Heavy distribution costs keep produce prices up

Distribution makes up about 40 percent of the total retail cost of agricultural products in Korea on average, meaning lower margins for farmers and higher prices for consumers, the Korea Agro-Fisheries & Food Trade Corporation said yesterday.

It also called to revitalize the direct trading of agricultural products to tame inflation.

Distribution costs were found to be most cumbersome for leafy vegetables, for which they made up 69.6 percent of retail prices. By item, this breaks down into 80 percent for kimchi, which saw a recent price hike, 77.1 percent for Chinese cabbage, 66.6 percent for carrots and 62.8 percent for lettuce.

The average share for seasoning vegetables was lower at 48 percent, ranging from 48.4 percent for green peppers to as high as 71.9 percent for onions, it said.

Even if producers lower their prices, consumers rarely benefit as the savings go to the middle men, the corporation added.

“As long as large distributors such as department stores and large discount chains occupy a superior position in the retail market, there is no reason for them to reduce their distribution costs as it would eat into their profits,” said Hwang Ui-sik, director of food distribution research at the Korea Rural Economic Institute.

The retailers were found to make up more than half of the total cost of distribution.

Agricultural products are spread from farms to store shelves via a complex web of intermediaries including the National Agricultural Cooperative Federation, wholesale markets, secondary wholesalers and retailers.

Industry experts say more mechanisms like the Korea Consumer Cooperative Alliance are needed to promote direct trading and better connect farmers and consumers.

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