australian commodities

september quarter

07.3

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korean agriculture

> neil copeland +61 2 6272 2270 > acopeland@abare.gov.au > alan andrews >> +61 2 6272 2242 > nandrews@abare.gov.au

korean agriculture
implications of structural change for Australian agriculture
yeon kim, david barrett and jammie penm

Signicant income growth in the Republic of Korea has led to an increase in

living standards, rising demand for agricultural products and changes in food consumption patterns toward a diet that includes a higher proportion of meat, dairy, fruit and wheat based products.

Reecting declining growth in farm productivity, limited arable land and an

aging farm population, agricultural production in Korea has been unable to meet rising demand. As a result, imports have taken a more prominent role in food supply.

As one of the leading agricultural exporters to Korea, particularly of wheat,

dairy products and beef, Australia is in a strong position to help meet growth in food demand and changing food consumption patterns in Korea.

from an agriculture based to an industrialised economy

Over the past four decades, the Republic of Korea has transformed from an agriculture based to an industrialised economy. Agricultures share of Koreas economy declined from 27 per cent in 1970 to 3.5 per cent in 2005. Over the forty years to 2005, gross domestic product in Korea increased at an average rate of 7.6 per cent a year. Signicant economic growth in Korea has led to an increase in living standards and changes in food consumption patterns away from traditional foods such as rice, barley and potatoes toward meat, dairy products, fruit and wheat based products. Agricultural production in Korea, however, has not been satisfying these changing consumption patterns, mainly because of the relatively limited availability of arable land and competitive pressure for resources from nonagricultural sectors. As a result, Korean food demand is being increasingly met by imports. Koreas government has been implementing reforms in the agriculture sector and reducing tariffs and nontariff barriers on agricultural imports through multilateral and bilateral trade negotiations. Tariffs on agricultural imports have been gradually reduced and import quotas have been replaced by tariffs or tariff quotas to improve market access. Despite these efforts, protection of many agricultural commodities, including dairy products and beef, remains relatively high. Australia is one of the leading exporters of agricultural products to Korea, particularly of wheat, barley, sugar, beef and dairy products. If access to the Korean market was widened, Australia would be in a position to make a signicant contribution to meeting the rising food demand and changing food consumption patterns in Korea.
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economic growth
Republic of Korea, annual averages
GDP % GDP per person % 6.9 6.0 7.8 3.7 6.2

food consumption in Korea

Before the mid-1980s, rice was particularly important in food consumption in Korea, while barley and potatoes were mainly consumed by low income groups. Home grown vegetables and seafood complemented grains consumption. Livestock products and fruit, on the other hand, were regarded as luxury food products. Accordingly, consumption of these products was low and Korea was mostly self sufcient in their production. Rapid economic growth since the 1960s (table 1) has led to substantial changes in Korean food consumption patterns. Consumption of the main staple foods rice, barley and potatoes has declined, while consumption of meat, fruit, vegetables and dairy products has increased.

19651975 19761985 19861995 19962005 19652005

9.3 7.6 8.9 4.4 7.6

Sources: Bank of Korea (2006); National Statistical Ofce, Korea (2005).

consumption of livestock products has increased markedly

Between 1975 and 2005, meat consumption increased vefold from around 6.4 kilograms to 31.9 kilograms per person (table 2). Over the same period, beef consumption more than tripled on a per person basis, from 2.0 kilograms to 6.6 kilograms and consumpfood consumption per person tion of pork, chicken and other processed Republic of Korea meats increased more than vefold to 25.3 kilograms per person. 1965 1975 1985 1995 2005 Similarly, consumption of dairy products daily calorie intake per person vegetable products cal. 2 345 2 212 2 384 2 520 2 559 increased more than tenfold between 1975 % 96.1 92.6 88.7 85.2 84.9 and 2005. This signicant increase can be animal products cal. 95 178 303 439 455 attributed primarily to government initiatives % 3.9 7.4 11.3 14.8 15.1 that have promoted milk consumption, particutotal cal. 2 440 2 390 2 687 2 959 3 014 larly for children. consumption per person kg kg kg kg kg Changing consumption patterns have also food grains 177.1 193.8 169.3 148.5 122.3 led to changes in the sources of daily calorie rice, milled 121.8 123.6 128.1 106.5 80.7 barley, milled 36.8 36.3 4.6 1.5 1.1 intake. Between 1975 and 2005, the proportion of calorie intake from animal products wheat 13.8 29.5 32.1 33.9 31.8 corn 0.9 2.4 3.1 3.3 4.9 doubled, from 7.4 per cent to 15 per cent, miscellaneous grains 3.8 2.0 1.4 3.3 3.8 while intake from traditional food sources, such starchy roots 92.5 35.0 11.9 11.0 17.2 as rice, barley and starchy root vegetables, potatoes 7.3 7.1 3.1 3.0 4.2 declined. sweet potatoes 76.5 23.7 5.5 3.7 4.8
sweeteners pulses soybeans vegetables fruit meat bovine meat pig meat poultry meat eggs milk oils and fats seafood 1.3 5.9 4.4 45.5 9.8 4.7 1.0 1.9 0.5 1.9 0.3 0.4 18.0 5.2 8.3 6.4 62.5 18.6 6.4 2.0 2.8 1.6 4.0 4.6 2.7 29.9 11.7 17.8 10.7 11.1 9.3 9.0 98.6 160.6 36.0 54.8 14.4 27.4 2.9 6.7 8.4 14.8 3.1 5.9 6.3 8.6 23.8 47.8 9.2 14.2 37.2 45.1 21.3 11.2 9.0 144.9 62.6 31.9 6.6 17.8 7.5 9.1 62.7 18.5 48.1

declines in consumption of grain based products

Consumption of grains per person has been declining in Korea. Between 1975 and 2005 consumption fell by 37 per cent to around 122 kilograms. Traditionally, rice and barley were the two major cereals consumed in Korea, accounting for more than 85 per cent of total cereal consumption in the 1970s. Rice consumption per person was around 81 kilograms in 2005, compared with a peak of 132

Sources: Ministry of Agriculture and Forestry, Korea (2006); KREI (2006).

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kilograms in 1980 and slightly below 100 kilograms in 1998. For barley, rising household incomes have resulted in per person consumption falling from 36 kilograms in 1975 to 1 kilogram in 2005. On a per person basis, wheat consumption has increased since the 1970s, while the consumption of corn has doubled. More recently, bean products have been perceived as healthy food products in Korea and this has promoted the consumption of high protein bean products such as soybeans and red and green beans.

consumption of fruit, vegetables and seafood

Historically, Koreans consumed a signicant amount of vegetables but little fruit. While Korea was mostly self sufcient in vegetables, imports were required to meet domestic demand for fruit. In recent years, demand for both fruit and vegetables has increased in response to growth in household incomes, but domestic production has not been able to meet the increase in consumption. Vegetable consumption increased substantially in the 1990s, before a small decline in the early 2000s. On a per person basis, vegetable consumption was around 145 kilograms in 2005, compared with 63 kilograms in 1975. Fruit consumption per person increased markedly from around 19 kilograms in 1975 to 63 kilograms in 2005. Since the mid-1990s, the increase in fruit consumption has been met largely by imports, particularly of oranges, fresh grapes and tropical fruits such as bananas and pineapples. Fish, shellsh and edible seaweed are traditional foods in Korea. While growth in seafood consumption has been slower than growth in meat consumption, growing incomes have led to a considerable increase in seafood consumption. Seafood consumption reached 48 kilograms per person in 2005, a rise of over 60 per cent from 30 kilograms in 1975.

international comparison of food consumption

Daily calorie intake in Korea has reached a level similar to that in more developed countries (table 3). In 2005, Koreas daily intake was higher than that in Japan, but lower than that in the United States and Australia. Compared with developing Asian countries, daily calorie intake in Korea was higher than in China, Thailand and Indonesia. The proportion of daily calorie intake from vegetable products (including grains) in Korea (at around 85 per cent in 2005) is higher than in the United States (71 per cent), Australia (70 per cent), Japan (78 per cent) and China (81 per cent), but lower than in Thailand (89 per cent) and Indonesia (95 per cent).

international comparison of food consumption, 2005

United States cal. 2 575 1 062 3 637 kg 164.4 52.9 105.8 119.1 123.4 158.7 93.7 256.8 14.8 23.8 Indonesia cal.

Korea Japan Australia daily calorie intake per personq cal. cal. cal. 2 332 998 3 330 kg 99.2 53.9 104.2 123.8 111.2 343.6 87.4 226.0 7.1 23.2

China Thailand cal. 2 397 554 2 951 kg 202.4 74.2 63.8 51.4 251.0 72.9 59.8 13.8 17.5 na cal.

vegetable products 2 485 2 087 animal products 484 592 total consumption per person cereals starchy roots oil crops fruit vegetables sugar crops meat milk (whole, fresh) eggs sh, seafood
na Not available. Source: FAO database.

2 366 2 743 291 150 2 657 2 893 kg kg

2 969 2 679 kg kg

202.9 170.2 19.4 37.8 93.9 58.6 62.2 57.6 259.0 119.6 156.9 96.8 32.6 33.2 39.3 75.5 11.0 18.6 51.6 64.9

162.3 252.4 42.6 68.6 64.1 93.2 82.8 51.7 41.1 32.4 401.3 119.3 23.3 11.9 22.1 7.3 8.5 3.8 31.1 21.3

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fig A land cultivated

Republic of Korea 22 share of cultivated land in total land 20 18 16 14 % 1965 1975 1985 1995 2005 cultivated land area per farm household 1.25 1.00 0.75 0.50 0.25 ha

Daily calorie intake from the consumption of livestock products in Korea is considerably lower than in other developed countries, but higher than in most other Asian countries. In 2005, for example, Koreas daily calorie intake from meat consumption on a per person basis was around 3537 per cent of those in the United States and Australia. Per person consumption of dairy products in 2005 was around 1517 per cent of the levels in the United States and Australia. Koreans consume a signicant amount of seafood. On a per person basis, daily calorie intake from the consumption of seafood in Korea was more than twice that in Australia, the United States or Indonesia in 2005.

structural adjustment in agriculture

Korean agriculture is characterised by a scarcity of arable land, small farm sizes, aging farmers and lower wages and on-farm labour productivity relative to other sectors in the economy.

agricultural land availability is limited

Koreas land mass is around 10 million hectares, with less than one-fth of that area cultivated for agriculture. Over the past few decades, total agricultural land has declined (gure A), with a marked reduction in the area cultivated for grains. Despite the reduction in total agricultural land, average farm size has been increasing, from around 0.9 hectares in 1965 to around 1.4 hectares in 2005 (gure A). The share of farms with less than 2 hectares declined from around 93 per cent in 1965 to 85 per cent in 2005 (gure B).

farm population has been declining and aging

Reecting the relatively small farm size, farming has been labour intensive in Korea. Over the four decades since 1965, however, farm population has declined from around 55 per cent of the total population (15.8 million) to 7.1 per cent (3.4 million) in 2005 (gure C). This signicant decline in the rural population mainly reects the effects of rapid industrialisation and associated urbanisation.

fig B farm households, by area of cultivated land

Republic of Korea 1965
2.5 million farm households

23 ha 5.6% 12 ha 25.6%

over 3 ha 1.2%

2005

1.3 million farm households

23 ha 7.3% 12 ha 22.0%

over 3 ha 7.3%

under 1 ha 67.6%

under 1 ha 63.4%

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Rapid expansion of manufacturing and services industries in urban centres has resulted in a widening gap between rural and urban incomes. This, in turn, has led to signicant migration of rural population to urban centres. Wages paid to farm workers are markedly lower than in other sectors of the economy. Migration from rural areas to urban centres has signicantly affected the on-farm labour force. Younger members of farm households are leaving rural areas to seek better paid employment. Farms are increasingly dependent on aging household members who no longer have the options for moving elsewhere in the workforce. In 2005, nearly 55 per cent of people engaged in commercial farming were 60 years of age or over, whereas the proportion who were under 30 years of age constituted only 1.6 per cent (gure D).

fig C farm population

Republic of Korea 50 40 30 20 10 % 1965 1975 1985 1995 2005 share in total population share in total employment

fig D farm employment, by age group

Republic of Korea 1970 4.85 million over 60 years 6.4% 5059 years 14.2% 4049 years 21.8% 2005 1529 years 31.6%
1.82 million

over 60 years 54.8%

1529 years 1.6% 3039 years 4.6% 4049 years 15.8% 5059 years 23.2%

3039 years 26.0%

In response to lower wages and protability in the farm sector, many farmers are increasingly looking for part time work to supplement their income. In 2005, non-farm income accounted for over 60 per cent of total farm household income, compared with only 20 per cent in 1965 (gure E).

fig E farm household income, by source

Republic of Korea farm income nonfarm income

labour shortages have led to an increase in farm mechanisation

Rural labour shortages have placed signicant pressures on the farm sector to adjust in order to improve farm productivity. There was a rapid increase in onfarm machinery up to the late 1990s (gure F). Most of the machines employed on farms are relatively small because of farm size. Reecting higher mechanisation, the degree of capital intensity in agriculture has increased. Measured
australian commodities > vol. 14 no. 3 > september quarter 2007

60

40

20

% 1965 2005

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fig F major farm implements and

power tiller 800 600 400 200 000 machines 1975

machinery holdings Republic of Korea

power dusting equipment water pump

e ter ric plan ns tra

1985

r tracto farm harvesting machine

1995

2005

fig G labour intensity and capital

intensity
Republic of Korea capital intensity 20 16 labour intensity 12 8 4 000 hours/ha 1965 1975 1985 150 100 50 million won/ha 1995 2005
in 2000 constant prices

by real capital spending per hectare, capital intensity rose from 20 million won (US$21 600) to 283 million won (US$276 000) between 1965 and 2005. In contrast, labour intensity (measured by labour hours worked per hectare) has been trending downward (gure G). Chemical fertilisers have been applied intensively in Koreas agriculture sector to improve yields. Fertiliser application increased signicantly until the early 1990s, before trending downward gradually in response to concerns about food safety (gure H). By international standards, fertiliser application rates in Korea have been relatively high. In the OECD, for example, only a few countries, including Japan and the Netherlands, have similar levels of fertiliser application to Koreas (Roberts, Warr and Rodriguez 2006).

agricultural production in Korea

250 200

Koreas aggregate agricultural production has increased substantially since the 1970s (gure I). The increase in total crop production is mainly attributable to the expansion of fruit and vegetable production, while grain production has declined (gure J). The increase in livestock production has been more signi cant than the increase in crop production. The major contributors to increased livestock production have been increases in meat production, including beef, pork and poultry.

fig H use of chemical fertiliser

Republic of Korea

fig I production indexes, by sector

Republic of Korea 100 80

400 300

crops 60

200 100 kg/ha 1975

522

40 agriculture 20 livestock 2000=100 1985 1995 2005 1965 1975 1985 1995 2005

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rice production has declined

Rice production has been assisted by domestic support and pricing policies aimed at achieving self sufciency and maintaining incomes for farmers. Underpinned by Koreas strategic food policy, rice prices have uctuated within a range set by the government. This has provided income support for rice farmers and has encouraged farmers to maintain high rice production. Since the early 1990s, the emphasis on food security in Korea appears to have eased somewhat. Also, a signicant change in dietary habits has led to a move away from rice consumption, resulting in a gradual decline in domestic rice production (table 4). Farmers have been directing production toward more protable farm products such as vegetables and fruit.

fig J production indexes, by crop type

Republic of Korea 120 100 80 60 40 20 2000=100 1965 1975 1985 1995 2005 fruits vegetables grains and food crops

lower production of other food crops

Unlike rice, food crops such as barley, wheat, maize, millet, sorghum, buckwheat, potatoes and pulses, have not received much support from the government. Domestic production of these crops has been declining as a result of farmers moving toward more food production, by commodity Republic of Korea protable produce such as livestock products. 1965 1975 1985 1995 Historically, Korea has produced very kt kt kt kt little wheat mainly because of unfavourfood grains 5 278 6 567 6 357 5 073 able climatic conditions. Over recent rice, milled 3 501 4 669 5 626 4 695 years, wheat production has almost barley, milled 1 473 1 709 573 282 ceased and domestic wheat consumption wheat 184 97 11 10 corn 40 54 132 74 has been met mainly by imports. 80 38 15 12 The rapid expansion of livestock indus- other grains 3 578 2 613 1 362 897 tries since the 1980s has led to a signi - starchy roots 581 660 575 592 cant increase in demand for feed crops, eld potatoes 787 305 including potatoes, soybeans and maize. sweet potatoes 2 997 1 953 45 332 833 1 140 However, domestic production has not sweeteners 200 349 275 189 been able to keep pace with increasing pulses 174 311 234 160 demand. Consequently, increasing soybeans 1 576 4 767 7 763 10 586 proportions of feed crops have been vegetables fruit 310 543 1 464 2 300 sourced from imports.

2000 kt 5 529 5 291 161 2 64 11 1 050 705 345 1 270 134 113 11 282 2 429 1 660 214 714 261 479 2 253 25 2 503

2005 kt 5 055 4 768 193 8 73 13 1 177 894 283 1 347 199 183 9 584 2 593 1 604 152 717 301 518 2 229 25 2 714

fruit and vegetable production on the rise

Strong demand growth for and rising prices of fruit and vegetables have been the key factors contributing to the increase in their production. Total fruit production rose almost vefold between 1975 and

meat bovine meat pig meat poultry meat eggs milk oils and fats seafood

134 27 56 14 55 9 11 626

316 70 99 56 168 160 23 2 128

688 116 345 126 311 1 006 59 3 117

1 463 155 639 265 454 2 014 31 3 349

Sources: Ministry of Agriculture and Forestry, Korea (2006); KREI (2006).

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numbers of livestock and livestock farms

Republic of Korea
1975 000 1980 000 1 361 180 1 784 40 130 948 18 503 692 1985 000 2 553 390 2 853 51 081 1 048 44 251 303 1990 000 1 622 504 4 528 74 463 620 33 133 161 1995 000 2 594 553 6 461 85 800 519 24 46 203 2000 000 1 590 544 8 214 102 547 290 13 24 218 2005 000 1 819 479 8 962 109 628 192 9 12 136

number of livestock beef cattle, native 1 556 dairy cattle 86 pigs 1 247 chickens 29 939 number of farm households beef cattle, native 1 277 dairy cattle 9 pigs 654 chickens 1 094

Source: Ministry of Agriculture and Forestry, Korea (2006).

2005. A large proportion of this increase came from more protable fruit production, including tangerines, grapes and native pears. Production of vegetables has also increased considerably, underpinned largely by higher production of greenhouse vegetables, garlic and onions. Production of radishes, cabbages and red peppers has remained relatively stable. Vegetable production in 2005 was twice that in 1975, but lower than the peak levels in 2000. The recent decline in vegetable production mainly reects import competition, as imported vegetables have gained greater market access in Korea.

livestock products contribute to agricultural production growth

number of livestock farming households

Republic of Korea
1980 1985 1990 1995 2000 2005 000 000 000 000 000 000

beef cattle, native under 50 head 949 1 047 50 head and over 0.2 1.0 total 949 1 048

619 1.0 620

516 2.5 519

285 4.1 290 9.6 3.7 13.3 22 2.3 24 215 2.9 218

186 6.1 192 4.4 4.5 8.9 9.3 3.0 12 133 2.7 136

dairy cattle under 50 head 17.4 43.4 32.6 22.2 50 head and over 0.3 0.4 0.7 1.3 total 17.7 43.8 33.3 23.5 pigs under 1000 1000 and over total chickens under 10 000 10 000 and over total 503 0.1 503 691 0.7 692 251 0.2 251 302 1.1 303 133 0.4 133 159 2.2 161 45 1.1 46 200 2.7 203

Source: Ministry of Agriculture and Forestry, Korea (2006).

Strong demand growth and higher protability have contributed to a rapid expansion of the livestock sector in Korea. The total number of livestock increased signicantly between 1975 and 2000, before easing toward 2005 (table 5). While the total number of livestock has increased, the number of livestock farms has declined signi cantly. This development reects a restructuring in the livestock sector, with the average farm size rising. Livestock farming in Korea has been changing from traditional family farms to larger scale commercial operations. The livestock sector has beneted from economies of scale and there has been a marked increase in the proportion of cattle and pigs raised on larger and specialised farms (table 6). Beef production reached a peak of 214 000 tonnes in 2000, triple the production in 1975. It has since declined to 152 000 tonnes in 2005. Higher production costs and a fall in the number of cattle because of increased beef imports have contributed to lower domestic production in recent years.

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Koreas agricultural imports

Prior to the mid-1990s, the key agricultural policy objective in Korea was to maintain a high level of food self sufciency and income support for farm households (table 7). The agriculture sector was heavily protected and subsidised, with high tariffs and nontariff barriers such as import quotas. Imports of agricultural products were relatively small. Protectionist agricultural policies resulted in signicantly higher domestic agricultural prices during that period. The nominal rates of protection for major food products, on average, rose from slightly over 70 per cent in the early 1970s to more than 300 per cent in the early 1990s (Anderson 1987; Kim 2000). High income support for farmers also placed signicant pressure on the public sector budget (Anderson and Hayami 1986; Kim 2000). Since the mid-1990s, Korea has implemented agricultural trade reforms. There has been a gradual reduction in tariffs for agricultural imports and import quotas have been replaced by tariffs or tariff quotas to improve market access. Koreas imports of agricultural products, particularly of meat, wheat, vegetables, fruit and seafood, have increased considerably (table 8).

self sufciency in major food products

Republic of Korea
1965 % 1975 % 77 99 103 5 na 6 99 85 101 101 101 100 108 100 100 100 138 1985 % 49 103 64 0 4 4 101 23 98 94 100 98 100 100 100 102 130 1995 % 30 91 67 0 1 2 120 12 99 93 89 51 97 98 100 93 100 2000 % 31 103 47 0 1 2 118 8 98 89 84 53 92 80 100 81 88 2005 % 29 96 60 0 1 5 98 11 94 86 82 48 84 84 100 73 64

grains rice barley wheat maize other grains potatoes pulses vegetables fruit meat bovine meat pig meat poultry meat

89 89 90 23 na 38 100 102 100 100 100 100 100 100

eggs 102 milk 21 sh and shellsh 114

na Not available. Source: KREI (2006).

imports of agricultural products

Republic of Korea
1965 kt 1975 kt 3 086 481 354 1 703 na 548 0 0 61 0 0 17 0 0 0 0 72 0 1985 kt 1995 kt 2000 kt 2005 kt

agricultural imports from Australia

Australia is currently the third largest food supplier to Korea, following the United States and China. In 2005, Australia accounted for around 9 per cent of Koreas total agricultural imports. Koreas main imports of agricultural products include beef, wheat, barley, sugar and cheese (table 9).

grains rice barley wheat maize other grains potatoes sweeteners pulses vegetables fruit meat bovine meat pig meat poultry meat milk oils and fats sh, shellsh

688 0 106 476 na 58 0 0 0 0 0 0 0 0 0 48 0 0

6 430 12 779 12 988 12 553 0 0 107 192 0 172 146 158 2 996 2 777 3 266 3 406 3 035 8 879 8 888 8 609 399 951 581 188 0 0 906 30 0 0 2 0 0 2 324 90 10 0.2 1 486 169 179 188 148 34 6 204 612 932 10 0.4 1 665 357 330 386 223 96 68 645 740 1 404 20 1.2 1 324 722 472 375 143 174 59 909 886 1 758

beef
Australia has long been a major supplier of beef to Korea. Beef imports from Australia have increased signicantly in recent years as a result of the import ban on US beef following the discovery of bovine spongiform encephalopathy (BSE or mad cow disease) in the United States in December 2003. Beef trade between the United States and Korea resumed in October 2006. However, US beef

na Not available. Source: KREI (2006).

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imports of agricultural products, by source

Republic of Korea

1996 kt beef Australia United States New Zealand cheese Australia United States barley Australia 57 77 25 5 5 7

2000 kt 70 133 11 16 3 108 1 225 1 427 748 13 1

2001 kt 58 103 10 15 4 152 1 021 1 421 465 15 3

2002 kt 83 201 17 13 4 186 1 096 1 252 673 15 4

2003 kt 64 199 25 15 5 150 912 1 363 779 14 14

2004 kt 86 0 46 12 5 181 1 256 1 333 1 067 15 44

2005 kt 101 0 39 10 6 162 1 003 1 261 1 001 17 56

2006 a kt 137 0 40 7 7 129 1 080 1 111 1 101 18 69

wheat Australia 699 United States 1 626 sugar Australia United States China 684 26 1

a Preliminary. Sources: Australian Bureau of Statistics (2007); United Nations Statistics Division (2005).

exports to Korea are still constrained, as Korea will only accept boneless cuts of meat from US cattle 30 months of age or younger. In the short term, demand for Australian beef in Korea is likely to fall as Korea is expected to increase imports of US beef. Over the medium term, beef consumption in Korea is expected to trend higher, underpinned by continued income growth. Total demand for imported beef in Korea is also expected to increase. Prior to the discovery of BSE in 2003, the United States accounted for 70 per cent of total Korean beef imports, with around 60 per cent of trade being in rib cuts. Since the exclusion of US beef, however, Korean demand for Australian beef has increased signi cantly. In 2006, Australian exports to Korea increased by 40 per cent to 150 000 tonnes (shipped weight), with rib cuts representing around 25 per cent of the exports. While import demand for Australian beef has increased, total beef imports are considerably less than they were before the discovery of BSE in the United States. In the short term, if the United States is able to gain greater access to the Korean market, their comparative advantage in producing beef is likely to result in displacement of some Australian products. Currently, the tariff rate applied to beef imports by Korea is 40 per cent and domestic beef prices in Korea are well above international prices.

cheese
Underpinned by strong income growth, Koreas cheese imports have increased signi cantly since the mid-1990s. Australia is currently the second largest supplier of cheese to Korea, following the United States. The strong growth in demand for cheese in Korea is attributable to a rapid expansion of western style fast food restaurants, which have gained greater popularity, particularly among the younger generation. In the Korean market, Australian cheese competes with not only US but also EU products. There was a perception in the Korean market that European
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cheese was of higher quality. This perception, however, has changed as Koreans have developed their taste for processed cheddar cheese from Australia. Cheese is one of the few dairy products not subject to a tariff quota. The current tariff rate applying to cheese imports is 36 per cent. Consumption of dairy products in Korea is low compared with that in other developed Asian countries, such as Japan. With further growth in incomes and increasing exposure to western style diets, the consumption of dairy products in Korea and its import demand are expected to rise.

wheat
Korea has relied mainly on imports to meet its domestic wheat consumption because climatic conditions in Korea are not suitable for growing wheat. Australia and the United States are the largest suppliers of wheat to Korea, accounting for around 47 per cent and 38 per cent respectively of Koreas total wheat imports. While demand for wheat as livestock feed is an important component of Korean wheat imports, there has been a signicant increase in demand for wheat for food consumption, mainly for wheat based products such as noodles, bread and cakes, driven mainly by the younger generation. Australia has long been a major wheat supplier to Korea. Wheat imports from Australia increased signicantly during the second half of the 1990s and have since been relatively stable at around 1 million tonnes a year. In contrast, wheat imports from the United States have been trending downward since the mid-1990s. Imports from other wheat producing countries, such as Canada, have been increasing. Currently, the tariff rate applying to Koreas wheat imports is 1.8 per cent, while the rate applying to durum wheat and meslin is slightly higher at 3 per cent.

barley
Both production and consumption of barley have been declining in Korea. Because domestic production has been falling faster than consumption, barley imports have been on the rise. Australia is the major supplier of barley to Korea, mainly exporting malting barley which is used to produce beer in Korea. Australia has maintained its dominance in Koreas barley market, reecting its efcient production systems and international competitiveness. Besides Australia, Canada also exports a small amount of barley to Korea. A tariff quota applies to both malt and malting barley imports to Korea.

sugar
Korea is Australias largest sugar export market. Australia is the dominant supplier of sugar to Korea, accounting for more than 90 per cent of total sugar imports. Other sugar suppliers to Korea include China and the United States. The changing pattern of food consumption in Korea toward a western diet has led to a signicant increase in demand for sweeteners. Korea does not produce either sugar cane or sugar beet because of unfavourable climatic conditions. To meet the growing demand for sweeteners, raw sugar imports have been increasing. Australias proximity to Korea has been an advantage over other potential competitors, such as Brazil. China also has similar advantages and has increased its sugar exports to Korea in recent years. Compared with Australia, sugar imports from China have been small. Korea currently imposes a tariff rate of 3 per cent on its cane sugar imports.

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summary
Over the past few decades, rapid economic growth and industrialisation in the Republic of Korea have resulted in signicant structural changes in the agriculture sector. Reecting limited arable land, an aging farm population and competitive pressures for resources from other sectors, agricultural production has not been able to meet the increase in food demand and changing consumption toward beef, dairy and wheat based products. As a result, imports have taken a more prominent role in meeting Korean food demand. Given the outlook for continued industrialisation and income growth in Korea, this reliance on food imports is likely to increase in the foreseeable future. Koreas government has been implementing reforms in the agriculture sector and reducing tariffs and nontariff barriers on agricultural imports through multilateral and bilateral trade negotiations. Despite these efforts, the level of protection on many agricultural commodities remains relatively high. Australia is one of the leading exporters of agricultural products to Korea. If an improvement in market access is achieved, Australia will be in a strong position to make a signi cant contribution to meeting the rising and changing food demand in Korea, particularly in commodities such as beef and dairy products.

references
ABARE 2007, Australian Commodities, vol. 14, no. 1, March quarter, Canberra. Australian Bureau of Statistics 2007, Foreign Trade, Magnetic Tape Service, cat. no. 5464.0, Canberra. Anderson, K. 1987, Food price policy in Korea: 19551985, Pacic Economic Papers, 149, Australian National University, Canberra. Anderson, K. and Hayami, Y. 1986, The Political Economy of Agricultural Protection, Allen and Unwin, Sydney. Bank of Korea 2006a, Economic Statistics Yearbook, Seoul (and previous issues). 2006b, Monthly Bulletin, Seoul, October (and previous issues). FAO (Food and Agriculture Organisation of the United Nations) 2006, FAOSTAT database, Rome (http://faostat.fao.org/). Kim, Y. 2000, The Distributional Impact of Agricultural Trade Liberalisation A General Equilibrium Analysis for Korea, Unpublished PhD Dissertation, The Australian National University. KREI (Korea Rural Economic Institute) 2006, 2005 Food Balance Sheet, Seoul. Ministry of Agriculture and Forestry, Korea, 2005 Crop Statistics, Seoul. 2006a, Agriculture and Forestry Statistical Yearbook, Seoul (and previous issues). 2006b, Major Statistics of Agriculture and Forestry, Seoul (and previous issues). National Statistical Ofce, Korea 2005, Korea Statistical Yearbook, Seoul (and previous issues). Roberts, I., Warr, S. and Rodriguez, G. 2006, Japanese Agriculture: Forces Driving Change, ABARE Research Report 06.24, Canberra, December. United Nations Statistics Division 2005, UN Commodity Trade Statistics Database (UN Comtrade), New York (http://unstats.un.org/unsd/comtrade/).

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australian commodities > vol. 14 no. 3 > september quarter 2007