How Nonghyup can lower your grocery bill

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How Nonghyup can lower your grocery bill


Choi Won-byung

The National Agricultural Cooperative Federation will be broken into two holding companies and a central oversight cooperative in March 2012.

“This is the time to be reborn,” said Choi Won-byung, chairman of the organization also commonly referred to as Nonghyup in an interview with the JoongAng Ilbo.

The organization that started off as a bank for farmers celebrated its 50th anniversary yesterday.

Nonghyup is one of the world’s largest agricultural cooperatives. For the economic benefit of farmers across the country, it offers distribution, marketing, agricultural produce sales and banking services at more than 4,000 branches.

In March, Nonghyup received parliamentary approval to split its financial unit and agroeconomic operations to create two holding companies.

The financial holding company will focus on banking and insurance, while the agroeconomic holding company’s main operation will become wholesale and retail handling.

The reform of Nonghyup has been long in the works. It was initially proposed 17 years ago under the Kim Young-sam administration.

The farmers’ cooperative had been criticized for concentrating too much of its resources on its financial functions, while failing to help local farmers sell their produce. The newly reformed Nonghyup is expected to help stabilize inflation and increase the profits of farmers.

Nonghyup said out of the 27.4 trillion won ($25.5 billion) it needs to change its business structure, it is struggling to attract the final 6 trillion won.

In celebration of the organization’s 50th anniversary, Choi told the JoongAng Ilbo that the newly restructured Nonghyup will prevent instability in the price of produce that would burden the average Korean household.

Q. What are the benefits that farmers and consumers get from Nonghyup’s reform?

A. Farmers will receive appropriate compensation, while the consumers will get agricultural produce at a lower price. The problem right now is distribution costs, which account for 65 to 70 percent of agricultural prices. If we lower those costs, the price of agricultural produce will fall. This is a role that Nonghyup has to take up. Until now we weren’t able to address this due to a lack of facilities.

So how much do you think agricultural prices will drop?

In a joint analysis with the Korea Rural Economic Institute, we estimated that, once distribution improves, by 2020 the income of farms will gain an additional 2.1 trillion won per year while distribution costs would be 700 billion won lower per year. As a result, consumers will enjoy lower produce prices.

E-Mart is planning to lower the price of hanu (premium Korean beef) by lowering distribution costs, which is the same as Nonghyup’s plan.

Although we are late, Nonghyup can do a far better job by supplying cheaper but higher quality hanu than E-Mart.

High distribution costs have been a problem over the last three decades, and every time a new administration takes office the promise of reform never materializes.

Streamlining the distribution process is important, but equally important is that distribution companies need to lower their fees. For example NS Home Shopping receives 40 percent as commission. Personally, I think 25 percent is enough.

Is there an alternative?

We will cut back on sales and distribution commissions as well as reduce excessive packaging. For example, a jar of honey is sold for 50,000 won, although honey itself costs 30,000 won. The additional 20,000 won comes from the case made from the royal foxglove tree and gold lining.

This is an issue that Suh Kyu-yong, the agriculture minister, has been addressing.

The government may not be able to supply the capital needed for Nonghyup to change business structures.

I have trust in our government. The government will give us maximum support after a final revision. I understand that the Ministry of Strategy and Finance is planning to help us, since the nation’s farming industry is struggling.

Won’t the cooperative’s influence weaken after the reform?

No, it will not. Nonghyup will have 100 percent of the shares of both the financial and agroeconomic holding companies. Nonghyup is an organization where the members own the organization. Under such a structure, Nonghyup will invest and have influence in both holding companies.

The net assets of the financial holding company that will be launched next year are estimated to be worth 230 trillion won, which will make it the nation’s fourth-largest holding company. The impact on the nation’s economy is expected to be substantial. Therefore, the role of the CEO will be particularly important. Wouldn’t the government want someone it has pull with to run the company?

Personally, I think a financial specialist from Nonghyup should run the financial holding company. Nonghyup has been in the financial industry for several decades, and its expertise should be recognized.

Of course, candidates within Nonghyup and outside of the organization will be proposed. I expect a huge change to take place.

Nonghyup disappointed many customers after a network failure and security breach took place earlier this year.

We plan to focus on enhancing security. We have already named a new chief security officer and we plan to invest 517.5 billion won by 2015 to increase the number of experts and upgrade facilities.

Your term is coming to an end at the end of December. There are rumors that you would be the first to seek a second term at Nonghyup.

This is not the time to discuss whether I plan to run for a second term or not. We have big issues that need to be addressed first, such as the restructuring of the organization and filling the insufficient funding needed for reform. Running Nonghyup is burdening enough in itself.

By Yi Jung-jae []
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