline in rice consumption. There is a sharp debate between criticism that ‘surplus rice is being bought with taxpayers’ money’ and the argument that stabilizing rice prices is inevitable for securing the domestic agricultural base and food security.

On the morning of the 29th, Song Miryeong, Minister of Agriculture, Food and Rural Affairs, visited the integrated rice processing center (RPC) in Yesan, Chungnam, to check the supply and demand trends of rice at production sites, gather on-site opinions, and prepare measures to maintain stable rice prices. Minister Song’s direct visit to the site appears to be in response to repeated criticisms that the nationwide average rice price at production sites was 48,958 won per 20kg bag as of the 15th, falling below 200,000 won per 80kg sack. The ‘200,000 won per 80kg’ standard was proposed by the government when exercising the veto power over the Grain Management Act.

On the 23rd, rice is displayed on the shelves of a large supermarket in Seoul. Photo by Jinhyung Kang aymsdream@

The government has not broken its promise that the rice price at production sites has fallen below 200,000 won per sack. The government’s commitment was to maintain the rice price at 200,000 won during the harvest season (October to December), not to keep the price at this level throughout the year. Due to the nature of the crop, new rice is harvested from October to December, during which the Nonghyup (National Agricultural Cooperative Federation), private RPCs, and milling companies purchase the rice. Since rice prices are determined through negotiations between Nonghyup and private RPCs rather than producers selling at cost plus profit, prices tend to fall after the harvest season due to inventory burdens.

The fundamental reason for the decline in rice prices is the change in dietary habits, with domestic rice consumption halving over the past 30 years. Since joining the World Trade Organization (WTO), South Korea has been obligated to import 400,000 tons of rice annually from 2015 as a condition of rice tariff deferment, which further depresses prices amid declining demand. This mandatory import volume accounts for 10% of total rice production.

The ‘200,000 won’ figure is an arbitrary standard proposed by the government and is not an absolute benchmark. In fact, farmers’ organizations argue that the appropriate price should be 260,000 won per sack, higher than the government’s figure. Considering the soaring production costs, this level is necessary. The production cost per 10 hectares rose moderately from 674,340 won in 2016 to 792,265 won in 2021, an average annual increase of 3.3%, but jumped 7.9% to 854,000 won in 2022. That year, the net profit from paddy rice decreased by 36.8%. The outbreak of the Ukraine-Russia war caused a global surge in grain and fertilizer prices, which was problematic.

However, households find the sharply increased rice prices burdensome in recent years. Considering that the target price per sack was around 150,000 won in 2017, the ‘200,000 won per sack’ price represents a 33% increase over six years. While ordinary people complain about expensive rice prices, farmers argue that rice prices do not keep pace with rising production costs and demand that the government purchase more rice. It is a complex issue that is difficult to take sides on.

To address this issue, the government is reducing rice cultivation areas through the ‘Strategic Crop Direct Payment System,’ which provides direct payments when farmers plant crops other than rice. In particular, the direct payments for soybeans and ‘powdered rice,’ which has various uses, have been doubled this year to encourage farmers to switch crops. President Yoon Seok-yeol also promised during last year’s ‘Farmers’ Day’ speech to increase agricultural direct payments to 5 trillion won during his term.

The debate over rice in our society is ongoing. The opposition party recently passed a revised Grain Management Act in the National Assembly’s Agriculture, Food, Rural Affairs, Oceans and Fisheries Committee, which President Yoon vetoed last April. The bill aims to compensate for price differences in rice and major agricultural products, but the ruling party criticizes it as a ‘waste of taxpayers’ money.’ The problem is that despite the debate, there is still no social consensus on how much surplus rice should be purchased to sustain agriculture.

There are also many voices urging that government rice purchases should be viewed not as a ‘waste of taxpayers’ money’ but from the perspective of food security. The rice self-sufficiency rate, which once exceeded 100% at 103% in 2017, has been gradually declining from 92.1% in 2019 to 92.8% in 2020 and 84.6% in 2021. While rice is relatively better, the self-sufficiency rate for grains including soybeans and wheat remains around 20%. To prepare for potential disruptions in global supply chains due to abnormal climate and geopolitical instability, and to protect the aging rice production base, there are calls for the government to take a more proactive role.

Gwak Sang-su, senior researcher at the Korea Research Institute of Bioscience and Biotechnology, said, “Even with mechanization and smart farms, there are limits to the agricultural structure as rural populations decline and villages disappear. There are claims that the rice self-sufficiency rate could fall from the 80% range to the 50% range, so it is necessary to maintain the rice farming base from the perspective of food security.”

China and Japan, which consume similar short-grain rice varieties as Korea, are putting more effort into food security than Korea. According to the Global Food Security Index (GFSI) published by The Economist, Korea, Japan, and China ranked 32nd, 8th, and 34th respectively in 2021, but in 2022, only Korea fell behind to 39th place. Japan rose two steps to 6th place, and China rose nine steps to 25th place.

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