[Reporter’s Notebook] "Climateflation"... Should We Rely Only on Subsidies?

BOK Governor Lee Chang-yong: “Agricultural Product Prices Difficult to Solve with Monetary or Fiscal Policy”
Government Subsidies Not a Fundamental Solution
Maximizing Farm Efficiency Through Advanced Agricultural Investment

Lee Chang-yong, Governor of the Bank of Korea, stated at a press conference following the base rate decision on the 12th, “From the central bank's perspective, it is very troublesome that the prices of agricultural products such as apples are affected by climate change.” Governor Lee pointed out that there are limits to resolving the recently soaring agricultural product prices through monetary or fiscal policy. He emphasized that it is time to consider fundamental solutions such as imports rather than relying on government subsidies or improving distribution methods.

Recently, the government has been injecting emergency funds to stabilize the prices of agricultural products such as green onions and apples. On the 2nd, through a Cabinet meeting, it announced, “We will inject unlimited and indefinite emergency funds for stabilizing agricultural and livestock product prices and expand the scope of support,” and introduced measures such as discount coupon support and expansion of tariff quota items alongside the price stabilization funds. Various price stabilization measures seemed to quickly stabilize agricultural product prices.

The problem is whether emergency funds will be injected every time there is a poor harvest in the future. The fundamental cause of the recent “gold-priced apples” lies in supply and demand instability due to abnormal climate. Climate change, including pests and diseases caused by abnormal climate, lack of sunlight, drought, and monsoon rains, has long become a daily reality, and there are limits to solving this by providing subsidies every time with limited resources. Without fundamental measures, it is widely regarded as pouring water into a broken pot.

Governor Lee suggested agricultural product imports as a solution that day. However, imports cannot be a fundamental solution either. Currently, South Korea undergoes strict quarantine procedures when importing agricultural products. If these quarantine procedures are relaxed to stabilize prices, the increase in supply of imported fruits could further shrink the already struggling domestic farmers, potentially leading to a greater decrease in production than before. To maintain the food self-sufficiency rate at a certain level, imports cannot be increased indefinitely.

Ultimately, the surge in agricultural product prices caused by climate change cannot be resolved solely by government subsidies or imports. Climate change is a constant that will repeat next year and the year after. Therefore, it is time to build a new agricultural production base suitable for this. The beginning lies in establishing advanced agricultural facilities. It is necessary to develop advanced agriculture that realizes economies of scale, moving away from small-scale farming dependent on subsidies. Overseas companies are already investing in the development of smart farm-related technologies and focusing on advancing agricultural technology. In a situation where the number of farmers is decreasing, public opinion should be fostered and encouraged so that companies can engage in agriculture.