Report Highlights:

The continuing ban on U.S. and Canadian beef is driving prices for pork and Hanwoo beef higher. Consumers are searching for alternatives while Korean cattle and swine producers are enjoying firm prices. Hanwoo beef producers reacted by increasing cattle inventories. Strong pork prices combined with constraints to expansion of swine inventories are expected to lead to continued robust imports of pork in 2006. Government policy toward beef and pork production is increasingly emphasizing quality, safety and providing information to consumers.

Situation and Outlook

Korean government’s efforts to resume fresh/chilled/frozen pork exports to Japan has been hampered by Japan’s prohibition on imports for one year after the last vaccination against classical swine fever. Korea continued to vaccinate its swine in 2005. Agreement was reached with Japan in August 2005 to export heat-treated pork. However, the domestic pork industry is unlikely to view the agreement as attractive at present, given the lucrative domestic pork prices. Pork production continues to drop in 2005 as more environmental restrictions eliminate farms that cannot afford required pollution control equipment. However, strong pork demand as people continue to substitute pork for beef will likely forestall a large shakeout among hog producers until consumers shift back to imported beef.

Korea has a positive list of approved veterinary drugs (antibiotics, growth hormones, feed additives, etc.). Veterinary drugs that are not on Korea’s positive list should not be detected in any meat product. Some of the approved veterinary drugs are allowed to be administered through compound feed. However, the total number of veterinary drugs approved for use in compound feed was reduced from 53 to 25 items on December 10, 2004. This measure went into effect on May 1, 2005.

Swine and Pork

The swine industry has been enjoying historically high swine prices due to a decline in swine inventory and increased pork consumption since cases of BSE were detected in North America. Substitution of pork for poultry meat following outbreaks of avian influenza (AI) in countries that were major poultry meat suppliers to Korea has also contributed to strong demand for pork. Initial concerns regarding BSE and AI have eased and consumers are, to a degree, increasing consumption of beef and poultry meat.

Despite the signs that pork demand may have peaked, pork prices remain high as increases in domestic swine inventories have been hampered by continuing problems with swine disease outbreaks in Korea and implementation of strict environmental regulations. Swine inventory levels have consequently contracted significantly in 2005 and have offset reduced pork demand to keep swine prices high. Various environmental restrictions will continue to tighten the supply of swine production in 2006. Also, if U.S. beef imports are resumed, ending swine inventories in 2006 may contract to levels below 2005.

The Korean swine industry has suffered from three major porcine diseases that have caused the overall inventory to drop. The so called “three P’s,” are Post-weaning Multi-systemic Wasting Syndrome (PMWS), Porcine Reproductive & Respiratory Syndrome (PRRS), and Porcine Epidemic Diarrhea (PED). The disease problems have resulted in high losses of weaning pigs.

The Korean government’s requirement to register all swine farms that have over 50 square meters of livestock growing facilities by the end of 2005 is another factor limiting herd expansion. Farms subject to registration must be equipped with pollution control facilities and meet certain minimum space requirements per animal. Due to the costs associated with complying with the regulations, only 72.7 percent of the farms subject to registration requirements had registered as of August 12, 2005.

The increased fee for disposal of swine excrements is another negative factor that is limiting increases in swine inventories. The fee increased from 16,000 won/MT (US$15.5) in 2004 to 20,000 won/MT (US$19.4) in 2005. There are rumors that the fee may go up another 20 percent.

Another environmental-related law that went into effect as of February 2005 is called the Act on Prevention of Offensive Odor. This Act requires the control of 12 different types of odor, including ammonia in 2005. In 2006, 5 other types of odor, including toluene will be added onto the list and 5 more types of odor, including propionic acid, will be added to the list again in 2007. The Korean government distributed 11,000 copies of handbook on controlling odor in swine farms. If the government receives a complaint from a neighbor about odor, it will conduct an investigation and will give out a warning notice for the first violation. The second violation will be subject to a fine and the third violation will mean the closure of the farm. Such strict measures have forced smaller farms that cannot afford to purchase pollution control equipment to exit from swine production. Large farms that have more than 1,000 head accounted for 77 percent of swine production in Korea as of June 2005. The decision by the Korean government on when to lift the import ban placed on U.S. beef will also influence pork and, in turn, swine production levels.
Despite the constraints to increasing swine inventory, producers who are able to raise swine are enjoying a lucrative year. The average production cost of a hog is 179,000 won/head (US$173). With farm gate prices reaching 277,000 won/per head (US$268), farmers are earning roughly US$95 per head. Such high domestic swine prices have increased pork imports in 2005. Also, limitations to increasing the herd size due to strict environmental restrictions will inhibit domestic production from capturing a greater share of consumption in 2006 and will result in higher import volumes.

High domestic swine prices are creating other problems. As farm gate prices surge, farmers are less concerned about quality and are sending hogs to the slaughter plants before they are over 110 kg resulting in reduced quality pork. The average slaughter weight dropped from 110 kg during the first quarter of 2005 to 108 kg during the second quarter of 2005. Because of the unstable quality of domestic pork, imported frozen pork of consistent quality has commanded a price premium over domestic frozen pork.

According to a survey conducted by the National Agricultural Cooperatives Federation (NACF) in 2005, consumers cited their reasons for eating pork as:

• because of its good taste (54.3 percent);
• because other family members like pork (21.2 percent);
• because of the low price (10.7 percent).

When NACF marketed the first organic pork on August 12, 2005, it was quickly sold out despite prices that were three times higher than non-organic pork. Organic pork bellies, the most popular cut, sold for 42,900/kg (US$41.55/kg). Organic Boston butts sold for 32,100 won/kg (US$31.1/kg). The prices for organic pork exceeded prices for low-priced Hanwoo beef cuts such as rounds, which sold for 25,800 won/kg (US$24.99/kg).

The Japanese government requires exporting countries to be free from classical swine fever (CSF) for one year from the last vaccination. Therefore, as Korea continued to vaccinate against CSF in 2005, prospects for exporting fresh/chilled/frozen pork to Japan, once Korea’s largest export market, seem unlikely for the near future. Korea and Japan reached an agreement in August 2005 to allow for Korean heat-treated pork to be exported to Japan. However, because of high pork prices in Korea, there is not much incentive to export heattreated pork to Japan at the moment. Small amounts of Korean pork continue to be exported to the Philippines but exports to Russia have ceased because domestic prices are more attractive.

Government negotiations on a breeding hog export protocol to the Philippines are not progressing as expected. Korean breeding farms are also not eager to export hogs to the Philippines because there is a high demand from the local swine industry. Korean exporters are looking forward to the FTA agreement with ASEAN, which is composed of ten South East Asian nations. The Korean government hopes to sign an agreement by 2006 with implementation in 2007.

The Korean Swine Association plans to spend 7.9 billion won (about US$7.67 million) in 2005 on promotional activities to increase the consumption of unpopular cuts by airing ads on television and radio programs. This is a significant increase from the 2.6 billion won (about US$2.25 million) expended on such activities in 2004. Over 81.5 percent of the consumers were aware of the promotion and 55 percent of the surveyed consumers replied that their perception towards unpopular lean pork cuts had improved favorably. As with beef promotion, pork exporters are also focusing on food safety as a major component in promotional activities. Similarly, Danish pork promotions are focusing on the safety. The U.S. Meat Export Federation has actively promoted U.S. pork in major discount stores in Korea along with private U.S. pork export companies who have featured promotions of ‘chilled’ U.S. pork. Selected support programs for the swine sector in 2005, some of which also encompass the cattle sector, follow:

Support for Branded Pork: The government plans to provide 163 billion won ($158 million) to enhance the total amount of pork marketed under brand name s. It will provide loans under the program at an interest rate of 3 percent per annum, with a 3-year grace period and full repayment at the end of the loan period. In 2005, there are 207 registered brands (including beef and chicken). The Korean government’s goal is to focus the program on active brand names and reduce the total number of brands participating in the program to 80 or 90 by 2007.

Mandatory Livestock Registration: The Korea Chile Free Trade Agreement (FTA) went into effect April 1, 2004. One result of the FTA has been that Korea has increased duty-free quota access for Chilean pork and reduced duties on out-of-quota pork imports from Chile. Pork imports from Chile are projected to rise from 23,203 MT in 2004 to 33,600 MT in 2005. Chilean pork exporters will have tariff-free access to Korea for most cuts after the Chile-Korea FTA has been in effect for 10 years. Korea and Chile will negotiate the tariff treatment for carcasses and half-carcasses under the FTA after the end of the Doha Development Agenda negotiations.

Further Information

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Source: USDA, Foreign Agricultural Service - Annual Livestock and Products Report - September 2005