Global oil prices have 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 production, becoming a significant factor for profitability in the second half of the year.
According to the Korea National Oil Corporation, the price of Dubai crude oil 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 represent declines of $2.92 (2.69%) and $3.40 (3.21%) 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 subject to fuel surcharges. Additionally, domestic transportation costs for refrigerated and frozen goods are also rising.
Pressure on packaging costs is mounting as well. Naphtha prices soared to $1,063.10 per ton in April, dropped to an average of $708.40 per ton in June, but have since climbed back to the $800 range this month. Naphtha is a key raw material for PET bottles, plastic, and other packaging, and its price increase directly raises the cost of these materials. Furthermore, production facilities are monitoring potential increases in energy costs for gas and electricity needed for operations.
Major food companies typically secure 3 to 6 months' worth of raw materials through advance contracts and inventory to absorb short-term shocks. However, they express concern that if high oil prices persist, it will become difficult to manage these costs. A representative from the food industry stated, "If the trend of high oil prices continues, once existing inventory is depleted, the rise in production costs will become inevitable."
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 6%. Ottogi adjusted the prices of some products, including instant rice and ready-to-eat meals, by up to 29.4%. Lotte Chilsung Beverage also raised the prices of 44 items across 12 brands, including Chilsung Cider and Pepsi Cola, 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 without fully reflecting them 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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