Focus on South Korea

by Melissa Alexander
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Rugged mountains cover much of the South Korea, leaving a relatively small area of arable land for food production. Because of limited land and gradual urbanization, Korea increasingly has turned to imports to meet consumers’demands for food variety, lower prices and convenience.

Rice is Korea’s staple food and dominates crop production, and rice self-sufficiency is the primary agricultural policy goal. The government influences prices and farmer incomes through a purchase program.

Between 1990-97, government rice purchases averaged about 26% of each year’s total crop. Since then, the annual purchase percentage has dropped to about 17%, based on Korea’s commitments under World Trade Organization agreements.

Rice imports, were essentially banned until the WTO Uruguay Round of agricultural trade reform. Under those reforms, South Korea agreed to progressively increase rice imports, but rice trade remains strictly under government control.

The reforms required South Korea to import each year the equivalent of 1% of 1986-88 average consumption, with that percentage increasing to 4% of consumption in 2004. In addition, Korea imposes a 5% tariff on rice imports.

Annual wheat production in Korea is less than 5,000 tonnes. Although per capita milling wheat use in the past two years has remained stable, the U.S. Department of Agriculture estimates milling wheat use will increase by 1% to 2% a year "in the near term."

Millers are dependent on imports for supplies, and in the past four seasons, Korean wheat imports have averaged 3.7 million tonnes per year. Of that total, 2.4 million tonnes, or 65%, is destined for food use, with the remainder going to feed uses.

The U.S. typically supplies about 55% of Korea’s wheat imports, with Australia’s share at 40% and Canada’s at about 5%.

After market liberalization and the elimination of wheat import quotas in 1990, South Korean flour millers began to import wheat either by negotiating directly with exporters or by purchasing through tenders with the Korean Flour Mills Industrial Association (KOFMIA). KOFMIA formerly was the central buying agency of the Korean government and now is an industry membership association made up of flour companies.

South Korea has become a "vibrant" market for milling quality wheat, according to KOFMIA. Milling wheat is used mostly to make noodles (48% of total wheat flour use), bread (13%), confectionery products (9%) and homemade wheat-based products (8%).

South Korean millers seek to extract consistently high levels of flour. Noodle manufacturers want a protein level of about 10.5%, good starch characteristics to promote quick cooking, good texture, low ash content, good color and brightness.

South Korea has nine flour-milling companies, and four major millers account for at least 74% of flour sales. The four are CJ Corp. (previously Cheil Jedang Corp), Daehan Flour Mills Co. Ltd., Dongah Flour Mills Co. Ltd. and Korea Flour Milling Co. Ltd., according to KOFMIA.

A major issue for Korean millers is the possible introduction of genetically modified wheat. Surveys in 2003 showed that 80% of South Korean consumers opposed biotech food, and consumer groups are well-organized against the technology.

During a U.S. wheat-buying trip last year, the millers bluntly told U.S. wheat industry representatives that they would boycott U.S. wheat if GM varieties were approved.

With rice a main staple, the millers fear consumers would simply abandon wheat as part of their diet. The millers also expressed concern that non-GM wheat prices could rise prohibitively if biotech wheat were introduced.

The head of one major flour mill that also processes maize into syrup noted that his company already had switched to Brazil and Chinese maize sources because of the prevalence of GM varieties in U.S. supplies.

South Korea’s feed sector depends on imported ingredients to supply rations to meat, dairy and egg operations.

Feed milling is divided among private companies and the national farmers’ cooperative federation. Some feed mills are part of vertically integrated livestock enterprises.

South Korea’s feed producers aggressively seek the lowest priced ingredients and switch among grains more readily than feed industries in other countries. Feed wheat is the main competitor with maize, the primary grain for feed, but South Korea has imported large amounts of rye for feeding at times.

Soymeal, the main protein meal, is supplied about equally by domestic crushing plants and by direct imports, although domestic meal typically is more expensive. Other oilseed meals are almost entirely imports.

South Korea imposes no import barriers to feed components. Tariff-rate quotas for soybeans and maize call for prohibitive tariffs on imports in excess of the quotas; but because these commodities are vital to livestock producers, the quotas usually are exceeded without any application of the higher tariffs.

Feedstuffs use is tied directly to South Korean livestock production. While dairy and egg markets operate with little import competition, these markets have ceased to grow quickly. Consumption of meat still is growing rapidly, but meat imports have surged as trade reforms have reduced import barriers.

The Korea Feed Association was established in 1961. Today, the group is responsible for controlling compound feed supply/demand, procuring feed ingredients, maintaining quality control of ingredients and finished products and monitoring and proposing policies affecting the industry.

The association counts 45 compound feed manufacturers as members. These companies have 65 manufacturing factories that produce and supply 10,000,000 tonnes of compound feed annually, according to the feed association.

Korea’s total compound feed production is expected to grow by 2% to 3% this season.

Outbreaks of hog cholera in March 2003 postponed the expected resumption of pork exports to Japan to at least May 2004. Meanwhile, beef cattle inventories bottomed out in 2002 and are on the increase, although increased feed demand from this sector could be outweighed by declining demand from the dairy sector.

Korea uses an average of about 8.8 million tonnes of maize annually, 99% of which is imported. Nearly 75% of that is for feed, with the remainder for wet and dry processing.

Consumer opposition to GMOs has shifted Korean maize processors toward suppliers perceived as GMO-free maize producers. Therefore, the U.S., formerly a major supplier, has seen a substantial drop in market share, to 2% to 3%, with South America and China becoming primary importers.

In recent years, relations between South Korea and its neighbor have thawed somewhat. Inter-state trade volume in 2003 exceeded U.S.$700 million for the first time, up from U.S.$425 million in 2000 and U.S.$287 million in 1995.

South Korea’s shipments to the North include grains and other food items, which make up 28.8% of the total, while the North ships mostly marine products and textile goods to the South.

Although definitive statistics are not available, North Korea’s agriculture sector is thought to account for an estimated 30% of GDP and 43% of the workforce. Agriculture consists mostly of large-scale collective and state farms, which analysts say have been "fatally mismanaged."

North Korea’s main crops are rice, maize and potatoes, with some wheat, barley, rapeseed and other coarse grains also grown. Grain imports, typically in the form of humanitarian aid, are necessary.

Since the mid-1990s, North Korea has been affected by adverse climatic conditions, with a series of floods and droughts destroying crops. Other problems affecting the sector include severe deforestation, which has caused silting of rivers; a lack of fertilizers and pesticides; and low levels of mechanization.

These conditions have led to serious food deficits at a time when North Korea’s increasing political isolation has affected aid flows. Consequently, periods of mass starvation have occurred since the mid-1990s, and an estimated 57% of the population was suffering from malnutrition in 2002.

Key Facts

Capital: Seoul.
Demography: Population 48.3 million (July 2003), 0.66% growth rate (2003 estimate); Korean language, with English widely taught; Christian (49%), Buddhist (47%) religions. Geography: Eastern Asia, bordering Sea of Japan and Yellow Sea; mostly hills and mountains, with wide coastal plains; temperate climate.
Government: Republic. Chief of state is President No Muhyon, head of government Prime Minister Ko Kon.
Official agricultural agencies: Ministry of Agriculture & Forestry under Ho Sang-man.
Economy: As one of the "Four Tigers" of East Asia, South Korea has achieved an incredible record of growth and integration into the high-tech modern world economy. Its success was achieved through close government/business ties, including directed credit, import restrictions and sponsorship of specific industries. The Asian financial crisis of 1997-99 exposed weaknesses, including high debt/equity ratios, massive foreign borrowing and an undisciplined financial sector, and growth plunged to a negative 6.6%. Led by reforms, consumer spending and exports, the economy has rebounded, despite anemic global growth. Agriculture accounts for 5% of gross domestic product and 12% of the labor force. G.D.P. per capita: U.S.$19,600 (purchasing power parity), 6.3% growth rate, 2.8% inflation, 3.1% unemployment (2002 estimates).
Currency: South Korean won (KRW). Feb. 12, 2004 exchange rate: 1,160.97 KRW = 1 U.S. dollar. Exports: U.S.$162.6 billion (f.o.b., 2002), electronic products, motor vehicles, machinery.
Imports: U.S.$148.4 billion (f.o.b., 2002), machinery and equipment, oil, grains, textiles.
Major crops/agricultural products: Rice, fruits, vegetables. Rice: Five-year production from 1999-00 through 2003-04 averaged 5.1 million tonnes a year, with imports averaging 120,000 and exports averaging 160,000.Total domestic use averaged 5.1 million tonnes a year during that period. Wheat: Virtually no wheat is grown in South Korea. Five-year imports averaged 3.6 million tonnes per year, with total use in that period averaging 3.5 million tonnes a year. Of the average total use, feed consumption accounted for an average of about 1.2 million tonnes annually during the period. Maize: South Korea grows virtually no maize. Five-year imports averaged 8.9 million tonnes, with total use also averaging 8.9 million tonnes. Of the total use, feed use averaged 6.7 million tonnes.
Transportation: Highways, 86,990 km, 64,808 paved; railroads, 3,125 km, all 1.435-m gauge; Inchon, Pusan, Ulsan, Chinhae, Kunsan are major ports.
Internet: Country code, *kr; 11 service providers (2000); 25.6 million users (2002).