"Don't Just Blame Ingredient Costs"...The Real Reasons Behind Korea's Soaring Bread Prices [The Secret of Bread Prices]

Analysis of the Fair Trade Commission's 'Bakery Industry Market Analysis' Report
Low Proportion of Raw Material Costs, High Labor Cost Share
Selling and Administrative Expenses Account for 42.4% of Franchise Bread Costs

Editor's NoteAccording to consumer price trends released by Statistics Korea, the price of processed foods rose by 4.1% year-on-year in May, while the price of bread increased by as much as 6.4%. The bread consumer price index reached 138.48, which is a 38.48% increase over five years compared to the base year of 2020 (100). This rise outpaces that of other popular Korean snacks such as tteokbokki and fried chicken. Bread, once a snack enjoyed by everyone, has now become difficult to choose due to its high price. How did the price of bread in Korea end up rising so steeply?

A baker is displaying bread at the '2025 Korea International Bakery Fair' held last April at COEX in Gangnam-gu, Seoul. The photo is unrelated to specific expressions in the article. Photo by Yonhap News.

It has been analyzed that the sharp rise in bread prices is not solely due to increases in raw material costs. While raw materials account for 50% of bread manufacturing costs?lower than the food industry average of 75%?labor costs and selling, general, and administrative expenses (operating costs) are relatively high, acting as additional factors driving up bread prices. Furthermore, it has been revealed that the main raw materials, such as flour, sugar, and eggs, are subject to limited market competition and an oligopolistic distribution structure, resulting in a market environment where normal price formation does not function and it is difficult to reduce costs.

Raw Material Costs Down, Labor Costs Up...A Different Cost Structure from Other Food Industries

According to the "Bakery Industry Market Analysis and Major Regulatory Competition Impact Assessment" report, commissioned by the Korea Fair Trade Commission and conducted by the Industry-Academic Cooperation Foundation of Kongju National University, as of 2022, the proportion of raw material costs in bread manufacturing in Korea was 50.1%. This is lower than flour milling (87.4%), edible oils and fats (82.9%), noodles (75.1%), sugar manufacturing (75.0%), coffee and cocoa (65.1%), beverages (63.9%), and confectionery (57.9%), and the difference is significant even compared to the overall food manufacturing industry average (74.5%). (Related article: "I'd rather buy bread at the supermarket"...Price jumped 38% but the Fair Trade Commission 'looks the other way')

While the share of raw material costs is lower than in other food industries, the share of labor costs is 28.7%, which is more than three times the average for the entire food manufacturing industry (8.1%). This is also significantly higher compared to confectionery (14.3%), coffee and cocoa (13.1%), beverages (9.0%), noodles (8.2%), sugar manufacturing (5.1%), edible oils and fats (4.1%), and flour milling (3.9%). While the proportion of labor costs in bread manufacturing rose by 12.1 percentage points from 2018 to 2022, the labor cost share for the overall food manufacturing industry decreased by 0.3 percentage points.

In particular, for franchise bakery specialty stores, selling and administrative expenses?which include discounts and franchisee support?have the greatest impact on bread pricing. The report states that in franchise bread cost structures, selling and administrative expenses account for 42.4%, the highest share, compared to raw material costs (31.6%), labor costs (16.8%), and manufacturing expenses (9.4%).

Flour, Sugar, Eggs: Raw Material Prices Rise, but Distribution Structure Faces Limitations

Although the prices of major raw materials that influence bread prices continue to rise, the bakery industry faces difficulty in reducing raw material costs due to high dependence on imports and a distribution structure where normal market principles cannot function.

As of September last year, a look at the prices of major raw materials shows that Korea generally maintained higher price levels. For flour, the price per 100g was 314.7 won in Japan, 194.2 won in Korea, and 173.1 won in the United States. In 2023, the consumer price index (CPI) for flour in Korea was 138 (2020=100), higher than France (135), the United States (134), and Japan (127), showing the largest increase among the four countries.

For eggs, Korea had the highest price at 688.3 won per egg, followed by the United States at 438.6 won and Japan at 247.1 won. For sugar, the price per 100g was 306.8 won in the United States, 260.6 won in Korea, and 252.5 won in Japan. For milk, Korea had the highest price at 311.6 won per 100ml, compared to 231.7 won in Japan and 145.8 won in the United States.

The core raw materials for bread?flour (63.5%), white sugar (9.7%), and eggs (7.5%)?account for over 80% of all ingredients, so changes in their prices inevitably have a direct impact on costs. In particular, the proportion of domestically produced flour used is 0.2%, and for white sugar it is 0%. Since flour and white sugar are almost entirely dependent on imports, they are highly sensitive to fluctuations in international prices. In addition, the industry that processes and manufactures imported raw sugar is dominated by three domestic sugar companies (CJ CheilJedang, Samyang, and Daehan Sugar).

Furthermore, eggs are supplied without the formation of production areas or wholesale markets, so there is no market price. The farm price for eggs, announced by producer organizations, refers to a highly volatile negotiated price between farmers and distributors, not an actual transaction price. Because there is no market price, the market is more sensitive to issues such as avian influenza (AI) or the pesticide egg crisis.

Hong Yeonah, professor of economics at Kongju National University and lead author of the report, explained, "The rise in bread prices should be seen as the result of multiple factors working together, rather than a single cause. While the share of raw material costs remains significant, it is difficult to attribute the price increase solely to rising raw material costs. Labor costs and rent are also factors that cannot be ignored."