Global Grain Prices Fluctuate... Will Domestic Food Prices Also Rise?

Global Grain Prices Rise Since Second Half of Last Year
Corporate Cost Burden Expected in Second Half

[Asia Economy Reporter Lim Hye-seon] Processed food prices are expected to rise due to the increase in international soup stock prices.

According to Korea Investment & Securities on the 24th, international grain prices have been steadily rising since the second half of last year. This is the opposite situation compared to the first half of last year when grain prices plummeted due to the spread of the novel coronavirus disease (COVID-19). Based on the fourth quarter (October to December), wheat prices increased by 15%, corn by 9%, soybeans by 24%, and raw sugar by 14% compared to the same period last year. Compared to the first half of last year when grain prices hit their lowest point, the increase rates are 30% for wheat, 28% for corn, 46% for soybeans, and 12% for raw sugar. The main causes of the rise include reduced production due to abnormal weather, export bans by major grain-producing countries, and increased demand for feed grains due to the recovery of pig farming numbers in China.

The cost burden on companies due to rising grain prices is expected to appear in the second half of the year. Typically, grain prices are reflected in input costs with a six-month lag. Some companies have already raised product prices at the beginning of the year. Pulmuone raised the delivery prices of tofu and bean sprouts by up to 15% and 10%, respectively. Sempio also increased canned product prices by an average of 36%. Coca-Cola Beverage raised cola prices by 100 to 200 won.

Price increases are one of the major factors significantly affecting the profits of food and beverage companies. The domestic food and beverage market is a mature market with limited sales volume growth, but external growth is possible through price increases, and profitability can be improved by passing costs on to consumers.

Researcher Lee Jeong-eun explained, "Since the rise in grain prices is greater than the decline in the exchange rate, if grain prices and the strength of the Korean won continue, companies are likely to raise prices," adding, "Considering that the processed food consumer price index rebounds 6 to 8 months after the rise in grain prices, this supports the possibility of price increases in the second half of this year."