Market Development and Access Strategy 2011/2012
South Korea is the third largest economy in the Asia-Pacific region, after Japan and China. Its population of 49 million is highly urbanised (80%) with nearly a quarter of the population living in Seoul. South Korea has an equivalent GDP to Australia, despite its total land mass area being less than half the size of Victoria, of which only 22% is used for agriculture.
The Agri-food Sector
South Korea is a unique Asian culture, which has maintained many of its traditional cuisines based on its agricultural production of rice, root crops, barley, vegetables, fruit, cattle, pigs, chickens, milk, eggs, and fish. The national dish of Kimchi - a fermented food based on a mix of Chinese cabbage, garlic, peppers (and other ingredients) is consumed on a daily basis. Traditionally kimchi nourished the population through the harsh winter months.
South Korea imports 60% to 70% of its food requirements. The general economy is geared to import ingredients and oil to fuel its strong manufacturing sectors of electronics, telecommunications, automobiles, chemicals, shipbuilding and steel. The farming sector employs around 7.5% of the population and the agricultural lobby is extremely strong and vocal about protecting their livelihood.
Ongoing market liberalisation and reforms have encouraged the development of an internationally competitive food industry in all sectors of the value chain. New food trends and retail and food service formats are rapidly introduced into the market by international and Korean owned companies.
Korean consumers are focussed on well being and how foods contribute to it. Food safety is of critical importance to consumers and the government is tightening regulatory systems in response to food incidents and labelling issues.
Overall the market for food and beverages is vibrant, rapidly changing to new trends and focussed on cost and value. Most products need to be customised for taste and packaging and a good partner in the market is essential to business success. Australia is seen as a supplier of safe quality food and the South Korean Government is keen to learn from our regulatory systems. Customers will purchase Australian products if competitively priced and suppliers are flexible and responsive.
Victorian Agri-food Exports to South Korea
Victorian Food and Fibre Exports to South Korea by Commodity Group 2008/09 ($AU million)
Victorian food and fibre exports to South Korea were valued at A$218 million in 2009-10 and accounted for 4% of Victoria’s total food and fibre exports. Key exports to South Korea were dairy (33%), meat products (26%) and grains (17%).
South Korea has relatively high tariff levels and quota restrictions covering a broad range of imported food products. However South Korea is also proactive in developing bilateral Free Trade Agreements (FTA’s) with trading partners and this offers new opportunities. For instance, an FTA with Chile in 2004 has led to record trade levels between the two countries and the completion of a very significant FTA with the United States of America in 2007 (still to be ratified). It also has FTAs with Singapore, ASEAN, the European Free Trade Association (EFTA) which was ratified in October 2010, and an FTA style agreement with India.
South Korea is currently engaged in FTA negotiations with Canada, Mexico, Japan, Peru, the Gulf Cooperation Council, New Zealand and Australia. South Korea is also considering FTA’s with China, Russia, Turkey and MERCOSUR (a South American regional trade agreement). Australia’s future competitiveness in the Korean market will depend to a large extent on the successful completion of an Australia-Korea FTA.
Food safety issues are actively responded to by the South Korean Government and often lead to the introduction of stronger measures that can impede trade. Recent examples include the measures taken to manage BSE issues in imported U.S. beef and melamine contamination of dairy products.
A number of government agencies are involved in food regulations and import procedures. They issue updates on a continual basis, many of which are difficult to obtain in English. This can make it difficult to introduce new products into the market and to comply with all regulations (e.g. safety certificates, approved food additives, Korean language labelling) without the cooperation of an experienced importer. South Korea has proposed new regulations for processed organic food products that are of major concern to Australian exporters.
New to market products often have to be modified to suit local tastes, regulations and presentation formats. This may require changes to the product recipe and packaging.
Total spending on food is expected to increase by over 20% over the next 5 years.
The food service sector is expected to grow as eating out is the single most dominant item in the South Korean household’s food expenditure and is likely to remain that way with busier lifestyles, increasing numbers of single-member households and dual-income families. This is also driving demand for Home Meal Replacement products in retail outlets and other convenient methods including food purchased on-line. Key trends in the restaurant sector include natural, organic, fresh, fusion, zen, seafood, fun, ethnic and neighbourhood.
The rate of population growth is gradually slowing and the population is ageing. Key trends in the market include more westernisation of the diet, increased diversity of ethnic food choices (often with modifications for Korean tastes), more leisure time to enjoy eating out, and a greater interest in fashion, brands and well-being.
The link between food, health and well-being is very strong in Korea. Consumers choose foods according to their functional attributes and organic and non-Genetically Modified foods are in strong demand. For affluent consumer groups and young professionals, quality and image can be important factors as well as price and value when making purchase decisions.
Modern retail stores are of an extremely high standard with a strong focus on customer service and staffed counters. Private brands are relatively new and entered the market in the mid-nineties. They now represent 6% of total grocery sales and most retailers are introducing a tiered system of quality which is expected to develop the category to 10% of sales in the medium term.
South Korea has a strong processed food manufacturing sector that provides a wide range of processed products including meat, seafood, vegetables, fruits, noodles, soy products, sauces, oils, beverages, snacks, dairy products, and liquor. A broad range of imported ingredients are required to cater for these products.
There are opportunities to supply animal feeds, genetics and training packages to the dairy and racing sectors in South Korea. With the current adoption of a National Livestock Identification Scheme in the Korean dairy and beef sectors there may be an opportunity to market farm management software.
Key Activities for 2011/2012
Collaborate with the Department of Business and Innovation (DBI), Department of Agriculture Fisheries and Forestry (DAFF) and Austrade South Korea, to identify and progress market access issues including market access for table grapes and citrus.
Collaborate with DBI to facilitate a Victorian trade mission to Yeosu Expo in 2012 to showcase Victorian products.
Continue to develop direct agri-food opportunities for Victorian exporters and work with DBI to attract targeted inward missions and investment opportunities.
Maintain adequate contacts and networks across South Korea’s food production, distribution, service and retail sectors.
Contact: Mr Stephen Baud, Market Access & Competitiveness, Horticulture Services Branch, Farm Services Victoria. Email: Stephen.firstname.lastname@example.org
Sources: GTIS, USDA, CIA Worldfact Book