'Import Soybean Public Auction System' Raising Food Table Prices and Hurting Small and Medium Tofu Companies

'Imported Soybean Public Auction System' Spurs Highest Bids
Large Corporations with Strong Financial Power Sweep Imported Soybeans
Impact on Rising Food Prices for Tofu, Cheonggukjang, and More

On November 17 last year, at the Korea Federation of Small and Medium Business in Yeouido, Seoul, participants including Jeong Hwang-geun, Minister of Agriculture, Food and Rural Affairs (6th from the left in the front row), and Kim Ki-moon, President of the Korea Federation of Small and Medium Business, are taking a commemorative photo during a meeting of small and medium business owners.

[Asia Economy Reporter Donghyun Choi] Small and medium-sized tofu processing companies are facing difficulties in procuring imported soybeans. They claim that the government’s imported soybean auction system, introduced in 2019, operates on a highest-bid basis, allowing financially strong large corporations to sweep up the supply. Moreover, the imported soybeans procured at higher prices are pushing up the prices of finished products like tofu, fueling an increase in food costs.

Soybeans are a controlled import item, with the government strictly regulating import and supply volumes. Imports are either directly allocated and sold by the Korea Agro-Fisheries & Food Trade Corporation (aT) under the Ministry of Agriculture, Food and Rural Affairs (direct allocation and auction), or import rights are distributed (FTA import rights allocation) and sold (import rights auction) to individual companies. Korea imports about 300,000 tons of soybeans annually from countries such as the United States and Canada. Tofu processors procure these soybeans to produce tofu, cheonggukjang, and other products for the market.

The problem arose when the government deviated from the existing method used for 50 years and implemented the imported soybean auction system in 2019. Some of the direct allocation volumes of imported soybeans, brought in at low tariffs, were converted to competitive bidding auctions. The rationale was to protect domestic soybean farmers, who were harmed by the cheaper imported soybeans priced 4 to 5 times lower than domestic soybeans. The direct allocation volume of imported soybeans decreased from 163,000 tons in 2017 to 137,000 tons last year. Meanwhile, the auction volume steadily increased over the past four years: 3,433 tons in 2019, 4,000 tons in 2020, 8,200 tons in 2021, and 38,000 tons in 2022.

Small and medium tofu processors pointed out that the imported soybean auction system has caused many side effects contrary to its original purpose. Recently, as people have spent more time at home due to COVID-19 and natto and cheonggukjang made from soybeans have gained popularity as health foods, competition to secure imported soybeans has become increasingly fierce. As a result, most auction bids are made at the highest price. Last year, out of 10 auctions held until September, all 4,500 tons of imported soybeans in three auctions were sold at the highest bid. As of November last year, the highest auction price for imported soybeans was 1,610 KRW per kilogram, 15% higher than the direct allocation supply price of 1,400 KRW.

Furthermore, if two or more bidders offer the same price, the bidder with the larger quantity wins, creating a structure favorable to large corporations. The tofu manufacturing industry, with about 1,500 companies nationwide, is designated as a livelihood-suitable industry, indicating many small-scale businesses. In a situation where small and medium enterprises already face labor shortages, it is difficult to find specialized personnel for market research and bidding participation. A tofu processing company representative in Gongju, Chungnam Province, said, "Last summer, we failed to secure imported soybeans at auction and had to close the factory for several days," adding, "If our clients had not been understanding, we would have suffered significant losses."

There are also concerns that consumers are suffering as finished product prices like tofu soar due to the combined effect of rising international grain prices and auction-driven price increases. According to statistics from the Korea Consumer Agency, the average price of a 300g pack of stew tofu made from imported soybeans distributed by Company A rose 32% from 1,225 KRW in February 2020 to 1,618 KRW this month. Kim Seok-won, director of the Gwangju-Jeonnam Yeon Food Industry Cooperative, criticized, "Domestic soybeans suffer frequent poor harvests due to climate change and are priced much higher, making the market completely different from imported soybean tofu, yet the government approaches this with a binary logic," adding, "Domestic soybean farmers are citizens to be protected, so aren’t the 1,500 tofu manufacturers also citizens?"

Tofu manufacturing organizations such as the Korea Yeon Food Cooperative Federation requested at a meeting last November between Kim Ki-moon, chairman of the Korea Federation of SMEs, and Jeong Hwang-geun, Minister of Agriculture, Food and Rural Affairs, to abolish the imported soybean auction system starting this year and supply the same price to actual users through direct allocation. They also asked the government to listen to the reality of small and medium enterprises, which find it difficult to immediately reflect raw material price increases in their delivery prices due to auctions and other factors.

However, the Ministry of Agriculture, Food and Rural Affairs refuses to abolish the auction system, arguing that the direct allocation method does not align with market economic principles. The Korea Federation of SMEs, the largest small and medium enterprise organization in the country, stated that the official proposal was dismissed as merely a disagreement among some groups, showing reluctance to improve the issue. The ministry plans to finalize the imported soybean volume around March to April and continue the auction schedule as before. A ministry official said, "Within tofu processors, opinions differ, with some asking to maintain the auction where business is good and others asking for its abolition where it is not," adding, "Future responses to increased soybean demand will focus on increasing domestic soybean production."