The won-dollar exchange rate has dropped to the 1300s for the first time in about ten months, complicating profit calculations for the food industry. Companies with high import ratios for raw materials may benefit from lower procurement costs, while those with significant overseas sales could see a decrease in their won-converted earnings, leading to mixed fortunes across the sector.
As of 3:30 PM on September 10, the won-dollar exchange rate stood at 1339.2 won, a decline of over 200 won compared to 1541.8 won on June 24.
Once accustomed to the new normal of the 1500 won range, the food industry is now experiencing relief as the exchange rate falls. Many food companies source a substantial portion of their key raw materials, such as wheat, soybeans, corn, palm oil, raw sugar, and cocoa, from abroad. According to a survey by the Korea Agro-Fisheries & Food Trade Corporation (aT), domestic food manufacturers rely on imported raw materials for about 70% of their needs.
Companies' semi-annual reports also reflect the impact of exchange rate fluctuations on profits. Lotte Wellfood estimates that a 10% drop in the won-dollar exchange rate would increase its pre-tax profit by approximately 3.55 billion won. In the first half of this year, Lotte Wellfood's cost of sales reached 1.56 trillion won, accounting for over 70% of total sales. The price of cocoa, a key ingredient, has recently become a significant variable affecting profitability, suggesting that both international prices and exchange rate movements will influence performance in the second half of the year.
CJ CheilJedang also estimates that a 10% decrease in the won-dollar exchange rate would boost its after-tax profit by about 1.52 billion won. In the first half of this year, CJ CheilJedang spent approximately 1.19 trillion won on purchasing raw materials like sugar, wheat, soybeans, and corn, with the exchange rate for these imports averaging over 1483 won per dollar, more than 100 won higher than the current rate. Ottogi, which sources key ingredients like palm oil and soybean oil from abroad and has a domestic sales ratio of around 90%, is also expected to benefit from the falling exchange rate.
Conversely, companies with a high proportion of overseas sales may find the declining exchange rate detrimental to their performance. Samyang Foods generated 82% of its 1.48 trillion won in sales during the first half of the year from international markets, amounting to 1.23 trillion won. Given its structure, which relies heavily on exports from domestic production facilities like the Miryang plant, a continued appreciation of the won could reduce the won-converted value of its foreign sales and profits. Analysts estimate that a 10 won change in the exchange rate could affect Samyang Foods' profits by about 2 billion won.
However, some experts caution against oversimplifying the situation by stating that importers benefit while exporters suffer from the exchange rate drop. More companies are expanding their overseas operations while importing raw materials, and there is often a lag before exchange rate fluctuations impact actual performance.
A representative from Samyang Foods stated, "The decline in the exchange rate will alleviate some of the pressures from raw material import costs that have been affecting profitability. Additionally, our overseas sales occur in various currencies beyond the dollar, creating a structure where foreign income and expenses offset each other."
A representative from CJ CheilJedang noted, "While a lower exchange rate may lead to relatively lower sales or advantageous conditions for raw material purchases, there is a time lag before these effects are realized, making it difficult to draw definitive conclusions. As we expand our global business, the diversification of foreign income sources has reduced our sensitivity to exchange rate fluctuations compared to the past."
* This article has been translated by AI.
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