Is Coupang Cheaper Than Wholesale Markets?... Why a Box of Lettuce Costs 5,600 Won Less [The Weather Is Not to Blame] ③

Rocket Fresh Stacks Up at Every Restaurant
"Broker Transactions Costly Compared to Effort"
Distribution Costs Make Up 49% of Consumer Prices...Multi-layered Structure Drives Up Expenses
"Centralized Auction System Needs Reform"

Editor's NoteWe live in an era where 'agflation'-the phenomenon of rising agricultural product prices driven by climate change-has become a constant. Every time abnormal weather events such as droughts, monsoons, or heatwaves occur, the cost of food on the table fluctuates dramatically. Unpredictable weather, which leads to poor harvests, is often cited as the main cause of soaring agricultural prices. This is only half true. The opaque distribution structure of agricultural products uses the weather as a shield to manipulate prices. Farmers are frustrated as their carefully cultivated crops fail to fetch fair prices in the market, while consumers are caught in a vicious cycle of paying significantly more than the shipping price at the point of origin. The Asia Business Daily has investigated the cartel-like distribution structure of agricultural products, hidden behind external factors like the weather, and explored alternatives to the auction system that has been entrenched for 40 years.

Ahead of the Chuseok holiday, on September 9th, vegetables auctioned at the Vegetable Building of the Garak-dong Agricultural and Marine Products Wholesale Market in Songpa-gu, Seoul, are being moved by forklift. Photo by Kim Heungsun

Lee Seongpil (45, pseudonym), a self-employed owner of a meat restaurant in Yongsan-gu, Seoul, orders the lettuce he needs for daily business through Coupang. Using the real-time price alert application 'Polcent', which is linked to 2 kg boxes, he orders the desired quantity of products with the lowest price and receives them via same-day or early morning delivery.

Until recently, Lee used to buy lettuce from brokers at major agricultural and marine wholesale markets in Seoul, who sold the product with a markup added to the auction price set that day. However, after crunching the numbers, he found that online purchases were far superior in terms of both cost and product quality compared to shopping in person. He said, "For small business owners like myself, who rely on daily earnings, we have no choice but to look for products that reduce shopping basket costs as much as possible. I calculated that ordering through Coupang is about 1,000 to 2,000 won cheaper per day, and 20,000 to 30,000 won cheaper per month, compared to vegetables purchased through the wholesale market."

"Much Better Prices"... Satisfaction with Direct Online Transactions Rises Among Small Business Owners and Producers

In fact, from August 22, when price fluctuations were first displayed on Polcent, to two months later, the average price for a 4 kg box of a premium green leaf lettuce product was 39,600 won. During the same period, the average price for a 4 kg box of green leaf lettuce (standard grade) sold by brokers, as compiled by the Korea Agro-Fisheries & Food Trade Corporation's (aT) agricultural and marine product distribution information service 'KAMIS', was 45,160 won-about 5,600 won higher.

Lee explained, "When purchasing from brokers or middle distributors, you only get a price benefit if you order in large quantities. In the past, I used to buy a week's worth of lettuce at a time, and if I couldn't sell it all, I had to throw away the leftovers, which resulted in significant losses. With Coupang, I order only as much as I can sell each day, and for vegetables I buy occasionally, I check the lowest price and have them delivered accordingly, making it much more efficient."

He added, "Vegetables put up for auction are usually a day or two old after shipping, but with online delivery, the products are packaged and shipped immediately upon order, so there is no disadvantage in terms of freshness. Many other small business owners in the area, especially among the younger generation, also prefer ordering through online platforms rather than offline channels."

Farms that supply products to Coupang under direct purchase agreements also report high satisfaction with trading through online platforms. For example, the Suanbo Peach Cooperative in Chungju, North Chungcheong Province, has been partnering with about 60 local farms to sell peaches directly to Coupang every summer since 2022. Coupang Rocket Fresh's refrigerated delivery trucks pick up the selected products from the farms and deliver them nationwide via early morning delivery.

Shin Seungchang, head of the Suanbo Peach Cooperative, said, "We prioritize supplying high-quality peaches to Coupang and also participate in wholesale market auctions. For a 4 kg box, we receive about 2,000 to 3,000 won more from Coupang than through the auction process." Shin added, "To get a better price at auction, we have to move the peaches to multiple wholesale markets, which increases logistics costs such as transportation and loading/unloading fees. Coupang's direct purchase operates on a fixed price system, so there is no risk of sudden price fluctuations, making it more stable."

As farm satisfaction increases, Coupang's share of direct transactions with production areas is also rising. From January to September this year, Coupang purchased more than 6,600 tons of fruit-across about 30 varieties-from seven regions designated as depopulation or population extinction risk areas (according to the Ministry of the Interior and Safety and the Korea Employment Information Service), including Yeongam and Hampyeong in South Jeolla Province, Chungju in North Chungcheong Province, and Seongju, Uiseong, Yeongcheon, and Goryeong in North Gyeongsang Province. This represents an increase of about 20% compared to the same period last year, and the total purchase volume is expected to approach 7,000 tons by the end of the year. Coupang also handles not only direct purchases but also early morning delivery, marketing, and customer service, which helps reduce costs for the farms, according to the company.

Half of Consumer Prices Are Distribution Costs... Shipping Fees Have Remained Flat for 25 Years

Among producers and small- to medium-sized business owners, there is a growing perception that the current agricultural distribution system-where products pass through wholesale corporations and brokers-is structurally problematic and inefficient. For producers, the main issue is not receiving fair value for their products, while for intermediaries, the auction system is more expensive and inconvenient compared to other purchasing options.

This is due to the distribution costs that accumulate at each stage. According to a domestic distribution survey by aT, as of 2023, distribution costs accounted for 49.2% of the total costs incurred during the distribution of agricultural and livestock products-such as staple crops (rice, potatoes, sweet potatoes), leafy and root vegetables (cabbage, lettuce, radish), fruit vegetables (watermelon, melon, tomato), seasoning vegetables (chili, garlic, onion), fruits, and livestock products. In other words, if a consumer pays 1,000 won for a particular agricultural product, nearly half-492 won-goes to distribution costs. This is about 10 percentage points higher than the 39.8% recorded in 1998, when tracking began.

Notably, at the shipping stage-where producers consign their products and settle payments-the distribution cost share has increased by only 0.2 percentage points over 25 years, from 9.3% to 9.5%. In contrast, wholesale stage distribution costs rose by 5.8 percentage points (from 9.7% to 14.5%), and retail stage costs increased by 4.4 percentage points (from 20.8% to 25.2%). While farm-gate prices have remained stagnant, the costs incurred at each distribution stage have continued to rise every year.

Jiwoo, an agricultural corporation in Iksan, North Jeolla Province, which distributes paprika, used to send its products through as many as seven or eight stages-'wholesale market → intermediary → wholesaler → retailer', and so on. However, after starting direct transactions with Coupang in 2020, the company rapidly grew by adopting a distribution structure that delivers freshly harvested products directly from the farm to customers via early morning delivery. Lee Jaegyu, CEO of Jiwoo, said, "The chronic problem in agricultural wholesale distribution is that profit margins are added at every stage, which significantly increases consumer prices. When distributing paprika through the wholesale market, the final consumer price often ended up being two to three times higher than the farm-gate price."

Uh Kigoo, Chair of the National Assembly's Agriculture, Food, Rural Affairs, Oceans and Fisheries Committee and a member of the Democratic Party of Korea, pointed out, "The current agricultural distribution structure is distorted, with intermediaries monopolizing profits while farmers do not receive their fair share and consumers pay excessively high prices."

Garak Market Overconcentration, Layered Logistics Costs... Passed on to Consumers

Industry experts cite centralization as a structural cause of rising distribution costs in the agricultural supply chain. Agricultural products from all over the country, including the northernmost and southernmost regions, are funneled into major public wholesale markets in the Seoul metropolitan area, such as the Garak-dong Agricultural and Marine Products Wholesale Market in Songpa-gu. After auction prices are set there, products are redistributed to buyers nationwide, resulting in multiple layers of logistics and storage costs, as well as labor expenses.

According to the annual statistics published by aT, the total transaction value for fresh produce auctioned at 32 public wholesale markets nationwide last year was 15.85 trillion won, with Garak Market alone accounting for 5.64 trillion won. Garak Market was the only location where transaction value exceeded 2 trillion won, representing more than 35% of the national total.

A representative from a Garak Market wholesale corporation explained, "Every stage, from loading products onto vehicles at the farm to transporting them to the wholesale corporation and unloading them, incurs costs. In addition to the commissions and margins at each distribution stage-when brokers supply products to clients and the goods pass through small and medium-sized retailers to reach the consumer-there are also added costs for loading and unloading, storage, transportation, and labor."

The representative added, "Even participants in the auction system are aware of its inefficiencies, but they continue to rely on it because 'there is no better alternative.' To reduce the distribution costs that are passed on to consumers, it would be worth considering activating local auction markets closer to production areas and establishing public logistics centers at the government or municipal level to enable regional sales and consumption of agricultural products."

<To be continued in Part 4 of 'The Weather Is Not to Blame'>

A Coupang logistics center in downtown Seoul. Photo by Yonhap News Agency