2012-02-03 16:31:19 - South Korea Agribusiness Report Q1 2012 - a new market research report on companiesandmarkets.com

While the worst of the disease problems affecting the livestock sector seems to be under control, we expect a recovery of the livestock industry with poultry production remaining strong and pork production bouncing back quite strongly. This should support the country´s grain sector, where we forecast significant growth in production, even if from a low base. Also, because production will still represent a small share (only 1.1%) of consumption, we expect grains imports to remain strong in 2011/12. Finally, we believe the recent approval of the fair trade agreement with the US could discourage further improvement in production growth in both livestock and grains because of the removal of tariffs on imports from the US.

Key Forecasts

- Wheat production growth to

 

 

2015/16: 64.7% to 55,000 tonnes. The government launched a programme to boost output to meet 10% of local demand by 2017 and raised a tariff on imported wheat to encourage domestic production.

- Cheese consumption growth to 2016: 42.9% to 170,200 tonnes. This growth will come on increasing health-consciousness, a growing popularity of wine consumption (which is often consumed with cheese) and an improving economy.

- Poultry production growth to 2015/16: 33.1% to 881,900 tonnes. This will be largely driven by increasing consumption demands due to substitution effects and competitive pricing, although production growth will not prevent South Korea from remaining a net importer.

- Real GDP Growth: 4.1% y-o-y in 2012 (down from 6.2% y-o-y in 2011) - Consumer inflation: 3.4% y-o-y in 2012 (down from 4.5% y-o-y in 2011 and set to average 3.4% from 2011 to 2016).

Industry Developments

We expect the FTA between South Korea and the US, which was passed by both countries´ governments in November, to have a significant impact on South Korea´s livestock industry. Indeed, the FTA will result in duties on US beef and pork exports being phased out in the short term for pork and over a period of 15 years for beef. This could discourage local farmers from boosting production or investing in their herds, as importing meat from the US would be more price competitive. However, we believe the poultry industry will remain the least reliant on imports over the long term, which underpins our forecast for growth to 2015/16 to outperform the other two subsectors.

The USDA forecasts South Korean wheat and corn imports to be strong in 2011/12 on increased demand from the food industry and a recovery in the beef and poultry sectors. In fact, the USDA sees the country´s wheat imports increasing to 4.6mn tonnes compared to 4.3mn tonnes in 2011/12. Also, corn imports are set to stay constant at 8.0mn tonnes. Most grains came from the US but the country also imported massively from Australia, Canada and China. The government´s strong 2011/12 grains imports should help keep the domestic market well-supplied and prices at a low level. This is especially true as it decided to boost domestic stocks at a moment when grains prices were moderating.

Negotiations between South Korean dairy farmers and producers resulted in an increase of the average price of raw milk from KRW704 (US$0.66) to KRW834. This is the first hike in domestic dairy prices since 2008, while global milk prices have since increased 75.9%. This should help local farmers to boost production and processing of dairy products, as the measure helps them to cover better their costs and even increase profitability.

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