Impacts on agriculture from Korea’s 20-year FTAs

Kim Hong-sang
The author, a former president of the Korea Rural Economic Institute, is the president of the Center for Food, Agricultural & Rural Policy.

On April 1, 2004, South Korea struck its first free trade agreement (FTA) with Chile. Since the milestone deal two decades ago, Korea has drawn 21 FTAs with 59 countries, becoming a country with the world’s third largest economic borders. According to the Korea Rural Economic Institute (KREI), the FTA with the United States had the biggest impact on Korean agricultural industry, followed by the FTA with the European Union (EU). The impact from the FTA with China was not as big as feared, because the liberalization rate of the agricultural sector stopped at 63.9 percent. In contrast, the rate was 97.9 percent with the United States, 96.3 percent with the EU and 88.2 percent with Australia.

The FTA with America mostly affected livestock and fruit markets, and the one with the EU affected the livestock market. Follow-up measures in the FTA with the United States to protect the domestic industry mostly went to enhancing the competitiveness of domestic livestock and the fruit industry, providing comprehensive aid for farmers in business management and exploring new growth. In the FTA with the EU, actions were concentrated on supporting the competitiveness of local livestock industry.

An FTA brings about a surge in imports due to cheaper prices from tariff lifting. Increased imports can bring about heterogeneous results depending on domestic and external supply and demand conditions, domestic consumption behavior and government support measures.

Although beef and pork producers were against a surge in imports, their economic scale and productivity sharply improved through individual and government efforts. Livestock overall advanced in line with an increased demand from higher per capita GDP. Improving the quality of dairy cows and breeding bulls and upgrading and branding home-grown pork along with aggressive marketing and a consumer preference for fresh and quality produce boosted sales and production.

Grape and tangerine fields were sharply reduced due to the abundance of imports as a result of the FTAs. Still, efforts to develop new breeds and quality enhancement helped local products become competitive against foreign fruits and sustained stable incomes for farmers. Hybrid citrus fruits exclusive from Jeju Island gained popularity.

Market liberalization caused difficulties at first, but farmers adapted through quality differentiation to compete with foreign fruit. Local breeds replaced Japanese strawberries and are widely being exported.

Apples and pears are not imported under quarantine regulations. Demand for the two fruits spikes during Lunar New Year and Chuseok holidays, but farmers have been less affected as the competition with imports is less severe.

The price of apples jumped due to poor yield and supply disruptions from climate abnormalities last year. Some suggest liberalization of the apple market, as the industry has been criticized for neglecting efforts to improve quality and production due to the government’s protection.

The merits and demerits of agricultural market liberalization over the last 20 years are evident. The competition from foreign products hardened farmers, but also awakened them to find solutions. Consumers benefited from wider choices and cheaper options.

Korea has weathered the challenges from market liberalization through the mix of endeavors by producers and adequate public policy. We now need to move on to the next step of radically removing the protective approach on agricultural industry.

The rice glut poses a problem due to changes in diet and consumer behavior. The beef industry keeps up growth thanks to the competitiveness it acquired. Government policies must be multi-faceted to bolster production, respond to changes in the consumption structure, innovate breeds and management, and customize support.

Translation by the Korea JoongAng Daily staff.