Gov’t unveils food distribution system reform

The government has announced a package of policy measures to revamp the agricultural produce distribution system to help producers earn more and stabilize prices for consumers.

Since 1994, governments have attempted to reform the country’s agricultural distribution system by reducing unnecessary steps and costs.

“The essence is to let producers earn what they deserve and consumers get cheaper access to fresh produce,“ Hyun Oh-seok, deputy prime minister for economy, said yesterday at a joint press conference held by the Ministry of Strategy and Finance, Ministry of Agriculture, Food and Rural Affairs, the Fair Trade Commission and the Small and Medium Business Administration.

“The latest policy may be the most effective one in 30 years, which will bring about a fundamental change in the wholesale market for agricultural produce,” Hyun said.

The deputy prime minister said the country’s distribution system of fresh produce has three big problems: high costs, volatile prices and large price differences between the farm and supermarket.

According to Statistics Korea and aT, the costs of distributing agricultural products account for 40 to 45 percent of their retail price. However, distribution costs of the most-consumed vegetables like cabbage and radish take up more than 70 percent of their retail price.

The new measures came after the government recognized the need to simplify the retail industry’s overly complex distribution system, blaming it for keeping food prices up.

Although consumer prices have held steady in the 1 percent growth range over the past couple of months, prices of daily necessities, especially fresh produce, have remained high, affected by unpredictable weather.

In the latest plan, unlike past attempts at reform, the government focused on decreasing price volatility.

The core idea is to restructure the current auction-based wholesale market into a direct-transaction market to promote transparency and efficiency.

The government decided to increase the proportion of produce transactions that allow wholesalers and merchants to set prices prior to purchases by as much as 20 percent by 2016. Such transactions accounted for 8.9 percent of the total last year.

“The existing auction system was introduced in the 1980s in an attempt to establish a wholesale market that emphasized transparency, but the problem is the system has turned out to be triggering price volatilities because it is affected by short-term supply and demand,” said Yeo In-hong, vice minister of the Agriculture Ministry.

Under the new system, the government expects volatility in prices to decline.

“Since sellers and buyers can share information about prices and volumes before purchases, the market would see transparency and efficiency improve,” the vice minister said.

A government official used Japan as an example, explaining that the neighboring country experienced remarkable stabilization of agricultural prices after it introduced a similar system in 1999. More than 80 percent of agricultural produce transactions are based on the price-fixing system in Japan, according to the official.

Rules for wholesalers will also be eased to allow them to expand activities into storing, processing and delivering their products. They will become able to compete with large retailers to attract consumers by themselves, the government said.

By Song Su-hyun [ssh@joongang.co.kr]