I. Shocking Breaking: 'National Protein' Tofu Factories Scream: Why Are They Stopping?
factories that produce tofu and soy milk, two staples on South Korea's dinner table, are facing the prospect of shutting down en masse. This crisis is not just a matter of one or two companies, but heralds a widespread, nationwide collapse of the production system. in particular, more than 120 tofu manufacturing facilities in Gangwon Province and 80 manufacturers in the Gwangju and South Jeolla regions are facing the prospect of having to close their factories as soon as mid-November.
the core cause of this crisis is the unstable supply of imported soybeans, the main ingredient in tofu. the vast majority of tofu and soy milk products on the market are absolutely dependent on imports, especially soybeans from the U.S., in order to remain affordable and competitive. However, the recent sharp decline in soybean imports has left the domestic processing industry facing a severe shortage of raw materials. This year, soybean imports have only reached 270,000 tons, down about 13 percentage points from last year, and the industry believes that at least 10,000 additional tons are urgently needed by the end of the year.
the threat of such widespread and immediate disruption is a testament to the fact that the country's small and medium-sized processors operate without stockpiling inventory and have relied entirely on a centralized supply chain managed by the Korea Agriculture, Fisheries and Food Distribution Corporation (aT). even a small crack in the centralized supply exposes a systemic vulnerability that can bring the entire nationwide manufacturing system to a screeching halt at a moment's notice due to the pricing structure that prevents the use of alternative raw materials. As a result, the shortage of raw materials leads to concerns of higher final consumer prices, which directly affects the country's livelihood economy.
II. The paradox of soybean supply and demand: There are domestic soybeans in the warehouse, why can't we use them?
while manufacturers are screaming about the shortage of imported soybeans, a paradoxical situation is unfolding as domestic farmers are steadily increasing their soybean production. the government has been trying to increase the self-sufficiency rate of soybeans by implementing the 'Paddy Crop Cultivation Support Project' to strengthen food security and solve the problem of rice overproduction. under this policy, farmers were given a subsidy of 2 million won per hectare to plant other crops, such as soybeans and wheat, on land previously used for rice farming. as a result, domestic soybean production reached 155,000 tons last year, more than 20,000 tons more than three years ago, and production is expected to increase further this year.
the problem lies in the fundamental price difference that prevents tofu and soy milk manufacturers from using this increased domestic soybeans. domestic soybeans are valued at around 5,000 won per kilogram, while imported soybeans are valued at around 1,400 won per kilogram, a price difference of more than three times. the tofu manufacturing industry is a very low-margin industry, so using domestic soybeans, which cost more than three times as much as imported soybeans, as the main ingredient, would make it completely uncompetitive in the market.
this price gap stems from the government's farm support policies. the government purchases domestic soybeans at a high price to increase self-sufficiency and protect farmers. for example, in 2019, the purchase price for the highest grade of domestic soybeans reached KRW 4,500 per kilogram, which maintains downward price rigidity to support farmers' production. 3 Although the government has announced that it will release its stockpiled domestic soybeans to the market as much as possible, manufacturers are unlikely to choose domestic soybeans unless they can match the price of imported soybeans, which is around KRW 1,400 [Input]. despite the government's attempts to supply the stockpiled beans at a discount of about 33% to the ex-farm price 4 , this partial discount has not been able to overcome the overwhelming price difference.
the duality of these policies - the economic disconnect between the goal of expanding the agricultural production base (high-priced harvests) and the goal of providing cheap raw materials to industry (low-priced imported soybeans) - is a structural cause of the current crisis.
Soybean Price Disparity and Economic Barrier (KRW/kg)
categoryprice (KRW/kg)useremarks imported soybeans (aT supply) about KRW 1,400 main raw material for tofu/soy milk manufacturers low rate tariff (5%) applied domestic soybeans (market price) approx. KRW 5,000 high-priced tofu, traditional market more than 3 times more expensive than imported soybeans domestic soybeans (government purchase price) about 4,200 won to 4,500 won support price for farmers' production
farmer protection policies maintain downward price rigidity 3
III. 487% tariff barriers and the trap of state-owned trade: the system blocks the market's ability to cope
at the core of the prolonged soybean supply and demand instability is Korea's unique "state-owned trade system. for 19 key agricultural commodities, including soybeans, sesame seeds, and red beans, the Korea Agriculture, Fisheries, and Food Distribution Corporation (aT) has a monopoly on imports, which is meant to fulfill the function of price stability and food security for the country's dietary staples.
the problem is that the tariff barriers used to protect this monopoly structure completely paralyze the flexibility of the market: when aT imports mandatory quotas (TRQs), only a low tariff of 5% applies, but if a private company attempts to import soybeans directly, it must pay a punitive tariff of a whopping 487%. This tariff effectively acts as a regulatory device that prevents the private sector from freely importing, and in times of crisis, it essentially prevents the private sector from quickly securing alternative supplies.
while centralized supply systems can be efficient in times of stability, they prove fatally rigid when global supply and demand fluctuations or policy errors disrupt supply, as in this case. the government is offering import rights at low tariffs to private companies, but even this is not a short-term solution. In a recent auction of 9,000 tons of soybean import rights, competition among bidders was extremely fierce, with the winning bid nearly doubling from last year to $605,000 per ton. This means that the price advantage of importing has already been significantly eroded by the raw material shortage premium.
what's worse, it's only a matter of time. even if import rights are secured through public auctions, it takes at least two to three months for soybeans to arrive in the country, from local trading to sea transportation to customs clearance. with manufacturers facing immediate plant shutdowns, a centralized method of securing supplies that takes months is not an immediate solution. In other words, the 487% tariff barrier completely crippled the speed and adaptability of the market, resulting in a structural failure to respond to the crisis.
IV. International Trade and Policy Conflict: The Dilemma of Expanding U.S. Soy Imports
domestic soybean supply and demand instability is not simply a domestic policy failure, but is also linked to complex international trade dynamics. In particular, U.S. soybeans, which South Korea primarily imports, are directly affected by the U.S.-China trade conflict. china used to be the largest importer of U.S. soybeans, but as the trade conflict escalated, it imposed tariffs of up to 34% on U.S. agricultural products, effectively halting or significantly reducing imports.
as a result, the U.S. is looking to diversify its soybean exports and is increasingly likely to ask allies like South Korea to increase imports. the South Korean government is also considering expanding imports of U.S. soybeans as a way to address supply and demand instability in the short term.
this consideration of increased imports reveals a fundamental dilemma in South Korean policy. the government decided earlier this year not to operate a TRQ increase to encourage the use of domestic soybeans, but due to industry backlash and lack of preparedness, the government ultimately responded to demand by offering additional supplies. this shows that the government's attempt to force the use of domestic soybeans through import quotas failed in the face of an overwhelming price difference of 5,000 won versus 1,400 won.
in the end, expanding imports of U.S. soybeans to prevent short-term plant shutdowns seems like an inevitable option. however, such a move would inevitably increase the supply of low-priced soybeans at the 1,400 won level in the domestic market, further reinforcing the industry's dependence on imports. This would undermine the long-term effectiveness of the policy to increase soybean self-sufficiency, a national goal that has been promoted with huge subsidies (2 million won/ha), and risks shaking the domestic farmer base. the twin goals of short-term market stability and long-term food sovereignty are on a sharp collision course, driven by international politics and internal structural problems.
V. Conclusion and Looking Ahead: Crisis Repeats Without Structural Reforms
the current tofu factory crisis is not a one-off supply and demand issue, but rather the result of a systemic clash between South Korea's agricultural and trade policies. the crisis has arisen from three fundamental policy contradictions: first, a price clashbetween a high-priced procurement policy to protect farmers (around 5,000 KRW/kg) and the industry's need to secure low-cost raw materials to survive (around 1,400 KRW/kg). Second, a structuralclash that blocks the ability of private markets to respond quickly to crises with 487% tariffs and relies on a slow, centralized, state-run trade system. third, a geopolitical clashbetween internal goals of increasing domestic self-sufficiency and demands for increased imports from key trading partners such as the United States.
in the short term, the government is expected to increase imports of U.S. soybeans to address the immediate shortage of raw materials, but this is not a fundamental solution. A complete rethinking of South Korea's soybean import structure is needed to ensure long-term food security and industrial stability.
system reforms needed:
flexible tariff barriers: punitive tariff barriers of 487% should be reformed to create an emergency channel for private companies, in addition to the central agency (aT), to import soybeans quickly and within a controlled scale. This can serve as a complement to the weaknesses of centralized supply by leveraging the decentralized response capabilities of the market in times of supply instability.
introduce a price-linked support system: To ensure that the high cost of domestic soybeans is not passed on to manufacturers, a multi-tiered price compensation systemshould be introduced that directly subsidizes or differentially supportsmanufacturers when using domestic raw materials, rather than simply maintaining the ex-farm price. This should create an economic bridge that can simultaneously pursue the dual goals of protecting farmers and encouraging industry to switch to domestic raw materials.
without structural reforms, the domestic tofu and soy milk industry will forever be doomed to a supply of 1,400-won imported soybeans, and will be forced to repeat the current crisis of plant shutdowns at the next global trade shock or supply and demand fluctuation. stabilizing the soybean industry, which is at the heart of South Korea's food security, will require decisive action to remove systemic rigidities and allow for market flexibility.