Red light lit ‘table prices’… Growing fears of agflation

This year, as food prices soared, the red light on ‘table prices’ came on.

As world food prices are on a strong upward trend due to the COVID-19 crisis, logistics difficulties, and climate crisis, the price burden of Korea, which is highly dependent on imports of grains, is increasing.

◇ Soaring global grain prices… Domestic food price threat

The consumer price increase rate recently announced by the National Statistical Office was 3.2% compared to the same month last year, the highest in 9 years and 9 months, while the prices of bread and grains jumped 6.2% and edible oils and fats jumped 8.4%.

The main crops, wheat, soybeans and corn, are mainly dependent on imports. The same goes for edible oils. Edible oils, such as soybean oil, sesame oil, and corn oil, are used not only in households but also in the production of processed foods such as mayonnaise.

The sharp rise in international grain prices has a major impact on domestic table prices.

The price of sweets and ramen rose one after another this year because the prices of imported raw materials such as flour and palm oil soared.

Looking at the import unit price per ton as of last October (average 1 to 20 days), wheat (for milling) was $344, 19.9% ​​within a year, soybean (for oil gathering) was $618, 58.1%, and corn (edible) was $344. At $359, it jumped 83.2%.

Among import prices compiled by the Bank of Korea in September, agricultural, forestry and fishery products rose 0.9% from the previous month and 24.9% from the same month last year. Import prices are reflected in consumer prices with a time lag.

Kim Jong-in, a research fellow at the Korea Rural Economic Research Institute, said, “When the price of imported grain rises by 10%, it has the effect of raising the consumer price by 0.39%.

The World Food Price Index for October announced by the Food and Agriculture Organization of the United Nations (FAO) on the 4th (local time) was 133.2 points, 3.0% from the previous month. It rose 31.3% from a year ago, the highest since July 2011 (133.2 points). The index rose for the third month in a row.

FAO monitors international price trends of 24 food items and publishes monthly food price indices for each of the five item groups (grains, oils and fats, meat, dairy products, and sugar).

Among them, the grain price index in October stood at 137.1 points, up 3.2% in one month. The oil price index rose 9.6% to 184.8 points, the highest level ever recorded.

Accordingly, there is growing concern about ‘agflation’, in which a surge in agricultural product prices, such as grain, leads to an overall inflation.

This year (January to October), the World Food Price Index was 124.0 points, exceeding or approaching the levels of 2008 (117.5 points) and 2011 (131.9 points) when agflation occurred in various parts of the world.

However, some analysts say that there is no need to worry too much because the world’s grain stocks are still sufficient compared to the past grain crisis.

However, due to the global demand recovery and the global supply chain turmoil, grain prices are expected to remain strong for the time being.

The Agricultural Observation Center of the Rural Economic Research Institute predicted that the unit price of grain imports (compared to the previous quarter) in the fourth quarter of this year will rise 9.9% for food and 5.9% for feed. This is due to the import of purchased goods during a period of price rise, sea freight rates and an increase in the won/dollar exchange rate.

◇ Sensitive to price fluctuations due to low grain self-sufficiency “Need to expand production and stockpile”

The problem is that Korea’s grain self-sufficiency rate is low, so it is sensitive to international price fluctuations. This is also a risk factor in terms of food security.

According to the ‘Grain Supply and Demand Stabilization Project and Policy Analysis’ report released by the National Assembly Budget Office last month, Korea’s rice self-sufficiency rate for the past five years (2015-2019) was high at 92-105%, but the self-sufficiency rate of other food crops such as wheat, soybeans, and maize was low. It is low at 0.5~9.4% and is decreasing every year.

The grain self-sufficiency rate (including feed) fell from 43.1% in 1990 to 21.0% in 2019, and the food self-sufficiency rate (based on food excluding feed) fell from 70.3% to 45.8%.

Korea is the 7th largest grain importer in the world. Wheat, soybeans and maize account for 95% of grain imports.

As for the inventory ratio, wheat 12.8%, soybean 8.6%, and corn 7.4%, all far below the FAO recommended inventory ratio of 18.0%.

The National Assembly Budget Office, citing the food security index evaluation results of the Economist Intelligence Unit (EIU), a British economic analysis agency, scored between 71.2 and 73.2 points (out of 100 points) in Korea from 2012 to 2020, from 25 out of 113 countries surveyed. It ranked 29th and explained that it was relatively good.

However, considering that most of the countries in the top 30 are members of the Organization for Economic Cooperation and Development (OECD), he pointed out that Korea is at the bottom of the OECD.

Byun Jae-yeon, Budget Analyst at the National Assembly Budget Office, for stabilizing grain supply and demand, ▲ Clear setting of key consumption items and promoting policies to expand production ▲ Stabilization of grain imports through promotion of international cooperation and diversification of importing countries and importers, etc. ▲ Appropriate stockpiling management according to FAO recommended standards, etc. ordered

Kim Jong-in, a research fellow, said, “After the COVID-19 crisis, the vulnerable groups are being more affected by the rise in food prices. way,” he said.


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