South Korea Faces Rice Oversupply and Consumption Decline

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Sep 26, 2022 | Agricultural Markets

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Rice occupies an essential position as a staple food in Korean agriculture. As of 2021, 533,000 farms, or 51.7% of the 1,031 thousand farms, had Rice paddies. In 2020, Rice production was US$6.56 billion out of US$38.6 billion in agricultural production, accounting for the highest proportion among single crops. In addition, Rice income accounted for 33% of the average agrarian income per farm in 2021.

As of 2019, 662 kcal, or 21.4% of the daily energy supply of 3,098 kcal, is supplied from Rice, according to Korea Rural Economic Research Institute. This is more than twice as much as wheat (323 kcal) or meat (306 kcal). There was a major change in the Rice policy since 2005.

Until 2005, Rice policies were implemented based on the Government-led Rice purchase system. The Government purchases Rice from farmers at a higher price than the market and sell it to the market at a lower price than the purchase price. As a result, the Government was able to simultaneously achieve policy goals such as increasing food production, supporting income for Rice farmers, and stabilizing the lives of ordinary people.

However, with the launch of the WTO in 1995, subsidies to the Rice purchase system were reduced from US$1.68 billion in 1995 to US$1.15 billion in 2004. From 2005, the Government’s purchase volume could not exceed the subsidy limit, which disrupted the operation of the Rice purchase system. As the amount of Rice purchased decreased, the Government’s supply and demand control function weakened.

Accordingly, the Government reformed Rice policy by abolishing the Rice purchase system to introduce public reserves program and the income of the compensation direct payment system for Rice farmers in 2005. The public reserves program is a system where the Government annually buys and sells a certain amount of Rice at the market price to maintain an appropriate Rice inventory level. For this reason, subsidies used in the public reserves program are classified as subsidies permitted by the WTO.

Over the last 15 years, Rice farmers maintained the Rice price at 95.3% to 108.9% of the target price despite falling Rice prices, and the ratio of farm prices to market prices during the harvest season also maintained at 106.6% to 138.1%. However, income compensation of the direct payment system for Rice farmers was paid at a higher unit price than other crops. This system remained the basic framework of the Rice income stabilization policy for 15 years until 2019.

In 2020, the public direct payment system was introduced. It consisted of a basic direct payment system and an optional direct payment system. The basic direct payment system is divided into ‘area direct payment’ paid according to the size of the farmland and ‘small farm direct payment’ paid to farmers with small farm requirements regardless of the area. To receive the basic direct payment, there are requirements such as that the target farmland received the direct payment at least once in 2017-2019.

South Korean Rice Market Trends

In recent years, Rice prices fell significantly due to oversupply and reduced consumption. As of 2019/20, the excess Rice supply was 258,000 tons, a significant increase from the previous year. This is because Rice supply increased by 54,000 tons in the prior year, while Rice demand decreased by 182,000 tons. Over the past five years (2015/16-2019/20), the average annual excess supply was 223,400 tons.

During the same period, Rice supply decreased by 3% every year, while Rice demand also reduced by 2% every year. In addition, due to the accumulation of excess Rice, the average year-end inventory in the last five years (2016-2020) was 1,390,000 tons. It was well above the 800,000 tons, which is the amount the entire nation can consume for about two months based on the recommended inventory level by the FAO.

The preparation of this article included public information such as https://ap.fftc.org.tw

 

 

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