|
Date of Release: May 1, 2008
Phone : 02-774-4050 / Fax: 02-774-4090
Contact: Lee Jeong-su, Secretary General
Lee Eun-ji, organizer
The Price of Flour Has Increased by Too Much Compared with the Increase in the International Price of Flour.
The Price of Flour Must Be Dropped Right Now.
Though the prices of most consumer goods have been rising sharply compared to 2007, the flour industry intends to raise flour prices further still. So, on April 23, the Korea National Council of Consumer Organizations (Hereafter KNCCO; Chairperson: Kim Cheon-ju) called for flour companies to provide supporting data for the price increase.
On April 21, Dong Ah Flour Mills Co., Ltd. increased the prices of its all flour products by 20% on average, while on April 28 CJ raised its prices by 26%. Other companies are claiming that the price increase is inevitable.
The KNCCO analyzed the supporting data for the price increase supplied by Dong Ah and CJ, and concluded that in the light of the drop in the price of flour on the international market and the flour prices of 2007, this year’s price increase was too much.
The international price of wheat was KRW 4,630 / bushel in December 2006; KRW 4,557 / bushel in May 2007; KRW 8,612 / bushel in December 2007; KRW 10,778 / bushel in March 2008; and KRW 8,057 / bushel on April 29, 2008.
However, the price of flour kept on rising – KRW 2,304 in December 2006; KRW 2,457 in May 2007; KRW 2,989 in December 2007; KRW 3,717 in March 2008; and KRW 3,723 on April 28, 2008.
Recently, the international wheat price dropped by 12% compared to the price at the end of 2007, and even when exchange rates are considered, it fell by 6%. However, companies have continued increasing their prices by more than 20%.
Although the international price of wheat increased by 19% from the end of 2007 to March 2008, the price of flour went up by 24.5%. Compared to the international wheat price, the price of flour rose 5.5%.
The current increase in the international wheat price is reflected in the increase in the flour price at the end of 2007. Furthermore, compared to May 2007, the price of flour has increased by 51.5% and has continued to rise throughout the whole of the last year.
However, the flour companies have sought to avoid their past losses by raising their product prices. Thus, the current increase in flour prices is not appropriate.
While the international price of wheat price has been falling, just because international grain prices are expected to rise, the flour companies have increased their product prices by more than 20%. This is not appropriate and will lead to an increase in consumer prices in Korea.
|
『International Wheat Price』 |
|
|
|
Dec. ’06 |
May ’07 |
Dec. ’07
(A) |
Mar. ’08 |
Apr. 29, ’08
(B) |
Compared
(B) with (A) |
|
International Wheat |
(Cent/Bushel) |
500 |
491
(▼1.8%) |
923
(△88.0%) |
1,102
(△19.4%) |
809
(▼26.6%) |
▼12.4% |
|
(Won/Bushel) |
4,630 |
4,557
(▼1.6%) |
8,612
(△89.0%) |
10,779
(△25.2%) |
8,057
(▼25.3%) |
▼6.4% |
|
(From: Chicago Board of Trade) |
|
『Flour Price』 |
|
(unit:KRW) |
|
|
Dec. ’06 |
May ’07
(A) |
Dec. ’07
(B) |
Mar. ’08 |
Apr. 28, ’08
(C) |
Compared
(C) with (A) |
Compared
(C) with (B) |
|
Price |
2,304 |
2,457
(△6.6%) |
2,989
(△21.7%) |
3,717
(△24.4%) |
3,723
(△0.2% ) |
△51.5% |
△24.5% |
|
(From KNCCO / Product: CJ Baekseol Flour 2.5kg) |
On April 23, the KNCCO requested Daehan, Dong Ah, CJ and Samyangsa to provide supporting data for their price increases. On April 29, Dong Ah sent the requested data, followed by CJ. Daehan said they were considering a price increase and would submit the supporting data once their decision had been made. Samyangsa claimed that their data could not be opened up to scrutiny by outside organizations.
On May 2, the KNCCO will hold a meeting with representatives from flour companies and the heads of customer organizations to discuss whether a price increase is appropriate, and will decide upon an appropriate course of action after the meeting.
■ References
※ Supporting Data for Dong Ah's Price Increase
- As wheat production in Australia has fallen for two consecutive years, the wheat stock of the US has been decreasing, and some countries have banned wheat exports, the international wheat price has increased by 140% compared with early 2007. This trend is expected to continue for at least one year. Such being the case, insufficient supplies have become a huge problem.
- Furthermore, the won-dollar exchange rate was KRW 930 in late 2007, but rose to over KRW 1000 after March 2008. Losses caused by a rise in the exchange rate rose to over KRW 7 billion.
|
『Wheat Price and Exchange Rate』 |
|
Description |
Wheat Price (A) |
Exchange Rate (B) |
Fluctuation Rate
(A+B) |
|
Dec. ‘07 |
Apr. ~ Sep. ‘08 |
Change |
Dec. 07
(KRW) |
Apr. 08
(KRW) |
Change |
|
Strong Flour |
445 |
612 |
37.5% |
938 |
996 |
6.1% |
43.6% |
|
Medium Flour |
450 |
536 |
19.1% |
25.2% |
|
Weak Flour |
459 |
542 |
18.1% |
24.2% |
|
|
|
|
|
|
|
|
|
|
『Price Increase』 |
|
(unit:KRW) |
|
Description |
Dec. 17, ‘07 |
Apr. 21, ‘08 |
Increase Ratio (%) |
|
Strong Flour |
17,500 |
22,300 |
27.4% |
|
Medium Flour |
17,100 |
20,000 |
17.0% |
|
Weak Flour |
17,200 |
19,900 |
15.7% |
※ Supporting Data for CJ's Price Increase
- As international wheat supplies faltered, the international wheat price began to rise in late 2007 and kept rising sharply in 2008. Due to climatic changes, Australia experienced severe droughts for two consecutive years, which cut its wheat production by half, while floods swept through Europe immediately prior to the wheat harvest. Thus, Asian and African countries which used to rely on Australia and the EU for wheat went to the US, which in turn led to a shortage of wheat supplies. Then, faced with serious concerns about domestic price rises, Argentina, Kazakhstan and Russia limited their wheat exports, which fueled the increase in wheat prices even more. As the US maintained low interest rates, international hedge funds increased their investment in commodities to raise grain prices. The international wheat price rose from $470/ton in late 2007 to $570~$730/ton in the first quarter of 2008. The price of wheat used for strong flour rose to $980/ton.
- While the increase in the price of wheat became a huge burden, the won-dollar exchange rate rose from KRW 935 in late 2007 to KRW 990~1,000 in April 2008. This represented more than a 6% rise in costs, thereby increasing pressure. As all materials are imported, losses incurred by fluctuations in the exchange rates are getting bigger.
|
『Changes in Product Prices』 |
|
(unit:KRW) |
|
Product |
Previous Price |
Increased Price |
Increase Rate |
|
Medium Flour 20kg |
17,380 |
20,000 |
15.1% |
|
Weak Flour 20kg |
17,510 |
20,140 |
15.0% |
|
Strong Flour 20kg |
17,930 |
22,660 |
26.4% |
|
|
|
|
|
『Impact of Exchange Rate Change on Wheat Prices』 |
|
|
Wheat Price |
Fluctuation Rate |
Total |
|
End of ’07 |
Q2~3 of ’08 |
Fluctuation Rate |
|
Medium Flour |
$460 |
$540 |
17.4% |
6% |
23.4% |
|
Weak Flour |
$470 |
$550 |
17.0% |
6% |
23.0% |
|
Strong Flour |
$440 |
$600 |
36.4% |
6% |
42.4% |
|
※ Exchange Rate Against the US$: KRW 935 in late 2007 → KRW 990 in April 2008 |
|
|
|
|
|
|
| |
