BOK, agriculture ministry at odds over cause of fresh produce price inflation

Minister of Agriculture, Food and Rural Affairs Song Mi-ryung speaks during a press conference at the ministry’s office in Sejong, Wednesday. Courtesy of Ministry of Agriculture, Food and Rural Affairs

The Bank of Korea (BOK) and the agriculture ministry remain at odds over the cause of fresh produce price inflation, experts said Thursday.

A central bank report released Tuesday said the prices of apples and potatoes in the country were up to three times higher compared to its advanced peers, due to low productivity, low trade openness and high distribution costs. The spike in prices, it added, was the key factor for a delay in disinflation, a major driver of elevated living expenses straining the lives of many amid high borrowing costs.

However, Minister of Agriculture, Food and Rural Affairs Song Mi-ryung said the BOK used too broad a stroke, thus failing to factor in key characteristics specific to the country’s farming and trade conditions.

Bank of Korea Governor Rhee Chang-yong / Yonhap

The difference in opinion making news headlines is the byproduct of BOK Governor Rhee Chang-yong’s mandate, as reiterated during the 74th anniversary of the central bank last week. He is committed to elevating the central bank as a leading research institution full of smart nonconformists unconcerned about potential backlash or criticism for broaching the issues of extreme social disparities. Included on the BOK’s list of “divisive” reports are wealth polarization, inequality in income and socioeconomic status, pension reforms, low birthrates in a rapidly aging economy, elder poverty, labor market duality and balanced growth.

Some say the central bank’s misplaced priorities could undermine its core dual mandate of price stability and financial stability, as sidetracked by the top monetary policymaker’s personal ambition. The BOK has yet to temper Korea’s inflation to the target of 2 percent, with the prospect of a rate cut elusive.

Oversimplification?

“The BOK recommendation for increasing imports among others is too simplified a view of things,” said Choi Byung-ok, senior research fellow at Korea Rural Economic Institute (KREI). Song had been a senior researcher at KREI before assuming the stint as minister.

The monetary authorities responsible for analyzing monthly price figures from a macroeconomic view can, in Choi's view, reach a conclusion lacking consideration for the far-reaching consequences. But it does not mean it should, he added.

“Fresh produce is not manufactured goods. The issues of safety, quarantine and farmers' livelihoods are tied intricately together, a reason why agricultural policymaking is far more complex than it seems.”

Short-term price stability may come at the expense of long-term collapse of local farming, he stressed.

It may seem easy to outright allow importation of fruits that are apparently far cheaper overseas, he said. But lifting trade barriers will in turn send prices soaring, as evidenced by Korea’s red pepper farming.

“Many farmers closed their business after cheaper red peppers were allowed. Did it lower the prices for locally produced red peppers? No. The prices are much higher now, meaning consumers have to pay more than before.”

Meanwhile, Song criticized the central bank for using data from the Economist Intelligence Unit (EIU), a report published by the U.K. magazine. “The datasets are not nearly precise enough to make a fair comparison,” she said during a presser at the ministry, Wednesday.

The central bank cited the EIU data to conclude that Korea’s food prices are 55 percent higher than the OECD average.

However, the EIU surveyed living costs in 33 major cities without any consideration for statistically weighted analysis, in what Song said was an inaccurate reflection of Korea’s status quo.

“The EIU data is misleading, since Korea’s prices can be overestimated in a country where the capital of Seoul contributes an outsized 52 percent of the country’s GDP.”