The global tariff war is intensifying. U.S. President Donald Trump formalized the imposition of tariffs on Mexico, Canada, and China as soon as he began his reelection term. Despite concerns that the tariffs could increase prices in the U.S., President Trump noted that "it's worth bearing." As a result, fresh produce imported from Mexico, such as avocados and cherry tomatoes, now faces unavoidable price increases. Without raising consumer prices, the net profits of related companies will decline.
As the tariff war without gunfire ignited among the U.S., Mexico, Canada, and China, stocks of domestic food companies dropped sharply on the 3rd.
Haitai Confectionery closed at 5,630 won, down 3.43% from the previous trading day, while Dongwon Industries ended at 29,600 won, down 2.82%. LOTTE Wellfood (down 2.43%) and Dongsuh (down 1.94%) also recorded declines in the 2% range. Daesang and OTOKI also saw decreases in the 1% range.
Domestic food companies are not representative export corporations like SK hynix or Hyundai Motor. Nonetheless, the drop in stock prices reflects concerns over the domestic economy reliant on exports, leading investors to sell Korean stocks. Fundamentally, the expectation for overseas exports is already reflected in the stock prices of domestic food companies.
Securities firms have set target stock prices for food companies with high export potential since last year, reflecting a higher price-to-earnings ratio compared to before. This follows the lessons learned from the case of Samyang Foods, which saw its stock price soar due to the export of its spicy chicken noodles.
Han In-chul, a researcher at NH Investment & Securities, stated in a report last year that "while it cannot be considered a change for the entire industry yet, some food companies are already transitioning to growth stocks," adding that "the valuation will be reassessed due to the improvement in return on equity as export ratios expand." Joo Young-hoon, a researcher at NH Investment & Securities, also noted last year that "companies with an increasing proportion of overseas sales record high revenue growth, which suggests that their valuation could rise since they have overcome the limitation of a confined domestic market size."
Stock prices are inherently volatile, and even food companies that currently face no major issues with export volumes are concerned. This is because the business performance in the North American market, including the U.S., can significantly influence annual results, and challenging circumstances have arisen. If high tariffs are imposed on domestic food, indirect solutions such as establishing local manufacturing plants will need to be sought.
There are not many domestic food companies that already have production facilities in the U.S. Only CJ CheilJedang, Pulmuone, and Nongshim do. CJ CheilJedang operates local production facilities in 20 locations within the U.S., including California, Minnesota, Pennsylvania, Texas, and New York.
Nongshim started operations at its second factory in May 2022, following the establishment of its first factory in Los Angeles in 2005. Pulmuone has expanded the tofu production line at its Fullerton factory and the fresh noodle production line at its Gilroy factory in 2021 and 2023, respectively.
This is because, although overseas exports of domestic food have increased in recent years, there has not been enough time or capital for corresponding investment in facilities. In a situation where export volumes are not secured, blindly expanding facilities could lead to increased financial burdens.
Heo In-cheol, vice chairman of ORION, known for its conservative management, mentioned during a CEO meeting held last year that regarding facility investments in the U.S. market, "if single item sales exceed 30 billion to 40 billion won annually, we plan to consider building a manufacturing plant."
Market analysts believe the tariff war could expedite the process of distinguishing strong food companies. While platforms like TikTok are helping to open up export routes for food across borders, maintaining this will require efforts in promotion and marketing and ultimately a stable supply of certain volumes. Manufacturing in Korea and relying on air and sea logistics for supply has its significance, but to secure competitiveness, establishing local facilities or global anchor facilities is essential.
An industry stakeholder noted that "companies that have invested in overseas export markets for a long time include CJ CheilJedang, Nongshim, and Pulmuone. Regardless of immediate revenue, they have forged pathways and have all experienced financial difficulty due to facility investments at some point," adding that "it seems that these companies may finally be able to shine due to the tariff war.”