Last year, the combined net profit of the top five wholesale companies in the Garak Market for fruits and vegetables increased by 18% compared to the previous year. Due to unusual weather conditions leading to reduced production, agricultural prices skyrocketed, giving rise to terms such as "golden apple" and "golden pear," as the wholesale companies reported strong performance.
According to the Financial Supervisory Service on the 25th, the total sales of the top five wholesale companies in the Garak Market, including Seoul Fruits, Central Fruits, Korea Fruits, Donghwa Fruits, and Dae-A Fruits, reached 188.6 billion won, representing an 11% increase compared to the previous year. During the same period, operating income rose by 17% to 41.7 billion won, and net profit also grew by 18% to 37.9 billion won.
The operating profit margin relative to sales was 22%. Considering that the operating profit margins of large discount stores like Emart (0.7%) and Lotte Mart (0.9%) fell below 1%, their profitability is significantly higher.
Typically, agricultural products are distributed through the following route: producer → wholesaler corporate body → broker → retailer → consumer. The wholesale companies conduct auctions, collect agricultural products, and set prices. The Garak Market, which accounts for 20% of domestic agricultural product distribution, includes six wholesale companies, including the NongHyup public auction house and the aforementioned top five wholesale companies.
They receive a commission of 4-7% on the auction winning bid (transaction amount) from the shippers. Regardless of whether agricultural product prices rise or fall, they maintain an average profit margin in the 20% range thanks to a stable business structure, allowing for ample dividends. This year, four of the five wholesale companies paid a total of 14.125 billion won in dividends.
Wholesale companies were established after the government set up public wholesale markets such as the Garak Market in 1985 and granted exclusive rights to conduct auctions to certain wholesalers. However, criticism has emerged from the agricultural and distribution sectors that the government effectively allowed the monopoly of wholesale companies, ensuring high profits for wholesalers.
Currently, all top five wholesale companies are owned by companies unrelated to agricultural distribution. Seoul Fruits is owned by KISWIRE, Donghwa Fruits by SILLA, and Dae-A Fruits by Hoban Construction and Hoban Property. Central Fruits is fully owned by Pacific Development, a construction company operated by the eldest son of Amorepacific Group founder Seong-Hwan Seo. Korea Fruits is operated by The Korea Holdings, a management consulting company affiliated with the family of Seoul Academy. This is why there are concerns that certain wholesale companies prioritize profits over market stability.
There is a continuous call in the industry to improve the monopoly of wholesale companies in the agricultural auction system. Last year, during an audit of the Ministry of Agriculture, Food and Rural Affairs, related criticisms were raised. Democratic Party of Korea lawmaker Moon Dae-rim noted, "There are hardly any companies in South Korea that consistently guarantee operating profits in the 20% range. Even in 2022, when oil prices were high, the operating profits of oil companies were around 6%,” and added, “While the government and National Assembly have taken a passive approach to reforming the distribution structure of agricultural and marine products, the agricultural distribution market has become a revenue source for steel and construction companies.”
The government is also recognizing the issues and is working to improve the distribution structure of agricultural and marine products, including opening an online wholesale market for agricultural products in November 2023. According to a recent announcement by the Ministry of Economy and Finance on the 2nd, the online wholesale market recorded a transaction value of 673.7 billion won in its first year. As a result, the distribution cost ratio decreased by 7.5 percentage points, and the farmers' receipt price increased by 3.6%. The government plans to expand the transaction value of the online wholesale market to 1 trillion won in the future.
The government also decided to assess the wholesale companies every 5 to 10 years to determine whether to reassign them. In the 40 years since the establishment of the Garak Market wholesale companies, none have been reassigned.
However, experts assert that a fundamental improvement in the agricultural distribution structure requires amendments to the Agricultural and Marine Products Distribution and Price Stabilization Act.
Professor Kim Yun-Du of Konkuk University stated, "Currently, agricultural products can only be distributed through certain wholesale companies, which do not make purchases under responsibility but merely engage in commission-based business. This is how they enjoy stable profits," and added, "Competition between distribution entities must be promoted through the relaxation of regulations on transactions between wholesale market firms and brokers."