Published July 3, 2013, on The Korea Herald
This is the first in a series on the impact of the potential Korea-China Free Trade Agreement on the local agriculture industry. ― Ed.
On a plot of land up a narrow dirt road in Beopwon-ri, a quiet Gyeonggi Province area near the inter-Korean border, Hwang In-sik and a farmhand raise some of his 250 beef cattle.
His operations are small and he says he gets enough business selling “hanwoo” in Gyeonggi Province and Seoul ― but that rising costs and competition are pressuring his business and industry.
At the other end of the country in Busan, officials from China and Korea are negotiating, among other things, the possible livelihood of farmers like him, as the sixth round of talks on a bilateral free trade agreement gets underway from Tuesday to Thursday.
The deal, which will increase opportunities for thousands of local businesses to reach China’s 1.3 billion consumers, is expected to boost Korea’s GDP by 3 percent in a decade. But its predicted effect on the agricultural sector is quite the opposite: A $10 billion increase in agricultural imports could cause a 14 percent drop in local production, according to a joint feasibility study published prior to the negotiations.
Hwang says he personally has no plans to take advantage of the new free trade deal; he has no connections in China and his expensive product can’t compete with the local produce. But he has seen thousands of his peers shutter their businesses recently, he says, and attributes it to the pressures of competition with cheaper imports ― particularly from Australia and more recently the U.S., whose FTA with Korea went into effect last year.
“The KORUS (Korea-U.S.) FTA has damaged the industry a lot, not only because of cheaper prices but also psychologically,” Hwang said in an interview with The Korea Herald. “It can be seen that the lower prices largely led around 25,000 farmers to close their farms in the past year and a half.”
He believes that liberalizing trade with China, Korea’s second-largest agricultural trading partner which has the competitive advantage and trade surplus over Korea in the industry, will have a similar effect on local farmers. And his sentiment is backed by predictions across several sectors.
The average rate of Korea’s 1,500 agricultural tariffs is about 54 percent of the import price ― compared to China’s 13.5 percent ― with one reaching as high as 887.4 percent. Under the FTA, which will lower a still-undetermined number of these, citrus production, for example, is expected to drop almost 1.6 trillion won ($1.4 billion) in 10 years, according to the Korea Rural Economic Institute. Jeonbuk Development Institute expects agricultural production to drop 300 billion won per year in North Jeolla Province.
Experts say that Korea may become even more dependent upon China for its food supply, as more than 16 percent of its agricultural imports and more than 90 percent of its produce imports alone already come from China.
“Only 5 percent of the Korean population is farmers, and for the other 95 percent, having FTAs would be a good option in terms of having a variety of products to choose from,” Hwang added. “But from a long-term perspective, it will threaten the national food security and later food can be used as a weapon.”
Structural problems mean Korean micro farmers are not strong enough to compete. Limited farmland, rural labor shortages and antiquated production methods all contribute to limited supply capacity and high food prices.The Chinese FTA is particularly prickly for small farmers here because so many crops ― from staples rice and garlic to citrus fruits ― are similar but much cheaper in China. China’s farm production costs and prices are respectively 10 and six times cheaper than Korea’s, according to Samsung Economic Research Institute.
“There is no hope for very small farmers to benefit from the China FTA,” said Moon Han-pil, the leading researcher for the Korea-China FTA at the Korea Rural Economic Institute.
That is why the government provides micro farmers with up to 2 million won each in subsidies ― 62.4 billion won in total last year ― allegedly to stymie the effect of trade pressures.
“The Korean government sees that the value of agriculture is more than just economic,” Moon said. “It is true that agriculture has sustained local economies and is important in securing food safety, so the government tries to protect agricultural products even though they have low global price competitiveness.”
However, farmers say that the subsidies are not nearly enough, arguing that they do not account for inflation or true costs.
Hwang notes that local governments are trying to support small farmers through cooperatives to promote exports, but he and the participating farmers are pessimistic about it working.
“Small farmers in Hoengseong and Anseong (Gangwon and Gyeonggi provinces, respectively) have cooperation with the support of local governments. But they think that without the central government’s help, any projects aiming at exports will end in failure, so now they are less hopeful about the co-ops.”
Resistance continues as farmers argue that the speed of negotiations outpaces the level of development support their sector is getting.
Kim Jun-bong, chairman and CEO of the Korean Advanced Farmers Federation, said small farmers are the first to feel the pinch of competition from FTAs. KAFF planned to lead a protest during the FTA talks in Busan.
“Our stance is to exclude agricultural sectors when negotiating the China FTA. We think there should at least be specific policies to protect agriculture, but the government does not,” Kim said in an interview with The Korea Herald, adding that the new Park Geun-hye administration seems to want to transfer agriculture spending to welfare projects.
“Seeing from the current government’s stance and action, I don’t trust the government in terms of doing well to protect the agricultural sector.
“Opening the door of agricultural trade with China is like sentencing our industry to the death penalty,” he added. “I think trade between two countries is supposed to benefit both sides, but the previous and current FTAs have been forcing agricultural sectors to sacrifice.”
Ministry of Agriculture policy officials declined an interview, citing the subject’s sensitivity.
Lyoo Sung-woo, a director at the Ministry of Trade, however, said it was not so simple to protect every potentially vulnerable sector in a free trade agreement.
“Anyone can expect what will be proposed at the negotiations. … Korea and China have lots of differences in terms of their competitiveness,” he said. “The Agriculture and Fishery Ministry thinks their industry is so sensitive that they want to exclude all their items, but an FTA is not that kind of negotiation.”
Despite the resistance, farmers and the government alike seem to recognize that Korea’s traditional agricultural methods are an aging model that cannot be sustained in the long run.
On top of cheaper global food prices pressuring the local market, the rural workforce is aging and declining, and shrinking profit margins mean few will take up the work when the current farmers retire. The rural population shrank from 8.6 percent in 2000 to 6.8 percent in 2006, as did agriculture’s share of the country’s GDP, from 4.4 percent to 3 percent in the same period.
Hwang said that when he retires, he will close his business rather than sell it or hand it off because operating costs are becoming too high. He believes many others will do the same, he added.
The government has set aside 3 percent of a 2.5 trillion won agriculture competitiveness development budget this year to support those who choose to close their businesses.
About a quarter of agricultural workers are micro farmers. But experts predict the current generation of small farmers may well be the last.
“In a decade or two Korea’s agriculture industry will look significantly different than today. As many of the current generation of farmers retire over the next decade there will be an increasing trend towards consolidation and specialization,” said Troy Stangarone, senior director of congressional affairs and trade at the Washington-based Korea Economic Institute of America.
Amid “painful adjustments,” Korea is ramping up its efforts to rebuild its agricultural industry, based on scaling up production capacity, improving quality standards and modernizing farmers’ facilities, according to the FTA joint feasibility study and the Korea Rural Economic Institute.
“In time the local industry will need to adjust,” Stangarone said. “To date the government has put in place a series of adjustment programs for farmers, including inducements to move toward specialized products. We will likely see similar considerations as the FTA with China comes into effect.”
The challenge for the next several years will be building up the agriculture industry’s global competitiveness and finding ways to benefit from the opening of trade.
In the short run, however, Korean farmers will have to prepare for the new FTA, expected to be concluded in 2-3 years and effectuated a year or so after that.
Park Jin-ho, CEO of The Delicious Haru, which imports and exports chicken products, says local companies with a global mindset should use their technological advantage to tackle the challenge strategically.
“As of now, I think the most important thing for the Korean agriculture sector is to draw a map. They should accumulate data on how the Chinese consumers cook and eat … then analyze it to penetrate the Chinese market,” he said.
“There are more, smarter participants in Korea than in China, so if those who are engaged in Korean agriculture think the trading game with China is something we can compete in, then we have a chance of winning.”
By Elaine Ramirez and Choi In-jeong