Top dairies plan to go ahead with milk price hike

Shoppers browse milk products at a large discount store in Seoul in this file photo. [NEWSIS]

Tension between the government and the dairy industry is increasing as companies plan to raise the price of milk despite the government’s request to hold the line.

The adjustment is based on a sliding scale price system that links the price of raw milk to production costs - released annually by Statistics Korea - and the preceding year’s rate of inflation.

The system, which was implemented yesterday, will increase the price of unprocessed milk by about 7 percent.

Dongwon F&B, which was scheduled to raise the price of its milk products by 7.5 percent yesterday, decided to postpone the increase in response to the government’s request to avoid the raise.

But Korea’s top two dairy companies intend to proceed.

No.1 dairy producer Seoul Milk and No. 2 Maeil Dairy will stick to raising prices of their milk products this month.

“According to the sliding scale price system for raw milk, we plan to increase the price of milk as scheduled on Aug. 8, as we estimate our loss to be 100 million won per day if we maintain the current price,” said a spokesman for Maeil. “In the case of Dongwon F&B, sales of milk account for a small portion of their revenue, but at Maeil Dairy sales of milk products account for more than 30 percent.”

At Seoul Milk, a spokesman said, “We plan to increase the milk price as scheduled, while considering the economic conditions and consumer prices.”

Higher milk prices are likely to affect the cost of other items such as yogurt, cheese, bread and ice cream.

Scrambling to stabilize prices for consumers in the second half of the year, the government Tuesday asked large discount store chains to refrain from charging more for milk.

“We don’t understand the government moves to prevent a milk price increase,” said an industry source. “Milk has one of the lowest-margin products of only about 3 percent and distribution costs are high because it needs to be refrigerated. The price hike is inevitable due to obvious factors such as rising crude oil prices.”

BY KIM JUNG-YOON [kjy@joongang.co.kr]