Korea is on track to officially lift its ban on deboned skeletal muscle meat from U.S. cattle under 30 months of age possibly as soon as the end of March 2006. Slaughter of U.S. cattle to supply beef to Korea must occur after Korea offic ially lifts its ban. Resumption of U.S. beef imports is expected to result in patterns of trade, consumption and production of beef and alternatives such as pork that existed prior to the imposition of ban on U.S. beef in December 2003.

Despite significant increases in the Hanwoo inventory, Hanwoo beef retail prices remain twice as high as imported Australian beef. Hanwoo products target the high-income consumer market. However, the majority of Korean beef consumers, who focused formerly on reasonably priced but high quality imported beef, have now shifted to other substitute products, such as pork and fish. Because most Koreans prefer highly marbled beef over lean meat, many consumers have opted to switch to pork rather than Australian beef, which is leaner than Hanwoo or U.S. beef. This shift has caused pork prices to rise. When U.S. beef imports resume, these consumers are expected to eventually shift back to U.S. beef and reduce pork demand.

The 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. An agreement was reached with Japan in August 2005 to export heat-treated pork. However, the domestic pork industry is unlikely to view the prospect of exporting under the agreement as attractive at present given the lucrative domestic pork prices.

As pork prices adjust to the availability of U.S. beef, there may be some export of heat-treated pork to Japan in 2006. Hog production continued to evolve toward larger scale operations in 2005 because new environmental restrictions meant that farms that could not afford to invest in required pollution control equipment had to close. High sow inventories will ensure a relatively strong supply of pork in 2006, despite the anticipated drop in pork prices.

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 on December 10, 2004. This measure went into effect on May 1, 2005.

The maximum residue level of antibiotics and pesticides permitted in meat products can be found by visiting the Korea Food & Drug website at www.kfda.go.kr.

Section III: Swine and Pork

The swine industry continued to enjoy historically high swine prices in 2005, due to a decline in swine inventory and increased pork consumption since cases of BSE were detected in North America in 2003. However, the blessing turned into a misfortune as high swine prices raised pork prices and eventually caused pork consumption to drop slightly in 2005. As beef consumption also suffered a drop in 2005, most of the beef and pork consumption was substituted by a 20 percent increase in poultry consumption, whose prices had dropped from 1,901 won/kg in April 2005 to 801 won/kg in November 2005 (Exchange rate is US$1=968 won).

If U.S. beef imports resume in 2006, it will drive down the pork prices and help boost the pork consumption slightly. Due to the current high beef prices in the United States and a separate market for high quality Hanwoo beef, imported beef from the United States will compete with the beef from other nations, lower quality domestic beef and pork. Increased swine inventory in 2006 will also help soften the pork prices, resulting in increased pork consumption.

As farmers tried to capture more profits from high swine prices in 2005, sow numbers increased throughout 2005. This will cause inventory levels to rise in 2006. However, the projected increase in year-end inventory for 2006 may be hampered if U.S. beef imports resumes in 2006 and further drops the swine prices as farmers try to contract out their stocks to reduce their losses coming from low swine prices. Other factors that may hamper increases in domestic swine inventories are continuing problems with swine disease outbreaks in Korea and implementation of strict environmental regulations. Various environmental restrictions will continue to tighten the supply of swine production in 2006.

Low inventory resulted in lower slaughter numbers in 2005, which increase pork prices. Thus, despite strong promotional activities to boost pork consumption, the overall consumption of pork dropped in 2005. On the other side, due to appreciation of the Korean currency against U.S. dollars, 2005 pork imports were at record high of 349,000 MT. However, imports are expected to drop further in 2006 as domestic pork supply increases, coming from increased sow inventory. Meat processors that use imported pork to a large extent are very price-sensitive and will likely switch over to domestic pork if prices drop.

The Korean swine industry has suffered from three major porcine diseases that have caused the overall inventory to drop. The so-called “four P’s,” are Post-weaning Multi-systemic Wasting Syndrome (PMWS), Porcine Reproductive & Respiratory Syndrome (PRRS), Porcine Respiratory Diseases Complex (PRDC) and Porcine Epidemic Diarrhea (PED). The disease problems have resulted in high losses of weaning pigs, some as high as 30 percent death rate in weaning pigs. A survey showed that nearly 70 percent of all swine farms had experienced outbreaks of one of the four P’s.

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 has been completed. (See cattle section for registration data.) However, it 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. 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.

The fee went up another 15 percent in 2006. In fact, 36.3 percent of the swine producers picked the disposal of swine excrements as the biggest issue. This problem will become a bigger issue when Korea bans to disposal of swine excrements in far sea, which accounts for 25.4 percent of disposal method, in 2008. The total amount that was disposed in the sea was 2.35 million MT in 2004.

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 77.9 percent of swine production in Korea as of December 2005. The decision by the Korean government on when to lift the import ban placed on U.S. beef will also influence pork consumption production levels.

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).

The same survey showed that 60.6 percent of people consumed pork at home and 39.3 percent in restaurants. 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.

Breeding hog exports to the Philippines are also not progressing as expected. Korea breeding farms are not eager to export hogs to the Philippines because there is a high demand in the local swine industry. Thus, the Korean government began to promote the export of Korean breeding hogs by sending experts to Thailand and Vietnam in December 2005. 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 8.1 billion won (about US$8.36 million) in 2006 on promotional activities to increase the consumption of unpopular cuts by airing ads on television and radio programs. This is a 6.7 percent increase from the 7.6 billion won (about US$7.85 million) spent on such activities in 2005. 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. France has become more aggressive in this market and held French pork seminar on January 24, 2006, focusing on “sanitation and 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 2006, some of which also encompass the cattle sector, follow:

Support for Check-off Program: The government plans to provide 4.8 billion won (about US$5 million) as a matching fund for the swine check-off program in 2006. This is an increase from the 4.5 billion won supported in 2005. The swine industry will also come up with the same amount of fund through the check-off program. Given that the swine industry collected 4.94 billion won in 2005, which is 91.2% of the amount notified to its members, coming up with 4.8 billion won in 2006 is not expected to be difficult.

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 were 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: See details in Section II. The Korea Chile Free Trade Agreement (FTA) went into effect April 1, 2004. One result of the FTA has been that Korea has reduced duties on pork imports from Chile. Pork imports from Chile rose from 23,203 MT in 2004 to 28,468 MT during the first eleven month of 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 also provided a 400 MT quota for beef imports under the FTA agreement. Duties for in-quota-duty is zero percent but all imports beyond the quota will be subject to the 40 percent duty that is applied for all WTO members.

Further Information

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Source: USDA, Foreign Agricultural Service - Annual Livestock and Products Report - February 2006