DJ USDA Attache: Korea Seen Reducing Rice Area

Korea is expected to continue to reduce rice area to
mitigate the high level of ending stocks resulting from decreasing consumption
and increasing rice imports under the recently negotiated enlarged Minimum
Market Access quota. Negotiated between Korea and nine WTO member countries,
the MMA will be in effect from 2005 to 2014, according to a USDA attache report
posted Friday on the Foreign Agricultural Service Web site.

Ten percent of total rice imports is to be sold as table rice in the consumer
market beginning in 2005. Assuming feed wheat supplies are limited to one
million metric tons, corn imports are expected to stay around nine million
metric tons. U.S. corn exports to Korea will depend on the availability of feed
wheat and Chinese corn in the international markets, and food safety concerns
of biotechnology.

The Bank of Korea forecasts the gross domestic product (GDP) growth rate for
2005 at four percent, as compared to 4.6 percent in 2004. Consumer price
increases are expected to remain in the three percent range. The unemployment
rate is likely to hover in the mid-three percent range. The current account
surplus is expected to reach approximately $20 billion in 2005 because the
goods account surplus will shrink somewhat while the service account deficit
will grow in comparison to last year. Many local economic analysts predict that
Korean economic growth will slow further in 2005 because export growth will
decelerate while domestic demand will rebound only marginally. In 2004, export
growth was strong, driven mainly by semiconductors, wireless telecommunication
devices and automobiles. In 2005, Korean exports are projected to grow at a
slower pace due to a slowing global economy, a drop in the price of information
technology products and a strong Korean won (W).

Meanwhile, domestic demand, still constrained by high household debt, is not
expected to recover significantly until the end of the year. High unemployment
and slow wage growth are holding back private consumption. Consumer confidence,
however, is showing signs of improvement, with domestic car sales, credit card
use and department store sales all on the rise.

Rice is the only grain produced in quantities approaching domestic demand.
Domestic production of corn and wheat are insignificant. Consequently, Korea
will remain reliant on imports to meet food and feed grain requirements. Market
prices will dictate the level of substitution among feed grains. Food safety
concerns, mostly related to biotechnology, are instrumental in determining
foreign suppliers of food grains. In contrast, price is the primary criteria in
determining suppliers of feed grains. Faced with rice prices several times
higher than world rice prices, Korean per capita consumption of rice will
continue to decline as consumers shift dietary patterns. Government efforts to
reduce rice production through rice area reduction programs will likely
continue.

Policy

Rice On December 30, 2004, Korea submitted a proposal to the World Trade
Organization (WTO) members to extend special treatment for rice through an
enlarged minimum market access (MMA) agreement for the 2005-2014 period. In
2014 total rice imports will equal about eight percent of domestic consumption,
up four percentage points from 2004 rice imports under the previous MMA. There
will be a multilateral review of MMA implementation in the fifth year. The
existing MMA import volume of 205,228 MT, milled basis, shall be allocated to
certain WTO members based on historical trade flows, from 2001 to 2003, as a
Country- Specific Quotas (CSQs). Included are: China at 116,159 MT; United
States 50,076 MT; Thailand 29,963 MT; and, Australia 9,030 MT (milled basis).
Future growth in the MMA volume shall be administered on a Most Favored Nation
(MFN) basis as global quota with a limited portion allocated for domestic needs
of specialty rice. Korea has an option to cease to apply the special treatment
at the beginning of any year during the MMA implementation period (2005-2014).
In the case of cessation of special treatment, the entire volume of the CSQs
shall be subject to global quota on an MFN basis.

Accordingly, the Korean National Assembly revised the Food Grain Management
Act and Rice Income Compensation Act in early March 2005 to cope with the
continuous increase of rice imports under the scheduled rice market opening and
the gradual decrease of rice consumption. Both revised acts are aimed at
reducing price support to comply with Korea's WTO domestic support limits while
increasing non-trade distorting support to rice farmers. The revised Food Grain
Management Act includes replacing the government-purchasing program by an
alternative Public Storage System for Emergency (PSSE) and strengthening the
labeling of food grain. The PSSE, which replaces the government procurement
system that has played a major role in supporting rice farmers since 1948, is
described as a means of food security for the government to buy rice at market
prices during harvest and then sell rice during non-harvest periods at market
prices. In MY 2005/06 (November-October), the Korean government plans to
purchase 864,000 MT (milled basis) from the 2005 crop at the farm price.

The revised Rice Income Compensation Act includes criteria for rice income
compensation including registration of area and beneficiaries, compensation
rate and fund resources for rice income compensation. As the
government-purchasing program was abolished, the Korean government came up with
Direct Payment for Rice Income Compensation, which is composed of a type of
fixed direct payment for rice income compensation under the WTO provisions
non-trade distorting support and a type of flexible direct payment for rice
income compensation which is expected to be notified to the WTO as trade
distorting support. The fixed direct payment for rice income compensation will
provide W600,000 (equivalent to US$600) per HA annually as a direct payment to
farmers for providing ancillary benefits to the public such as flood control,
etc.. The flexible direct payment for rice income compensation is designed to
make up for the loss of agricultural income incurred by the drop in the rice
price. When rice price falls below the target price, based on the average price
for the past three years, government compensates farmers with 85 percent of the
difference between market price and the target price, excluding the portion of
the fixed direct payment for rice income compensation. The target price was set
at W2,126 (equivalent to US$2.13) per Kg (milled basis) and is applicable for
crop years 2005 to 2007. The target price will be revised every three years
through a review/approval process in the National Assembly. For the 2005 crop,
planted area is expected to decline to 990,000 HA, down 11,000 HA or 1 percent
from last year, thanks to the Direct Payment for Adjustment of Rice Production.
The program has been designed to provide W3 million (equivalent to US $3,000)
per HA as a direct payment to farmers who do not cultivate any commercial crop
on previously existing rice acreage from 2003 to 2005. Therefore, 2005 rice
production is forecast at 4.8 MMT, assuming the 5-year-average yield per HA,
down 4 percent from last year.

As the National Assembly rejected the Food Grain Marketing Committee
recommendation for a four percent reduction in the government procurement price
in CY 2004, the official rice procurement price remained at W2,097 (equivalent
to US$2) per Kg for No. 1 grade milled rice, unchanged since 2001. The total
quantity of government purchases was 711,000 MT, or 14 percent of total 2005
production. The National Assembly had also rejected an attempt to reduce the
rice procurement price by two percent in CY 2003.

In MY 2004/05, per capita table rice consumption is expected to continue to
decrease by 1.4 percent from 82 kg in MY 2003/04.

S Korea To Allow Sales Of Imported Rice To Consumers This Year

Subject to World Trade Organization (WTO)verification, South Korea is expected to begin selling imported rice to consumers as early as September under WTO rules. Following an agreement with the US, China and seven other rice-exporting WTO members late last year, South Korea must double its rice imports to 8 per cent of domestic consumption by 2014.

* It also has to permit the sale of imported rice to consumers from this year as a result of the agreement.

* Parliament passed a revised grain management law last week, laying the groundwork for selling imported rice, the Agricultural Ministry said.

SUMMARY

South Korea expected to begin selling imported rice to consumers as early as September under WTO rules.

Korea Asked to Double Rice Imports to 9% of Domestic Consumption

Rice exporting countries have asked South Korea to more than double rice imports to 9 % of domestic consumption and allow imported rice to be sold to consumers in return for another suspension of a full-scale market opening. But local economists advised the government to consider a full-scale opening of the rice market through tariffication once Korea is required to import more than 7.5 % of domestic consumption under the minimum market access program.

In a public hearing on the additional opening of the rice market Wednesday, the Ministry of Agriculture and Forestry (MAF) said nine countries participating in talks to open the South Korean rice market have demanded that Korea gradually increase imports of foreign rice up to 455,000 tons under the tariff rate quota (TRQ), or minimum market access, by 2014. The amount is equivalent to 8.9 percent of the average consumption between 1988 and 1990.

In addition, exporters have asked Korea to allow up to 75 percent of imported rice to be sold to consumers. Currently, all imported rice is available only to food processors.

They also offered a 5-year grace period first on the full-scale market opening after which more negotiations would take place. But Korea wants a 10-year grace period, the MAF said.

South Korea has been in talks with countries, namely the United States, China, Australia, Thailand, India, Pakistan, Egypt, Argentina and Canada since May on the rice market opening.

Korea was given a 10-year grace period during the Uruguay Round talks in 1994, while gradually increasing rice imports from 1 percent to 4 percent of domestic consumption during the period, up to 205,000 tons in 2004.

In the hearing, Suh Jin-kyo, a senior fellow researcher at the Korea Rural Development Institute, said tariffication may be advantageous if rice exporters demand imports more than 7.5 percent of domestic consumption.

Suh added that once imports exceed 8 percent of domestic rice consumption, it would be better for Korea to adopt the tariffication of rice imports.

However, Lee Jae-gil, deputy minister for the Doha Development Agenda Negotiations at the Ministry of Foreign Affairs and Trade, who has also led the Korean delegation for the rice talks, said, ``We will not make a decision on tariffication solely based on the TRQ. We would also consider other factors, including the Doha Development Agenda (DDA) negotiations likely to be concluded by 2007 and time necessary to restructure the primary industry and public opinions.’’

The Korean government is required to conclude the talks within this year in accordance with the termination of the Uruguay Round Agreement this year. But the government faces strong opposition from farmers on the additional opening.

Moreover, rice exporters have been seeking to squeeze other trade-off benefits in return for permitting Korea to suspend the rice market-opening on a full-scale basis, including softening the quarantine for imported farm produce and securing a fixed quota for their exports.

Korea is scheduled to have another round of talks with China tomorrow and with the U.S. next week, according to the MAF. The government plans to conclude negotiations in early December and announce South Korea’s final position to the World Trade Organization.

Rice Production Rises 9% to 4.9 Million MT

Rice production in Korea is forecast to top 4.85 million MT, up 9 % from 4.45 million MT in 2003, the Ministry of Agriculture and Forestry (MAF) said Thursday. Production per 10 acres will rise 10.9 % to 489 kilograms from a year before, returning to the similar amount averaged over the past five years after excluding the best and worst yearly volume.

MAF attributed the increases coming back from a record low in 2003 to good weather conditions, with longer hours of sunshine and higher temperatures compared to last year.

However, the size of the rice fields combined across the nation decreased 1.5 percent this year from 2003. Last year, rice production hit a record low in 23 years while the combined field total has shrunk by 82,000 hectares over the past three years.

As of October, rice in stock is estimated to be 976.32 million tons. The MAF forecast the stock will increase to 1.43 billion tons next year, considering this year's output and next year's estimated consumption, although the volume will fluctuate in accordance with the amount of rice aid to North Korea and the degree of the market-opening, MAF officials said.

``The rice stock is a reasonable amount within the range recommended by the Food and Agriculture Organization of the United Nations,'' the officials said.