Government intervention in South Korean agriculture

World Agriculture, June, 1991 by J. Albert Evans

Government Intervention in South Korean Agriculture

Abstract: South Korea's aggregate assistance to agriculture, weighted heavily by rice, was highest after Japan among developed countries, with 89 percent of support stemming from price intervention measures. South Korean Government assistance in 1987-89 was generally higher for crops than for livestock products. Among the latter, beef and milk were more heavily assisted than chickens, eggs, and pork.

Keywords: South Korea, producer subsidy equivalent, consumer subsidy equivalent, price intervention assistance, budgetary program assistance.

The South Korean Government provides very high levels of assistance to agricultural producers while heavily taxing consumers. Assistance to producers in 1987-89 was about double the level in the United States, 1.6 times that in the European Community, and nearly 80 percent that in Japan, the most heavily assisted developed country. These ratios are derived from producer and consumer subsidy equivalents (PSE's and CSE's) for nine commodities.

South Korea has been transformed since the early 1960's from a poor agrarian economy to a highly industrialized upper-middle-income economy. The adoption of a "high price policy" for rice and barley producers in 1968 started South Korea toward the objective of agricultural self-sufficiency or food security for major crop and livestock products, and a related goal of greater parity between rural and urban incomes. Food security is important to South Koreans because they remember the deleterious effects of major shortages of basic staples under Japanese colonial rule and later during the Korean War.

South Korea's food security and rural development policies are widely perceived as underpinning public welfare, and economic and political stability. South Korea's Economic Planning Board (EPB), a powerful agency, recognizes the need for restructuring agriculture to seek international competitiveness, but the process is being slowed by the political reality that a high percentage of South Koreans still have relatives on farms or in rural areas and do not want to see them hurt by farm sector adjustments meant to further trade liberalization objectives.

South Korea's import barriers on many products cause conflicts with agricultural exporting countries, such as the United States, that seek to expand trade and reduce overall trade deficits with South Korea. Paradoxically, South Korea's export-led economy depends on access to foreign markets for commodities such as automobiles, textiles, leather goods, and footwear. These divergent domestic interests concerning trade liberalization have created a dilemma for South Korean policymakers.

Although food grains continue to dominate farm income, the shares from fruits, vegetables, and livestock products have risen rapidly as these products increasingly supplement cereals in the Korean diet. Economic and population growth are raising demands for agricultural products and imports. Because of South Korea's interventionist policies, its highly assisted grain, soybean, beef, and milk producers remain quite inefficient by international standards.

Kinds of Assistance

Price Intervention - Major intervention policies that distort prices include state trading, import quotas and tariffs, producer price supports, and retail price ceilings for various commodities (1, 30). These policies permit agricultural producers to obtain commodity prices that exceed prevailing world market levels, with the difference paid by consumers through higher prices (20).

The combined effects of all price intervention policies for any given commodity are estimated by a single price gap because of the problem of sorting out their separate effects. Such policies accounted for 89 percent of total South Korean Government assistance to producers of the selected commodities in 1987-89.

Parastatal Organizations - South Korea's Ministry of Agriculture, Forestry and Fisheries (MAFF) has overall authority for food grain and other price support programs, land and water resource development, fertilizer distribution, credit and marketing programs, and import and export policies. Organizations of a semi-public character, known as parastatals, also are active in assisting South Korean agriculture through price controls or product marketing. These include the National Agricultural Cooperatives Federation (NACF), the Agricultural and Fisheries Marketing Corporation (AFMC), the National Livestock Cooperatives Federation (NLCF), and the Livestock Products Marketing Organization (LPMO).

The NACF administers grain and soybean price support and distribution programs, and is responsible for distributing production inputs, including fertilizer, pesticides, and farm machinery. It supplies farm credit, processes and markets farm products, conducts research, sells various subsidized agricultural inputs, and provides management guidance to farmers.

The AFMC (formerly the Agricultural and Fisheries Development Corporation) has sole authority to import food-use soybeans. Each of the three soybean crushing companies is authorized to import for crushing, up to allocated levels established by the MAFF based on its determination of an annual import quota.