Incheon, South Korea – Lee Seung-ja, the owner of a small bakery in Incheon, South Korea, did not worry much about the war in Ukraine when she first heard the news.
Most of the flour Lee uses for her artisan breads and pastries is imported from France, more than 1,500 miles from the conflict zone.
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“I had no idea that Ukraine is one of the biggest wheat producers until now,” Lee, 40, told Al Jazeera from her artisan bakery located about 40km west of Seoul. “I just discovered that many European flours are made from Ukrainian wheat.”
Before the outbreak of the war, the price of a sack of flour in South Korea had already risen by more than 30 percent due to supply chain issues caused by the COVID-19 pandemic.
Now, Lee is being told by wholesalers to expect prices to go up again soon as the war and sanctions disrupt exports of Russian and Ukrainian wheat, which together account for more than one-quarter of the world’s supply of the grain.
“It’s a pity when war breaks out in other countries, but we usually don’t think it is directly related to us,” Lee said.
“I never imagined that I could get hit directly in this way.”
Across South Korea, small business owners are learning firsthand how conflict in a country thousands of kilometres away can affect their bottom line.
As well as flour, cooking oil is also rapidly becoming more expensive. Ukraine is the world’s top exporter of sunflower oil, providing nearly half of the global supply.
For Kim, 47, the owner of a snack food franchise in Incheon, the rising cost of cooking oil has become a difficult pill to swallow.
“An 18-litre (4.75-gallon) container of cooking oil used to cost around 35,000 won ($28.42), but now it’s more than 45,000 won ($36.55),” said Kim, whose restaurant specialises in tteokbokki, a dish consisting of fried rice cakes in a spicy sauce.
“My oil supplier even suggested I hoard oil if I have enough space, saying that the price could go well above 60,000 won ($48.73) by the summer.”
The war in Europe has sent food prices soaring worldwide, with the UN’s food price index surging 12.6 percent in March, an all-time high.
Vegetable oil and cereal prices have been most seriously affected, spiking 23.2 percent and 17.1 percent, respectively.
Interest rate hikes
In South Korea, while overall inflation remains lower than in many countries, prices of some goods and services have spiked at levels not seen in decades, with the situation widely expected to get worse.
Last week, Statistics Korea announced that the cost of eating out had increased by 6.6 percent in March compared with the previous year, the steepest increase since April 1998.
Overall consumer prices rose 4.1 percent last month, the sharpest increase in a decade.
The Bank of Korea has flagged higher interest rates in the near future, although market watchers are split on whether it will raise its benchmark rate at its latest policy meeting on Thursday, after standing pat on 1.25 percent in February.
Despite surging costs, some small businesses navigating South Korea’s fiercely competitive market feel that raising prices is not an option.
“We raised the price last year due to the rising costs,” said Kim, the franchise restaurant operator, who asked to be only identified by his surname. “If we do it again in half a year, we’ll lose competitiveness for customers.”
“There are lots of competitors out there. We’ll have to put up with it at the end of the day.”
Lee, the baker, also believes raising prices is out of the question.
“I expected the situation to get better when the pandemic subsided,” Lee said. “But now the rising costs are squeezing margins.”
“Since raising prices is not an option, I’m feeling pressure to open up more channels for business – delivery and online sales – something I’ve never done before.”
The rising costs could have far-reaching implications for Asia’s fourth-largest economy.
On Sunday, the Chosun Biz magazine reported that the Ministry of Economy and Finance last week outlined a downgraded economic outlook for 2022 during a briefing for President-elect Yoon Seok-yeol’s transition team, forecasting inflation to average 4 percent and gross national income to grow by less than one percent. The ministry later denied that it had revised its outlook, without commenting on the veracity of the figures.
The downbeat outlook has led some analysts to warn of stagflation, where prices continue to rise steeply despite meagre economic growth.
President-elect Yoon Seok-yeol, who will be inaugurated in May, has vowed that stabilising prices will be a top priority of his new administration.
The rising prices are also fuelling polarisation in how people consume food.
In a report published last week, Shim Eun-ju, an analyst at Hana Financial Investment, noted that while there is a growing demand for cheap food, demand for premium food products is also surging.
That could mean a smaller share of the pie for snack shop owners like Kim.
“To be honest, I’ve put this shop on sale,” Kim said. “The war is not going to go away soon, you know. It could go on for years.”
“The war and the competition have got me worried a lot… I don’t think I am the only one who has put their business up for sale.”