[The Weather Is Not to Blame]⑤Government Circles the Issue for Three Years on Wholesale Corporation Expulsion..."Mirage Reform"

Measures Announced at September Economic Ministers' Meeting
Building Competition in Wholesale Markets, Introducing Strict Evaluation Standards
Criticism of 'Recycled' Measures Identical to 2023-2024 Plans
"Nothing More Than Window Dressing"

Editor's NoteWe now live in an era where 'agflation'-the phenomenon of climate change driving up agricultural product prices-has become the norm. Every time abnormal weather events such as droughts, monsoons, and heatwaves occur, food prices fluctuate dramatically. Unpredictable weather, which leads to poor harvests, is often cited as the cause of soaring agricultural prices. This is only half true. The opaque distribution structure for agricultural products manipulates prices, using the weather as a shield. Farmers are frustrated that the crops they have carefully cultivated do not fetch fair prices in the market, while consumers are caught in a vicious cycle of paying far more than the shipping price from the production area. The Asia Business Daily has investigated the cartel-like structure hidden within agricultural product distribution, which is masked by external factors like weather, and explored alternatives to the agricultural auction system that has remained unchanged for 40 years.

"Please accelerate reforms of the unreasonable distribution structure so that both consumers and producers can truly feel the difference."

On September 9, President Lee Jaemyung issued this directive to relevant ministries during his opening remarks at a Cabinet meeting. A week later, on September 15, the 'Measures to Improve the Agricultural Product Distribution Structure' were released at the 'Economic Ministers' Meeting' presided over by Deputy Prime Minister and Minister of Economy and Finance Koo Yooncheol. The goal is to reduce agricultural distribution costs by 10% by 2030.

Wholesale fruit dealers are inspecting fruits at the fruit auction held at Namchon Agricultural Wholesale Market in Namdong-gu, Incheon. Photo by Yonhap News

Does the Government Have the Will to Break Up the Wholesale Corporation Cartel?... Recycled Competition Measures

The most notable point is the 'measures to promote competition within wholesale markets.' The plan is to break up the entrenched cartel led by private wholesale corporations by establishing a competitive system and strengthening public interest. Specifically, the government plans to amend the Act on Distribution and Price Stabilization of Agricultural and Fishery Products to make it mandatory to revoke the designation of wholesale corporations.

Additionally, the government will overhaul the evaluation system for wholesale corporations by strengthening relative assessments and quantifying all indicators, and will operate an evaluation committee that includes both producers and consumers. In response to criticism that the maximum 7% commission charged by wholesale corporations for conducting auctions is excessively high, the government is also considering a plan to lower commissions in the following year if a corporation's operating margin exceeds a certain level.

However, there is more concern than expectation in the field. This is because, although various measures have previously been announced to keep wholesale corporations in check, they have never been effectively implemented. In fact, the current plan to expel underperforming wholesale corporations from the market, facilitate the entry of new corporations to foster competition, and make it mandatory to revoke the designation of corporations that fail to meet strict evaluation criteria, are all measures that the Ministry of Agriculture, Food and Rural Affairs had already proposed in 2023 and last year.

In 2013, the government announced that it would support wholesale corporations with about 70 billion won to diversify the price determination structure in wholesale markets from auction-based systems to fixed-price and negotiated sales, and to establish an institutional foundation for wholesale corporations to compete with large retailers. However, even this proved ineffective. An industry insider, speaking on condition of anonymity, pointed out, "The fundamental issue is that wholesale market corporations have absolute authority to choose between the auction system and fixed-price or negotiated sales. The current government measures only circle around the periphery without addressing the most fundamental structure."

Another insider commented, "Although not visible to the public, there are forces within academia, public institutions, and related agencies such as the Korea Agro-Fisheries & Food Trade Corporation that protect wholesale corporations. If you make arguments that contradict their views, you are excluded from related research and face disadvantages, so it is common to hear that 'those who try to properly criticize the wholesale market issue have disappeared.'" He added, "In a structure where these protective forces inevitably participate as evaluators, the plan to legislate the expulsion of wholesale corporations will end up being mere window-dressing."

Measures to Promote Online Transactions Also "Illusory Reform"

Officials are moving cabbages for auction at the Garak-dong Agricultural and Marine Products Wholesale Market in Songpa-gu, Seoul. Photo by Yonhap News Agency

There are also doubts about the plan to promote online transactions to reduce distribution costs. The government aims to increase the share of online wholesale markets, which currently account for 6% (about 1 trillion won) of total wholesale transactions, to 50% (about 7 trillion won) by 2030. To achieve this, an average annual growth rate of 48% is required, but there has been no discussion on how to secure funding for infrastructure expansion, such as regional logistics centers and cold storage facilities nationwide.

Baek Hyesook, CEO of the Sustainable National Table Forum, stated, "The government is promoting its reform as if it is accelerating with ambitious goals, but in reality, it is nothing more than an illusory reform," adding, "Simply expanding online and reserved transactions cannot guarantee fundamental price stability." She continued, "Rather than sticking solely to the auction system, competition among transaction and distribution entities is necessary, but currently the influence of wholesale corporations is too strong. The government is only creating an illusion with the keyword 'online' without addressing the fundamental problem."

Yang Seokjun, Professor of Business Administration at Sangmyung University, noted, "Although the online wholesale market transaction volume surpassed 600 billion won last year and is expected to exceed 1 trillion won this year, the transaction volume at Garak Market, which is an offline distribution channel, also increased at the same time." He pointed out, "If offline transactions do not decrease and distribution cost reductions are not realized, the original purpose of introducing online wholesale markets becomes meaningless unless preceded by thorough investigation and diagnosis of the current situation."

<To be continued in Part 6: The Weather Is Not to Blame>