Browse the complete Report on: South Korea Agribusiness Report Q4 2010

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BMI View: Through Q210 and into Q3 the South Korean authorities were again battling outbreaks of foot and mouth disease (FMD) and low pathogenic avian influenza. The outbreaks of FMD in January - the first since 2002 - were quickly brought under control. At the beginning of April, however, the disease re-emerged in another part of the country. By early May, there had been 10 outbreaks within the space of a month and almost 50,000 animals were culled. This has seen demand for red meat fall in some parts of the country as Korea's notoriously safety-conscious consumers avoid beef and pork despite assurances from the government that it is safe to eat. Although the prevalence of avian influenza is relatively low, if attempts to halt its spread are not adequate, it could severely damage production and exports.


Key Industry Developments

• An outbreak of foot and mouth disease at a government livestock research centre saw the culling of more than 1,500 cattle and hogs, many of rare and valuable strains. If the disease outbreak continues, milk production could be hit as dairy herds are culled.
• In more positive news for dairy farmers, the government has announced a raft of measures to help Korean farms compete with imported dairy goods once the free trade agreement (FTA) with the EU is completed. The government will allocate an annual budget of around KRW30bn (US$26.45mn) to purchase milk from farmers to support prices. Some of the purchased milk will go to an expansion of the free milk for schoolchildren programme. The government is also planning to set aside an annual budget of KRW12.6bn (US$11.13mn) to help farmers modernise their facilities. While the government's desire to maintain self-sufficiency in dairy production is understandable, the interventions will serve to prevent increases in the competitiveness of Korea's dairy industry. Rather than interfering to support prices and control production, we would rather see the government increase the aid package to help farmers increase efficiency in the run up to the implementation of the FTA.
• While the government has been proposing an increase in support to the dairy industry, the expensive subsidies offered to the country's rice producers have again come under scrutiny. With an excess of rice stock driving down the price of rice, already an unattractive crop for farmers, it is likely that the government will continue subsidizing production as it encourages more consumption of domestic product. Resumption of rice shipments to North Korea could alleviate some problems associated with excessive stock, however, the current political climate between the two Koreas does not appear conducive to such action. Despite the comments, no concrete plans for a reform of the subsidy system have yet emerged. BMI wholeheartedly agrees that subsidies need to be seriously re-examined. However, we fear the political will for an overhaul of the system may still be lacking.
• In other grains news, there could be change in the way Korea sources its supplies of corn and grain in the coming years. The state-controlled Agro-Fisheries Trade Corporation has announced plans to set up a global grains trading company. The corporation hopes to stake a claim in the developing grain markets of South East and Central Asia, with Kazakhstan and Indonesia major targets.
• Though we would rather see a privately owned company step up to supply Korea's growing demand for grain, we agree that there is still much potential for grain production in the areas to be targeted by the Agro-Fisheries Trade Corporation. A large supplier doing large deals with governments would also improve the security of Korea's grain supplies and reduce the cost of imports.

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