2008 Korean Agriculture Overviewfor

Oklahoma Ag Leadership Group

February 27, 2008

EconomyEconomy

Asia’s third largest economy after Japan ($3.2 t) and China ($4.4 t) Korea’s 2007 nominal GDP: $970 billion

2007 economic growth was ~5.0%

2008 forecast fluctuating between 4.5 - 5% U.S. economy slowdown Rising commodity prices (i.e. grains, crude oil)

Newly elected President pledging 7% growth Achieve growth through: leaner government, privatization,

lower taxes and improved business climate, etc. Agriculture should no longer be considered a primary industry

PoliticalPolitical

Feb 25: President Lee (GNP) Supports KORUS FTA and resumption of U.S. beef

imports Plans to strengthen ties with U.S., Japan and China

April 9: National Assembly (NA) elections UDP holds majority with 141 seats; GNP has 130 seats GNP expected to gain majority in April elections

FTA ratification NA Special Session before elections possible, but unlikely

DemographicsDemographics Population: 50 million;

homogenous

One of the world’s most densely populated countries

Rapid urbanization

One of world’s lowest fertility rates: 1.1 (births/woman)

Population growth rate forecast to fall from 0.5% to 0% in next 15 years.

Labor force growing at 1%, but is expected to contract around 2030.

Challenges of shrinking labor force ahead

Korea Ag SituationKorea Ag Situation Agriculture accounts for 3% of GDP, and is expected to decline

> 60% of farmers are 60 years of age or older; and the number of farms is declining

Korean farmers have actively protested against market liberalization, imports of U.S. beef and rice, and the KORUS FTA

The main agricultural products produced in Korea are rice, root crops, barley, vegetables, fruit, livestock, poultry and fish

Rice is the heart of Korean agriculture. 80% of farmers grow rice on half of all the farm land in the country

Import restrictions (i.e. beef, rice) and government support payments keep retail agricultural product prices high

Agricultural ImportsAgricultural Imports In 2007 (Jan-Nov), South Korea imported $18.5 billion

worth of agricultural products, 3.8 billion (20%) from the United States

Main imports from U.S. include: Coarse grain ($861 m) Hides ($344 m) Wheat ($316 m) Red meats ($290 m) Fruits & processed fruits ($250 m) Feeds & fodders ($215 m) Soybeans ($149 m) Forest products ($178 m) Seafood ($118 m) Cotton ($114 m)

Red Meat Imports Red Meat Imports

U.S. beef imports suspended since Oct 5, 2008

Higher pork imports with U.S. beef out of market The U.S. is #1 supplier

(82,000 MT)

U.S. beef market share in 2007 only 7%; 70% in ’03

AU share now 70%; NZ 20%

Red Meat Imports & Consumption (1,000 MT)

Imports of U.S. Pork

0

100

200

300

400

500

600

700

800

900

2003 2004 2005 2006 2007

Fresh/Chilled and Frozen

The Importance of Re-Opening The Importance of Re-Opening the Korean Market to U.S. Beefthe Korean Market to U.S. Beef

Imports of U.S. Beef

0

100

200

300

400

500

600

700

800

900

2003 2004 2005 2006 2007e

Fresh/Chilled Frozen

Million USDMillion USD

Poultry MeatPoultry MeatU.S. Imports Face Stiff Competition From U.S. Imports Face Stiff Competition From

BrazilBrazil 2007 over-production causes total

imports to fall

Imports of U.S. poultry drop 50% to 21,000 MT

However, imports of Brazilian poultry increase 50% to 21,000 MT Growing preference for Brazilian de-

boned leg meat

U.S. = Brazilian market share (MT)

Market share by $: Brazil 53% > U.S. 35% Will pay extra for deboned leg meat

0

20

40

60

80

100

120

2003 2004 2005 2006 2007e

U.S. Brazil Others

Million USD

Grains Grains Heavy dependence on imported grains

Corn: 9 million MT Wheat: 2.2 million MT Soybeans: 2.0 million MT Soybean meal: 1.2 million MT

Higher international grain prices push annual retail prices upward Compound feed: + 30 % Flour: + 34 % Bakery and confectionary: + 20-30 % Instant noodles: + 7 %

Food corn processors purchased GM corn for the first time

Government and industry cooperate to offset rising prices Government lowered tariffs Program implemented to increase domestic roughage production Industry to tap into futures markets; consolidated purchases;

increased storage

Corn Corn Main U.S. competitor:

China China faced with tight

exportable supplies.

∴ Imports of U.S corn could reach ~ 7 million MT in 07/08; >90 market share.

LMO Act requires new testing, labeling and documentation.

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

2004 2005 2006 2007e

Feed Processing U.S.

Corn Imports (1,000 MT)

WheatWheat Main U.S. competitor:

Australia Australian wheat supplies tight

due to ongoing drought

U.S. wheat import forecast: 1.2 MMT; ~ 50% market share

U.S. market share could climb higher if Australian supplies remain tight

MRL - malathion

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2004 2005 2006 2007e

Milling Feed U.S.

Wheat Imports 1,000 MT

KORUS FTAKORUS FTA Beef cuts: 15-year straight-line tariff phase out from 40% to

0% with a safeguard that begins growing from 270,000 tons

Pork: duty free on January 1, 2014

Poultry cuts: tariffs of 18 to 27 percent will be phased out in 7 to 12 years

Milling wheat: immediate duty free access

Dairy: immediate duty-free access for double the current export volume of total dairy products. Duty-free quotas for cheese, skim/whole milk powder, food whey, and butter.