Even Baek Jong-won couldn’t stand it… The real thing comes in summer before the storm

As coffee prices rose one after another, it became difficult to find an Americano in the 1,000 won range. This is the aftermath of a surge in raw material prices due to the global abnormal climate and the Ukraine war. A new word called ‘coffee inflation (coffee + inflation)’ has even appeared. It’s not just coffee. It is difficult to find essential consumer goods for eating, drinking and wearing that have not risen in price.

According to the New York Mercantile Exchange on the 29th, Coffee C futures, which is the standard for international bean prices, traded at 217.95 cents per pound (454 g) the previous day. This is a 51.0% increase from a year ago (144.3 cents). In February, the stock of Arabica beans fell to 143 million pounds, the lowest level in 22 years, and soared to an average of 246.2 cents per month.

Franchise coffee shops in Korea are competing to raise consumer prices. Starting with Starbucks at the beginning of this year, recently, there has been a wind of raising it to a low-priced brand that promotes ‘cost-performance (price-performance)’.

Paek Dabang, famous for its ‘Baek Jong-won Coffee’, has increased the price of 22 types from 200 to 500 won from the 5th. Convenience store CU increased the price of its coffee brand’s Americano (medium) from 1,000 won to 1,300 won from the 8th.

Clothing prices are also rising. Manufacturing direct sales (SPA) brands and distributors’ own brands (PB), which had maintained low prices for a while, began to compete to raise prices. This is because the price of raw cotton, a raw material, has soared to the highest level in 11 years.

Cosmetics prices are also booming. This is due to the fact that Indonesia banned the export of palm oil for food, and the price of palm oil for processing, the main raw material for cosmetics, has also risen. On the 25th, Amorepacific raised the price of cosmetics for 83 items from nine brands, including Hera and Sulwhasoo, by an average of 10%. Seong Tae-yoon, a professor of economics at Yonsei University, said, “If the slump in crop yields continue, there is a high chance that a stronger price hike storm will strike in the second half of this year.”

Consumer goods that you eat, wear and apply soar… A ‘real price storm’ is coming in summer
Soaring raw material prices… Transferred to 1st and 2nd processed products

These days, the food industry is on the eve of the storm. This is because raw material prices are on the rise due to the ‘triple bad news’ of the sluggish grain harvest caused by the global abnormal climate, the Ukraine war and the high exchange rate. Since the price of major products has already been raised from last year to the beginning of this year, it is burdensome to raise the price further immediately.

Companies are saying, “The cost burden is still not too high as they usually stock up 3 to 6 months’ worth of raw material inventory.” But the inside is burning. An executive in charge of purchasing at a food company said, “There are many companies that have accumulated fewer inventories than usual due to the false prediction that the rise in raw material prices will subside this year.

○Canola oil doubles in one year

Cooking oil is considered one of the items that has suffered the most price rise this year. Canada, the world’s largest producer of canola oil, suffered a severe drought last year, causing production to drop to its lowest level in 13 years. The price of 18L canola oil, which is mainly used in chicken restaurants, was in the low 30,000 won range at the beginning of last year, but now it has exceeded 60,000 won.

Sunflower oil prices have been affected by the Ukrainian war. Ukraine is the world’s largest producer and exporter of sunflower oil. It accounts for more than 40% of global exports. Russia is the second largest exporter of sunflower oil. The outlook for next year is more bleak. This is because Ukrainian and Russian farmers are missing the time to sow key crops as the war in Ukraine prolongs.

○Feed price ↑… Meat prices soar

Meat prices are also on the rise. Feed prices are skyrocketing due to the sluggish grain harvest in major global regions and the conflict in Ukraine. As a result, the pressure on meat prices to rise is intensifying. In general, feed costs account for around 50% of the cost of raising cattle and pigs. Experts explain that an increase in feed prices is a structure that pushes up meat prices.

According to the Korea Rural Economic Research Institute, the unit price of wheat for feed last month was $333 per ton. It rose 24.7% from the same month last year ($267). During the same period, corn for feed rose 31.2% from $247 to $324.

Imported meat prices, which have risen due to currency fluctuations and increased logistics costs, are showing a particularly steep rise. The price of frozen LA ribs (1.5 kg) sold at a large mart in Korea was 66,500 won, up 36.8% from a year ago (48,600 won). An official from a large mart said, “It will not be easy for meat prices to come down as the price of fertilizer, which determines the price of grain, is also rising.”

○Companies are terrified

Food companies are terrified as the domino rise in raw material prices continues from last year to this year. This is because it is burdensome to raise prices additionally this year, as the prices of processed foods such as ramen, sweets, and instant rice, as well as pizza, chicken, and hamburgers were raised last year.

An official from a food company said, “If you raise product prices right after the new government is inaugurated, you may be caught in a ‘criminal’ and you may face strong backlash from consumers, so you are cautious. We cannot rule out the possibility that the product price increase relay will start again in the second half of the year,” he said.

By Park Jong-gwan/Park Dong-hwi/Ha Su-jeong, staff reporters pjk@hankyung.com