As the won–dollar exchange rate nears the 1,470-won range, cost pressures are becoming a reality for the food industry. With the sector relying on imports for as much as 70% of its materials and supplies, price hikes will be inevitable if the strong dollar persists. However, with political circles keeping a close watch ahead of the local elections in June next year, the consensus is that price increases will be difficult for the time being.
According to the Seoul foreign exchange market on the 9th, the won–dollar rate closed at 1,466.9 won the previous day. That is up 12.3% from 1,306.8 won on the same day two years ago. Food companies have struggled with weak domestic consumption due to the economic slowdown. On top of that, strong-dollar risks are adding pressure, quietly raising the need for product price increases. The ripple effects of rising prices for key materials and supplies such as palm oil and cocoa have also had an impact. Beyond raw materials, the industry often purchases a variety of sub-materials in foreign currency, including packaging, additives, and imported processed foods, creating compound cost pressures.
According to the Food Industry Raw Material Consumption Survey released in January by the Korea Agro-Fisheries & Food Trade Corporation (aT), the share of domestic raw materials (wheat, soybeans, corn, raw sugar, etc.) used by Korean food manufacturers in 2023 was 31.9%. This means roughly 70% depends on imports. According to the Financial Supervisory Service's electronic disclosure system, Orion's cumulative purchases of materials and supplies through the third quarter of this year totaled 1.0064 trillion won, up 11.9% from the same period last year. Otoki and Nongshim also increased by 10.1% and 4.0%, respectively.
Still, the prevailing view is that price hikes will be difficult for the time being under the Lee Jae-myung administration's strong stance on price controls. In fact, the government has recently focused inspections on collusion among food companies and shrinkflation (maintaining prices while reducing volume). It is checking whether companies are raising product prices under the pretext of costs or shrinking volumes as perceived inflation rises. For example, the Fair Trade Commission recently began sanction procedures against CJ CheilJedang, Samyang Corporation, and TS Corporation on suspicion of sugar price collusion. Inflation driven by price hikes is a political liability.
The food industry plans to hold off on immediate price increases at least until the local elections in June next year, while pursuing cost defense through various means such as diversifying suppliers, expanding exports, and securing inventory.
However, some say that if the strong dollar continues through the local elections, price increases will be unavoidable. A source in the food industry said, "The industry is watching the government," adding, "If we don't raise product prices, we have to cut quantities, but the government has declared it will focus on inspecting shrinkflation, making the situation difficult."
Another industry source said, "We are struggling not only because of the dollar but also the surging euro. We are responding by expanding exports and looking for new overseas suppliers with relatively lower exchange-rate exposure." The source added, "If the strong dollar persists, we will have no choice but to consider price increases. However, the political impact is significant, so the period of watching and waiting will likely continue until the local elections."
Lee Jong-woo, a professor of business administration at Ajou University, said, "The government is tightly managing food prices to stabilize inflation. The industry's 'watch-and-wait game' is likely to continue," adding, "But once food companies raise prices, they never bring them back down. They should not raise prices lightly."