Korea

Situation and Outlook

Vaccination of swine against classical swine fever has shut out hopes of resuming pork exports to Japan after a two-year ban due to the outbreak of FMD in March 2000. Korea will try to export pork to Japan produced from swine farms on a remote island in early 2004. In the meantime, Korea is trying to boost the domestic consumption of export cuts of pork, which are generally in low demand in Korea. A shipment of Chilean pork, which contained residues of dioxin, was rejected in 2003. However, consecutive shipments were clean and Chilean pork continues to enter Korea.

Swine and Pork

An outbreak of classical swine fever (CSF) reported on October 7, 2002 has deflated Korean pork producers’ hopes of resuming exports to Japan. To deal with the outbreak, Korean authorities decided to vaccinate animals against classical swine fever. Despite the vaccination, CSF continues to be detected from time to time. The most recent CSF case was found on August 9, 2003. As a result of using vaccinations to eradicate CSF, pork exports to Japan from the Korean mainland will be precluded throughout 2003 and 2004.

The requirement for becoming eligible to resume exports to Japan is no detection of CSF for one year from the last vaccination. However, to this date, Korea has not stopped vaccination. Korea is now working with Japan to resume exports from Jeju Island which has not had any outbreaks and has not vaccinated. However, exports from Jeju Island is not expected to begin until early 2004 at the earliest. Small amounts of Korean pork will likely continue to be exported to Russia and the Philippines.

The Korean government detected dioxin in a shipment of Chilean pork that arrived in June 2003. That particular shipment was rejected. However, as consecutive shipments coming from Chile did not have any residues of dioxin in them, imports from Chile continue to come in without any disruption.

Pork production that had been expected to supply the export market ended up in stocks and was carried over into 2003. Such stocks are expected to increase until Korea is able to resume exports to Japan. Since most of the export cuts that go into stocks are unpopular in Korea, such stocks are likely to increase substantially increase until Korea can resume exports to the Japanese market. The earliest that stocks are expected to be drawn down is in early 2005.

Although producers cannot export pork to Japan, herd size will continue to gradually increase, as there is strong demand for popular cuts, such as pork bellies, Boston butts and short ribs. The non-popular cuts will end up in inventory. Even with high inventory levels, the enhanced price advantage of imported pork resulting from the appreciation of the Korean currency against U.S. dollars along with a shortage in popular cuts will make it necessary for Korea to continue to import specialty cuts, such as pork bellies and Boston butts.

Herd expansion is projected to be maintained at the current rate or increase modestly to meet the demand for specialty cuts. A recent survey conducted by the National Agricultural Cooperatives Federation in June, 2003 revealed that 77 percent of swine producers planned to maintain their current herd size. Producers reservations against herd expansion were based largely on size of farms and uncertainty regarding future swine prices. However, 24 percent replied that they plan to expand in order to fill barns that they had left idle after the CSF outbreak. Only 4 percent replied that they plan to reduce their herd size. The Ministry of Agriculture & Forestry (MAF) plans to assist the swine farmers by developing new export markets, such as Mongolia. MAF plans to send promotional teams to these new markets and providing incentives to exporting firms. MAF has decided to increase the support for transportation of pork exports from the current level of 46,000 won (about US$39) per metric ton to 96,000 won (about US$81) per metric ton until exports to Japan resume.

MAF also will focus its efforts on trying to pro mote domestic consumption of the export cuts (loins, hams, etc.). MAF, in conjunction with the Korea Swine Association and the National Agricultural Cooperatives Federation, will carry out a two month TV promotion of export cuts in October and November, 2003. A survey on the result of 2002 pork promotional activities showed that 39.6 percent of the interviewed people had seen the TV advertisement and 69.7 percent of these people wanted to consume more pork after seeing the advertisement. About 28 percent had not been affected by the advertisement and only 2.1 percent were negative about the advertisement.

Other assistance to the swine sector in 2003 includes the following programs: Support for Assay Testing: This program is designed to encourage swine farmers to participate in a national assay-testing program to improve the genetics of Korean swine. The program provides 3,200 won/head ($2.74) for a third-party assay test, and 2,300 won/head ($1.97) for a self-administered assay test. The program also provides 25,000 won/head (around $21) for breeding boars that are tested and 8,500 won ($7.26) per head for PSS genetic tests. For 2003, the program budget is 584.5 million won (approximately $500,000), targeting 46,100 head of swine.

Loan for procurement of raw ingredient pork: This government loan program provides low interest loans to meat processors to procure pork for processing. Loan terms include an interest rate set at 4 percent per annum and a balloon payment on maturity (i.e., one year loan). For 2003, the program budget is 37,590 million won (about $32 million), targeting a total of 300,000 head of swine.

Fund for Production of Standard Swine (export grades): The loss of export markets after the FMD outbreak in 2000 resulted in discontinuation that year of the direct payment program for export grade swine. Presently, MAF provides production loans to farmers supplying swine to export firms. Loan terms include an interest rate set at 4 percent per annum and a balloon payment on maturity (i.e., one year loan). For 2003, the program budget is 29,280 million won (around $25 million) targeting 732,000 head.

Under a separate program, in 2003 the Korea Swine Association (KSA) plans to accumulate a total of 5,336 million won (about $4.56 million) under a check-off program. The funds collected through the check-off program will be used in promoting pork consumption.

Korean language web sites of interest (some contain limited information in English):
Ministry of Agriculture & Forestry: www.maf.go.kr

Further Information

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Japan

2004 Market Outlook

Summary: Low market prices, ample domestic supplies, and large beginning frozen stocks suggest lower pork imports in 2004. Japan’s pork safeguard appears unlikely due to these factors, in addition to a trigger level that will be higher due to this year’s higher imports. Some in the trade are hopeful that WTO negotiations will lead to changes in Japan’s complex import regime.

Japan’s Overall Pork Consumption is Projected Up by 1% in 2004

Japan’s overall pork consumption is expected to rise by 1% in 2004 as ample supplies keep market prices relatively low. This follows a projected 3% drop in consumption in 2003 due to slack BSE-related demand (See 2003 market situation update below). Low priced domestic table pork will compete with imported chilled pork in 2004. Processing demand will be largely met by relatively large carry over stocks of frozen pork, which will reduce the need for imported frozen pork for processing. Beginning frozen pork stocks in 2004 are estimated to be 16% higher than last January, at 221,000 MT (Boneless equivalent of 155,000 MT – 90% are imported).

Domestic Pork Supply Projected Slightly Lower in 2004

Japanese producers are expected to liquidate sows in 2004 due to low price prospects. As a result, pork production in 2004 is projected down slightly at 16.4 million head and 1.255 million MT. The slight reduction in pork production will not be enough to offset the ample supply situation.

Japanese sow numbers at the beginning of 2003 were up 1% from last year at 929,000 head, leading to a 2% increase in domestic hog slaughter and pork supplies in 2003. (See 2003 market situation update)

Import Demand Projected Down 3% at 950,000 MT

Japan’s 2004 pork imports are expected to fall by 3% due to abundant supplies of pork for both table and processing. The U.S. import share is expected to remain at 33%, although the volume will be down since total imports will be lower. U.S. chilled pork will have to compete with relatively low priced domestic table pork. Entries of frozen pork for processing, primarily from Denmark and other European Union (EU) suppliers, are also expected to slow in 2004 due to large beginning stocks. Trade sources predict that EU pork supplies will remain tight, which will keep prices relatively high.

Based on these factors, industry sources think there is little chance that Japan’s pork safeguard will again trigger in 2004. They believe the first quarter trigger level (preliminarily calculated at 268,188 MT) will be high enough to avoid the safeguard. Note: Japan’s pork safeguard trigger level includes both chilled and frozen pork, and is calculated based on the average of the previous three years multiplied by 1.19.

Some in Japan’s pork industry are hopeful that the ongoing WTO negotiations will lead to changes in Japan’s complex pork import regime. Early this summer, the Ham and Sausage Manufacturers Association requested that MAFF change the current import regime and the safeguard mechanism (see 2003 situation update).

2003 Pork Market Situation Update and Forecast

Summary: Total pork consumption is projected to decrease by 3% (to 2.26 million MT), while import demand is expected to drop 8% to 1.03 million MT. Surplus pork supplies are expected to prevail throughout the year. As a result, market prices have been low and stocks are accumulating. Japan’s pork safeguard was triggered in August for the third year in a row, due to speculative purchases made during the first quarter of JFY 2003.

Post’s revisions for Japan’s 2003 pork PS&D figures reflect several major factors: 1) Pork demand has weakened as beef consumption has recovered; 2) Domestic pork production has increased and; 3) Japan’s pork safeguard was implemented in August. Japan’s pork surplus situation is expected to prevail through 2003. Low domestic pork prices, an abnormally long rainy season and cold summer, and large frozen stocks, are further adding to the relatively tepid outlook for Japan’s pork market in 2003 (see Table 6 & 7).

Total pork consumption in 2003 is projected to decrease by 3% (to 2.26 million MT) due to slack demand for table pork. However, Japan’s domestic hog slaughter and pork production are projected up 2% to 16.45 million heads and 1.26 million MT respectively, reflecting bigger sow numbers at the beginning of the year. A long rainy season and cool summer weather has also slowed pork consumption in 2003, since they have kept people from barbequing.

Import demand is projected drop 7% (to 1.03 million MT) due in part to the glut of lowpriced domestic pork and large stocks of frozen pork for processing. August ending stocks are estimated at 300,000 MT level (boneless equivalent of 210,000 MT) due to particularly large frozen entries (up 15%) in July before the safeguard went into effect on August 1. Speculative buying of frozen pork for processing is thought to have caused the safeguard to trigger. Imports surged during April – June, despite relatively stable demand for processed products and adequate frozen stocks.

Frustrated with extreme fluctuations in imports and the uncertain pork procurement situation year after year, Japan’s ham and sausage manufacturers requested that MAFF change the current differential pork import duty system to either an ad valorem tariff or of a specific duty by weight.

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Source: USDA Foreign Agricultural Service - Annual Livestock and Products Report - September 2003