Dairy and Products Annual 2012

An Expert's View about Food , Beverages and Tobacco in South Korea

Posted on: 21 Oct 2012

Despite a shortage of fluid milk resulting a FMD outbreak, Korea’s per capita consumption of dairy products grew by 1.4 percent to 73.2 kg, in 2011.

THIS REPORT CONTAINS ASSESSMENTS OF COMMODITY AND TRADE ISSUES MADE BY USDA STAFF AND NOT NECESSARILY STATEMENTS OF OFFICIAL U.S. GOVERNMENT POLICY Required Report - public distribution Date: 10/4/2012 GAIN Report Number: KS1245 Korea - Republic of Dairy and Products Annual Dairy Update - ATO Seoul Approved By: Michael Fay, Director ATO Prepared By: Youngsook, Oh, Ag. Marketing Specialist Report Highlights: In 2011, retail sales of cheese reached a recorded to $333 million, which was a 15 percent increase from 2010. The United States was the largest dairy exporting country with 43 percent market share, followed by New Zealand with 27 percent and the , EU with 14 percent. FTAs are expected to expand market share for cheese and non-fat dry milk for the United States and the EU at the expense of New Zealand and Australia. A wellbeing trend is supporting a new and growing market segment of ‘super premium’ milk including organic milk, milk from grass fed cows, and milk with added nutritional supplements, and commands prices 3 times higher than regular milk. Despite a shortage of fluid milk resulting a FMD outbreak, Korea’s per capita consumption of dairy products grew by 1.4 percent to 73.2 kg, in 2011. Executive Summary: An implementation of the Korea-U.S. Free Trade Agreement (FTA) since March 2012, which will eliminate the 36 percent import tariff on imported cheddar cheese (HS0406.90) over 10 years and duties on other cheese (0406.10) will be phased out over 15 years. FTAs are expected to expand the market share for the United States and the EU at the expense of New Zealand and Australia including cheese, no fat dry milk (NFDM – HS 0402.10.1010) with 5,000 MT’s TRQ every year and Whey with 3,000 MT for 9 years. In 2011, food and mouth diseases (FMD) forced the slaughter of 34,000 dairy cows (8 % of 430,000 national herds) which resulted in a shortage of fluid milk. While fresh milk for consumers is in sufficient supply, milk for bakery use was to run short. Korean Government announced zero-duty TRQs on dairy products for 142,000 MT including 48,000 MT for dairy products processing industry and 94,000 MT for bakery sectors. Accordingly, most of dairy products imports into Korea were jumped up: Cheese increased by 25 percent up to 76,000 MT, NFDM increased by 324 percent up to 34,000 MT, Mixed milk increased by 14 percent up to 36,000 MT, Whey decreased by 19 percent up to 30,400 MT and Butter increased by 47 percent up to 35,000 MT during a year of 2011. The average unit price of imported dairy products was also increased by 21 percent up to $4 per Kilo Gram (KG): Cheese jumped up 11 percent with $4.7 per KG, NFDM $3.7 per KG, Whey $1.4 per KG, Mixed milk $3.4 per KG and Butter $3.7 per KG. Major dairy products exporting countries for Korea are United States, New Zealand, Australia, Netherlands and Germany. United States is the largest exporting country with 26 percent of market share with 73,000 MT out of total dairy products imports, followed by New Zealand 19 percent with 53,000 MT, Netherlands 12 percent with 35,000 MT into Korea in 2011. Table 1: Raw Milk Supply & Demand Prospects for 2012-2022 Unit: 1,000 MT PROSPECTS 2011 2012 2013 2017 2022 Supply Inventory from Previous Year 13 36 109 171 198 Production 1,888 1915 1939 1903 1846 Import 1,620 1640 1,679 1757 1,852 Total 3,521 3590 3726 3832 3,895 Demand Consumption 3,485 3481 3,582 3652 3,398 Inventory 36 109 144 180 201 Total 3,521 3590 3,726 3832 3,895 Precipitate Consumption(Kg) 69.4 69.2 (+2.7%)71.1 (+1.5%)72.2 (+1.4%)73.2 Source: Agriculture Outlook 2012 / Korea Rural Economy Institute Table 2: Dairy Products Import by Year and by Product 2007 2008 2009 2010 2011 Total Imports Import Volume(MT) 184,000 165,000 176,000 207,000 281,000 Value ($1,000) 556,000 673,000 501,000 682,000 1,120,000 Unit Price($/Kg) 3.0 4.1 2.8 3.3 4.0 Cheese Import Volume(MT) 49,500 47,400 49,000 61,000 76,000 Value ($1,000) 179,000 239,000 190,000 259,000 357,000 Unit Price($/Kg) 3.6 5.0 3.9 4.2 4.7 Mixed Milk Import Volume(MT) 23,600 26,000 26,000 31,600 36,000 Value ($1,000) 76,900 107,000 70,000 91,000 123,000 Unit Price($/Kg) 3.3 4.1 2.7 2.9 3.4 Whey Import Volume(MT) 46,800 32,000 32,200 37,600 30,000 Value ($1,000) 67,100 38,000 29,000 41,000 43,000 Unit Price($/Kg) 1.4 1.2 0.9 1.1 1.4 Butter Import Volume(MT) 21,400 20,500 20,000 23,400 34,500 Value ($1,000) 49,700 81,300 50,000 82,000 160,000 Unit Price($/Kg) 2.3 4.0 2.5 3.5 4.6 NFDM Import Volume(MT) 5,000 5,000 9,700 7,900 33,500 Value ($1,000) 17,600 20,000 23,200 24,500 123,600 Unit Price($/Kg) 3.5 4.0 2.4 3/1 3.7 Source: Korea Customs Office 2012 Table 3: Dairy Product Import by Country U.S. New Zealand Netherlands Australia Germany Total Import Share Import Share Import Share Import Share Import Share Import Share Volume Volume Volume Volume Volume Volume 2007 42,100 (23%) 28,600 (16%) 21,500 (12%) 25,900 (14%) 5,600 (3%) 184,000 (100%) 2008 40,000 (24%) 31,100 (19%) 23,100 (14%) 21,600 (13%) 5,700 (3.4%) 165,000 (100%) 2009 36,300 (21%) 34,500 (20%) 20,100 (11%) 31,300 (18%) 6,900 (4%) 176,200 (100%) 2010 55,000 (26%) 39,400 (19%) 28,600 (14%) 28,600 (14%) 5,800 (3%) 207,000 (100%) 2011 72,800 (26%) 53,300 (19%) 34,500 (12%) 32,400 (12%) 20,500 (7%) 280,500 (100%) Source: Korea Customs Office 2012 Commodities: Dairy, Milk, Fluid Production: In 2011, Korean raw milk production was 1.89 million metric tons (MMT), decreased by 9 percent compared to a previous year. From November 2010, FMD among cows, pigs and ox was prevalent in over 200 districts within South Korea. FMD forced the slaughter of 34,000 dairy cows (8 % of 430,000 national herds) which resulted in a shortage of fluid milk. The Korean government set a policy where when one animal was found to have FMD, destroyed. This led to a shortage of raw milk which badly affected the production of drinking milk products. Drinking milk use was 86 percent of total raw milk production while remaining 14 percent is marketed for processing. Table 4: Domestic Milk Production & Number of Cows in Milk Consumption: In 2011, retail value sales of drinking milk are decreased by 1% to reach $3.4 billion which was strongly affected by shortages of raw milk from foot-and-mouth disease. Flavored milk drinks with fruit juice reached the highest retail value growth by 10% and unit prices rose in all types of drinking milk products due to a higher raw milk prices. Fresh/pasteurized milk decreased by 5% in 2011.Sales of drinking milk products are marginally decreased due to incidents of FMD in cattle. This led to a shortage of raw milk which badly affected the production of drinking milk products. On the other hand, many consumers and restaurants replaced milk with soy milk, enabling soy milk with a healthy growth rate in 2011. In May 2009, regulations regarding flavored milk drinks changed so that products including real fruit juice could feature brand names such as real fruit juice included flavored milk drink. As such, products without real fruit juice could be called ‘fruit name syrup milk drink’ instead of ‘flavored’. Manufacturers started to add real fruit juice to most fruit flavored milk drinks to maintain the brand name as ‘fruit name flavored milk drink’. Flavored milk drinks increased by 4% in 2011 due to changes in most dairy only flavored milk drinks to flavored milk drinks with fruit juice. This is because ‘fruit name syrup milk drink’ could convey a negative image of being low quality among consumers. In 2011, only coffee flavored, grain and bean flavored milk drinks remained under the dairy only flavored milk drinks, and all fruit flavored milk drinks move under the flavored milk drinks with fruit juice category. Seoul Dairy maintained the leading position with a 38% value share in 2010 followed by Maeil Dairy at 15% market share with organic milk brand, Sangha Farm. Since the recent outbreaks of FMD, consumers became concerned about drinking fresh milk. As a result, sales of soy milk increased as opposed to fresh milk. Sangha Farm is now a leader in organic milk. Vegemil by Dr. Chung’s Food maintained the leading position to a 39% value share in soy milk. Table 5: Korea Raw Milk Supply & Demand Unit: 1,000 Metric Ton 2006 2007 2008 2009 2010 2011 Supply Inventory from a year before 116 53 107 96 55 13 Production 2,176 2,188 2,139 2,110 2,073 1,888 Import 882 968 885 959 1,135 1,620 Total 3,174 3,209 3,131 3,166 3,263 3,521 Demand Consumption 3,121 3,101 3,035 3,111 3,249 3,485 Inventory 53 107 96 55 13 36 Total 3,175 3,209 3,131 3,166 3,263 3,521 Per Capita Consumption (Kilo Gram) 63.6 63.0 61.3 62.3 62.8 69.4 Source: Ministry of Food & Agriculture Fishery Forestry (MIFAFF) / 2012 Agriculture Outlook by Korea Rural Economy Institute (KREI) Table 6: Domestic Raw Milk Usage Unit: 1,000 MT Milk 2006 2007 2008 2009 2010 2011 Drinking Use 1,555 1,582 1,583 1,569 1,541 736 Processed Use 621 606 556 540 532 206 Total 2,176 2,188 2,139 2,110 2,073 942 Source: Ministry of Food & Agriculture Fisher Forestry (MIFAFF) / 2012 Agriculture Outlook by Korea Rural Economy Institute (KREI) The Korean consumers’ priorities of milk selection are freshness (30%), brand name (20%), safety (19%), function (8%) and price (22%) by agriculture outlook center survey during January 2012. Table 7: Korea’s Key Dairy Product Imports Unit: Metric Tons Products(HS Code) 2008 2009 2010 2011 U.S. Total U.S. Total U.S. Total U.S. Total Cheese(0406) 11,300 47,400 9,100 49,000 18,500 61,000 32,400 76,200 NFDM (0402.10) 41 4,900 100 9,600 650 7,900 900 33,500 Whole Fat DM (0402.21) 0 1,300 0 1,200 0 1,400 0 5,300 Mixed Milk 1,468 25,900 910 26,000 440 31,600 1,300 36,000 (0404.90 & 1901.90.2000) Butter (0405.10) 56 1,900 80 2,100 66 3,000 900 4,800 Whey Powder (0404.10) 14,009 32,000 15,800 32,200 16,000 37,600 12,900 30,400 Ice Cream (2105) 356 2,000 520 2,010 632 2,600 840 3,600 TOTAL 39,700 165,000 36,300 176,200 54,700 207,000 72,800 280,500 (24%) (21%) (26%) (26%) Source: 2012 Korea Customs Office Notes: In 2011, imports of dairy products increased, such as cheese imports increased by 25% up to 76,200 MT, mixed milk decreased by 11% up to 28,000 MT, butter increased by 60% up to 4,800 MT but NFDM increased by 320% up to 33,500 MT compared to 2010. Table 8: Dairy Products Imports by Country Unit: Metric Tons U.S. New Zealand Netherlands Australia Germany Total 42,100 28,600 21,500 25,900 5,600 183,700 2007 (23%) 39,700 31,100 23,100 21,600 5,700 164,700 2008 (24%) 36,300 34,500 20,100 31,300 6,900 176,200 2009 (21%) 54,700 39,400 28,600 28,600 5,800 207,000 2010 (26%) 72,800 53,000 32,400 32,400 20,500 280,500 2011 (26%) (19%) (12%) (12%) (7%) (100%) Source: 2012 Korea Customs Office In 2011, average unit price of imported dairy products was $4 per kilogram which was increased by 21%. Jumping the international animal feed price and decreased raw milk production of Australia and New Zealand made the price higher. Marketing: The effects of the new regulation concerning flavored milk drinks will include the disappearance of dairy only fruit flavored milk drinks in the future. The overall category will shrink alongside the reduction in the variety of products available. Currently, the price of individual flavored milk drinks is about Won1,000 (about $1) at convenience stores, although there are also many bundle promotions of flavored milk drinks that also sell for Won1,000 in hypermarkets. Thanks to the wellbeing trend, diverse recipes will begin to emerge involving baking bread and biscuits with fresh milk instead of powder and UHT milk. As such, consumption of powder and UHT milk will grow slow. Furthermore, the organic milk trend will be sustained, although organic milk will also be segmented further into low fat or baby milk. On the other hand, zero fat and low fat fresh/pasteurized milk will increase faster than full fat milk thanks to the consumer base of young females who will not drink milk because of its fat content. Maeil Dairy and Namyang Dairy will continue to develop new products in order to gain more category share. Seoul Dairy’s products already carry lower prices than its competitors in milk; therefore the other two main companies will focus on premium brands, even if they are more expensive. These players will expand demand for premium milk in the future and will be among the first players to develop organic milk in South Korea for the first time. Expanding the wellbeing trend, premium milk brands in each drinking milk category are popular. The Maeil Dairy Industry is present with organic milk brand, Sangha Farm, the milk of which is derived from good quality cows reared using environmentally friendly methods without artificial feed. According to Maeil, organic milk is suitable for consumers of all ages, particularly babies, children and pregnant women. The unit price of organic milk is almost double that of normal milk, but has expanded its market share rapidly. As the brand increased faster than expected since 2009, other competitors such as Namyang Dairy Products, Pasteur Milk and province milk brands have since also introduced organic milk brands. Babies’ milk contains more DHA and Omega3 than other milk products and its ingredients most closely resemble breast milk. Milk targeting special consumers was also introduced in 2010. Maeil segmented milk products under babies’ milk, children’s milk and zero fat milk. Children’s milk also offers more nutrition than normal milk and zero fat milk targets young women. Powder milk and long-life/UHT milk continued to decrease both in value and volume terms. The retail volume of powder milk recorded 2 million liters and long-life/UHT 16 million liters respectively. These volume sales are marginal compared to those of fresh/pasteurized milk, as most consumers are not familiar with in Korea. Unit prices were seen to increase in 2011, due to premium products and a shortage of raw milk from 2010. However, the current unit price of normal full-fat fresh/pasteurized milk decreased due to diverse promotions and also decreased more relative to other premium products. The current unit price of flavored milk drinks also increased to reflect the fact that most products now include real fruit juice. Table 9: Domestic Produced Raw Milk Usage for Processed Dairy Products Unit: 1,000 MT 2006 2007 2008 2009 2010 2011 Whole Fat Milk (WFM) 4.0 3.6 3.4 3.1 2.6 1.8 Non Fat Dry Milk (NFDM) 18.3 22.2 19.9 15.2 9.5 4 Mixed Milk 12.8 14.6 15.6 14.5 14.5 15 (2.7%) Condensed Milk 3.7 3.6 3.5 3.9 3.7 2.6 Butter 3.9 3.9 3.5 3.5 2.6 1.2 Cheese 27.9 24.4 25.0 23.2 24.7 24.7 (4.6%) Fermented Milk 504.3 485.9 454.9 445.7 502.6 522 (94%) Total 621 606 556 540 532 600 Source: Ministry of Food & Agriculture Fisher Forestry (MIFAFF) / 2012 Agriculture Outlooks by Korea Rural Economy Institute (KREI) Most cheese is imported from U.S. and New Zealand, mixed milk from Netherlands and France, butter and NFDM from Australia and New Zealand into Korea. Value wise, New Zealand is the most export country to Korea with 22% share, U.S. with 21%, Australia with 15% and Netherlands with 14% in order. Production, Supply and Demand Data Statistics: Table 10: Production, Supply and Demand Data Statistics: PSD TABLE for Fluid Milk Dairy, Milk, Fluid Korea, Republic of 2011 2012 2013 Market Year Begin: Jan 2011 Market Year Begin: Jan 2012 Market Year Begin: Jan 2013 USDA Official New Post USDA Official New Post USDA Official New Post Cows In Milk 186 191 189 194 196 Cow’s Milk Production 1,869 1,889 1,902 1,915 1,934 Other Milk Production 0 0 0 0 0 Total Production 1,869 1,889 1,902 1,915 1,934 Other Imports 0 0 0 0 0 Total Imports 0 0 0 0 0 Total Supply 1,869 1,889 1,902 1,915 1,934 Other Exports 0 0 0 0 0 Total Exports 0 0 0 0 0 Fluid Use Dom. Consum. 1,308 1,624 1,426 1,532 1,547 Factory Use Consum. 561 265 476 383 387 Feed Use Dom. Consum. 0 0 0 0 0 Total Dom. Consumption 1,869 1,889 1,902 1,915 1,934 Total Distribution 1,869 1,889 1,902 1,915 1,934 1000 HEAD, 1000 MT Commodities: Dairy, Cheese Production: In 2011, South Korea produced 24,700 MT of cheese, decrease of 10 percent from 2010. Fresh cheese was produced 3,600, decrease of 55 percent and processed cheese accounted for the remaining 21,100 MT, increase of 9 percent. Import was increased to 76,200 MT by 25 percent and made 12 percent higher consumption than a previous year. U.S. market share was 43 percent for 32,400 MT out of total imports. Outbreak of local FMD in November 2010, forced the slaughter of 34,000 dairy cows (8 % of 430,000 national herds), resulted in a shortage of raw milk and led to decrease the production of domestic raw cheese products. Most major cheese manufacturers produce several unprocessed soft cheeses to have as a dessert along with wine. Manufacturers are trying to introduce new format soft cheese slice format that is convenient for children and which has a squeezable format to use in cooking or as a salad dressing. Table 11: Cheese Production, Import & Consumption Unit: Metric Ton 2007 2008 2009 2010 2011 Production Fresh Cheese 9,100 9,700 7,700 7,900 3,600 Processed Cheese 15,300 15,300 15,500 19,500 21,100 Import 34,700 43,700 44,800 56,100 70,400 (Fresh Cheese) Import(Processed) 14,700 3,700 4,300 4,900 5,800 Total 73,800 72,400 72,200 88,400 100,900 Consumption Fresh Cheese 44,400 53,000 51,800 64,300 Processed Cheese 30,000 19,000 20,000 24,300 Export 23 91 57 35 61 (Fresh Cheese) Export(Processed) 28 19 74 47 16 Total 74,400 72,060 71,600 88,700 99,600 Source: MIFAFF, Korea Dairy Committee 2012 Table 12: Sales of Cheese by Subsector: Value 2006-2011 Unit: $ Million 2006 2007 2008 2009 2010 2011 Processed cheese 206 217 225 233 230 227 Unspreadable 206 217 225 233 230 227 Processed Cheese Unprocessed cheese Soft cheese 53 57 69 81 93 106 Total cheese 259 274 294 314 323 333 Source: Official statistics, Euromonitor International estimates Exchange Rate: One US$ equivalents to 1,000 Korean Won Consumption: In 2011 retail value sales of cheese are increased by 15 percent to reach $333 million with 100,000 MT of volume. Cheese shows a marginal unit price increase as well as other dairy products. Korean consumers became familiar with unprocessed cheese through experience of overseas cultures. Unprocessed cheese recorded a healthy growth rate and leads the entire cheese market. Soft cheese is projected to record strong value growth of 15 percent with new products of unprocessed cheese. Unprocessed soft cheese Mozzarella was the leading type of cheese for pizza. Camembert cheese and Feta cheese is producing as dessert cheeses to have with wine. Due to the much higher price than processed cheese, the current unit price of cheese marginally increased in 2011. Many consumers demand unprocessed soft cheese in wine bars to have with wine and also enjoy cheese and wine at home. Premium cheese was made with high quality ingredients and led to an increase in the current unit price of processed cheese. Processed cheese is producing target children as a nutritional food, but unprocessed cheese increasingly targets adults. To recover from stagnation, processed cheese now also features organic or baby cheese. Trade: In 2011 Korea was the United States’ second largest market for cheese and curd with exports of around $140 million. Mozzarella, processed, and ripened cheeses are all significant categories. The U.S. market share in Korea for all cheeses is 39 percent, followed by New Zealand with 26 percent, the EU with 18 percent and Australia with 9 percent. Korea’s per capita consumption of dairy products is expected to grow about 15 percent over the next decade reflecting the growing economy, Korean’s exposure to a western diet, a rise in fast food outlets, and a growing appetite for pizza and pasta. Most domestic processed cheese is manufactured from imported fresh cheese. Table 13: Korean Imports of Cheese: Co 2009 2010 2011 untry $1,000 MT $1,000 MT $1,000 MT World 189,918 49,024 258,749 60,971 357,918 76,222 United States 37,521 9,103 75,935 18,518 140,233 32,473 New Zealand 55,855 16,650 77,755 19,306 93,833 20,583 EU 40 5,489 38,525 6,056 65,980 10,619 Australia 11 7,067 34,829 8,636 33,285 7,446 Switzerland 0 1,604 5,920 1,227 7,174 1,244 Uruguay 0 5,484 14,616 4,185 6,258 1,400 Chile 0 20 700 174 5,937 1,270 Others 523 3,609 10,470 2,869 5,217 1,187 Source: Global Trade Atlas, HS 0406, Cheese and Curd Table 14: Cheese Tariff Phase-Out Schedule under KORUS FTA: The KOR-US FTA creates a zero-duty tariff-rate quota for cheeses covered under tariff lines 0406101000, 0406200000, 0406300000 and 0406900000. In the first year the in-quota amount is 7,000 MT and rises to 10,280 MT in year 2014. All U.S. cheeses will enter duty free by 2026. HSK Description Base Rate 2012 2013 2014 0406101000** Fresh Cheese** 36% 33.6% 31.2% 28.8% 0406102000 Curd 36% 32.4% 28.8% 25.2% 0406200000** Grated or powdered cheese of all kinds** 36% 33.6% 31.2% 28.8% 0406300000** Processed cheese, not grated or powdered** 36% 33.6% 31.2% 28.8% 0406400000 Blue-veined cheese 36% 32.4% 29% 25.4% 0406900000** Cheese, NES, including cheddar** 36% 33.6% 31.2% 28.8% TRQ Volume (MT) 7,000 7,210 7,426 ** included in TRQ. The Korea Dairy Industries Association (KDIA) will administer the TRQs and allocate the in-quota quantity to historical and new importers through a licensing system. In 2011, Korean cheese import reached to 76,200 MT by 25 percent increase and made 12 percent higher consumption than a previous year. U.S. market share was 43 percent for 32,400 MT out of total imports. Korea was the United States’ second largest market for cheese and curd with exports of around $140 million in 2011. March 2011, the Ministry of Strategy and Finance (MOSF) announced temporary no import duty on 23,000 MT of mozzarella cheese (HS 0406.10) and cheddar cheese (HS 0406.90) through the end of 2011 due to the outbreak of FMD. The Mozzarella, processed, and ripened cheeses are all significant categories. By the Korea-U.S. FTA implementation since March 2012, Korean consumers are expected to have more varieties of cheese from U.S. at lower prices to choose from once the import tax of 36% is removed, as specified under the terms of the agreement. Korea’s per capita consumption of dairy products is expected to grow about 15 percent over the next decade reflecting the growing economy, Korean’s exposure to a western diet, a rise in fast food outlets, and a growing appetite for pizza and pasta. Most domestic processed cheese is manufactured from imported fresh cheese. In 2012, from January through August, Korea imported 49,000 MT cheese, U.S. exported 20,250 MT with 41 percent market as the largest exporter into Korea followed by New Zealand with 15,000 MT, Australia 4,700 MT as 3rd largest exporter. Table 15: Korean Imports of Cheese: Co 2009 2010 2011 untry $1,000 MT $1,000 MT $1,000 MT World 189,918 49,024 258,749 60,971 357,918 76,222 United States 37,521 9,103 75,935 18,518 140,233 32,473 New Zealand 55,855 16,650 77,755 19,306 93,833 20,583 EU 40 5,489 38,525 6,056 65,980 10,619 Australia 11 7,067 34,829 8,636 33,285 7,446 Switzerland 0 1,604 5,920 1,227 7,174 1,244 Uruguay 0 5,484 14,616 4,185 6,258 1,400 Chile 0 20 700 174 5,937 1,270 Others 523 3,609 10,470 2,869 5,217 1,187 Source: Global Trade Atlas, HS 0406, Cheese and Curd Stocks: Policy: Table 16: Cheese Tariff Schedule on Korea-US FTA implementation HS Code Ra Yr Yr Yr Yr Yr Yr Yr Yr Yr Yr Yr Yr Yr Yr Yr Product te 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 s (% ) 0406.10. 28. 25. 21. 18 14. 10. 7.2 3.6 0 1000 36 32. 8 2 6 4 8 Fresh % 4 Cheese 0406.10. 28. 25. 21. 18 14. 10. 7.2 3.6 0 2000 36 32. 6 4 8 Cu 4 8 2 rd Annual 7,2 7,4 7,6 7,8 8,1 8,3 8,6 8,8 9,1 9,4 9,6 9,9 10,2 Unlimi ted duty-free 10 26 49 79 15 58 09 67 33 07 90 80 80 quota in MT for HS 0406.10. 7,0 10, NA 00 0406.20. MT 00, 0406.30. 00 & 0406.90. 00 0406.20. 0000 Grated/ 36 powdered 33. 31. 28. 26. 24 21. 19. 16. 14. 12 9.6 7.2 4.8 2.4 0 cheese 6 2 8 4 6 2 8 4 0406.30. 0000 Processe 33. 31. 28. 26. 24 21. 19. 16. 14. 12 9.6 7.2 4.8 2.4 0 d cheese, 6 2 8 4 6 2 8 4 36 not grated or powdered 0406.40. 0000 B 6 7.2 4.8 2.4 0 lue- 36 33. 31. 28. 26. 24 21. 19. 16. 14. 12 9.6 2 8 4 6 2 8 4 veined cheese 0406.90. 0000 Other 33. 31. 28. 26. 24 21. 19. 16. 14. 12 9.6 7.2 4.8 2.4 0 36 cheese 6 2 8 4 6 2 8 4 0406.90. *Starting in year 10, cheddar cheese will be free of customs duty and no longer be subject to TRQs. Before year 10, 0000 cheddar follows the above schedule. Ch 36 eese, Cheddar The Korea Dairy Industries Association shall administer these TRQs and allocate the in-quota quantity to historical and new importers through a licensing system. See detailed current (base) tariffs and tariff reductions that will occur under implementation of the KORUS FTA are available at: http://www.ustr.gov/Trade_Agreements/Bilateral/Republic_of_Korea_FTA/Final_Text/Section_Index.html A sector report on the implications of the Korea-U.S. Free Trade Agreement is available at: http://www.fas.usda.gov/info/factsheets/Korea/commodity-dairy.asp Marketing: Implementation of the U.S.-Korea FTA, Korean consumers are expected to have more varieties of cheese from U.S. at lower prices to choose from once the import tax of 35% is removed, as specified under the terms of the agreement. With the FTA benefit, more premium cheeses are expected to come into Korea and it will result in strong growth in margins despite the declining import tax in the future. Hard cheese will develop among consumers who have experienced a hard cheese culture while travelling overseas. Premium cheese products, such as baby cheese, are expected to develop the market. Additionally, consumers will seek more high quality products without artificial additives, and organic alternatives are expected by continuing concern of health consciousness. While production volumes will increase, the unit price of unprocessed cheese will drop. Table 17: Average Import Price per Kilogram of Imported Cheese (HS: 0406) by Country Unit: $/Kilogram U.S. Australia New Zealand France 2010 4.10 4.03 4.31 6.80 2011 4.32 4.47 4.5 7.16 Source: based on CIF Price / Korea Customs Office 2011 Production, Supply and Demand Data Statistics: Table 18: Production, Supply and Demand Data Statistics: PSD Table for Cheese Dairy, Cheese Korea, Republic of 2011 2012 2013 Market Year Begin: Jan 2011 Market Year Begin: Jan 2012 Market Year Begin: Jan 2013 USDA Official New Post USDA Official New Post USDA Official New Post Beginning Stocks 1 1 1 1 1 Production 32 24 38 25 26 Other Imports 80 76 96 77 78 Total Imports 80 76 96 77 78 Total Supply 113 101 135 103 105 Other Exports 0 0 0 0 0 Total Exports 0 0 0 0 0 Human Dom. Consumption 112 100 134 102 104 Other Use, Losses 0 0 0 0 0 Total Dom. Consumption 112 100 134 102 104 Total Use 112 100 134 102 104 Ending Stocks 1 1 1 1 1 Total Distribution 113 101 135 103 105 1000 MT Author Defined: Table 19: Whey Tariff Schedule on Korea-US FTA implementation HS Code Rate Yr Yr Y Yr Yr Yr Yr Yr Yr Yr Products (%) 1 2 r 4 5 6 7 8 9 10 3 0406.10.10, 17.8 15.6 13.3 11.1 8.9 6.7 4.4 2.2 0 040410.21, 0404.10.29 Whey& Modified whey, Whether or no 49.5t Con % 20% centrated or sweetened for Human consumption – up to 80% protein 3502.20 Milk 4.8 3.2 1.6 0 albumin, including 8% 6.4 concentrates of two or more whey protein for Human consumption – more than 80% protein 0406.10.10, 040410.21,0404.1 0.29 Whey & modified whey, whether or 49.5 not % 0% Concentrated or sweetened for Animal Feed – up to 80% protein Annual duty-free 3,09 3,183 3,27 3,377 3,478 3,582 3,690 3,800 Unlimit quota in MT for 3,00 0 8 ed HS0404.10 for NA 0 food – up to 80% MT protein The Korea Dairy Industries Association shall administer these TRQs and allocate the in-quota quantity to historical and new importers through a licensing system. Table 20: Whey (0404.10) Import by Year Unit: 1,000 MT Import Volume 2008 2009 2010 2011 HS:0404.10 Volume 32,000 32,200 37,600 30,400 (1,000 MT) (53% market Share from U.S.) (42% market share from U.S.) Value 38,300 29,000 41,000 43,000 ($1,000) ($13,600, 32% market share) HS:3502.20* Volume 1,400 1,740 1,900 (1,000 MT) 1,240 (57% market share from U.S.) (69% market share from U.S.) Value 14,000 12,200 15,600 19,200 ($1,000) *: HS 3502.20 is milk albumin, including concentrates of two or more whey proteins which are a high protein and high value whey product on behalf of infant formula ingredient. Whey protein demands are extended by body builder, extreme athletes, everyday active consumers and weight watchers. Whey/dairy proteins are considered as a key ingredient for satiety promoting products and aid to reduce risk for many adult diseases such as bone health, obesity, diabetes and heart diseases as the health benefits. Whey is co-product of cheese and contains lactose, protein, vitamins and minerals which are 50% of the nutrient of the original milk. Diverse whey protein usage across categories such as sports & energy bar, cereals, desserts & ice cream, baby food, bakery, and soft drinks are introduced to the market. Commodities: Dairy, Milk, Nonfat Dry Production: In 2011, local NFDM production amounted to 4,000 MT; a 58% decrease from the previous year. Due to the FMD outbreak in November 2010, import was increased to 34,000 MT, jumping up by 320 percent than a year of 2010 which was made by the government TRQ application. Consumption: In 2011, NFDM consumption amounted to 38,000 MT increased by 93 percent compare to a year of 2010. NFDM is used primarily for bakeries, infant formula and as an ingredient in other dairy products. Since NFDM production is largely a result of marketing quota policies, consumption is expected to continue to track closely with production. Table 21: NFDM Production, Imports, Consumption by Year Unit: Metric Ton 2006 2007 2008 2009 2010 2011 Production 18,318 22,158 20,000 15,200 9500 4,000 Import 6,709 4,928 5,025 9,600 7900 34,000 Export 114 140 270 470 1000 5 Consumption 29,894 22,674 25,614 27,800 19,600 37,900 Source: Korea Dairy Committee 2012 Trade: Due to the FMD outbreak in November 2010, import was increased to 34,000 MT, jumping up by 320 percent than a year of 2010. On March 2011, the Ministry of Strategy and Finance (MOSF) announced temporary no import duty on 30,000 MT of powdered skim & whole milk powder through the end of 2011 in order to stabilize food prices amid growing inflationary pressures. From January to August in 2012, Korea imported 13,500 MT, decreased by 60% compared to same period of 2011. Australia has 32 percent market share, followed by Germany 31 percent, France 14 percent and U.S. 7 percent with 950 MT during January through August in 2012. Policy: Table 22: NFDM Tariff and TRQ Schedule on Korea-US FTA implementation HSK Description Base Rate 2012 2013 2014 0402.10 NFDM –In powder, fat content not exceeding 1.5% 176% 176% 176% 176% Duty free quota 5,000 MT every year with an additional 3% compound increase Source: Ministry of foreign Affairs and Trade Marketing: Local food processors import NFDM for the purpose of processing into infant formula, bakery use and re-exporting to other countries, including China. However, in 2011, the most imported NFDM was used for bakery ingredients and infant formula. The Korea Customs Service reimburses the high out-of-quota tariff of 176% to importers when they have re- exported processed dairy-based products made from the imported NFDM. Korean dairy manufacturing companies are looking forward to expanding the market opportunities for exporting to China. Table 23: NFDM Imports by Country of Origin in 2011 Unit: Metric Tons U.S. Australia New Zealand E.U. Total Import Volume 928MT 7,400 2,100 22,800 33,500 (MT) Import Value $3.4M $26.8M $8.2M $80M $123.4M ($Million) Unit Price per MT $3,664 $3,622 $3,905 $3,509 $3,684 Source: Korea Trade Information Service 2012 Production, Supply and Demand Data Statistics: Table 24: NFDM Production, Supply and Demand Data Statistics: PSD TABLE for NFDM Dairy, Milk, Nonfat Dry Korea, Republic of 2011 2012 2013 Market Year Begin: Jan 2011 Market Year Begin: Jan 2012 Market Year Begin: Jan 2013 USDA Official New Post USDA Official New Post USDA Official New Post Beginning Stocks 1 1 1 1 1 Production 3 4 3 4 5 Other Imports 25 34 20 30 31 Total Imports 25 34 20 30 31 Total Supply 29 39 24 35 37 Other Exports 0 0 0 0 0 Total Exports 0 0 0 0 0 Human Dom. Consumption 28 38 23 34 36 Other Use, Losses 0 0 0 0 0 Total Dom. Consumption 28 38 23 34 36 Total Use 28 38 23 34 36 Ending Stocks 1 1 1 1 1 Total Distribution 29 39 24 35 37 1000 MT Author Defined: EXPORT REQUIREMENT: See APHIS’ website (http://www.aphis.usda.gov/regulations/vs/iregs/products/ for any sanitary requirements for shipping cheese to Korea. For more information, please contact the U.S. Agricultural Trade Office, U.S. Embassy Seoul, Korea, at atoseoul@fas.usda.gov, Tel: 82-2-397-4188, Fax: 82-2-720-7921, or visit www.atoseoul.com
Posted: 21 October 2012

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