Anna Jiwon Park has been covering the politics at The Korea Times since the summer of 2024, when she joined the press pool for the Office of the President in Korea. Prior to that, she spent about five years reporting extensively on financial markets, regulatory authorities and the financial industry. She joined The Korea Times in 2019 after spending eight years as a broadcast journalist at Arirang TV, Korea’s leading global broadcaster, covering politics, defense and culture.
War-induced agflation impacts Korean economy
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By Anna J. Park
Consumer prices of processed food products expected to rise by 6.8 percent in Korea this year
By Anna J. Park
Global supply chain disruptions compounded by Russia's invasion of Ukraine are pushing up the prices of many crops, leading to concerns over “agflation.” Korea is feared to be especially vulnerable due to its dependence on imports of food products.
Agflation ― a word combining “agriculture” and “inflation” ― describes the phenomenon of food prices rising more rapidly than the prices of other goods and services.
Global corn prices rose to a nearly 10-year high, with the contracts for July corn futures traded at $8.04 per bushel at the Chicago Board of Trade (CBOT) on Monday. This is the first time that the corn price exceeded $8 per bushel since September 2012, a jump from around $6 per bushel at the start of the year.
As corn is just one of many crops seeing prices surge recently, agflation is no longer merely a concern but has become a reality for the global economy.
There are a few reasons behind the surging prices of agricultural commodities, notably the global inflationary pressure for every product. Also, disruptions in the global supply chain have been adversely affecting agricultural crop prices even before Russia's invasion of Ukraine.
The war has also been a major factor in the soaring prices, as Russia and Ukraine both account for about 20 percent of the world's corn exports and 30 percent of wheat exports. Ukraine is the world's fourth-largest grain exporter, taking up about 14 percent of global corn exports, 9 percent of wheat exports and 10 percent of barley exports. Russia accounts for about 20 percent of global wheat exports and 14 percent of barley exports.
The soaring prices of fertilizers are also attributed to the war, as Russia is a major exporter. With international sanctions on Russia, the increased prices of fertilizers are now adding fuel to the already strong inflationary pressure on major crops and commodities.
Experts say that crop prices are likely to increase for the foreseeable future. It is expected that the corn harvest will decrease by 40 percent year-on-year, as farmers in Ukraine missed the sowing season in spring due to the ongoing war, along with the shutdowns of major ports, hampering the country's normal export operations.
Agflation can be a starting point of general inflation, stoking prices of other products such as livestock, dairy and processed foods.
The Korea Rural Economic Institute forecasted in a report published earlier this month that consumer prices of processed foods in the country will rise by 6.8 percent.
“The war between Russia and Ukraine created an aggravation in global agricultural crop supply. The more a country's economy is dependent on the prices of food commodities, the more it will suffer from agflation,” said Kim Hee-won, an analyst at Shinhan Financial Investment.
The analyst explained that the Korean economy has a high sensitivity to food prices, as the country's independence rate for grains remains pretty low, except for rice.
Against this backdrop, the stock prices of fertilizer companies continue to soar. Hanil Feed shares surged by their daily upper limit of 29.93 percent on Tuesday and have been doing so for three consecutive trading sessions.
The stock price of Easy Bio also soared by its daily upper limit of 29.86 percent, as Easy Holdings' acquisition of U.S.-based animal feed and ingredients producer Furst-McNess last August drew investors' belated attention. The stock price of Easy Holdings also rose by 24.2 percent on Tuesday. TS Corporation, a manufacturer of mixed feed for livestock also closed up 20.9 percent on Tuesday.
Besides the livestock feed companies, food companies' stock prices are also affected by agflation. Companies with market dominance have seen their stock prices continue to rise despite the current bearish market sentiment, while companies with weaker market power suffer from a fall in stock prices.
Companies like CJ CheilJedang, Korea's number one food production company, have seen an overall uptrend in their stock prices, especially during the past two months when concerns over agflation have been growing. Nongshim, the country's biggest instant noodle company, also saw its stock price rise during the past couple of months, as investors think these top-ranked food companies could pass on the increased grain costs to consumers.