Focus on South Korea

by Chris Lyddon
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The Republic of Korea, or South Korea, has been one of the fastest growing and industrialized economies in the world. In grains, however, it remains a producer of much less than it needs. Government programs designed to raise output can make only a small difference, leaving the country highly dependent on imports

South Korea’s total grain production is too small to register separately in the International Grains Council’s (IGC) monthly reports. However, the IGC predicts South Korea’s total grain imports at 11.9 million tonnes in 2011-12, down from 12.5 million tonnes the year before in its most recent report. Of that, maize will account for 7 million tonnes, down from 7.5 million. The IGC put rice imports at 300,000 tonnes, down from 400,000.

According to the IGC, South Korea will import 60,000 tonnes of wheat flour in 2011-12, up by 10,000 tonnes from the year before.

In its annual report on the sector, the USDA attaché forecast 2011-12 wheat production at 51,000 tonnes “because of the growing demand for domestically-grown milling wheat.”

“The government’s loan program to finance purchases also has helped increase the demand for domestic milling wheat,” the report said. “Additionally, the government also has provided drying and storing facilities to local wheat producers.”

The government is pushing for increases. “Recently, the Korean Government revised its ambitious target date for reaching 200,000 tonnes of milling wheat production by setting 2015 as the new target date instead of 2017,” it said. “This production target will increase the country’s self-sufficiency rate from its current level of 1.2% to 10% by 2015. Local milling wheat will be double-cropped with rice and the total planted area is targeted to reach 57,000 hectares by 2015. Wheat has replaced barley as the crop likely to be double-cropped with rice because the government will end its barley purchase program in the CY 2012.”

High prices have put a brake on wheat flour consumption. “CY 2010 per capita flour consumption increased to 33.1 kilograms, returning to the average level of per capita consumption prior to 2008,” the attaché report said. “Since then, the Korean wheat flour consumption has been hit by a strong bullish global grain market.”

The biggest part — 44.1% — of the wheat flour is used for noodle making, with 12.9% going to baking products and 8% for confectionary products.

“The remainder is used by the following — restaurants (8%), households (7.7%), pet food (6.3%), soy sauce (4.6%), brewing (1.1%), traditional chewy cakes (1%), industrial use (0.8%) and others (2.2%),” the report said.

Some flour is exported, most of it to Japan. Following a shortage of Australian noodle wheat for export to Korea in the latter half of 2010, major noodle manufacturers were expected to change their noodle flour formulation by replacing 20% of Australian wheat flour with U.S. wheat flour. This is not the first time they’ve made a switch. In 2007 and 2008, the noodle manufacturers replaced 50% of the Australian flour they were using with U.S. flour.

The attaché described maize production as negligible and less than 1% of total consumption. “Planted area for MY 2011-12 is expected to remain steady at around 16,000 hectares, while production is forecast at 78,000 tonnes based on the preceding five-year average yield,” the report said.

Maize consumption was hit by an outbreak of foot-and-mouth disease that affected the pigmeat sector. Because of that, the attaché predicted a fall in consumption of 300,000 tonnes to 7.8 million in 2011-12. An abundant supply of feed grade wheat from Australia had also hit maize consumption.

Maize imports have been affected by opposition to biotech varieties. “Corn processors have continued using non-biotech IP corn imported from the United States and traditional corn imported from other countries such as Hungary, Serbia and South Africa,” the attaché said. “The perceived public concern over biotech continues to exert pressures on imported processing corn, especially biotech corn that is used to manufacture cooking oil and HFCS.”

“Many food processing companies have been reluctant to use ingredients sourced from biotech corn,” it said. “Some companies using starch and corn syrup have sourced ingredients imported from China, since these items are reportedly derived from non-biotech corn.”

In a separate report on rice, the attaché forecast 2011-12 production as staying around 4.3 million tonnes, “due to lower planting intentions caused by bearish rice market prices for the last two years and the ongoing government rice reduction program.”

“Rice farmers prefer planting high yield varieties because of government direct payment programs designed to support rice farmers’ income,” the report said. “Consequently, increased yields are expected to offset the effects of declining paddy land.”

It put marketing year 2011-12 consumption at an unchanged 4.8 million tonnes, noting that imported rice represents only 7% of total consumption.

“The Korean government encourages and promotes self-sufficiency in rice production,” it said. “Due to the current oversupply of rice, the Korean government is seeking to divert rice area to other crops. Rice farmers receive two types of income support payments under the Rice Income Compensation Act (RICA), an area payment and a deficiency payment.”

Milling wheat imported

According to the USDA attaché, almost 100% of milling wheat is imported, mostly from the United States, Ukraine, Australia, Canada and Russia.

There are a total of eight flour milling companies with 11 plants. They have an annual capacity of 3,082,500 tonnes of which 2,172,000 was actually used, according to figures from the Korea Flour Mills Industrial Association.

“Local eating habits have changed dramatically in recent years,” the attaché said. “A diet that had long been based on rice became progressively more centered on wheat and animal protein.”

“At the same time, consumers sought more diversity and became more quality oriented.”

Soybean consumption steady

An attaché report on the oilseeds sector predicts soybean consumption steady at 1.3 million tonnes in 2012-13, with 920,000 tonnes going for crushing and 370,000 tonnes for food processing.

For 2011-12, the attaché put production at 129,394 tonnes, up 24,040 tonnes, “because of increased plantings and favorable weather conditions late in the growing season,” the report said. “The increase in production has put downward pressure on local soybean prices since last fall. In the future, soybean production is expected to hinge on the direction of the government’s rice reduction policy.

“Soybeans account for about 70 percent of Korea’s total oilseed production, while sesame and perilla combined make-up about 25 percent of the total. The remainder largely consists of rapeseed and peanuts.”

New U.S.-Korea trade deal

On March 15, 2012, a new U.S-Korea Trade Agreement, also known as KORUS, entered into force. U.S. Agriculture Secretary Tom Vilsack issued a statement stressing its importance. “Today is a monumental day for American farmers and ranchers,” he said. “Under the new U.S.-Korea trade agreement, two-thirds of the tariffs imposed on U.S. food and agricultural products exported to South Korea are being eliminated. Over the next few years, as additional barriers fall and more U.S. businesses market products to Korea’s expanding economy, American agricultural exports should grow by $1.9 billion and help support nearly 16,000 jobs here at home.”

“The trade agreement with Korea is the most significant for the United States in decades,” he said. “Now the world’s 12th largest economy, with a GDP of over $1.4 trillion and a population of about 49 million, Korea is already the fifth-largest export market for U.S. farm products.”

Key Facts

Capital: Seoul
Population: 48,860,500 (July 2012 est.)
Religions: Christian 26.3% (Protestant 19.7%, Roman Catholic 6.6%), Buddhist 23.2%, other or unknown 1.3%, none 49.3% (1995 census).
Location: Eastern Asia, southern half of the Korean Peninsula bordering the Sea of Japan and the Yellow Sea.
Government: Republic. Chief of state: President Lee Myung-bak (since Feb. 25, 2008); head of government: Prime Minister Kim Hwang-sik (since Oct. 1, 2010).
Economy: South Korea over the past four decades has demonstrated incredible growth and global integration to become a high-tech industrialized economy. In the 1960s, GDP per capita was comparable with levels in the poorer countries of Africa and Asia. In 2004, South Korea joined the trillion-dollar club of world economies, and currently is among the world’s 20 largest economies. Initially, a system of close government and business ties, including directed credit and import restrictions, made this success possible. The government promoted the import of raw materials and technology at the expense of consumer goods, and encouraged savings and investment over consumption. The Asian financial crisis of 1997-98 exposed longstanding weaknesses in South Korea’s development model including high debt/equity ratios and massive short-term foreign borrowing. GDP plunged by 6.9% in 1998, and then recovered by 9% in 1999-2000. Korea adopted numerous economic reforms following the crisis, including greater openness to foreign investment and imports. Growth moderated to about 4-5% annually between 2003 and 2007. With the global economic downturn in late 2008, South Korean GDP growth slowed to 0.2% in 2009. In the third quarter of 2009, the economy began to recover, in large part due to export growth, low interest rates and an expansionary fiscal policy, and growth was 3.6% in 2011. The U.S.-South Korea Free Trade Agreement was ratified in 2011 by both governments and went into effect in 2012. The South Korean economy’s long-term challenges include a rapidly aging population, inflexible labor market, and heavy reliance on exports, which comprise half of GDP.
GDP per capita: $31,700 (2011 est.); inflation: 4% (2011 est.); unemployment 3.4% (2011 est.).
Currency: South Korean won (KRW); 1,126,3 wons equal 1 U.S. dollar (March 20, 2012).
Exports: $556.5 billion (2011 est.): semiconductors, wireless telecommunications equipment, motor vehicles, computers, steel, ships, and petrochemicals.
Imports: $524.4 billion (2011 est.): machinery, electronics and electronic equipment, oil, steel, transport equipment, organic chemicals, plastics.
Major crops/agricultural products: Rice, root crops, barley, vegetables, fruit; cattle, pigs, chickens, milk, eggs, fish.
Agriculture: 2.6% of GDP and 6.4% of the labor force.
Internet: Code. .kr; 293,862 (2011) hosts and 39.4 million (2009) users.
Source: CIA World Factbook