The prices of food are not looking good. Since the beginning of this year, there have been monthly reports of price increases. With no one effectively leading the government amid the impeachment politics, it seems the attempts to curb inflation are also not working.
Food companies say they have no choice. Rising raw material prices due to abnormal weather conditions and the high exchange rate of the won against the U.S. dollar (falling value of the won) mean that they cannot avoid raising prices for profit management. Ultimately, ordinary people are being hit hard by the price increases.
◇ Coffee, beer, bread, ice cream… continuing price hikes
According to the distribution industry on the 5th, food companies have been steadily issuing notices of product price increases since the beginning of this year. Baskin-Robbins, operated by SPC Group's B.I. Korea, will raise the price of its Americano by 400 won starting today. The low-cost coffee franchise The Venti has also started selling iced Americanos at an increased price of 200 won from this month. Compose Coffee raised the price of iced Americano from 1,500 won to 1,800 won, a 30% increase last month. Capsule coffee is no exception; Nespresso has increased its capsule coffee price by 81 won each.
The prices of bread and cakes consumed with coffee have also risen. The bakery brand Tous Les Jours, operated by CJ Foodville, raised the prices of some products, including 94 types of bread and 16 types of cake, by an average of 5% starting on the 1st of this month. Daily milk bread, which is often sold as a meal substitute, increased from 3,500 won to 3,600 won, and sweet red bean bread rose from 1,800 won to 1,900 won.
SPC Group's Paris Baguette raised the prices of approximately 120 types of bread and cakes by an average of 5.9% last February. The same group’s Dunkin' also increased the average price of donuts by 6%. As a result, the iconic Strawberry Field donut at Dunkin' went up by 100 won from 1,900 won to 2,000 won, and the Castella donut rose by 200 won from 3,700 won to 3,900 won.
Beer and tea drink prices have also increased. Lotte Asahi Beverages announced that it will raise beer prices by up to 20% this month. Asahi Super Dry canned beer (350ml) will see a 14.3% increase, from 3,500 won to 4,000 won. Convenience store prices for Woongjin Food's Haneulbori (500ml) and Corn Silk Tea (500ml) have risen by about 10%. Prices for Morning Sun (500ml) and Green Plum (500ml) have also increased from 2,150 won to 2,350 won.
Ice cream prices have risen uniformly. Binggrae's Bungeoppang ice cream, Haitai's Burabo cone, and LOTTE Wellfood's World Cone are all sold at 2,500 won, 300 won higher than before.
◇ “High exchange rates and rising costs make it difficult for corporations to operate without price increases”
Food companies claim they have reached a point where they cannot generate revenue without raising prices. The rising prices of imported raw materials due to abnormal weather have been exacerbated by the falling value of the won. Recently, the exchange rate of the won against the U.S. dollar has fluctuated around 1,450 won. The issue is not only due to the trade war that began with the ascendance of former U.S. President Donald Trump but also the state of confusion following the emergency martial law declared last December, which has contributed to the depreciation of the won.
In the financial market, there are cautious predictions that the won-dollar exchange rate could exceed 1,500 won. Jung Yong-taek, a researcher at IBK Securities, noted, “Tariffs and exchange rates are intertwined like two sides of a coin. The tariff pressures from the United States, a major currency country, and trade conflicts ultimately lead to the strengthening of the U.S. dollar and subsequent depreciation of the currencies of partner countries.” This means that if the U.S. raises tariffs on China, China will try to mitigate the effects of the tariff hike by depreciating the yuan, which in turn could lead to a further fall in the value of the won. On the 3rd of this month (local time), President Trump signed an executive order to impose an additional 10% tariff on China as promised.
Raw material prices have also increased significantly due to abnormal weather. The price of cocoa, a chocolate ingredient, has tripled since 2023. Last December, it reached the highest level in 50 years. This is attributed to consecutive floods and droughts in the major producing regions of West Africa, such as Côte d'Ivoire and Ghana. The rainy season brought more than double the average rainfall, and the El Niño phenomenon in winter severely affected cocoa trees. Côte d'Ivoire and Ghana account for 60% of the world's cocoa production.
El Niño has also impacted Australia, causing wheat prices to rise. Additionally, the prolonged war between Russia and Ukraine has contributed to the increase in wheat prices. Domestic flour consumption reaches 2 million tons annually, but domestic production is only about 16,000 tons. South Korea's self-sufficiency rate for wheat is just 0.8%. Thus, 99% relies on imports. The drought and heavy rains in Vietnam and Brazil have driven up coffee bean prices. A Dunkin' representative said, “We raised product prices in line with the international rise in coffee bean prices.”
◇ Official voices are not resonating in the food industry... ordinary people bear the brunt
As food prices continue to rise, the primary ministry in charge, the Ministry of Agriculture, Food and Rural Affairs, is stepping in, but its impact is minimal. The ministry convened a meeting on the 11th of last month chaired by Minister Song Mi-ryung with CEOs from 17 companies to discuss stabilizing processed food prices. Following that, Vice Minister Park Beom-soo held a meeting with the restaurant industry, expressing concern that “If revenues decline and prices are raised, it leads to a vicious cycle of decreased consumption, which could plunge the entire restaurant industry into recession,” effectively requesting a restraint on price increases.
Companies participating in the meeting led by Minister Song include representatives and executives from 17 food companies, such as CJ CheilJedang, SPC Samlip, Namyang Dairy Products, Nongshim, Dongsuh, Dongwon F&B, Daesang, LOTTE Wellfood, Lotte Chilsung, Maeil Dairies, Binggrae, Samyang Foods, Sempio Foods, Orion, OTOKI, Ilhwa, and Pulmuone. Among these firms, only about four have not raised their prices in the past year. This means that 75% of the participating companies have already increased their prices.
However, in the impeachment-driven environment where there is effectively no head of the administration, the consensus in the industry is that food companies are reluctant to participate in efforts to curb price increases. A representative from one food company stated, “The situation is such that we cannot expect any favors from participating in the government's price control efforts,” adding, “It is rational for corporations to raise prices when they can and later choose to reduce or raise them less, as they cannot generate revenue without increasing prices.”
The brunt of rising food prices will inevitably fall on low-income individuals. For low-income individuals, the proportion of food prices in disposable income is significant. When food prices rise, they have no choice but to reduce the quantity they consume. According to the National Statistical Office, the monthly average food expense for the bottom 20% of households last year was 434,000 won, which constituted 45% of their disposable income (1,037,000 won).
Lee Jeong-hee, a professor of economics at Chung-Ang University, stated, “If price increases continue, the burden on the lower class will grow, leading to reduced consumption and potentially resulting in a complete halt to consumption.” This suggests that the domino effect of rising food prices may help increase corporate profits in the short term but could exacerbate a long-term cycle of consumption stagnation.