Confusion Due to Tariff Bombs and Production Facility Relocation Strategy - Jay Lee's U.S. Communication (148)

K-Food Representative Items Like Ramen and Kimchi Expected to Be Hit

Korean Food Companies to Accelerate Production Facility Relocation and Localization

High Costs for Factory Construction and Lengthy Approval Procedures

Consider OEM Production Partnerships or Expert Consulting

△ Lee Jong-chan, CEO of J&B Food Consulting

President Trump’s protectionist tariff policy has dampened the export boom of K-Food. With a potential 25% tariff on Korean products, concerns are growing, especially for key items like ramen and kimchi, which are expected to take a big hit. Although the U.S. recently delayed mutual tariff imposition by 90 days, the unpredictability of Trump’s tariff policy has left the industry uncertain and uneasy.

As a result, major Korean food companies like CJ CheilJedang, Ottogi, Nongshim, and Samyang Foods are speeding up efforts to build production bases in the U.S. However, companies without production facilities in the U.S. will inevitably face challenges. Samyang Foods, for example, is experiencing its highest export levels ever thanks to the global popularity of ‘Bulldak Bokkeummyeon’ (Spicy Chicken Ramen), but without a factory in the U.S., it faces tariff risks since all production is done in Korea and exported. Samyang’s overseas sales surpassed 1 trillion won for the first time last year, with approximately 28% of those sales coming from North and South American markets.

For companies that already have production facilities in the U.S., the tariff bomb is less of a concern. CJ is a prime example of a company that chose a localization strategy early on. In 2019, CJ acquired the largest frozen food company in the U.S., Schwan’s, securing a large-scale base in the U.S. food market, and currently operates 20 production plants in the U.S. Pulmuone also runs four factories in the U.S.

Nongshim, which built its first ramen factory near Los Angeles in 2005, has been directly producing Shin Ramyeon in the U.S. to expand its market. In 2022, Nongshim completed its second factory in Rancho Cucamonga, California, doubling its local production capacity. Nongshim can now produce over 1 billion ramen packs annually at its two U.S. factories, allowing it to source a significant portion of its products locally without facing tariffs.

Ottogi, although its export share to the U.S. is still small, is accelerating its efforts to target the North American market, with the goal of reaching 1 trillion won in overseas sales by 2030. For this reason, a strategy to bypass tariff barriers will be essential. Ottogi has fortunately formalized its plans for a local production base and is moving quickly. Ottogi has purchased land in California and is beginning the permitting process. Tous Les Jours and Paris Baguette are also preparing to establish local production facilities in the U.S.

The tariff crisis stemming from Trump’s policies seems likely to further accelerate the trends of localization and production facility relocation for the Korean food industry. There is also a need to overcome recipe limitations due to restrictions on meat exports and certain ingredients. For fresh refrigerated products, a local production base is essential to overcome short shelf life issues.

However, relocating production facilities to the U.S. is not an easy task. Factory construction costs are higher than in Korea, the permitting process is lengthy, and labor costs are high, making investment decisions challenging. One option is to first partner with OEM (Original Equipment Manufacturer) facilities in the U.S. before making a full relocation. Additionally, consulting with experts is crucial to minimize trial and error.

Tag#Trump #Tariffs #ProductionFacilities #Localization

Source: Food and Beverage News (http://www.thinkfood.co.kr)

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