General Food Subject to Pre-Approval... Controversy Over Functional Labeling Food Advertising Regulations [Reversing Distribution Regulations]

⑦Food and Beverage Industry Hindered by Various Regulations Slowing Industry Revitalization

Functional Labeled Foods Subject to Pre-Advertising Review Despite Being General Foods
Pre-Review System Raises Concerns Over Infringement of Business Expression Freedom
Raw Milk System Needs Revision as It Is Decided Regardless of Demand
Calls for Introducing ‘Differential Pricing System’ with Different Prices for Drinking and Processed Milk

Pulmuone's 'PGA Plus Calcium Soft Tofu' and 'Fermented Red Yeast Natto,' Korea's first and second functional general foods with health claims.

[Asia Economy Reporter Eunmo Koo] With the official launch of the new government, there is growing interest in whether regulatory improvements surrounding the food and beverage industry will be implemented. The functional labeling system for general foods, now in its second year of enforcement, is receiving calls for institutional enhancements to promote activation, and the raw milk price linkage system, which is causing dairy product price increases, is cited as a key issue that needs revision.

According to the Korea Food Industry Association on the 18th, 306 items had been registered as functional labeled foods under the general food functional labeling system as of the previous day. The general food functional labeling system, which came into effect on December 29, 2020, allows general foods, which previously could not display functionality, to indicate functionality if there is scientific evidence. The system was established to invigorate the domestic food industry and guarantee consumers' right to choose.

Although the number of functional labeled foods has steadily increased since the system's implementation, voices are calling for institutional improvements to further activate the system. A representative issue is the requirement for prior review when advertising functional labeled products. For general foods, food advertisements are generally subject to post-review. However, some foods, such as health functional foods, which require strict safety management, are designated for prior review.

However, in the case of functional labeled foods, despite being general foods, they are designated as subjects for prior review under the Food Advertisement Act Enforcement Rules. The enforcement rules categorize new food types as subjects for prior review, raising concerns about infringing on freedom of expression in food advertising. Lawyer Yang Seung-dong of the law firm Jiam stated, "Expanding the scope of prior review compared to before may infringe on the business operators' freedom of expression, and the enforcement rules, as administrative legislation, may limit the effect of laws established by the legislature."

The industry holds the position that advertisements for general foods should be decided by the business operators themselves and be chosen by consumers. An industry official said, "It is excessive regulation to require prior review every time despite being general foods. Advertising for functional labeled foods should also be freely conducted within the limits of not violating laws, and if problems arise, the responsibility to prove them should be borne."

The raw milk system, which is causing milk price increases, is also pointed out as an issue that needs improvement. Currently, raw milk prices are determined by the raw milk price linkage system, which sets prices based on production costs regardless of market demand, and the raw milk quota system, under which dairy processors are obligated to purchase a fixed amount from dairy farms.

Because raw milk prices are set regardless of demand, milk consumption is decreasing while prices continue to rise. According to the dairy industry, the price of raw milk per liter was 1,083 won in 2020, a 72.2% increase compared to 629 won in 2001. This growth rate surpasses that of Japan (33.8%), Europe (19.6%), and the United States (11.8%) during the same period.

On the other hand, milk consumption has been declining annually. The per capita milk consumption is 26.3 kg, the lowest since 24.6 kg in 1999. Consequently, domestic dairy producers have increased the use of imported raw milk, which is cheaper than domestically produced raw milk priced for drinking purposes. The volume of imported raw milk rose from about 650,000 tons in 2001 to 2.43 million tons in 2020. As imports increased, the milk self-sufficiency rate, which was 77.3% in 2001, fell to 48.1% in 2020.

The industry argues that introducing a differentiated pricing system by usage is necessary to stabilize milk prices. The differentiated pricing system sets raw milk prices differently for drinking milk and processed milk products such as cheese and butter, rather than setting a uniform price regardless of usage as is currently done. This would lead to increased supply of dairy products made from domestic raw milk, and in the long term, reduce production costs for dairy processors, enabling consumers to purchase more affordable domestic dairy products.

To implement this system, a board meeting of the Dairy Promotion Board, which holds the authority to decide raw milk prices, must be convened. However, the meeting has been indefinitely postponed after Chairman Choi Hee-jong resigned last month for health reasons with two years remaining in his term. Previously, the Ministry of Agriculture, Food and Rural Affairs had been promoting a dairy system improvement plan aimed at introducing the differentiated pricing system by usage and restructuring the decision-making structure of the Dairy Promotion Board, targeting October this year.