Spillover effect feared as Seoul Milk hikes prices by 50 won

Korea’s top milk manufacturer Seoul Milk has raised its wholesale prices for major discount chains, raising concern that the hike will cause a spate of other dairy product prices to soar, stimulating inflation and placing a burden on family finances.

According to discount stores, Seoul Milk sent an official document last month to E-Mart, Lotte Mart and Homeplus informing them that it will raise the supply prices of its milk for businesses.

According to the decision, the supermarkets increased the price of a one-liter carton of milk by up to 2.2 percent yesterday, raising the price by 50 won to 2,350 won ($2.07) at discount chains.

At least three other manufacturers, Namyang Dairy Product, Maeil Dairies and Binggrae, are also mulling price hikes, they said.

Raw milk prices last went up in October but milk producers claim this was not properly reflected in consumer prices as the government moved to keep a lid on inflation as it struggled to keep within its 2011 target of 2-4 percent.

Now consumers are fretting that other bakery products made using milk may jump in price, along with coffee beverages.

Meanwhile, milk manufacturers saw their stocks rise on the local bourse yesterday as news of the imminent hike spread. As of 3 p.m., Namyang was trading at 780,000 won, up 1.56 percent from the previous close. Binggrae climbed 1.08 percent, and Maeil rose 0.72 percent.

The prices of companies that deal in other dairy products were not affected.

“The hike will cause dairy stocks to edge up as, until now, they have been pressured by the government to keep down their prices,” said Lee So-yong, a researcher at KB Investment & Securities. “But the impact on related food industries will be limited as most use relatively small amounts of raw milk.”

The outlook for the food and beverage industry in the second half remains bright, said Woo Won-sung, a researcher at Kiwoom Securities. He said food and beverage companies have emerged as attractive investments as the fiscal crisis in the euro zone lingers on.

“Food and beverage industries are expected to show better results as they have greater room for improved profits due to a conflation of factors including stable raw material prices and China’s rapid growth.”

By Kim Jung-yoon[kjy@joongang.co.kr]