[Why&Next] Auction Price for 1kg of Onion: 240 Won vs. 500 Won in Direct Transactions at Production Site

Policy Seminar on Improving Competition-Restrictive Regulations in Agricultural Wholesale Markets

Abolishing the Boundary Between Wholesale Market Corporations and Intermediate Wholesalers to Simplify Distribution Structure

Alternative Proposals Including Legislative Precedents on Compensating Production Costs from Overseas Examples

Question Marks Remain Over Government Plans to Promote Online Wholesale Markets

"A farmer shipped 40 bags each of 1st-grade and 2nd-grade onions, each bag weighing 20kg. The total amount received was 440,000 won, but after deducting commission, handling fees, auction house fees, and other charges, the actual amount pocketed was 385,200 won. When converted to a per-kilogram price, this amounts to around 240 won, which is less than half the 500 won per kilogram typically paid by regular distributors at the place of origin for ungraded onions."

At the policy seminar on "Improving Competition-Restrictive Regulations in Agricultural Wholesale Markets," jointly hosted by Assembly members Joomin Park, Okju Song, Sungjun Jin, Hyesik Lee, Kangil Lee, Geumju Moon, and Daerim Moon of the Democratic Party of Korea at the National Assembly Members' Office Building on July 15, the reality that producers are not receiving fair prices in offline auction markets was brought to the fore. Heung-Sik Park, Chairman of the National Soybean Producers' Association, recounted a recent case involving a local farmer who auctioned onions at a regional agricultural wholesale market, lamenting, "Production costs have risen three to five times compared to 20 years ago, but winning bid prices have hardly changed."

As the government is pushing an expansion of online wholesale markets to address excessive distribution costs in the agricultural product market, concerns persist that the imbalance between producer and consumer prices remains unresolved. The monopoly structure of private wholesale market corporations has yet to be dismantled; business operators found to have formed cartels continue to play a central role in transactions, indicating that conventional practices remain unchanged.

Given that President Lee Jae-myung recently called for fundamental reform of the producer-to-consumer structure in agricultural product distribution, overseen by the public sector rather than private entities, attention is focused on whether progress will be made in addressing these issues and improving market order.

Chronic Problems in Agricultural Distribution: Double Wholesalers

Experts attribute these problems fundamentally to the legal requirement under the Act on Distribution and Price Stabilization of Agricultural and Fishery Products (the Agricultural & Fishery Distribution and Price Stabilization Act) that agricultural and fisheries products must be handled by two types of wholesalers. In the current offline agricultural distribution market—such as the massive Garak-dong Agricultural and Fishery Products Wholesale Market in Songpa-gu, Seoul—the standard price is set through auctions at large-scale wholesale markets. Products then pass through four to five stages: the wholesale market corporation, intermediate wholesalers, small merchants, and consumers, resulting in increased distribution costs. This structure is enforced by a rule that agricultural products collected at the place of origin must be delivered by intermediate wholesalers exclusively through private wholesale market corporations to retailers.

This multi-layered transaction structure adds margins at each stage, and is cited as a cause of higher consumer prices. Wholesale market corporations, after setting auction prices, stably collect a commission of 5 to 7 percent, meaning that even if agricultural prices fluctuate, they never incur losses like producers do. Seoul Fruit & Vegetable Co., Jungang Fruit & Vegetable, Donghwa Fruit & Vegetable, Korea Fruit & Vegetable, and Daea Fruit & Vegetable—five private wholesale market corporations at Garak Market—have monopolized this business for 40 years since 1985. From 2019 to 2023, their average operating margin reached as high as 23.87 percent per year.

Cheomcheongna, Policy Chair of the Korean Federation of Peasants Associations, argued, "We must address the reality where traders with proven collusive practices retain exclusive rights to list agricultural products, and where intermediate wholesalers cannot trade unless they go through these wholesale corporations." Previously, the Korea Fair Trade Commission imposed a fine of 11.6 billion won in 2018 on these corporations for colluding on commissions for 16 years, a decision upheld by the Supreme Court in 2021. Despite this, the main transaction entities have not changed.

The flaws in the agricultural distribution structure were also raised at the Cabinet meeting on July 14, which addressed price controls. President Lee Jae-myung, in response to Agricultural Minister Mirey Song’s point that prices for agricultural products remain too low for farmers, remarked, "There is a significant gap between market and farm gate prices; prices at the production site fluctuate, while retail prices keep rising. We need to reform the distribution structure fundamentally." He added, "Currently, we rely almost entirely on agricultural cooperatives. The government must invest resources into improving distribution. If necessary, we should make further investments. This is not a matter to be left solely to the private sector."

"Integrating Wholesale and Intermediate Wholesale Functions, Guaranteeing Minimum Income"

Experts emphasized that solutions should be found in improving the transaction structure of traditional offline wholesale markets. Yoonjeong Kim, Senior Research Fellow at the Korea Legislation Research Institute, referenced Japan’s example, where regulatory restrictions have been lifted on the business domains of wholesale market corporations and intermediate wholesalers. "If retailers can buy directly from wholesalers, and intermediate wholesalers can procure directly at production sites by removing rigid business distinctions, we can shorten the distribution structure and reduce costs," she explained. Kim recommended deleting wording in the Agricultural & Fishery Distribution and Price Stabilization Act that gives wholesale market corporations exclusive rights to list agricultural products on the market, and abolishing the rule that intermediate wholesalers must purchase a certain volume through wholesale market corporations.

Cheom, the Policy Chair, also highlighted the cases of France (Egalim Law), Spain (Food Chain Law), and India (Minimum Support Price) that guarantee producers a minimum income. He stressed, "It is important that mechanisms are in place to guarantee farmers a minimum sustainable income and introduce preventative safeguards before prices collapse." In France and India, farmers can set a price that reflects their production costs in advance, while Spain bans sales below production costs. In South Korea, however, guaranteed prices are set according to the average of the past five harvest years, excluding the highest and lowest prices, which means that when prices crash, farmers are not guaranteed even their production costs.

Meanwhile, this seminar also saw skeptical responses regarding the government's drive to expand online wholesale markets. The Ministry of Agriculture, Food and Rural Affairs previously announced its intention to tackle the monopoly structure of Garak Market's wholesale market corporations and cut distribution costs—raising the proportion of online wholesale transactions from 6 percent of the total (approximately 1 trillion won) to 50 percent (about 7 trillion won) by 2030.

Jumin Park, a member of the Democratic Party of Korea (third from the left in the back row), is taking a commemorative photo with attendees at a policy seminar held on the 15th at the National Assembly Members' Office Building to improve competition-restrictive regulations in agricultural wholesale markets. Photo by Hyunmin Kim

Kim, the Senior Research Fellow, pointed out, "Although online wholesale markets were established to enable direct transactions between producers and buyers, significant transactions continue to take place between wholesale market corporations and intermediate wholesalers." Even though online wholesale markets were expected to reduce the distribution structure by eliminating boundaries between the roles of wholesale market corporations and intermediate wholesalers, the reality remains similar to that of traditional offline trading.

False Transactions Alleged in Government-Driven Online Wholesale Market Performance

There have also been allegations of inflated performance figures during the implementation of online wholesale markets. At last year’s parliamentary audit, Assemblywoman Mi-ae Im of the Democratic Party of Korea raised concerns of false or abnormal transactions in online agricultural and fishery wholesale markets. Subsequently, a comprehensive survey by the Ministry of Agriculture, Food and Rural Affairs on all online wholesale market transactions that received policy support found that, out of a total of 769.8 billion won, 458.4 billion won were classified as false or abnormal transactions, including related-party deals, deliveries to adjacent locations, and missing shipping information. This amounted to 59.6 percent of the total value and 61.5 percent of the volume.

Haesook Baek, Professor of Consumer Industry Studies at Sungshin Women's University, commented, "It is problematic that the government’s push for online wholesale markets is too focused on boosting performance figures." She added, “Currently, online wholesale markets handle a variety of goods, including eggs, livestock, and grains, making it difficult to serve solely as an alternative for agricultural product transactions." Juyoun Jang, Director of Market Structure Improvement at the Korea Fair Trade Commission, stated, "There may be growing pains during the initial phase, but it is important to ensure that the original intent of operating online wholesale markets is preserved. Meanwhile, even in offline wholesale markets, participants need to be given sufficient choices and a competitive environment." He added that relevant authorities are engaged in ongoing discussions and negotiations in this direction.

This content was produced with the assistance of AI translation services.