<Anchor> This is a
friendly economic time. Today (26th), I will be with reporter Kim Hye-min. Last week, milk prices are rising. There seems to be a lot of articles like this, but did the price actually go up a bit?
<Reporter>
Except for the salary, everything goes up these days. These words really make sense.
The price of milk has been maintained at 926 won per liter since 2018 until recently. Then, this time, the Dairy Promotion Association announced that it would raise it by 21 won to 947 won per liter.
Concerned that food prices would continue to rise, the government persuaded them to defer the increase for only six months until the end of this year, but the dairy industry did not accept it.
They are selling crude oil at a higher price starting this month. In the future, the milk industry will raise the price of milk.
At 21 won per liter, the price of crude oil rose by 2.3%. However, consumer milk prices are not going up just that much.
There is an observation that the milk industry will raise the milk price by around 10% considering the accumulated logistics and labor costs.
In addition, the price of milk-based products such as ice cream, cheese, and bread is expected to rise as well.
<Anchor>
Dairy prices will go up soon. But reporter Kim, if you look at it, when demand decreases, supply decreases, and the price also decreases. But these days, I don't drink a lot of milk, so consumption decreases and demand decreases. But why are milk prices rising like this?
<Reporter>
Yes. The decline in fertility has resulted in fewer children drinking milk. Also, I don't drink as much white milk these days as I used to.
White milk consumption per capita last year was 26.3 kg, the lowest since 1999.
So, about 15% of the milk produced each year remains. Some are just thrown away and some are sold at a lower price than the regular price.
Nevertheless, the price of crude oil in Korea is rising significantly compared to the US and Europe.
In the past 10 years, when Korea's milk price increased by 72.2%, as you can see in the graph, the US rose 11.8% and Europe only rose 19.6%.
There is still milk left and it is thrown away like this, so the question arises as to whether it is possible to produce less and sell it at a lower price.
However, this is not possible due to Korea's unique crude oil pricing method.
<Anchor>
What specifically is this unique way of pricing crude oil?
<Reporter>
The price is now being determined according to the 'production cost indexation system', because there was a foot-and-mouth disease outbreak in 2011. Dairy farmers were hit hard at this time, so the government introduced this system in 2013 to stabilize supply and demand.
It determines the price by reflecting the production cost of dairy farmers and the rate of increase in consumer price. Changes in demand are not reflected here.
In addition, there is a 'quota system' that limits crude oil production. It was introduced at the time to prevent overproduction of crude oil, but now it is being pointed out that only the price of crude oil is raised in a situation where the demand is less than the quota.
The government believes that if this situation is neglected, the price of domestic crude oil will inevitably become significantly higher than that of imported ones, and if that happens, domestic crude oil may lose its competitiveness, so system improvement is essential.
<Anchor>
Normally, the price is not determined according to supply and demand, but it has a rather unique structure. However, as I explained earlier, there are some areas that need improvement. Are there any moves for improvement?
<Reporter> The
government recently set up a government-led committee. And yesterday, the first meeting of the 'Dairy Industry Development Committee' was held, and the committee plans to come up with a plan to improve the system by the end of this year.
As an alternative to the current production cost indexing system, the 'differential price system for each use' seems to be the most likely to be considered.
This is a system that sets the price of crude oil differently for different uses, such as milk, ice cream, cheese, and powdered milk.
Most countries, including the United States, operate this way. It is also predicted that the 'quota system' will be improved.
However, as the government-led reforms are made, opposition from the dairy industry is expected.
The dairy industry is claiming that "consumer prices have risen because the milk industry has increased distribution margins, and the price of crude oil has not risen significantly."
"As prices rise, the cost of raising cattle such as feed is also rising, so the industry is in a difficult situation," he said.