As pork prices keep rising day after day, a combination of some suppliers' price collusion and the government's price-discount policy is increasing the burden on the retail industry.
According to the Korea Institute for Animal Products Quality Evaluation on the 4th, as of the 29th of last month, the nationwide (excluding Jeju) average winning bid price for pork was 6,500 won, up 23% from the previous month (5,284 won) and 12% from the same period a year earlier (5,798 won). Rising feed costs due to instability in the Middle East and the spread of livestock diseases worked in combination to push prices up.
In this situation, the burden on the retail industry is growing. First, collusion among some companies over delivery prices is being cited as a problem. The Korea Fair Trade Commission in March caught companies colluding on prices in the pork supply process and imposed a penalty surcharge and filed criminal complaints. The companies caught were nine entities: ▲ Daeseong Sileop ▲ Daejeon Chungnam Swine Producers Agricultural Cooperative ▲ Bukyung Swine Producers Agricultural Cooperative ▲ CJ Feed&Care ▲ Dodram Food ▲ Bodam ▲ Sunjin ▲ FarmStory ▲ Haedream LPC.
The Korea Fair Trade Commission (FTC) determined that the companies had pre-agreed on prices in the process of supplying to E-MART and imposed a total penalty surcharge of 3.165 billion won. Of these, six corporations, excluding ▲ Sunjin ▲ FarmStory ▲ Haedream LPC, were referred to prosecutors.
Some companies were found to have pre-agreed on bid prices and floor prices. And this acted as a factor in driving up wholesale prices. For the retail industry, including big-box stores, the cost burden returned intact.
In addition, the government has launched large-scale discount events using the Korea Pork Producers Association's checkoff funds to stabilize prices. Big-box stores are discounting samgyeopsal and pork neck by up to more than 30%, and online malls are cutting prices by as much as 50%, focusing on easing the burden on consumers.
Although the discount funds are partially offset by the checkoff and government support, they are not fully covered, so retailers and suppliers must share the expense. With a structure in which retail prices are discounted while supply prices have risen, profit pressure is increasing.
Currently, the discount events proceed under a structure in which the Korea Pork Producers Association posts a notice about pork discount events and supports retailers that wish to participate. A retail industry official said, "The Korea Pork Producers Association partially supports the discount expense incurred during the event period for retailers."
Changing consumer perceptions are also cited as a burden factor for the retail industry. Repeated discount events have made low prices seem like the norm, so when prices return to normal after the events end, the perceived increase can feel larger. There is an effect of reducing the consumer burden in the short term, but assessments say it is difficult to lead to long-term price stability. A retail industry official said, "Retailers are in a structure where they shoulder the factors driving price increases. Supply prices are rising, but given the government's price-stability stance ahead of the June local elections, raising prices will not be easy."
In the industry, some also say that while discount policies are effective in boosting consumption in the short term, they are not a fundamental solution. A retail industry official said, "When discounts are combined with rising prices, the burden on retailers inevitably grows," adding, "That said, in big-box stores, pork discounts are sometimes used as loss leaders, and there is a stance of cooperating with the government's price-stability policy, so discounts will be maintained for a while."