[The Editors' Verdict] Dairy Farmers and Dairy Companies... At This Rate, Everyone Will Collapse

As raw milk (原乳) prices rise, 'milkflation (milk + inflation)' is becoming visible. Milkflation refers to the phenomenon where the prices of bread, coffee, ice cream, and other products made with milk or butter and cheese rise alongside the increase in raw milk prices. This inevitably impacts the economy of ordinary people. Despite an overall population decline and changing preferences leading to a decrease in milk consumption each year, why are milk prices rising? To understand the mystery behind the increase in milk prices, we need to examine the structure that determines raw milk prices.

In South Korea, raw milk prices are determined by the 'Raw Milk Price Linkage System' introduced by the government in 2013. This system adjusts prices according to changes in the production costs of dairy farmers. Once a price is set, it remains the same for one year regardless of market demand. For this reason, raw milk prices in Korea have risen by 72% over the past 20 years, far exceeding the increases in the United States (11.8%) and the European Union (EU, 19.6%). This has happened even though 100,000 tons of raw milk remain unsold each year due to declining milk consumption. Per capita white milk consumption peaked at 31.5 kg in 1997 but dropped by 4.9 kg to 26.6 kg last year, more than 20 years later.

Normally, if a product does not sell well in the market, it is sold at a lower price. However, because the government raises the purchase price of milk to protect the industry, similar to rice, the prices of milk and dairy products made from raw milk do not fall but continue to rise, creating this paradoxical phenomenon. The government is aware that raw milk prices are too high to maintain competitiveness. Therefore, starting next year, it plans to implement a differentiated pricing system. The aim is to prevent price increases for drinking milk (white milk) by setting different prices for drinking milk and processed milk (milk used to produce cheese, butter, etc.). Additionally, if raw milk overproduction becomes severe, measures to lower raw milk prices are also under consideration. However, since dairy farmers strongly oppose this, it is uncertain whether these measures will be effective.

In 3 years and 1 month, in 2026, the dairy industry may face a major crisis. If the Free Trade Agreement (FTA) with the EU expands, relatively inexpensive imported milk could dominate the domestic market. Some analysts already suggest that the collapse of the dairy industry is becoming a reality. In 2015, Yeongnam Milk, a leading dairy company in Gyeongbuk, decided to close due to high raw milk prices and a sharp increase in inventory caused by sluggish consumption. Recently, there are concerns that a domino effect of closures could follow, starting with Purmil.

When I was young, I grew up hearing that 'drinking a lot of milk helps you grow tall.' At that time, drinking milk was encouraged, but now food options are abundant and there are many alternative beverages to milk. Dairy companies are also seeking changes to generate profits from products that do not use raw milk. Someday, children might not drink milk, and dairy companies might stop producing milk. If they stubbornly insist on charging high prices without competitiveness, they could face collapse. The government must ensure stable and reasonable supply and demand through reforming the dairy system. Both dairy farmers and dairy companies must coexist. Time is running out.

Kwangho Lee, Head of Distribution Economy Department