The won-dollar exchange rate has fallen to the 1300 won range for the first time in about ten months, complicating profit calculations for the food industry. Companies with a high proportion of imported raw materials may benefit from lower procurement costs, while those with significant overseas sales could see a decrease in won-converted earnings, leading to mixed outcomes across the sector.
As of 3:30 PM on September 10, the won-dollar exchange rate stood at 1339.2 won, a drop of over 200 won compared to 1541.8 won on June 24.
After a period where the 1500 won range became the new normal, the food industry is experiencing some relief with the recent decline in exchange rates. Many food companies source a significant portion of their key raw materials, such as wheat, soybeans, corn, palm oil, raw sugar, and cocoa, from abroad. According to a survey by the Korea Agro-Fisheries & Food Trade Corporation (aT), domestic food manufacturers rely on imported raw materials for about 70% of their needs.
Quarterly reports from various companies indicate the impact of exchange rate fluctuations on profits. Lotte Wellfood estimates that a 10% drop in the won-dollar exchange rate would increase its pre-tax profit by approximately 3.55 billion won. In the first half of this year, Lotte Wellfood's cost of sales exceeded 1.56 trillion won, accounting for over 70% of total sales. The price of cocoa, a key ingredient, has recently become a significant variable affecting profitability, suggesting that both international prices and exchange rate movements will influence performance in the second half of the year.
CJ CheilJedang also estimates that a 10% decrease in the won-dollar exchange rate would boost its after-tax profit by about 1.52 billion won. In the first half of this year, CJ CheilJedang spent approximately 1.19 trillion won on purchasing raw materials like sugar, wheat, soybeans, and corn, with the exchange rate for these imports averaging over 1483 won per dollar, more than 100 won higher than the current rate. Ottogi, which sources key ingredients like palm oil and soybean oil from abroad and has a domestic sales ratio of around 90%, is also expected to benefit from the falling exchange rate.
Conversely, companies with a high proportion of overseas sales may find the declining exchange rate detrimental to their performance. Samyang Foods generated 82% of its 1.48 trillion won in sales during the first half of the year from international markets, amounting to approximately 1.23 trillion won. Given its structure, which relies heavily on exports from domestic production facilities like the Miryang plant, a continued appreciation of the won could reduce the won-converted value of its foreign sales and profits. Analysts estimate that for every 10 won change in the exchange rate, Samyang Foods' profits fluctuate by about 2 billion won.
However, some experts caution against oversimplifying the situation by stating that importers benefit while exporters suffer from the exchange rate decline. More companies are expanding their overseas operations while importing raw materials, and there is often a lag before exchange rate fluctuations impact actual performance.
A representative from Samyang Foods stated, "The decline in exchange rates will alleviate some of the pressures on raw material import costs that have been affecting profitability. Additionally, our overseas sales occur in various currencies beyond the dollar, creating a structure where foreign income and expenses offset each other."
A representative from CJ CheilJedang noted, "While a drop in the exchange rate may lead to relatively lower sales or favorable conditions for raw material purchases, there is a time lag before these effects are realized, making it difficult to draw definitive conclusions. As we expand our global business, the diversification of foreign income sources has reduced our sensitivity to exchange rate fluctuations compared to the past."
* This article has been translated by AI.
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