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Food companies struggle to source ingredients as weak won pushes costs

Published: 09 Dec. 2024, 17:52 Updated: 09 Dec. 2024, 19:06

KIM JU-YEON
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Flour is displayed at a supermarket in Seoul. Korea is highly reliant on imports for flour, only producing around 0.7 percent of the grain that is consumed in the country in a year. [YONHAP]

Getting food onto the table might become even pricier in Korea as the country's period of political turmoil stretches on.

Global food prices had already been rising in recent months, but the weakened won adds additional costs to imported goods. Food and beverage (F&B) companies that heavily rely on overseas supply chains such for ingredients such as flour and oil are looking into measures to counterbalance the currency’s drop in value.

The food commodity price index created by the Food and Agriculture Organization of the United Nations (FAO), which tracks changes to raw commodity costs in 24 categories, hit a 19-month high of 127.5 in November due to a jump in the cost of vegetable fats such as palm oil and canola.

Weakened won means higher import costs

To add insult to injury, the won’s value plummeted after President Yoon Suk Yeol's declaration of martial law last week. The local currency was trading at 1,442 won against the greenback, at its weakest, after President Yoon made the abrupt decision on Dec. 3. It recovered to the 1,410 won range after the National Assembly overturned the declaration within six hours, but closed at a weaker 1,419.2 won on Friday as political unrest over the president's potential impeachment continued.

The local currency’s drop in value increases the cost of ingredients that are bought with dollars. Korea spent $38.11 billion on importing such food commodities in 2022, according to the Ministry of Food and Drug Safety.

Curreny rates are displayed at a currency exchange office in Myeong-dong, central Seoul, on Monday. [YONHAP]

That's especially likely to raise the prices of items that are not produced in large amounts within Korea, such as corn and flour. According to data published by the Ministry of Agriculture, Food and Rural Affairs, Korea only produced around 22.3 percent of the grains it consumed between November 2021 to October 2022, while imports made up more than 75 percent of that total.

Korea is especially reliant on imports of flour, corn and beans, of which it produces only 0.7 percent, 0.8 percent and 7.7 percent, respectively. Korea’s grain self-sufficiency rate, which averaged 19.5 percent between 2021 and 2023, is significantly lower than the global average of 100.7 percent, according to the Korea Rural Economic Institute.

“The won’s value continues to drop as political uncertainties drag on,” said Kim Sang-bong, an economics professor at Hansung University. “Items that are reliant on imports will especially be hit hard,” he said.

Boxes of chocolate biscuit snack Choco Songyi are displayed at a supermarket in Seoul. Confectionary manufacturer Orion raised prices for the snack by 20 percent early in December as well as for 12 other products while citing increased costs for ingredients such as cacao beans. [NEWS1]

Consumers fear additional price hikes

Many confectionary and fast food companies raised their prices this year citing an increase in raw material costs. Pepero maker Lotte Wellfood raised the price of 17 chocolate biscuit products by an average of 12 percent. Snack manufacturers Orion and Haitai also hiked some of their chocolate items on Dec. 1. Chicken franchise Goobne upped some of its menu items by 1,900 won ($1.32) in April, while Genesis BBQ bumped up the prices of 23 of its products by an average of 6.3 percent. Fast food chains McDonald’s, Lotteria and Mom’s Touch also inflated their prices in 2024.

Inflation had already hit consumer prices early in 2024, continuing to dampen domestic consumption even as it began to slow later in the year. Residents fear the economic downturn will further affect prices.

“Food prices, in general, rose this year, whether it be for eating out or for vegetables; I’m worried they'll rise even more,” said a resident of Gangseo District, western Seoul, surnamed Kim.

The F&B and restaurant industries are closely watching the currency market as they plan their next moves.

“We rely on imports for most of our raw ingredients such as flour, and so we are monitoring the changes in currency very seriously,” an insider in the confectionary industry said, adding that they were “looking into a variety of measures such as maximizing use of reserves.”

“Oil prices make up a large portion of chicken production costs, so we are concerned that it became much more expensive,” a source in the chicken franchise industry said.

“We are first considering other cost-cutting measures rather than consumer price hikes.”

BY OH SAM-GWON, KIM JU-YEON [[email protected]]