Import-reliant food industry sweats under strong dollar

Bundles of instant noodles are displayed on the shelves of a large supermarket in Seoul, Oct. 9. Yonhap

Cost pressures are mounting across Korea's import-heavy food sector as the won continues to weaken against the dollar and domestic demand remains sluggish, industry officials said Wednesday.

With the government pushing back against price hikes, manufacturers are squeezed between eroding margins and limited room to maneuver — whether by raising prices or shrinking product sizes.

Most Korean food companies hedge against currency swings by stockpiling several months' worth of raw materials. But that buffer has eroded after a prolonged period of dollar strength, fueled by escalating geopolitical tensions and U.S. trade tariffs.

The won has weakened from the low-1,400s in early September to around 1,460 per dollar as of Wednesday.

Export-oriented firms can cushion currency losses by converting overseas earnings into won, but domestically focused companies are bearing the full brunt of rising import costs.

Only 31.9 percent of raw materials used by Korean food manufacturers in 2023 were domestically sourced, according to a February report from the Korea Agro-Fisheries & Food Trade Corp., leaving nearly 70 percent exposed to foreign exchange volatility.

The financial toll is already visible. In a disclosure Friday, CJ CheilJedang said a 10 percent rise in the won-dollar exchange rate would cut its quarterly net profit by 1.3 billion won ($886,887). Lotte Wellfood projected a 3.5 billion won hit to its quarterly pretax earnings from a similar currency move.

Meanwhile, consumer sentiment remains subdued, with the Bank of Korea's index slipping 0.3 points in October to 109.8, signaling growing caution about the economic outlook.

Adding to the strain, the Lee Jae Myung administration is tightening price controls — urging retailers and manufacturers to hold prices steady while vowing to crack down on "shrinkflation," the practice of downsizing products without adjusting prices.

Firms are cutting marketing budgets and streamlining operations in response, but critics argue such moves offer limited relief as long as the strong dollar persists.

"It's becoming increasingly difficult for food companies to raise prices. Low-cost, bulk products are gaining ground, and the government is leaning hard on price controls," a food industry official said. "For now, companies are likely to wait and see. But if the strong-dollar trend continues, the pressure will eventually spill over into consumer prices."

To cushion the blow, some companies are leaning more heavily on global sales, riding the wave of K-culture popularity.

Samyang Foods posted a standout third quarter, with revenue jumping 44 percent to 632 billion won and operating profit up 50 percent to 131 billion won. Represented by its Buldak instant noodles, exports accounted for 81 percent of sales.

Nongshim also reported solid results of 871.2 billion won in revenue and 54.4 billion won in operating profit, up 2.4 percent and 44.6 percent, respectively. Overseas sales, boosted in part by special "KPop Demon Hunters" packaging for Shin Ramyun, accounted for 40 percent of revenue.