Koreans seek cheap milk alternatives from Poland, Australia

Industry

Published: 06 Nov. 2023, 17:40 Updated: 06 Nov. 2023, 17:44

Koreans seek cheap milk alternatives from Poland, Australia

Milk products are on display at a large supermarket in Seoul on Sunday. The consumer price index for milk in October surged to 122.03, a 14.3 percent increase from the same month last year. This represents the highest level in 14 years and two months, since August 2009, after the global financial crisis. [YONHAP]

Disgruntled over the rising prices of local milk products, Korean consumers are shifting toward cheaper alternatives produced in Poland and Australia.

The consumer price index for milk rose by 14.3 percent last month when compared to the previous year, data from Statistics Korea showed, marking the highest level reached since the global financial crisis in August 2009.

The price escalation is driven by a decision made in July by the Korea Dairy Committee to raise the basic price of raw milk for drinking by 88 won (7 cents) per liter, subsequently leading to a chain reaction of price increases by domestic dairy companies. Unlike many other products that adjust prices in response to decreasing demand, the price of raw milk is annually negotiated between dairy farmers and the dairy industry, with prices increasing in response to rising production costs.

Consequently, consumers are turning their attention to more affordable sterilized milk options from abroad.

In large supermarkets, the price of white milk approaches nearly 3,000 won per liter, while imported sterilized milk from countries like Poland and Australia, with large-scale dairy operations, is available for around 2,000 won. The lower production costs associated with overseas dairy farms, often engaged in pasture-based farming, contribute to this price discrepancy.

Furthermore, the declining repulsion to imported sterilized milk itself is playing a role in boosting demand for foreign milk products.

While there were previous concerns regarding the transparency of production and distribution processes, as well as the extended shelf life of imported sterilized milk, consumers are increasingly turning to sterilized milk due to its competitive pricing. A survey conducted by the data-driven research firm MetaSurvey found that 65.8 percent of 200 respondents, aged between 10 and 70, have opted for sterilized milk over regular white milk, primarily due to its affordability.

The growing popularity of foreign sterilized milk is substantiated by the trend in increased import quantities.

The import volume of foreign milk reached 31,462 tons last year, a 35.1 percent increase compared to the previous year, according to the Korea Customs Service. This represents nearly a ninefold increase from the 3,440 tons imported in 2017. While foreign sterilized milk was initially primarily utilized as a raw material in cafes and similar establishments, it is increasingly making its way into household consumption, driving the expansion of import quantities.

The upcoming elimination of tariffs on the United States and European Union milk imports, as mandated by the Free Trade Agreement (FTA), set to take effect in 2026, is poised to pose a competitive challenge to domestically produced milk. Currently, U.S. and EU milk imports are subject to tariffs of 7.2 percent and 6.8 percent, respectively, with these tariffs gradually diminishing each year until reaching 0 percent after three years.

In response, companies like Seoul Dairy Cooperative, Maeil Dairies and Namyang Dairy Products are proactively launching new products with a focus on organic ingredients and enhanced protein content.

"We are pivoting to a premium strategy to retain market presence," said an official from a Korean dairy company.

The Korean government has decided to establish a dedicated task force to manage prices for seven items most closely affecting consumer sentiment, including milk. Nevertheless, some experts argue that such measures may be interim solutions without addressing the fundamental issues at play.

"The present system for determining raw milk prices is not influenced by market forces of supply and demand, but rather, it prioritizes supporting dairy farmers — representing a clear instance of price distortion," said Prof. Lee Eun-hee of consumer science at Inha University.

"To rectify this, there is a need to enhance the system so that raw milk prices can be determined in accordance with market dynamics, and encourage small-scale dairy farmers to transition their businesses."

BY NA SANG-HYUN,SEO JI-EUN [seo.jieun1@joongang.co.kr]