From farm to store, many take a bite

A worker loads cabbages on 1.5-ton truck in Jindo, South Jeolla, early this month. The cabbages will travel through many distribution stages. By Chang Jung-hoon

“The government wants to streamline the distribution process?” said Kim Kyung-jae as he harvested winter Napa cabbage early this month on his patch of land at Jeongja village, Jindo, South Jeolla. “It’s impossible under the current circumstances. It’s better to sell cabbages to dealers, even at 400 to 500 won (36 cents to 45 cents) per head.

“When farmers trade directly with the wholesale or retail market, they bear all related risks themselves. In such circumstances, isn’t it too much to just blame the distribution process?”

Obviously, the view in Korea’s fields does not necessarily reflect opinion in urban areas. When customers in Seoul pay about six times more for a head of cabbage than it costs farmers to produce, questions are raised, especially at a time when the administration of President Park Geun-hye has promised to get prices for fresh produce under control.

The president has targeted the distribution process, which she characterizes as needlessly complex and expensive. She says she will cut the distribution structure for produce and livestock to two steps from as many as seven. It is not the first time government officials have pledged to reform Korea’s food distribution. Yet several attempts going back to the Kim Dae-jung administration have borne no fruit.

In a field a 10-minute drive away from Kim’s patch, five workers were busy harvesting cabbage at a 990-square-meter (10,656-square-foot) field that had been bought last August for 3.3 million won by 43-year-old farm dealer Joo Young-bae.

Joo paid 800 won for 3.3 kilograms (7.3 pounds) of grade A cabbage. Of that, 350 to 400 won was for seed and 200 to 250 won for fertilizer and labor, with a margin of 200 won.

“For small farmers, it is difficult to prepare for unexpected natural disasters, such as typhoons and cold spells,” said Joo.

“In situations where the vast majority are small family farms and aged farmers, dealers are in part necessary,” said Chang Hee-sung, a vegetable buyer for E-Mart. “Farmers can receive up front payments and wholesalers can reduce the risks of low yields by entrusting the supply to the dealers.”

After the harvest, the price of a head of Napa cabbage jumps from 800 won to 3,200 won through the intermediate stages of distribution.

The labor cost in harvesting a head of Napa cabbage is 200 won and mesh for packaging is 150 won. Transportation from Jindo, Jeolla, to Seoul is 350 won per head, and the cost for loss and maintenance is about 1,500 won to 1,700 won per head, or about 5,000 won for one mesh package containing three heads.

“Because we already gave an up -front payment to farmers, we are forced to add any costs related to low yield to the price,” said Joo. “It is normal to reap 10 heads of cabbage per pyeong (36 square feet), but we could only harvest seven due to last summer’s typhoon and the early cold wave.”

The intermediate process of distribution does not end here. Cabbages sold to dealers change hands two or three more times before arriving at auction.

“Reselling practices emerge since even though we need a total of 100,000 heads of cabbage, we only purchase 50,000 heads from farmers and the rest later considering price fluctuations,” said Joo. “It’s a kind of portfolio strategy to reduce risks.”

“Prices of fresh produce fluctuate frequently because production varies while demand remains steady,” said Lee Cheon-il, distribution policy officer at the Ministry for Food, Agriculture, Forestry and Fisheries. “Therefore, distributors at farms and fields are becoming more speculative.”

Cabbages subject to dealer-to-dealer transactions arrive at Garak Market, the wholesale market for agriculture and fishery products, in Garak-dong, southeastern Seoul, at 10:30 p.m., about 12 hours after being harvested.

“Since they are the finest cabbages, these must take the highest bid today. Come on, come on, make your decisions,” said an auction dealer at Garak Market.

The commission merchants, or middlemen, officially registered to Garak Market’s fruit and vegetable vendors all have their wireless electronic bidders. Only 30 seconds after they enter the desired price, the winning bidder was determined.

The cabbages carried in three 4.5-ton trucks were taken by a middleman for 13,200 won per mesh, or three heads. Since there are 900 meshes per truck ( 2,700 heads), he paid 11.6 million won, or 4,300 won per head.

“When the crop is not good, like this winter, margins from the auction process are greater than usual,” said 55-year-old Shin Moon-soo, known as the big player in the vegetable wholesale market. “If farm dealers had directly made contracts with large discount chains and retailers in advance prior to the harvesting, this would not have happened,”.

When asked about private contracts between dealers and retailers that became possible last year due to the revision of the Agricultural and Fishery Marketing and Price Stabilization Act, Shin said, “Vegetables still come to Garak-dong and fishery products still go to Noryangjin Fisheries Wholesale Market.”

“In order to improve the old fresh food distribution structure, the government should create regional wholesale markets at several places, so that wholesale markets could compete with each other,” said Ha Ik-seong, section chief at Shinsegae Distribution Industry Institute.

The cabbages passed down to the middleman went to retailers on the spot, including a kimchi factory, small vegetable stores, traditional markets and large discount store chains.

The retail margin is about 500 won on average, which includes about 200 won per head in profit. The auction fee is about 200 won, 1.5 to 2 percent of the auction price.

So the head of cabbage that cost farm dealer Joo Young-bae 800 won, retails for 5,000 won to 5,300 won.

“It is essential to produce standardized products from farms and fields and send them to market after determining the qualities by themselves in order to increase direct trading and reduce the distribution process,” said Lee Heon-mok, director at the Korea Institute of Agribusiness Management. “In the long term, there should be larger and specialized farming corporations such as America’s Sunkist and New Zealand’s Zespri, which will replace the farm dealers.”

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