SOUTH KOREA AGRICULTURE POLICY REVIEW Vol. 5, No. 1 One in a series of policy notes on countries of interest to Canada. This note draws on analysis from several institutions, listed on page 5. fruit, and wheat based products. However, due to Overview resource constraints, agricultural production has not been able to meet rising and changing food demand. South Korea, with a population of 48 million, is a As a result, imports play a key role in meeting food highly urbanized and densely populated country. As it 1 demand in South Korea. is a major food importer, policy changes and other developments that influence its production, consump- FIGURE 1 tion and trade are of considerable interest to Canada TRENDS IN SHARE OF AGRICULTURE TRENDS IN SHARE OF AGRICULTURE and other trading nations. TRENDS IN SHARE OF AGRICULTURE IN GDP AND EMPLOYMENT IN GDP AND EMPLOYMENT IN GDP AND EMPLOYMENT 60 60 60 Share in GDP Share in GDP Share in GDP Share in employment Share in employment Share in employment 40 40 40 20 20 20 0 0 0 1970 1980 1990 2005 1970 1980 1990 2005 1970 1980 1990 2005 Source: OECD. To help understand Korea?s agri-food sector, this note first examines Korea?s demographics and its land resource situation. Following this, the evolution of Korea?s agri-food policy is reviewed, starting first with domestic policies and then moving to border meas- ures. Current policy directions and instruments are Since the 1960s, Korea has transformed itself from an then discussed. agrarian society to an industrialized, trading economy. In 1970, the agriculture sector contributed one quarter Demographics and Limited Land of national GDP and absorbed almost half of the labour force. As industrialization progressed, the share South Korea?s farm population is declining and aging. of agriculture in the national economy and in total The number of farm households declined from employment declined to approximately 3% and 7% 2.5 million in 1970 to less than 1.3 million in 2005. As respectively in 2005 (Figure 1). Rice, which covers an increasing number of younger members of farm more than 50% of cultivated area, remains the main households migrate to urban areas, farms are increas- agricultural commodity. Arable land is limited and the ingly dependent on aging household members. In farm population is aging. Farm sizes are small and 2005, the proportion of the farm population over farm incomes fall below those of other sectors. 60 years old accounted for 39% of the total farm population compared to 8% in 1970 (Figure 2). Increased urbanisation and greater specialization have led to rising incomes and an increase in living standards. These, in turn, have resulted in changes in 1 During 2004-06, the average value of annual agri-food food consumption patterns away from rice and imports was about US$10 billion. Feed grains, beef, towards food products such as meat, dairy products, wheat and pork are the major agri-food imports. Percent Percent Percent 2 FIGURE 2 Agricultural Policy Evolution AGE COMPOSITION OF FARM POPULATION AGE COMPOSITION OF FARM POPULATION AGE COMPOSITION OF FARM POPULATION (1970 AND 2005) (1970 AND 2005) Like many other developing countries, South Korea (1970 AND 2005) maintained low grain prices and high levels of indus- 1970 60 years trial protection until the late 1960s. South Korea relied and above 8% on concessionary imports of food grains from the 19 years United States (US) to meet domestic food demand. It and below 50 - 59 years 53% was one of the largest recipients of food aid from the 8% US between 1954 and 1970. 20 - 49 years In the late 1960s, the US sought payment in US 31% dollars rather than in local currency as had been the case in the past. South Korea?s strategy of food 2005 19 years 60 years security based on concessionary imports shifted to and below and above 14% one of food security based on domestic production. 39% Increasing the level of food self-sufficiency became the major policy objective. Since the 1980s, the gap between urban and rural 20 - 49 years 50 income and environmental related concerns, have - 59 years 29% 18% also emerged as key issues. In 2004, South Korea Source: MIFAFF, South Korea. introduced the ?10-year Mid to Long-term Policy Framework on Agriculture and Rural Communities?. Only about 16 per cent of total land area is arable in Several policies were implemented related to farm South Korea, with a population density ranking among household income, agricultural competitiveness, food the worlds highest. Despite efforts to increase culti- safety, environment and rural development. vated land through terracing, drainage, irrigation and reclamation, the total cultivated area declined by 20% between 1970 and 2005. However Agricultural Support Measures , the number of farm households declined by more than 48% during South Korea?s support of the agriculture sector ranks the same period. As a result, the size of an average among the world?s highest. According to the OECD, farm has increased from 0.92 hectares in 1970 to 1.40 South Korea?s average ?Producer Support Estimates? hectares in 2005. (PSE) declined from 70% during 1986-88 to 62% Until 1992, Korea restricted farmland ownership to during 2005-07, but it remains more than double the three hectares per household. In 1993, the farmland OECD average (Figure 3). Rice, soybean and barley ownership limit was increased to ten hectares per are the most heavily supported commodities but beef, farm household within the Agriculture Development pork and dairy also receive considerable support. Region (ADR). In 1999, the farmland ownership limit FIGURE 3 outside the ADR was increased from three to five PRODUCER SUPPORT ESTIMATES AS A % OF VALUE hectares. Nevertheless, farms in South Korea remain PRODUCER SUPPORT ESTIMATES AS A % OF VALUE PRODUCER SUPPORT ESTIMATES AS A % OF VALUE OF GROSS FARM RECEIPTS IN SELECTED COUNTRIES OF GROSS FARM RECEIPTS IN SELECTED COUNTRIES small in comparison with other OECD countries. OF GROSS FARM RECEIPTS IN SELECTED COUNTRIES 80 80 80 1986-88 1986-88 1986-88 Since the 1970s, substantial productivity gains have 2005-07 60 2005-07 60 2005-07 60 occurred for rice, barley, soybeans and dairy produc- tion. In addition, most farm households have diver- 40 40 40 sified their income sources. Off-farm income now 20 accounts for about 60% of farm household income. 20 20 Even with substantial increases in productivity and off- 0 0 0 Korea EU OECD Canada USA farm income, farm household incomes have fallen Korea EU OECD Canada USA Korea EU OECD Canada USA relative to their urban counterparts. Farm household Source: OECD. income was 110% of urban household income in 1965 but was around 78% of average urban household According to the OECD, support measures that income in 2005 (OECD 2008). increase domestic prices accounted for 91% of the producer support in 2007. The Nominal Protection Coefficient (NPC) for overall agriculture indicates that producer prices in South Korea are about 2.5 times 3 those in the world markets. Only 9% of the support Border Measures was in the form of direct payments to producers. Following the Uruguay Round Agreement on Agri- culture (URAA) in 1995, South Korea converted all Direct Payments quantitative import restrictions to tariffs, except for rice. For rice, Korea was able to maintain import Korea has used a number of different direct payments quotas by agreeing to Minimum Market Access (MMA) programs. Following the removal of fertilizer subsidies imports equivalent of 1% of domestic consumption in in 2005, input subsidies accounted for less than 3% of 1995, increasing the MMA to 4% by 2004. South the PSE in 2007. Crop and livestock insurance Korea then negotiated a postponement on the conver- schemes were expanded in 2006 to cover more sion of rice import MMA to a tariff until 2014 in ex- number of crops and animals. change for progressively increasing the MMA to 8% of domestic consumption by 2014. A number of other direct payment programs have been introduced since 2004: Import tariffs on agricultural commodities remains high except for commodities required as raw materials for i) Direct Income Support for Paddy Fields domestic industries and those with the limited domes- Prior to 2005, South Korea used a direct purchase tic production potential. Rice, barley, oats, fruits and program to support the target price of rice. This pro- livestock products faces high import tariffs (Table 1). gram was abolished in 2005. In its place, the government introduced a public stockholding scheme TABLE 1 for food security purposes. It is a purchase and re- SELECTED APPLIED AND BOUND TARIFFS (%) lease mechanism based on market prices. A direct 1 income support program for paddy fields was BOUND RATE APPLIED RATE introduced at the same time. It is the most significant Barley 406.4 406.4 direct income support program in Korea?s agriculture Oats 281.9 273.9 sector. Fresh Apples 45 45 Under the direct income support program, the govern- Frozen Beef 40 40 ment sets a target price and compensates rice farm- ers for the difference between the target price and the Frozen Pork 25 25 market price of the year in the form of fixed and Rapeseed 20 5 variable payments. The government pays rice farmers Wheat 9 3 a fixed amount every year, regardless of the market price. The variable portion covers the payment equal 1 Applied rate is of 2008. to the 85% of the difference between the target price Source: WTO. and the market price, minus the fixed payment. The average applied import duty on agricultural ii) Direct Payment for Less Favoured Areas products, at 53.5%, is approximately eight times higher than the average for non-agricultural goods. This program was introduced on a pilot basis in 2004 While in-quota tariff rates range from zero to 50%, and became a national program in 2006. It provides over-quota tariff rates are higher with some well over income support for farmers living in mountainous and 100%. other disadvantaged areas. Villages where the share of arable land is below 22% and the land slope is Tariff-rate-quota (TRQ) volumes are often low given more than 14% are eligible for a payment. Eligible that volumes are based on 1986-88 consumption farmers receive US$418 per hectare for dry fields and levels. US$ 209 per hectare for pasture lands. TRQs are allocated and administered by 22 different iii) Payment for Environmental Conservation organizations including government departments, state controlled enterprises and various producer as- A number of direct payments were introduced to sociations. In some cases, the administering entity is promote the adoption of environmentally-friendly farm- owned and controlled by domestic producers compet- ing practices. A pilot program of direct payments for ing with the imported items (e.g. raw ginseng, pine environmentally-friendly livestock practices was intro- nuts, and citrus fruit). The WTO (2008) noted that duced in 2004. A direct payment for landscape con- ??this raises potential conflicts between their import- servation was introduced in 2005. ing interests and those of their farm constituents.? 4 Other Policy and Regulatory Initiatives Sources As mentioned earlier, the long-term policy framework OECD (2008). Evaluation of Agricultural Policy Reform implemented several measures related to competitive- in Korea. ness, domestic market reform, food safety, and envi- Ministry of Food, Agriculture, Forestry & Fisheries ronmental issues. (MIFAFF). Statistical Yearbook of Agriculture and Following a series of reforms, the Farmland Act of Forestry (2006), Seoul, South Korea. 2002 removed the limit on the farm size both inside ABARE (2007). Korean Agriculture: Implications of and outside Agriculture Development Region (ADR). Structural Changes for Australia Agriculture. Australia To facilitate farm enlargement and farmland mobility, Commodities. Vol. 14, No. 3, September 2007. South Korea introduced the ?Farmland Banking? system in 2005. This system provides information to Diao Xinshen, J. Dyck, D. Skully, A. Somwaru, and farmers who wish to purchase or rent, and who wish C. Lee (2002). Structural Change and Agricultural to sell or lease farmland. Protection: Costs of Korean Agricultural Policy, 1975 and 1990. Agricultural Economic Report Number 809, Other notable initiatives are: Economic Research Service, USDA. ? applied the HACCP (Hazard Analysis Critical FAO (2006). Rapid Growth of Selected Asian Control Point) to all slaughterhouses as of 2003; Economies: Lessons and implications for agriculture ? established a traceability information system for and food security. Policy Assistance Series 1/3, FAO agricultural products in 2006; Regional Office for Asia and the Pacific publication ? introduced the Good Agricultural Practices (GAP) 2006/06. regulation to accredit farmers producing safe foods. Beghin John C., Jean-Christopher Bureau and Sung Joon park (2003). Food Security and Agricultural Summary Protection in South Korea. American Journal of Given Korea? Agricultural Economics 85(3) pp. 618-632. s importance as an agri-food importer, it is important to understand its policies and how these USDA (2002). South Korea?s Agricultural Policy affects production, consumption and trade. South Hampered Economic Growth. ERS, USDA, Agricul- Korea?s agricultural policy continues to evolve. tural Outlook, June-July 2002. Policies have historically focused on promoting a high degree of food self-sufficiency, and closing the income World Trade Organization (2008). Trade Policy gap between urban and rural households. However, Review of the Republic of Korea: Report by the demographics, resource and environmental steward- Secretariat (WT/TPR/S/2004). ship, food safety, and income disparity have emerged as important issues in recent years. For further information regarding this paper, contact: May 2009 Rajendra Gurung (rajendra.gurung@agr.gc.ca, (613) 694-2451) Chung Pa (chung.pa@agr.gc.ca, (613) 694-2395) Poject: 09-035b Hugh Deng (hughyuzhuang.deng@agr.gc.ca, (613) 715-5145) Publication: 10947E ISSN: 1918-0144 For further information regarding this series, contact: Cameron Short (cameron.short@agr.gc.ca, (613) 759-7904)