Executive summary

Korea has achieved the fastest growing income per capita amongst the OECD economies over the past 25 years. During that time, the share of primary agriculture in the economy has declined as its export-driven economy has reallocated capital and human resources to manufacturing. The food and agriculture sector has been under pressure to meet changing domestic demand, to improve its productivity to keep up with the highly competitive manufacturing sector and to increase its exposure to international competition under the GATT Uruguay Round Agreement on Agriculture and bilateral Free Trade Agreements (FTAs). The societal demand on agriculture has diversified from focussing on stable supply of food to other functions of agriculture, such as preservation of natural resource and ecosystem as well as traditional culture and rural landscape.

The agro-food sector in Korea faces a number of challenges today. Per capita arable land area (0.03 ha) is the smallest among OECD countries. The highly fragmented land ownership structure hinders consolidated use of cropland and limits the scale of operations. Korea does not have a comparative advantage in land intensive crop production. By contrast, the livestock sector has expanded rapidly to meet a growing national demand and now accounts for nearly a half of the total value of Korea’s agricultural production. However, the rapid expansion of intensive livestock production has aggravated the environmental pressure from manure emissions.

The government has made extensive efforts to support agriculture through a wide range of policy measures. In addition to market price support and direct payments to support farm incomes, the sector benefits from preferential tax treatment, reduced social security contributions and reduced input prices. Nevertheless, income problems persist among small-scale and aged farmers, who have limited employment opportunities outside the sector. Sector-specific agricultural policies have limited capacity to solve the low-income problem. Policies covering economy-wide rural development and social security should play a more proactive role in addressing low-income issues among rural households. Meanwhile, younger people in rural areas would benefit from employment opportunities arising from a more comprehensive rural development policy.

Despite its comparative disadvantage in land-intensive crop production, Korea’s potential to export niche agricultural products and processed food that reflect its rich and unique food culture could be explored further. Focusing agricultural policy more on improving the productivity and sustainability of commercial producers and developing the food processing sector is critical to establishing a more competitive and sustainable food and agricultural sector, as is increasing the capacity to respond to market demand. Facilitating fair competition in input and output markets is an important policy agenda to meet the specific needs of large commercial producers.

Investment in agricultural innovation is fundamental to ensuring the long-term competitiveness and sustainability of agriculture, and Korea is one of the most intensive investors in public agricultural R&D among OECD countries. To unleash the sector’s potential to be more knowledge-intensive, Korea’s agricultural innovation system should become more integrated and collaborative, benefiting from a strong advantage in information and communication technology (ICT) and responding efficiently to the needs of commercial farmers and agro-food firms. Policies should also promote knowledge flows, thereby facilitating the adoption of innovations in technology, production, management and marketing practices. Furthermore, to meet the particular needs of commercial producers to improve productivity and sustainability, the extension system should evolve to leave more room for private technical service providers in transferring technologies, capital and information.

Main findings and key policy recommendations are outlined in the table below.

Main findings	Key recommendations
Developing the economic and institutional environment for fair and open competition
Agricultural co-operatives have high market shares in certain input and output markets	Ensure fair competition between agricultural co-operatives and other private agricultural service and input suppliers under the existing provisions of the Monopoly Regulation and Fair Trade Act.
The fuel tax exemption and reduced charges on agricultural inputs may create incentives for excessive use of inputs and natural resources.	Review Value Added Tax (VAT) exemptions on certain agricultural inputs and the fuel tax exemption to promote more sustainable agriculture.
Ensuring efficient and sustainable use of agricultural resources
Subdivision of farmland ownership through inheritance is exacerbating land fragmentation.	Reform the property tax system to provide incentives for the succession of farms to a designated successor.
The high price of farmland, reflecting the potential non-agricultural use value of land, is discouraging farm consolidation and encouraging land abandonment.	Apply stricter land conversion regulation to farmland within designated Agricultural Promotion Regions (APR), while concentrating policy support to guide land conversion outside them.
Informal land lease is reducing the incentive to invest in land improvement and rent out land to more efficient users.	Revise the farmland regulations to promote tenant farming and penalise undocumented land rental transactions.
Free supply of irrigation water reduces the incentive to conserve water use.	Ensure that charges for water supplied to agriculture at least reflect full supply costs.
Professional education for agriculture is attracting less attention.	Reorient the agricultural education system to focus on skills required in the agricultural sector, and not only on formal qualifications.
Developing a coherent agricultural policy more conducive to long-term productivity growth and sustainability
Overall portfolio of agricultural policy is dominated by policies that are linked to production of staples and to supporting farm income.	Continue rebalancing the portfolio of agricultural support to public investment oriented towards long-term productivity growth and sustainability.
Commodity-specific support constrains farmers’ responses to market signals, hinders structural adjustment toward production of more value-added products and increases environmental pressure from agriculture.	Phase out border protection and commodity-specific support to allow markets to play their role in allocating production resources to more high-value-added niche products
A more comprehensive policy approach beyond agricultural policy is needed to address the low-income problem of farm households.	Increase the role of the general social security system as an income safety net for farm households by introducing adjusted eligibility criteria and additional incentives for early retirement and resource transfer to young commercial farmers. Take a more bottom-up approach to promoting integrated investments and public services that are geared to local needs to attract non-agriculture industries to locate in rural areas.
Exemption of income tax could impede resource reallocation to more profitable and competitive non-grain agricultural sectors and reduce farmers’ incentive to record and manage their farming business activities through bookkeeping.	Consider taking steps to induce farmers to declare income situation to facilitate the self-evaluation of the financial performance of the farm and to allow the government to design better-targeted policies to the household income.
There is no clear definition of reference environmental quality with which farmers need to comply.	Establish a framework of agri-environmental policies that clarifies the reference environmental quality as well as environmental targets.
The growing issue of livestock manure emission requires a more comprehensive policy approach, beyond regulation alone.	Take a multi-dimensional approach to manure management, including regulation, incentives to invest in new technology, capacity-building of producers and building partnerships between stakeholders.
Establishing a more collaborative agricultural innovation system among public and private actors
The public sector dominates investment in agricultural R&D.	To let private R&D investment play a greater role, concentrate public R&D investment in areas of public interest, such as environment and resource conservation, and on areas where the private sector would naturally under-invest.
Public R&D projects are implemented largely by a top-down approach and can reflect more the technical demands of commercial farmers.	Allow the participation of a wide range of stakeholders in the public R&D planning and evaluation process to reflect their technical needs. Increase the participation of farmers in R&D projects of public R&D institutions and universities.
A weak network exists between different actors in the agricultural innovation system, including weak public and private partnership in agriculture R&D projects.	Enhance collaboration between different actors in the agricultural innovation system, for example by increasing conditionality of public agriculture R&D projects on collaboration with private sectors, higher education institutions and other public R&D institutions.
Inadequate co-ordination exists between different government agencies engaging in public agricultural R&D.	Strengthen the co-ordinating function of the Science and Technology Commission of Food, Agriculture, and Forestry to form a more consolidated and coherent public agricultural R&D investment strategy.
The public extension system’s standardised services are limited to meeting producers’ needs, and the development of private technical advisory services is limited.	Redefine the role of the public extension system, leaving more room for private technical service providers in transferring technologies, capital and information. Shift the focus of the public extension service to the provision of public goods such as improvement of environment performance, and to the governance of the whole system to ensure access of small farmers to relevant advice.

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