Producer prices have risen as record-breaking heat waves and heavy rains drove up the cost of agricultural and livestock products. A spinach display is seen at a major supermarket in Seoul. (Yonhap)
SEOUL, Sept. 16 (Korea Bizwire) — South Korea is facing intensifying “agflation,” as surging agricultural prices add new pressure to household costs and expose deep structural weaknesses in the nation’s farming and distribution systems.
Consumer prices for agricultural, livestock and fisheries products jumped 4.8 percent in August from a year earlier, the sharpest increase in more than a year, according to Statistics Korea. The rise pushed overall inflation higher by 0.37 percentage points.
President Lee Jae-myung, in a cabinet meeting last week, warned that food prices in South Korea are now 50 percent above the OECD average, urging “swift action to stabilize grocery bills.”
Structural Weaknesses in Agriculture
Economists say South Korea’s persistently high food prices stem from low agricultural productivity and high distribution costs. The country’s farms are small, fragmented and operated largely by an aging population, leaving yields well below global levels. According to the Korea Rural Economic Institute, domestic apple and peach yields are less than half those of leading producers abroad.
A 2023 Bank of Korea report found that South Korea’s food costs were already 1.5 times the OECD average, up from 1.2 times in 1990, with fruit and vegetable prices rising fastest.
The problem is compounded by geography and climate. With limited arable land, extreme weather often devastates entire crops. Heavy rains, frosts and pests can send prices swinging wildly. Last spring, apple and pear prices doubled after frost wiped out nearly a third of production.
Egg section at a major supermarket in Seoul (Image courtesy of Yonhap)
Distribution System Under Fire
Experts also point to inefficiencies in South Korea’s wholesale market system. Most produce flows into Seoul’s central wholesale markets, where corporate-run auction houses dominate transactions. Farmers, often forced to sell cheaply, see little of the final consumer price, while layers of middlemen capture margins.
“The distribution structure has become a kind of cartel,” said Jung Eun-mi, a researcher at the Korea Rural Economic Institute, noting that auction houses take fixed commissions while intermediaries reap substantial profits.
Wholesale costs account for as much as 60 to 70 percent of the retail price for staples like cabbage and radish, leaving farmers with less than 40 percent of the consumer price.
Calls for reform — including expanding fixed-price contracts and direct sales — have grown louder as volatility worsens.
Climate Change Adds New Pressures
Global climate shocks have further driven up raw material prices, raising import costs for staples such as coffee and chocolate. In Korea, warming seas have decimated pollock and squid stocks, while rising temperatures and erratic weather have destabilized domestic harvests.
Policymakers are pushing for long-term fixes, from investing in agricultural R&D and mechanization to developing climate-resilient crop varieties. Some economists suggest immediate relief could come from loosening restrictions on foreign labor to lower farm costs and expanding tariff exemptions on imports.
“South Korea needs a fundamental overhaul of both agricultural production and distribution,” said Jin Hyun-jung, an economics professor at Chung-Ang University. “Without it, food price instability will remain a chronic burden on households.”
Ashley Song (ashley@koreabizwire.com)
