Food costs rise across the board as major brands hike prices

Major food companies are raising prices one after another just over a month before the Chuseok holidays.

Food company Otoki will raise prices for cup noodles and dumplings by 6 to 7 percent from Sept. 7, retail industry sources said on Sunday.

Another food firm Paldo will increase shipment prices for some cup noodles and beverages by an average of 5 percent from Sept. 1, while food manufacturer Samlip will raise prices for about 50 bread products by an average of 9 percent.

The convenience store price of Samlip's Borumdal — a soft cake filled with sweet strawberry cream — will rise from 1,800 won to 2,000 won ($1.30 to $1.40), while its Hershey’s Choco Sand will increase from 2,200 won to 2,400 won.

Bakery chain Paris Baguette will also raise prices for 127 products by an average of 5 percent from Tuesday, including 86 bread products and 41 cakes and desserts.

"This is our first price increase in a year and six months since February last year, and we were forced to adjust prices due to rising raw material and other costs," Paris Baguette said.

Instant noodles and snack manufacturer Nongshim previously raised prices for 43 products, including cup noodles and snacks, by an average of 5.8 percent from Aug. 1.

Food company CJ CheilJedang increased prices for 27 products, including Hetbahn instant rice, dumplings and grilled fish, by an average of 8 percent from July 30.

Bakery franchise Tous les Jours, operated by CJ Foodville, also raised prices for 76 products, including bread and cakes, by an average of 8.2 percent from July 31.

Food companies say their costs have risen sharply amid domestic and global developments, including the war in the Middle East, as prices have surged for raw materials such as eggs, raw sugar, wheat and palm oil as well as naphtha used in packaging, while the exchange rate has also climbed.

They say the growing cost burden has made it increasingly difficult to absorb the factors driving price increases.

Another factor is price cuts made earlier this year in response to the government's push to stabilize inflation. Nongshim, CJ CheilJedang, Otoki and Paldo, which have recently announced price increases, lowered prices for products such as instant noodles, snacks, flour and cooking oil four to five months ago.

Companies argue that this creates a spring effect on prices: they are simply reversing earlier, artificially suppressed prices, but the reversal appears to consumers as a price hike. For example, one product rose by 100 won, or 9 percent, this month but is now priced at the same level as it was in March, before the price cut.

The price hikes have drawn a negative response from consumers. They argue that companies are passing higher costs on to customers even though the impact of rising input costs has not yet appeared directly in their financial results.

Nongshim's cost of goods sold as a percentage of sales stood at 69.4 percent in the first half of this year, slightly lower than 70.5 percent in the same period last year. Food manufacturer Pulmuone's ratio was 75.3 percent in the first half, similar to 75.6 percent a year earlier.

Critics also say companies tend to include less popular, noncore products when cutting prices but target their main products when raising them. When prices rise for products with large domestic market shares, consumers feel a greater burden from rising food costs.

"It is true that higher raw material costs are putting pressure on companies, but we strongly question whether companies are raising prices not because of their current cost burden but as a pre-emptive response to anticipated future cost increases or to secure profitability," the Korea National Council of Consumer Organizations said. "The government should also examine whether policies aimed at easing companies' cost burdens, such as tariff-rate quotas, are actually translating into stable consumer prices."

BY CHOI HYUN-JU [[email protected]]