Farm sector faces uphill battle

Korea’s free trade agreement with the European Union is expected to deal a blow to the local agricultural and livestock industry for the next decade as farmers compete with an inflow of cheaper products from the world’s largest economic bloc.

The Agriculture Ministry forecasts that farmers here will produce 177.6 billion won ($166.5 million) fewer goods each year for the next 15 years. Stock farmers are expected to lose competitiveness with the inflow of cheaper meat under reduced tariffs, with hog farmers to be the most affected group.

The 25 percent tariff on pork belly, or “samgyeopsal,” will be eliminated. The removal would leave European pork costing 5,000-6,000 won per kilogram by 2021, discounting inflation. Frozen pork here would still cost more than 10,000 won per kilogram.

The case is similar with beef.

The Nonghyup Economic Research Institute expects European beef to be priced at 33.7 percent of local produce.

Tariffs on frozen chicken were 20 percent and beef 40 percent before the pact.

“With the FTA deal done with the U.S., the EU doesn’t have much to worry about over such areas as beef because it would pretty much open up under similar conditions, but they want the tariffs removed more quickly compared to the U.S. deal, which is complete removal as of 2014 rather than a phase-out period,” Suh Jin-kyo, an economist at the Korea Institute for International Economic Policy said.

Analysts say the gap between local and import prices for red meat could be larger as consumers here are still experiencing shortages of red meat due to the recent outbreak of foot-and-mouth disease.

According to government data released November, a sow here produced 10.5 piglets as of 2009. The figure for Danish and Dutch sows was 14 and 13.1. The gap is even larger when compared on an annual basis.

The government has been devising plans to offset downsides of the trade pact. The Agriculture Ministry plans to inject an additional subsidy of $1.75 billion for the livestock industry over the next decade to protect against financial losses from the Korea-EU FTA.

The plan is part of a joint announcement by the Finance Ministry, Agriculture Ministry and other relevant agencies to arrange protection measures as trade barriers fall.

Seoul decided to grant 630 billion won for modernizing livestock farms, 320 billion won for improving management, 250 billion won for stabilizing supply and demand, 780 billion won for addressing distribution problems and 30 billion won for hygiene and safety.

As for agricultural goods, Korea is supposed to remove tariffs on 1,449 products over the next two decades. Seoul removed tariffs on 610 of them, 42.1 percent, on July 1 when the pact went into effect. The EU removed tariffs on 1,896 agricultural goods as of last week, which is 91.8 percent of the total subject to tariff removal over the next five years.

Seoul projects that imports of agricultural and livestock goods will increase much faster than exports.

“Korea should expect about 164.9 billion won of annual supply reduction in livestock goods, which is more than 93 percent of the total supply cut in the sector for the next 15 years,” a government report analyzing the effects of the FTA said.

“Increased imports on pork and dairy goods will drive the prices down and demand for local produce will fall,” it said.

The situation is slightly better for fisheries. Korea is to remove tariffs on 408 fishery goods over the next 12 years, and the EU will remove tariffs on 380 over the next five years. Seoul expects exports to widen more than the import increase especially as European demand for tuna, fish cakes and other frozen seafood from here increases. But the industry will see fewer people engaged in the deep-sea fishing industry.

“Korea will produce 9.4 billion won fewer fisheries goods annually for 15 years as seafood from deep-sea would be available cheaper here under the Korea-EU trade pact. We estimate an annual loss of about 2.7 billion won for deep-sea fishermen,” the government report said.

By Cynthia J. Kim (cynthiak@heraldcorp.com)