International oil prices have once again surpassed $100 per barrel, intensifying cost pressures on the domestic food industry, which had already been grappling with high inflation and exchange rates in the first half of the year. While the recent decline in the won-dollar exchange rate has eased some burden on imported raw materials, the ongoing high oil prices are raising logistics, packaging, and energy costs for factory operations, becoming a significant factor for profitability in the second half of the year.
According to the Korea National Oil Corporation, the spot price of Dubai crude rose by $0.30 to $128.00 per barrel on September 16. Brent crude futures closed at $105.83 per barrel, while West Texas Intermediate (WTI) finished at $102.43 per barrel. Although these prices fell by $2.92 (2.69%) and $3.40 (3.21%) respectively from the previous trading day, they remain at elevated levels. International oil prices have exceeded the $100 mark for the first time in four months since May.
The rise in oil prices is particularly concerning as it leads to increased costs across food manufacturing and distribution. The logistics sector is the first to feel the impact, as shipping costs for importing raw materials like grains are compounded by fuel surcharges. Additionally, domestic costs for operating refrigerated and frozen transport vehicles and freight services are also rising.
Pressure on packaging material costs is also mounting. The price of naphtha, a key raw material for PET bottles, vinyl, and plastic containers, soared to $1,063.10 per ton in April, dropped to an average of $708.40 per ton in June, but has since climbed back to the $800 range this month. The increase in naphtha prices directly raises the cost of auxiliary materials. Furthermore, production facilities are closely monitoring the potential rise in energy costs, including gas and electricity, necessary for factory operations.
Major food companies typically secure advance contracts and stockpiles of raw materials for three to six months to absorb short-term shocks. However, they express concerns about the sustainability of this approach if high oil prices persist. A representative from the food industry stated, "If the trend of high oil prices continues, the increase in production costs will inevitably begin once existing stockpiles are depleted."
The food industry has already raised the prices of key products earlier this year due to cost pressures. CJ CheilJedang increased the prices of 27 major items, including cooked rice and dumplings, by an average of 8%. Nongshim raised the prices of its cup noodles and other key products by an average of 5.8%. Ottogi adjusted the prices of some products, including instant rice and convenience meals, by as much as 29.4%. Lotte Chilsung Beverage also raised the prices of 44 items across 12 brands, including Chilsung Cider, Pepsi Cola, and Milkis, by an average of 5.3% in June.
Seong Yong-gu, a professor of business administration at Sookmyung Women's University, noted, "The food industry has accumulated pressures from high exchange rates and rising raw material prices, but has not been able to fully reflect these in prices due to government price management. If international oil prices remain above $100, it could trigger further price increases."
* This article has been translated by AI.
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