South Korea sets garlic and onion reference price at 80% of normal-year wholesale price

South Korea's new agricultural price stabilization scheme will apply first to garlic and onions, starting with the 2027 crop, and the level at which it pays out has become the central dispute between the government and producer groups. Under a decision taken by the first Agricultural Products Price Stabilization Deliberation Committee on 10 September, the reference price that triggers compensation is to be set at around 80% of the normal-year wholesale price, according to the farm newspaper Nongmin.

On 15 September the Korea Garlic Federation, the Korea Onion Federation, the National Garlic Producers Association and the National Onion Producers Association issued a joint statement calling for changes to the way that reference price is calculated, saying they already doubt the scheme will work as intended.

A deficiency payment tied to a reference price

The scheme is a deficiency-payment mechanism: when the market price of a covered crop in a given year falls below the reference price, the difference is paid to growers. Garlic and onions were selected as the first two commodities at the 10 September committee meeting, with coverage beginning with the 2027 harvest.

The revised enforcement decree of the Act on the Distribution and Price Stabilization of Agricultural and Fishery Products requires the reference price to be set at or above management cost, while taking the supply and demand situation into account. The committee narrowed that down further: the reference price is to cover management cost in full plus a set share of imputed family labour cost, arriving at roughly 80% of the normal-year wholesale price. Where management cost exceeds 80% of the wholesale price, management cost itself becomes the reference; where it falls below, part of family labour cost is added to bring the figure close to the 80% mark.

Ministry defends the threshold

The Ministry of Agriculture, Food and Rural Affairs said the supply and demand situation that the decree requires it to consider is reflected to a certain degree in wholesale prices, and that the 80% level was chosen with reference to the guarantee levels of comparable schemes in South Korea and abroad. Where management cost runs above 80% of the wholesale price, the ministry said, the management cost level will certainly be guaranteed.

Producers see a ceiling, not a floor

Producer groups suspect the 80% figure serves mainly to let the government select whichever of the two calculations is lower. One producer-association official said that at the recent committee meeting the proposed reference price for Daeseo-type garlic was 80% of the wholesale price, a level below management cost plus family labour cost, while for Hanji-type garlic the proposal was management cost plus family labour cost, which came in below 80% of the wholesale price. Nongmin notes that those figures were illustrative drafts built from historical data and will not be used as actual reference prices.

The pledge to guarantee management cost has not satisfied the groups either. Their statement argued that management cost is not a price that allows farming to continue, and that the reference should be set at the level of full production cost. Production cost covers the value of all goods and services consumed in growing a crop: direct items such as fertiliser, agrochemicals, materials and labour, plus indirect items such as land and capital service costs. Management cost strips out the components that are never actually paid out, namely imputed family labour, imputed land rent and capital service costs.

Cost statistics under question

Growers also question the underlying data. One producer-association official said that for garlic, labour cost in the national statistics agency's figures stands at around 110,000 won, well short of field day rates now in the 150,000-won range. Garlic production cost is not disaggregated by cultivation type in the national approved statistics, even though wholesale prices for Namdo, Daeseo and Hanji garlic differ sharply, raising the prospect that a single management cost figure is applied across varieties with very different revenue profiles.

For the 2027 crop, the reference price will be gazetted only after the production cost survey is published around October next year, and only then will it be clear whether the scheme is triggered at all. The producer groups are calling for a standing task force on price surveys and reference price calculation, with farmer participation, to be set up under the deliberation committee and given responsibility for production cost surveys and for reviewing whether reference prices are adequate.