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South Korea agribusiness

South Korea's self-sufficiency in rice, its key food staple, has come at a high cost to both consumers and the government. South Koreans pay some of the world's highest prices for rice and the government pays out annual subsidies to producers worth billions of dollar. The combination of protection from imports and generous subsidies has allowed rice production in Korea to remain small-scale in comparison with farming in developed countries in the West. The average farm size in Korea is less than 1.5 hectares (ha), though for full-time rice farmers this rises to 4.5ha. This figure is still tiny when compared to the average size of US rice farms which stood at 160ha in 2002. In 2009, however, a number of factors have worked to make Korean rice farming appear more competitive. The rise in the price of rice on the world market and the depreciation of the won has made domestically produced rice less expensive when compared to that on the world market. Korea's bumper rice harvest of 4.84mn tonnes, up by almost 10% year-on-year, has seen stocks saw putting more pressure on the domestic rice price. National stocks have been further enhanced by Korea's obligation to import rice under a minimum market access (MMA) arrangement agreed with the World Trade Organization (WTO). Questions have now begun to be raised about whether it would be beneficial for Korea to begin to lift restrictions on rice imports now instead of waiting until 2014 when it is obliged to open up the market to tariffed rice imports under its WTO commitments. This would allow Korea to end the MMA agreement and be spared from having to import rice. Despite the potential savings to the government, however, we see it has highly unlikely that the Korean rice market will be liberalised before the 2014 deadline. The government of President Lee Myung-Bak, already unpopular, would be unwilling to risk losing more support among rural voters who are sure to oppose the plan. While the rice market looks set to be protected for some years to come, South Korea's energetic pursuit of free trade agreements (FTAs) over the last few years is likely to see competition from imports increase for other agricultural sectors. While the KORUS FTA with the US is still stuck waiting for ratification, negotiations with other major agricultural exporters are going ahead. In July, a deal was signed for an FTA with the EU and negotiators hope that it will be ratified by early next year. Talks are also underway for FTAs with Australia and New Zealand. This is worrying news for Korea's dairy and livestock producers. All four of the aforementioned markets are major producers of livestock and dairy - together the US, EU, Australia and New Zealand supplied 98% of Korea's non-fat dry milk powder in 2008. Livestock producers will be helped by strict country of origin labelling regulations and Korean consumers strong preference for domestically produced meat. Dairy producers will be at more of a disadvantage. If all four FTAs do eventually come into force, it could lead to some re-structuring in the Korean dairy sector, which has already been suffering from over production in recent years. However, we see the sector being able to rely on continued strong government support as no future government will be willing to see Korea's food security further reduced.

by S. C.
18 february 2010, World News > Asia