August 17, 2011

 

South Korean dairy farmers, producers consent to price hike

 

 

After a long disagreement, South Korean dairy farmers and milk producers reached a consensus on Tuesday (Aug 16) regarding the price hike of raw milk, a move that might cause milk products to be more costly and contribute to inflationary pressure.

 

The agreement, effective immediately from Tuesday, calls for raising the average price of raw milk by KRW130 (US$0.12) per litre from the current KRW704 (US$0.66) to KRW834 (US$0.78).

 

"Negotiations on the rise of the raw milk price were successfully concluded as both producers and milk companies agreed to accept the government proposal for a KRW130 (US$0.12) increase," the Korea Dairy and Beef Farmers Association said.

 

The sides also agreed to ease price gaps between different grades of milk, a move the association earlier said would have the same effect of raising the average price of raw milk by an additional KRW8 (US$0.0075) per litre. Tuesday's agreement was reached after several rounds of negotiations between the association and milk companies that began June 21.

 

The dairy farmers' association earlier demanded an increase of KRW173 (US$0.16) per litre, claiming the current price did not even cover their costs. The current price of raw milk was set in 2008 and has remained unchanged since.

 

Milk companies, however, offered to raise the price by only KRW81 (US$0.076), although they later offered a KRW130 (US$0.12) increase.

 

The KRW130 (US$0.12) increase, approved on Tuesday, was proposed by the government last week after the two sides failed to overcome their differences after nearly two months of negotiations, prompting dairy farmers to stop supplying raw milk to milk companies for three days from Wednesday (Aug 10).

 

The rise of the raw milk price will inevitably lead to a price hike for milk products, but the shelf price of milk is expected to rise by a significantly larger margin.

 

Some of the milk companies are expected to reflect the rise of their other costs, such as labour, in their latest price hike, leading to a price increase of KRW300 (US$0.28) to KRW400 (US$0.37) per litre.

 

A rise in milk prices will also lead to a price increase for other milk-based dairy products, including butter, cheese and even bread, exerting further upward pressure on the country's already high consumer prices.

 

South Korea's consumer prices jumped 4.4% from a year earlier in July, surpassing the government's annual inflation target of 4% for the seventh straight month.

 

Agriculture Minister Suh Kyu-yong earlier said the government has asked the country's milk companies to delay their price hikes at least until next year.

 

The companies have already refused to comply, though not explicitly, saying the rise of prices is also taking heavy tolls on their costs.