Will rising grain prices hamper the Korean economy?

International grain prices have been going through the roof since June. At the end of last month, corn was traded at 323 U.S. dollars per ton and beans at 634 dollars, exceeding their prices in 2008, when riots broke out in Brazil and Mexico due to a grain crisis. Wheat prices surged to 337 dollars per ton, up 35 percent from a year earlier, as the U.S., the world’s largest grain producer, suffered its worst drought in 50 years. Higher prices caused by inflation in agricultural products are called “agflation,” a combination of the terms “agriculture” and “inflation.”

Korea’s grain self-sufficiency hovers around just 27 percent. As the world’s fifth-largest importer of grain that depends on imports for almost of all of its wheat and corn and 91 percent for beans, dark clouds are looming. The prices of snacks and soybean milk have begun to rise. Beer and animal feed prices are also going up. The increased import prices of such goods are fueling fears over Korea’s trade balance. The outlook is growing dimmer. Higher prices of international grain are reflected in domestic prices over four to seven months. The state-run Korea Rural Economic Research Institute projects that the price of domestic wheat flour will rise 27.5 percent around the end of the year and early next year. At a time when exports, the main engine for Korea’s economic growth, are decreasing, domestic inflation is showing signs of going up.

Among measures taken by the Food, Agriculture, Forestry and Fisheries Ministry are to continue exempting wheat and bean imports from tariffs, increase import financing for importers, and try to substitute rice flour for wheat flour. These actions had been taken in 2008. The government announced a plan last year to establish an international grain company in Chicago to directly import grain into Korea, but this plan has failed.

Fears are growing that agflation will likely continue until next year. Outlooks for grain harvests in the U.S., Eastern Europe and Russia are gloomy. Weather anomalies are getting more aggravated every year. Grain demand in emerging markets such as China and India are rising, however. The Korean government should renew its short-, mid- and long-term measures to seek alternative grain consumption, participate in the international grain market, and secure overseas food production bases.