South Korea expands tariff-rate quotas on food imports to ease price pressures

A cup of coffee, a bottle of fruit juice, a bunch of bananas.

Many consumers say food prices weigh on them every time they go grocery shopping. Rising international raw material costs and a weaker won have pushed up production costs for the food industry, keeping prices of processed foods and imported fruits on an upward trend.

That is the backdrop for the government's decision to expand tariff-rate quotas on food items in the second half of the year. By lowering tariffs on imported food ingredients, the policy aims to ease cost burdens on companies, reduce pressure to raise prices and stabilize consumer prices.

Under the measure, tariff-rate quota coverage for 13 items set to expire at the end of this month will be extended, and nine new items — including fruit juice, concentrates and malt extract — have been added. Including items already covered year-round, a total of 22 items will benefit from reduced tariffs in the second half: three types of fruit, 17 food ingredients and two feed ingredients.

Many of the items are staples of the Korean diet. Coffee beans affect the price of instant coffee mixes and brewed coffee, while sugar and cocoa are key ingredients in snacks, bread, chocolate and beverages. Apple, lemon and grape concentrates go into juices and desserts, and malt extract is used in cereal, confectionery and beverage manufacturing. Imported fruits such as bananas, mangoes and pineapples are also covered.

The government expects the expansion to help reduce cost burdens on the food industry and curb price increases. According to the Ministry of Agriculture, Food and Rural Affairs, applying tariff-rate quotas to 68 agricultural and livestock items last year generated an estimated 595 billion won ($385 million) in tariff relief. When the quotas were extended to processed pork raw materials last year, import sources diversified to include Brazil and Mexico, and some processors reported cost savings of between 7 and 23 percent.

The newly added fruit juice and concentrate items are intended to ease cost pressures ahead of rising summer demand for beverages and desserts. The ministry said it focused on items with little or no domestic production, or where supply falls short, to minimize the impact on domestic agriculture.

However, lower tariffs do not automatically translate into lower prices at supermarkets or convenience stores. The government has framed the goal of this measure as curbing price increases rather than cutting prices outright — the aim is to reduce the cost burden on food companies from imported raw materials and thereby lessen pressure to raise prices. To that end, authorities plan to tighten oversight of bonded zones, customs clearance and retail distribution, and to designate tariff-rate quota items for intensive monitoring from import to sale.

The farming sector has raised concerns that the benefits may be limited. Seo Yong-seok, secretary-general of the Korea Successor Farmers' Central Federation, said tariff benefits are often absorbed in the distribution process rather than passed on to consumers, and some companies do not lower product prices at all. "The price-stabilizing effect that consumers actually feel may not be significant," he said.

Seo added that high exchange rates and rising global grain prices have already sharply increased production costs for farmers. "Repeatedly lowering tariffs on imported agricultural products may have only a limited effect on price stability, while weakening the foundation of domestic agriculture," he said.

The farming sector also notes that while expanding imported fruit availability in summer may give consumers more choices, it could put domestic farmers under pressure by competing with in-season produce such as peaches, grapes, watermelons and oriental melons. There are also concerns that increased imports of juice ingredients could reduce domestic consumption of lower-grade fruit that would otherwise be used for processing.

The tariff-rate quota expansion aims to ease cost burdens on the food industry and slow the rise in food prices. However, how much consumers actually feel the benefit will depend on exchange rates, international raw material prices and individual companies' pricing decisions.

Hong Ki-yong, a professor at Incheon National University, said support policies to sustain the domestic agricultural production base must accompany price-stabilization efforts. "Only by pursuing both can we secure long-term food price stability and food security," he said.