[The Weather Is Not to Blame]⑥Overseas Countries Abolish Wholesale Market Monopolies: "Price Stability for Agricultural Products Begins with Competition"

Yoonjung Kim, Senior Research Fellow at the Korea Legislation Research Institute "Opinion Piece"
A Lengthy Distribution Chain Inevitably Drives Up Consumer Prices
The Current Agricultural and Fishery Products Act Has Become More of a Liability Than

Editor's NoteWe now live in an era where "agflation," driven by climate change, has become the norm, pushing up agricultural product prices. Every time abnormal weather events such as droughts, monsoons, or heatwaves occur, food prices fluctuate wildly. 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 of agricultural products manipulates prices, using the weather as a shield. Farmers are frustrated as the crops they have painstakingly grown fail to fetch fair prices in the market, while consumers are caught in a vicious cycle, paying far more than the farm-gate price. The Asia Business Daily investigates the cartel hidden within the agricultural distribution system, masked by weather as an external factor, and explores alternatives to the agricultural auction system that has remained unchanged for 40 years.

Yoonjung Kim, Senior Research Fellow at the Korea Legislation Research Institute

In recent years, soaring agricultural product prices have placed a heavy burden on households. While climate change is often cited as the cause, some argue that monopolies in the agricultural wholesale market are a bigger factor. The five major private wholesale corporations at Garak Market have held their designated positions since the market opened in 1985, never once being replaced, and their total sales and operating profits have continued to rise.

Korea's wholesale market transaction system is structured so that wholesale corporations have a monopoly on transactions with producers, while intermediate wholesalers exclusively handle transactions with consumption areas. Because consumers must go through wholesale corporations, intermediate wholesalers, and retailers before purchasing agricultural products, the final consumer price inevitably rises further.

In order for agricultural producers to trade in the wholesale market, they must go through a wholesale corporation. These corporations prefer the auction method, which brings stable commission income without risk, resulting in the auction ratio at Garak Market reaching nearly 80%.

The auction system was introduced in 1976 along with the "Act on Distribution and Price Stabilization of Agricultural and Fishery Products" (the Agricultural and Fishery Product Distribution Act) to prevent hoarding by wholesalers and to ensure fair prices for producers. However, in today's trading environment, where price and transaction information are disclosed in real time, the disadvantages of the auction system now outweigh its advantages. Auctions are highly susceptible to sharp price fluctuations due to changes in supply volume, making it impossible to guarantee a stable supply of agricultural products. For this reason, large retailers and online platforms now source agricultural products through direct contracts with producers, securing consistent prices and quantities for sale.

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

In major overseas markets such as France, the Netherlands, other European Union member states, and Japan, the wholesale market has adopted a simple distribution structure that does not separate producer and consumer transactions, allowing for direct trading. Overseas wholesalers compete freely with one another, without the exclusive producer transaction rights held by Garak Market's wholesale corporations, and supply agricultural products through direct contracts with both producers and consumers. Even in the Netherlands, which first adopted the auction system, auctions have long since disappeared except for a very small portion of the flower sector.

In Japan, which has a small-scale farming structure similar to Korea, the "Wholesale Market Act"-the model for Korea's Agricultural and Fishery Product Distribution Act-was revised in 1999 to abolish the auction-first principle, reducing the auction ratio to below 10%. The 2018 revision abolished the exclusive producer transaction rights of wholesale corporations. Similarly, in Taiwan, which also has a small-scale farming structure, less than 20% of wholesale markets use auctions as their main transaction method. Unlike Korea, auctions are led by farmers' organizations, not private wholesale corporations, protecting the interests of producers.

In overseas agricultural wholesale markets, no small group of wholesalers monopolizes transactions; instead, free competition helps stabilize wholesale prices. Stabilizing agricultural product prices must begin with breaking up monopolistic market structures, as seen abroad. To achieve this, the transaction structure centered on private wholesale corporations must be reformed.

Yoonjung Kim, Senior Research Fellow at the Korea Legislation Research Institute

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