August 19, 2011

 

South Korean dairy organisations to restrict price hikes

 

 

The South Korean government on Thursday (Aug 18) forced local dairy enterprises to restrict price increments after the latest raw milk prices' adjustment, warning it will take actions against businesses that attempt to make extra and unjustified earnings.

 

"There are not many factors that warrant a price increase. Milk companies must minimise price hikes or not raise prices at all," the Ministry of Agriculture, Forestry and Fisheries said.

 

The move comes as the government is waging what seems to be a losing battle against inflation. The country's consumer prices jumped 4.7% from a year earlier in July, far surpassing the government's annual inflation target of 4% for the seventh straight month.

 

Dairy companies were widely expected to increase the price of their milk products especially since they agreed Tuesday (Aug 16) to raise the price of raw milk by an average of KRW130 (US$0.12) per litre after nearly two months of heated negotiations with dairy farmers.

 

The companies claimed they will have to raise the shelf price of their products at least by the same margin, with some even claiming they will have to raise the price by up to KRW300-400 (US$0.28-0.37) per litre because of recent increases in other costs, such as labour.

 

The ministry, however, claimed the rise of the raw milk price will only cost the milk companies an additional KRW61 billion (US$56.7 million) during the remainder of the year while they are expected to save up to KRW60 billion (US$55.7 million) this year from the government's temporary removal of import tariffs on raw materials for various dairy products.

 

"If any company tries to take advantage of the rise of raw milk prices and raise their milk prices exorbitantly, the government will take all actions supported by the law," a ministry official said.

 

The rise of the raw milk price is also expected to push up prices of other dairy products and milk-based products, such as cheese and bread.

 

SPC Group, the parent of Samlip General Food Co., the country's second-largest producer of baked foods, said Thursday (Aug 18) it will freeze the price of its milk-based products even if milk companies raise their prices.

 

The ministry, meanwhile, plans to hold a special meeting next week with executives from milk companies and large outlet stores to ask them to limit their price hikes.