Government intervention in South Korean agriculture

World Agriculture, June, 1991 by J. Albert Evans

Calculating South Korea's PSE's and CSE's

Producer subsidy equivalents (PSE's) and consumer subsidy equivalents (CSE's) are a commodity-specific, short-hand way of describing the effect of government intervention on producers and consumers.

A PSE is defined as that subsidy level required to remunerate producers of a commodity for withdrawing government support. The percentage PSE is the ratio of the total value of policy transfers to the total value of agricultural production. A positive PSE denotes producer assistance, and a negative PSE producer taxation. Likewise, a CSE is defined as the subsidy level that would be required to compensate consumers for the removal of beneficial agricultural programs. The CSE, in percentage terms, reflects the ratio of the total value of policy transfers received by consumers for a product to total consumer cost. CSE's also may be positive (net assistance) or negative (net taxation).

PSE's were calculated for rice, barley, corn, soybeans, beef, pork, chicken, milk, and eggs. CSE's were calculated for the same commodities (except corn) plus wheat flour.

In calculating PSE's and CSE's for South Korea, a number of methodological conventions were made.

Some of these are described in the footnotes to the tables reporting the results.

One important convention in this research is that state trading is defined as exclusive trading in an agricultural commodity by a government agency or government-sponsored agency and includes importing/ exporting authority, and often involves product distribution activities.

[Tabular Data Omitted]

Aggregate assistance to producers or consumers from price intervention policies is derived as the gap between the domestic producer price or consumer cost for each product and the corresponding import unit values (or proxy import values if imports are banned, as is the case for rice and barley), multiplied by the production or consumption quantity of each product. Recipients of government agricultural budget programs include nonfarm rural residents and part-time farmers whose earnings are primarily from non-farm sources. Hence, it is difficult to determine budgetary outlays for those involved only in agriculture, and to allocate program expenses among the various commodities without having more program details than ERS has been able to obtain from the MAFF. and lack of consumer awareness. The Government continues to support a subsidized nationwide program of supplying milk to schools. Still, consumers of milk in general were taxed (82 percent) relatively more than were consumers of other livestock products.

Conclusions

South Korean producers are greatly assisted by Government policies that support domestic commodity prices, supply subsidized inputs and credit, and ban or restrain imports. Pervasive government intervention in agriculture is consistent with the objectives of agricultural self-sufficiency, higher rural living standards, and agricultural development. South Korean policies that contribute most to agricultural price distortions include import bans, quotas and tariffs, state trading, producer price supports, and retail price stabilization programs. Consumers are taxed through higher prices to cover a high percentage of such assistance to producers. Budgetary program assistance, the costs of which are borne by taxpayers, was a small portion of total assistance for all commodities.