At S.Korea's fried chicken diners, palm oil squeeze feeds inflation fears

Otoki

29/04/2022 02:00

By Cynthia Kim and Jihoon Lee
    SEOUL, April 29 (Reuters) - Mr Lee's diner, a
cheap-and-cheerful fried chicken shop near central Seoul, has
held firm against raising prices for a decade and a half.
    But now, Mr Lee says, Indonesia's cooking oil export ban and
its costly squeeze on prices have been the last straw: he
expects to follow larger chains of South Korea's ubiquitous
"chimaek" fried chicken-and-beer outlets that are raising
prices, even if he risks losing customers.
    Mr Lee's dilemma highlights the perilous path ahead for
policymakers in Asia's fourth-largest economy, where worries
over cost-push inflation prompted a surprise rate hike this
month with both inflation rates and expectations at their
highest in a decade.  urn:newsml:reuters.com:*:nL2N2WO37T urn:newsml:reuters.com:*:nL2N2W22FE  urn:newsml:reuters.com:*:nL3N2WA1I1
    For a wide array of consumer goods using palm oil - from
croissants to cosmetics - Indonesia's surprise moves over the
past week to ban exports have sent shock waves globally, pushing
up prices for palm oil from other sources such as Malaysia, and
for substitutes like soy oil.  urn:newsml:reuters.com:*:nL2N2WP0V6
    "We are cautiously watching the situation as demand for
Malay palm oil could increase and could lead to higher prices,"
said a spokesperson at Ottogi, a major South Korean producer of
frozen pizza and ramen noodles. 
    Indonesia, the source of more than half the world's palm oil
supply, widened its export suspension on Wednesday to include
crude and refined oil, throwing the market into chaos after the
war in Ukraine had already squeezed supplies of sunflower oil. 
    The benchmark price of palm oil futures traded in Malaysia
surged their daily 10% limit after Wednesday's announcement and
are up nearly 50% since the start of the year, while soyoil
prices on the Chicago Board of Trade hit a record high.
    Even before the ban, a steady climb in global prices had
roughly doubled the price of an 18-litre container of edible oil
in South Korea from a year earlier.
    "Everything's gone up, this box of oil has doubled, flour
coating is up, so is chicken," said Mr Lee, the chimaek diner
owner, who declined to give his full name for fear of attracting
attention to price increases at his shop. His shop displays a
customer service award from a local government office for his
long record of steady prices.
    "We haven't been raising prices, but it's really hard now
and we need to raise prices a bit."
    Genesis BBQ, one of the country's biggest fried chicken
chains, last week said it would raise prices for most items on
its menu for the first time in four years by 10%, after similar
moves by rivals Kyochon F&B and BHC. 
    This set the stage for similar hikes at local shops like Mr
Lee's, which charges 8,000 won ($6.40) for a whole chicken. The
bigger chains will be charging up to 20,000 won for their
chickens.
    And the price impact of the palm oil squeeze won't be
limited to chicken.
    South Korea imported $2.2 billion worth of animal and
vegetable fats and oils in 2021, of which about 30% were palm
oil, according to customs agency data. Most of that, or 56%,
came from Indonesia, and the rest from Malaysia. 
    "I heard palm oil gets used in so many cosmetics," said Joo
Hyeon-jung, who was picnicking with friends along Seoul's
Hangang River. 
    "Cosmetics are like necessities for us women and price
increases there will really hit me, because its like a fixed
expenditure."

 (Additional reporting by Dae-woung Kim; Editing by Edmund
Klamann)
 ((Cynthia.Kim@thomsonreuters.com; 822 3704 5655; Reuters
Messaging: cynthia.kim.thomsonreuters.com@reuters.net))