January 11, 2012

South Korea's 2011 beef producer price index hits 14-year low

The producer price index for beef in South Korea that indicates auction prices of beef cattle and Hanwoo cattle (Korea's native cattle breed) dropped to a 14-year low for the previous year.

However, the declining rate of beef producer prices was more than twice as higher than that of beef consumer prices, implying that a drop in beef producer prices did not do much to lower the costs for consumers.

Last year's beef producer price index stood at 84.5, and the growth rate in the index logged -19.6% from the previous year. The declining rate is the steepest since the rate recorded -21.1% in 1997 when the nation experienced the Hanwoo beef crisis due to oversupply, according to data of the Bank of Korea (BOK) and Statistics Korea (KOSTAT) revealed Tuesday (Jan 10).

The on-year growth in beef producer price index last year fell from -11.0% in January to -28.3% in May. The growth rate slowed down at a two-digit rate in the second half year (H2) as the rate marked -22.9% in July, -19.4% in August, -14.7% in October, -13.2% in November and -14.8% in December.

However, despite the drastically declining producer prices, beef consumer price index logged 90.3, down a mere 9.7% from a year earlier. The declining rate of beef consumer prices recorded only half of that of beef producer prices.

By month, the growth rate in beef consumer price index marked -3.9% in January, -13.9% each in June and July, -11.9% in August, -11.6% in September, -11% in October, -9.1% in November, and -8.1% in December.

The expanding gap between the growth rate of beef producer prices and that of consumer prices could be explained by hefty distribution costs that incur when beef goes through four or five distributors before it reaches the hands of customers.

The government has decided to take measures to reduce the distribution costs as the disparity was excessively widening between beef producer prices and consumer prices.

"In overall beef transactions, the transaction through producers' organisation expanded from 12% in 2003 to 40% in 2009, which means there is the growing number of direct deals between producers and consumers. The government is planning to reduce the processes in the current beef distribution structure by fostering beef processors and distributors out of cattle feeders," a Ministry of Food, Agriculture, Forestry, and Fisheries (MIFAFF) official said.