Many consumers wonder why beef prices in department stores and other retail outlets remain high even as cattle prices have plummeted at livestock farms. The Consumers Union of Korea has come up with an answer.

According to a report released by the union, a top-notch 600 kg Korean cow fetches its owner about 5.8 million won on average. But the cow’s final consumer price is slightly over 10.04 million won, generating a distribution margin of 42.3 percent.

The report has found out how the large margin is distributed. According to it, the lion’s share goes to retailers ― department stores, large discount store chains, super supermarkets and other big outlets keep over 90 percent of the distribution margin, while wholesalers take less than 10 percent.

The finding does not match up with the suspicion held by many consumers that the high retail prices of Korean beef, called “hanwoo,” were the result of price manipulation by wholesalers.

Yet the report has clearly identified the culprits ― powerful retailers, mostly affiliated with chaebol groups.

According to the survey, the distribution margin at the wholesale stage was 3.1 percent in 2009, 3.3 percent in 2010 and 3.8 percent in 2011, while the margin at the retail stage was more than 10 times larger than that ― 34.7 percent in 2009, 37.6 percent in 2010 and 38.5 percent in 2011.

The report illustrated big retailers’ predatory pricing practices by comparing changes in wholesale and retail hanwoo prices between 2009 and 2012. According to it, the average wholesale prices of top class hanwoo products in January dropped 22.7 percent compared with those of October 2010. Yet, the prices rose 0.9 percent at department stores and 12 percent at super supermarkets during the same period.

Recently, hanwoo growers protested vehemently as the prices of their cattle kept falling sharply. Their protests prompted the union to conduct the survey, which was assisted by the Fair Trade Commission.

Now that their pricing practices have been laid bare, department stores, discount store chains, super supermarkets and restaurants should immediately lower their beef prices reflecting the steep drop in cattle prices at livestock farms. Otherwise, they would face heat from the FTC.

The commission, which has been investigating the complicated beef distribution system, needs to simplify the distribution process by establishing direct transaction channels between wholesalers and consumers. Such channels would reduce price hikes in the distribution process.( 2012-01-25)