[Public Voices] Only Innovation Can Save Agricultural Product Distribution

Wholesale Market Corporations Face Expulsion, Stirring Industry Tension
Enhancing Public Interest, Scaling Up and Specialization Now Unavoidable

Sunghoon Kim, Professor of Agricultural Economics at Chungnam National University

As a specialist in agricultural product distribution, there is a comment I hear time and again: "Despite the significant budget invested and annual improvements, nothing much seems to have changed in Korea's agricultural product distribution." This statement is half true and half false. While it may appear to the general public that little has changed, Korea's agricultural product distribution system has been steadily advancing. Nevertheless, it is also true that there are still many aspects that fall short of public expectations.

The distribution of agricultural products in Korea has been making consistent progress. For example, since the opening of the Garak-dong Agricultural and Marine Products Wholesale Market in Seoul, the nation's first public wholesale market, in 1985, a total of 32 public agricultural wholesale markets across the country now handle wholesale distribution. Distribution channels that do not go through wholesale markets have also increased significantly, offering producers and consumers a wider range of options. In particular, the COVID-19 pandemic triggered an explosive expansion of non-face-to-face online distribution, and in November 2023, the Korea Agro-Fisheries & Food Trade B2B Online Wholesale Market (KAFB2B), an online public wholesale market, was launched, further expanding transaction volumes.

Distribution efficiency has also improved significantly. Some critics point out that distribution costs for agricultural products still account for nearly half of consumer prices, as in the past. However, it is important not to overlook the fact that even with the addition of new distribution services such as sorting, repackaging, packaging, and processing-services that did not exist before-distribution costs have not changed significantly. Still, there remain many areas for improvement in agricultural product distribution. Compared to non-agricultural distribution sectors, which dream of achieving "superfluid" distribution with zero transaction costs, Korea's agricultural product distribution still faces many challenges that need to be addressed and improved.

Recently, relevant ministries jointly announced a plan to improve the structure of agricultural product distribution. This is the first agricultural product distribution policy announced since the new administration took office. The government has set major policy strategies to innovate the agricultural product distribution structure based on digital technology, promote competition and enhance public interest in wholesale markets, support consumers in making rational choices, and establish a stable foundation for the production and distribution of agricultural products. Particularly noteworthy are the policies aimed at promoting competition and increasing public interest in wholesale markets. These are detailed policies targeting public wholesale markets, which have often been criticized for "not changing much," with the clear intention to drive improvement.

The policy to make the cancellation of wholesale market corporation designations mandatory and to recruit new corporations through open competition-essentially expelling wholesale market corporations that fall behind in competition-will create significant tension for those corporations that have enjoyed a competition-free environment for the past 40 years since the opening of public wholesale markets. Furthermore, by requiring wholesale market corporations to guarantee farmers' shipment prices and establish public interest funds, the government is making innovation not an option but a necessity for these corporations, which have so far simply brokered agricultural product transactions and collected commissions.

Strong demands for innovation are also being made for other distribution agents in the wholesale market, such as intermediate wholesalers and the wholesale markets themselves. Intermediate wholesalers, who have distributed agricultural products relatively easily within the protective boundaries of public wholesale markets through auction participation, now face the necessity of scaling up and specialization. Wholesale markets with small transaction volumes or weak competitiveness may face the risk of closure in the long term unless they undergo a comprehensive functional transformation centered on logistics and other areas.

The water in the large cauldron of the agricultural product distribution industry is just beginning to boil. The government appears determined to add more firewood or even replace the cauldron entirely. It is now time for distribution agents and wholesale market operators to make efforts on a completely different level.

Sunghoon Kim, Professor of Agricultural Economics at Chungnam National University