[Why&Next] Bagel Prices Soar 44% Despite Falling Flour Costs... Lee Jaemyung Takes Action

President Lee Jaemyung Criticizes "Loss of Government Control Over Food Price Surge"
Investigation Launched Into Hypermarkets Inflating Prices Under the Pretext of Discount Events
Root Causes of Soaring Bread Prices... In-depth Review of Wheat, Suga

The government has begun to take decisive action against the 'runaway food prices.' Over the past several years, food prices have continued to rise, initially due to increases in raw material costs during the COVID-19 pandemic, and more recently, agricultural product prices have fluctuated sharply under the pretext of climate change. In this process, there have been indications that distribution companies have made unfair profits. With international raw material prices now declining, the Lee Jaemyung administration has launched an unannounced crackdown, raising expectations that pressure to lower prices will spread throughout the entire distribution industry.

According to industry sources on the 17th, the government is currently investigating the entire food raw material market, including wheat, sugar, and eggs, which are the basic ingredients for bread. On the previous day, the Fair Trade Commission conducted on-site inspections of seven milling companies: CJ CheilJedang, Sajo DongA One, Daesun Flour Mills, Samyang Corporation, Samhwa Flour Mills, and Hantop. The purpose of this action was to determine whether these companies colluded by pre-arranging prices or adjusting shipment volumes. Wheat flour is a fundamental ingredient for major processed foods such as bread, ramen, and snacks, and its price fluctuations are reflected in consumer prices.

Fair Trade Commission Investigates Prices of Sugar, Flour, and Eggs

Previously, the Fair Trade Commission also announced that it would initiate sanction procedures for suspected sugar price collusion. The main sugar companies involved, including CJ CheilJedang, Samyang Corporation, and Daedang Sugar, account for over 90% of the domestic market share. The distribution structure for eggs has also been included in the investigation. This is to determine why retail prices remain high even though farm prices have not fluctuated significantly.

The key issue the Fair Trade Commission is focusing on is 'price rigidity'-the phenomenon where domestic food prices rarely decrease even when international raw material prices fall. According to the New York Mercantile Exchange, the price of raw sugar dropped by about 40%, from $593 per ton in October 2023 to $357 per ton in October this year. Wheat prices also fell from $210 to $185 during the same period. However, domestic prices for bakery and confectionery products remain high. According to Korea Credit Data, the price of bagels, a popular item, has surged by 44% over the past three years, while prices for salt bread and sandwiches have also increased by more than 30%.

Suspicions of 'Deceptive Discounts' at Major Supermarkets

The Fair Trade Commission has also begun investigating major supermarkets on suspicion of inflating prices by exploiting the government's agricultural product discount support program. Last month, investigators were dispatched to the headquarters of Emart and Lotte Mart to collect pricing data, and other companies, including Homeplus, were asked to submit relevant documents. This action follows the Board of Audit and Inspection’s regular audit of the Ministry of Agriculture, Food and Rural Affairs last month, which found that six major distribution companies increased the prices of 132 out of 313 discounted items just before the discount events between June and December 2023, in line with the government’s discount support program.

The agricultural product discount support program, introduced in July 2020, is a policy under which the government reimburses retailers for 20% discounts on agricultural products, up to 10,000 won per buyer. Until last year, a total budget of 600 billion won was spent, with an additional 228 billion won allocated for this year and 108 billion won for next year. However, there have been criticisms that, contrary to the original intent of stabilizing grocery prices, large distribution companies have exploited the program to inflate prices. Assemblyman Cho Kyungtae of the National Assembly’s Agriculture, Food, Rural Affairs, Oceans, and Fisheries Committee pointed out during this year’s National Assembly audit, based on analysis of Board of Audit and Inspection data, that large supermarkets raised the price of spinach by as much as 33.8% on the morning the government’s 20% discount event began, then sold it at a 'discounted' price, thereby making unfair profits through deceptive practices.

Lotte Mart Grand Grocery Eunpyeong Branch Agricultural Produce Display View. Provided by Lotte Mart

Similar suspicions have been raised regarding discount events for livestock products. The Korea Consumer Organizations Council’s Price Monitoring Center, after surveying prices for Chuseok holiday food items in mid-September, noted, "The government is expanding slaughter and shipment and providing discount support as part of its Chuseok cost-of-living stabilization measures. Despite no special issues with livestock products, prices continue to rise every year. We question whether major supermarkets are setting high initial prices and then applying large discounts, making consumers believe they are buying at a bargain."

As supporting evidence, the price of beef for skewers and general cooking at major supermarkets was 59,732 won, which is 5,720 won more expensive than at department stores (54,012 won). The price of beef brisket for soup at major supermarkets (53,223 won) was 1.6 times higher than at traditional markets (32,613 won). Furthermore, in the fisheries sector, during the 'Korea Seafood Festival' discount event, 73% (164.8 billion won) of the approximately 226 billion won in government support over the past three years since 2022 was concentrated among large retailers such as Emart and Coupang, highlighting ongoing issues. An industry insider stated, "We plan to fully cooperate with the Fair Trade Commission’s ongoing investigation, including submitting the requested data."

This comprehensive investigation by the Fair Trade Commission was ordered directly by President Lee Jaemyung. At the Cabinet meeting on September 30, President Lee criticized, "The sharp rise in food prices began in early 2023. We must fundamentally question why prices started to rise at that time and recognize that the government lost its ability to control the situation." He then asked Fair Trade Commission Chairman Joo Byungki, "There is a high possibility that collusion is taking place. Is it possible to issue a price adjustment order?" thereby calling for active intervention by the Fair Trade Commission.

Since then, the Fair Trade Commission has been thoroughly examining the competitive landscape of the raw materials market, distribution structures, and potential price collusion. The plan is to go beyond investigating collusion in individual items and structurally assess whether an 'implicit cartel' within the entire distribution industry is distorting consumer prices.

However, the distribution industry claims it is being treated unfairly. A representative from a milling company explained, "Even if raw material prices fall, there are many variables such as contract transaction structures between companies, exchange rates, logistics costs, and labor costs, making it difficult to lower prices immediately." The sugar industry stated that, as of July, it had reduced the average price of white and brown sugar for B2B transactions by 4.4% (CJ CheilJedang and Daedang Sugar) and 4.0% (Samyang Corporation).