19. Korea
Producer support for agriculture (Producer Support Estimate, PSE) in Korea amounted to 46% in 2020-22, down from 53% in 2000-02, but still much higher than the OECD average. Market Price Support (MPS) is the dominant form of producer support, representing 87% of support to farmers in 2020-22 and covering key imported commodities, from rice and soybeans to animal products and selected vegetables. These market-distorting transfers result from the maintenance of Tariff Rate Quotas (TRQs) with high out-of-quota tariffs. On average, domestic producer prices are 70% higher than comparable world prices.
Most remaining producer support was in the form of direct payment programmes, agricultural insurance schemes and subsidies based on variable input use. These payments accounted for 13% of overall producer support in 2020-22.
General services expenditures (General Service Support Estimate, GSSE) grew in absolute terms but declined in relative terms to 13% of the Total Support Estimate (TSE) in 2020-22. The majority (53%) of GSSE went to developing and maintaining infrastructure, particularly irrigation facilities, with most of the remainder going to agricultural knowledge generation (20%), public stockholding (10%), and inspection and control (10%). TSE declined from 7.6% of Gross Domestic Product (GDP) in 1986-88 to 1.6% in 2020-22, still higher than the OECD average, and dominated by producer support.
The Ministry of Agriculture, Food and Rural Affairs (MAFRA) was reorganised in December 2022 to respond to the objectives set by the new government, including sustainable growth, carbon neutrality, food security, a safety net for farms, improved rural spaces, and enhanced animal welfare. As part of the reorganisation, MAFRA established the Agricultural Innovation Policy Office and set up the Animal Welfare and Environment Policy Directorate to promote innovation, animal welfare, and carbon neutrality.
The laws and regulations for the direct payment system were amended in October 2022 to relax the requirement related to farming, allowing some additional farm households to receive direct payments. A new direct payment system for strategic crops was introduced in January 2023. It aims to increase the production of major grain crops and enhance food security by providing additional direct payments to farms that grow some crops, such as soybeans and coarse fodders.
The Act on Rural Support for Restructuring and Regeneration was enacted in March 2023 to institutionalise rural-area planning. The Act introduced the concept of specialised rural districts that facilitate the systematic and efficient use of rural spaces. The central government must set out a long-term vision for the development of rural spaces every ten years and review it every five years. Local governments use this to formulate their basic plans and comprehensive implementation plans.
In January 2023, MAFRA announced measures to improve the distribution of agricultural products. These expand the scale of distribution, facilitate the digitalisation of trade in agricultural products, and create a competitive distribution system. The government plans to establish 100 smart Agricultural-product Processing Centres (APCs) in major production areas by 2027. An online wholesale market for agricultural products will be launched in 2023, starting with vegetables and fruits.
Climate-change adaptation measures, as defined in the national adaptation plan, focus on information provision and research and development (R&D). Investment and support for strengthening the capacity of the private sector should be expanded. Further targeted efforts, such as introducing incentives for farmers to adopt more-resilient production systems, are also needed to support farmers in their climate adaptation and mitigation activities. Moreover, investments should focus on infrastructure for sustainable water use and diversification of varieties.
Producer support in Korea is still much higher than the OECD average and MPS accounts for most producer support. The use of potentially distorting support such as MPS should be reduced through policy reforms. More targeted policies can help achieve MAFRA objectives such as stabilising farm-household income, improving productivity in the long term, and addressing ageing and decrease of the farm-household population.
MAFRA was recently reorganised to reflect growing societal needs such as sustainable growth, carbon neutrality, improved animal welfare, and food security. An office for agriculture innovation was created to progress towards these goals. This shows the new government’s shift in emphasis of agricultural policy towards innovation and sustainability. The related reallocation of budget and manpower will help MAFRA strengthen its functions to enhance agricultural sustainability, though progressing further will require targeted and tailored measures so that sustainable productivity growth remains and to reform the current system of support.
The COVID-19 pandemic and Russia’s war of aggression in Ukraine increased the need for a stable agricultural supply chain in Korea. Although Korea's Medium and Long-term Food Security Plan aims to expand the domestic base for production and consumption, and to secure a more stable overseas supply chain, this plan should be implemented in a market-oriented manner so as not to cause disruption to international agricultural markets.
The direct payment system in Korea has been revised several times to limit market distortions. Further reforms should align with government priorities, such as strengthening food security and achieving carbon neutrality. For instance, payments could be directed towards low-emitting production methods.
Systematic management of rural areas was institutionalised through the Act on Rural Support for Restructuring and Regeneration. Co-operation between the central and local governments is an essential element. Successful co-ordination between governments requires incentives for local governments and the private sector to align local rural area planning with the national long-term vision for rural development. This could include help for building local decision-making capacity and fund projects with national and local development benefits.
Overview of policy trends
Korea’s agricultural sector has undergone rapid structural change, following the country’s rapid industrialisation and economic growth. After the Korean war, it was vital for Korean agriculture to be able to feed the population. From the 1950s to the 1970s, the focus was on increasing crop productivity and achieving self-sufficiency in staple crops, particularly rice. During the process of industrialisation, the agricultural sector also provided cheap and high-quality labour to the manufacturing sector and laid a foundation for stable economic growth.
Throughout the late 1980s and 1990s, the main policy objectives shifted to restructuring the agricultural sector and improving its competitiveness. The government adopted more market-oriented policy frameworks, and this period was marked by the progressive liberalisation of agriculture and food markets via free trade agreements. In the late 1990s, policy objectives further diversified into areas such as enhancing productivity, improving long-term agricultural sustainability and increasing provision of public goods.
During the late 1990s and 2000s, non-tariff measures on agricultural products were gradually converted into tariffs and tariff rate quotas (TRQs), with the exception of rice as agreed in the Uruguay Round Agreement on Agriculture. In January 2015, the non-tariff measure on rice was also replaced by a TRQ.
Slowed economic growth and demographic changes moved objectives in the 2000s further from growth to broader public policy goals. These goals included revitalising the rural economy, expanding export markets, improving the environmental performance of agriculture and promoting the food industry. A holistic food policy began to take shape that took into account production, consumption, safety, nutrition, welfare and the environment, as well as food availability for low-income groups. This entailed a shift from central government leadership to horizontal governance for participation and collaboration with a larger role for local governments and the public.
Overall support to farmers as a share of gross farm receipts considerably declined in the 1990s and early 2000s but has been relatively stable for the last ten years, fluctuating around 45%. Korea’s PSE still remains much higher than the OECD average. Market price support is a dominant component of total support to agriculture. The share of the MPS in total support showed only a moderate decrease during the last three decades (Figure 19.4).
Main policy instruments
The Framework Act on Agriculture, Rural Community and Food Industry, enacted in 2007, establishes Korea’s agricultural policy framework. It requires the government to establish a national policy plan every five years with the purpose of providing direction for national policies to pursue the sustainable development of agriculture and rural communities, to ensure the stable supply of safe agricultural products and quality food, and to enhance the level of income and quality of life of farmers. The 3rd National Plan to Develop Agriculture, Rural Communities and the Food Industry (2023-27) was established in 2023, reflecting the national policy agenda and the agricultural policy goals of the government newly formed in 2022. This recent plan includes five policy objectives: 1) securing food sovereignty; 2) fostering the agro-food industry as a new growth engine; 3) strengthening the safety net for farm households; 4) enhancing food safety in the supply chain; and 5) creating a comfortable and attractive rural space.
The public stockholding scheme for rice, known as the Public Storage System for Emergencies, was established in 2005. One of its objectives is to guarantee food security in times of natural disaster or temporary shortage driven by the mismatch between supply and demand. Under the scheme, the government purchases rice from farmers at market price during the harvest season and releases the stockpiled rice at market price when necessary. The government has a similar purchasing programme for soybeans.
The new Direct Payment System, in force since May 2020, combines and replaces the previous agricultural direct payments for landscape conservation, environment-friendly agriculture, livestock products, paddy field farming (in the form of selective direct payments), and the income compensation scheme for rice. The system aims to stabilise the incomes of small to medium-sized farms and to improve farm compliance with regulatory obligations in order to promote public good in the agriculture and rural communities. In total, farmers must comply with 17 regulatory obligations covering environmental protection, food safety, and farm management standards such as standards for pesticide application. There is also a direct payment for the transfer of the farm management rights to enable retired farmers to sell or lease their farmlands while maintaining their incomes, and to create more opportunities for young farmers.
The Korean Government announced the Enhanced Update of its First Nationally Determined Contribution for achieving the Net-zero across all the sectors in November 2021. This requires GHG emissions in agriculture and fisheries to decline 27.1% relative to 2018 levels by 2030 and 37.7% by 2050. Accordingly, the 2050 Agri-Food Carbon Neutrality Strategy was revealed in December 2021. This sectoral strategy contained a detailed implementation plan for carbon neutrality including GHG emission reduction for food production, distribution, consumption and energy conversion. Moreover, as a member of the Global Methane Pledge, Korea makes efforts to reduce methane emissions in the agricultural sector by 20.6%.
Agricultural disaster insurance, revenue insurance and work safety insurance are provided by private companies with government subsidies covering 50% of the insurance premiums. The agricultural disaster insurance scheme, which covers 67 crops and 16 livestock products, protects farmers against losses in crop yield and livestock. Agricultural revenue insurance covers seven crops: grapes (coverage began in 2015), onions (2015), soybeans (2015), garlic (2016), potatoes (2017) sweet potatoes (2017), and cabbage (2018). Work safety insurance covers injuries, illnesses and accidents, or deaths of farm workers that occur during on-farm work and contributes to stabilising farm income.
Rapid economic growth has led to several challenges in rural areas. It has exacerbated the urban-rural gap in terms of living conditions and community services, resulting in rural out-migration. The Spatial Plan for Rural Communities aims to address this gap via improved land use systems, restructured rural areas, and revitalisation of the function of rural villages. MAFRA also has a role to play to help improve rural residential areas, relocate locally unwanted facilities and provide necessary social services. The Act on Support for Rural Restructuring and Regeneration was passed by the National Assembly in February 2023 and laid the legal foundation for the systematic management of rural spaces (see below for more details).
Tariffs and tariff-rate quotas (TRQs) continue to be the main agriculture trade policy measures. Trade restrictions on all agricultural products were converted to tariffs and TRQs, with non-tariff measures on rice, which had been an exception in the Uruguay Round, being replaced by a tariff scheme since 1 January 2015. A total of 63 agricultural products are subject to TRQs, including rice, corn and soybeans. In-quota tariff rates range from 0% to 50% with out-of-quota rates between 9% and 887%. Since the tariffication of rice trade, a TRQ volume of rice (408 700 tonnes, about 10.7% of annual rice consumption) has been maintained at a 5% tariff rate (the out-of-quota tariff is 513%).
Korea is engaged in 22 bilateral and regional free trade agreements (FTAs). Some of these agreements include significant tariff reductions for livestock and fruit products, but rice is excluded from tariff concessions. Import tariffs on beef from the United States, Australia and Canada are being progressively phased out over a 15-year period from the entry into force of the respective agreements (March 2012 for the United States, December 2014 for Australia, and January 2015 for Canada). Tariffs on pork from the European Union, the United States and Chile are being phased out over 10 years, and on pig meat from Canada over 13 years. Tariffs on chicken meat from the United States and the European Union are being abolished in phases over a period of 10 years to 13 years after the respective FTAs came into effect (2012 for the United States and 2011 for the European Union).
Climate change adaptation policies in agriculture
In accordance with the Framework Act on Low Carbon and Green Growth enacted in 2010, the Korean central and local governments establish the National Climate Change Adaptation Plan every five years to adapt to climate change and cope with its public-health problems and natural disasters.
The Plan includes: (1) improving the capability to observe, forecast, and provide information on climate change including weather disasters; (2) assessing the impact and vulnerability of climate change by sector and region; (3) implementing measures for adaptation by sector and region; and (4) preventing disasters for vulnerable people and regions influenced by climate change. In addition, the framework act mandates a detailed plan for practical implementation of the National Climate Change Adaptation Plan by relevant ministries.
The 3rd National Climate Change Adaptation Plan was established in December 2020, covering 2021-25. This plan was formulated with the participation of the government, experts, and representatives from the regions, industry and civil society. A list of 84 national climate-change risks in six major areas, including the agricultural sector, was compiled using scientific evidence, and customised implementation tasks for each risk were laid out. It also included inspection and evaluation systems by the public evaluation group (Korean Government, 2020[1]).
MAFRA carries out several tasks to help the sector adapt to climate change and maintain a sustainable agricultural environment and stable food production. These include:
Providing information to improve climate resilience. The government and its research institutes develop technologies for sectoral productivity evaluation and prediction, and improve the early-warning system of agrometeorological disasters. They also strengthen forecast and evaluation technologies to improve agricultural productivity, such as projecting changes in the area suitable for the cultivation of major crops.
Strengthening the production base in the face of climate change. Government institutes develop and distribute production facilities and technologies, such as improved energy efficiency. They also develop damage-reduction technologies and climate-adaptive crop varieties in response to extreme weather, and strengthen disaster management of agricultural facilities and infrastructure by developing and distributing standards for disaster-resistant facility structures.
Preserving a safe agricultural environment. The government is strengthening pest management, including the control of invasive species, and improving agricultural environment management by assessing impacts and vulnerabilities, including soil erosion and quality of agricultural water.
Within the framework of national climate-change adaptation measures, relevant ministries and local governments established detailed implementation plans in 2021 and selected performance indicators for each task to secure implementation. MAFRA conducts an annual survey and research to assess the impacts of and vulnerability to climate change in agriculture and rural areas. The results are evaluated and disclosed every five years.
Domestic policy developments in 2022-23
Reorganisation of the Ministry of Agriculture, Food and Rural Affairs (MAFRA)
MAFRA reorganised itself in December 2022 to prepare for future demands in the agricultural sector. This responds to the objectives declared by the new government: promoting sustainable growth in agriculture, strengthening food security and building a safety net for farms, improving rural spaces, achieving carbon neutrality and enhancing animal welfare.
Within MAFRA, the Agricultural Innovation Policy Office was established and charged with promoting new industries and innovations related to food, such as expanding smart farming, stabilising farm household income, enhancing the provision of public goods, fostering generational renewal and developing new technologies such as alternative meat. The Food Policy Office handles the overall production and distribution of agricultural products and is responsible for ensuring a stable food supply. To actively respond to changes in the policy environment such as increased public interest in animal welfare and the growth of companion animal industry, a new Animal Welfare and Environment Policy Directorate was set up. It is in charge of animal welfare and health such as enforcing the Animal Protection Act and fostering related industries including veterinary service and pet food. The temporary task force team in charge of climate change was converted into a formal organisation, the Rural Carbon Neutrality Policy Division, to promote carbon neutrality in agriculture and rural areas and respond to climate change.
Improving and supplementing the direct payment system
In line with the goals of the direct payment system to stabilise farm household income and promote the public values of agriculture, MAFRA has operated a public service direct payment system since 2020 and revamped the system to strengthen its function.
In October 2022, the laws and regulations relevant for the direct payment system were amended. In particular, conditions related to the requirement of farming have been relaxed, thereby expanding the targeted beneficiary group such that farm households that have engaged in farming but not received direct payments can now receive public service direct payments. In 2023, an additional plan was announced to gradually expand the direct payment system to strengthen food security and realise carbon neutrality in the agricultural sector. This plan includes expanding the production of strategic crops to improve self-sufficiency and facilitating activities to cut carbon emissions in response to climate change. Accordingly, a direct payment system for strategic crops has been introduced to increase the production of major grain crops with low self-sufficiency rates and support the diversification of the rice-centred production structure. The operation management system will be continuously improved to prevent illegal receipt of payment by strengthening on-site inspections and supplementing institutional loopholes.
Medium and Long-term Food Security Plan
In December 2022, MAFRA announced the Medium and Long-term Food Security Plan to prepare for food security-related risks, such as extreme weather events and international market shocks. It endeavours to stabilise the supply and demand of major crops in the event of such shocks. The main goal of this plan is to expand the domestic production and consumption base and secure a stable overseas supply chain of major import commodities such as wheat, soybean and corn, including in times of crisis.
In addition to using the direct payment system to encourage production of strategic crops, the Plan aims to expand integrated production areas for specific products, and systematically manage farmlands necessary for improving food self-sufficiency. It aims to strengthen a domestic consumption base in co-operation with food companies and support them in securing overseas grain distribution channels. In order to expand overseas grain distribution facilities owned by domestic companies, the government plans to promote a low-interest loan support project worth KRW 50 billion (USD 38.7 million) on an annual basis (Korean Government, 2022[2]).
Generational renewal, attracting young farmers and activating smart farming
The Agricultural Innovation and Management Stabilisation Measures were announced in October 2022 and are designed to achieve the goal of 30 000 young farmers by 2027. The measures include strengthened financial support for start-ups beginning from their earliest stages and significantly expand leasing of farmlands to young farmers. A new start-up complex for young farmers is created to facilitate the growth of agricultural start-ups. Gimje and Sangju were recently selected as candidates for the start-up complex. Loans are provided to alleviate the financial burden of young farmers, and housing support is expanded to help young farmers settle in rural communities. The government aims to convert 30% of horticultural facilities and livestock barns into smart facilities, create large-scale smart farm complexes using reclaimed and idle land, and strengthen private-sector-led governance. It supports the distribution of environmental control and data management equipment centred on strawberry, melon and flower greenhouses, and prepares guidelines for each item for smart greenhouse design. It facilitates the development of self-driving agricultural machines and agricultural drones and robots.
The Act on Support for Rural Restructuring and Regeneration
Rural area planning has been institutionalised via the “Act on Support for Rural Restructuring and Regeneration”, enacted in March 2023. The act introduces the concept of rural specialised districts that facilitate systematic and efficient use of rural spaces and enable the zoning of rural areas. Seven types of rural specialised districts can be designated according to need, such as for rural industry, livestock, rural convergence industry, renewable energy, agricultural landscape, agricultural heritage or rural village protection. The central government provides direction for rural spatial planning but local governments take the lead in a bottom-up approach that takes into account regional characteristics and conditions. The central government must set out a long-term vision for the development of rural spaces every ten years and review it every five years. Based on this, local governments formulate their basic plans and comprehensive implementation plans suitable for regional characteristics. A supporting system helps with rural spatial planning through multi-level government policy councils that deliberate on rural space policies and designate organisations to support them.
Measures for advancing the distribution structure of agricultural products
In January 2023, MAFRA announced measures for improving the distribution of agricultural products that transform production areas into hubs for distribution. These measures further expand the scale of distribution, facilitate the digitalisation of trade in agricultural products and create a competitive distribution system.
Under these measures, the government aims to establish 100 smart Agricultural product Processing Centres (APCs) in the major production areas by 2027 and foster integrated production and distribution organisations for the dedicated operation of these centres. These APCs help ensure the production area provides a stable supply of the products that consumers want. A related electronic trading system is under development so that an online wholesale market for agricultural products can be launched by the end of 2023. Starting with vegetables and fruits, this system is gradually expanded to include other products, allowing wholesalers to trade agricultural commodities nationwide. The government supports the digitisation of wholesale market transactions which had previously been operated manually and improves related logistics systems. It also supports the training of experts such as online marketers specialising in agricultural products and establishes an online direct transaction support centre for activating direct transactions between producers and consumers.
Domestic policy responses to Russia’s war of aggression in Ukraine
Financial and tax support was expanded to help with the increased cost of raw materials for industries and farmers. In March 2022, the interest rate on the policy fund for feed and food companies to finance their purchase of raw materials was lowered by 0.5%. In addition, through revised supplementary budgets in May 2022, the government provided special feed purchase funds of about KRW 10.9 billion (USD 8.4 million) for livestock farmers for a limited period and offered KRW 124 billion (USD 96.0 million) to cover part of the increase in fertiliser prices to ease the burden on farms. In addition, the budget to support the purchase of processed raw materials by food companies was increased by about KRW 37 billion (USD 28.7 million), and interest rates on that policy fund were lowered further.
Trade policy developments in 2022-23
A number of free trade agreements (FTAs) have recently entered into force, including the Regional Comprehensive Economic Partnership (February 2022) and FTAs with Israel (December 2022), Cambodia (December 2022) and Indonesia (January 2023). The Korea-Philippines FTA was concluded in October 2021 and domestic ratification procedures are underway. In total, Korea currently has 22 FTAs with 59 countries, and is also negotiating FTAs with Ecuador and with the Gulf Co-operation Council as of March 2023. Korea has dealt with the existing FTAs and the ongoing FTA negotiations in the direction of protecting sensitive agricultural products including rice, guaranteeing sanitation and quarantine rights for public safety and expanding exports of its agricultural products.
Trade policy responses to Russia’s war of aggression in Ukraine
In order to stabilise markets for agricultural products and raw materials, tariff quotas for unhulled barley, wheat hull and root vegetables for feed, which can replace wheat and corn for feed, were expanded. To alleviate upward pressure on prices, an in-quota tariff of 0% was applied to wheat and flour by the end of 2022, and edible oil (soybean oil, sunflower seed oil) and raw materials for inorganic fertiliser (urea, diammonium phosphate) by the end of 2023.
Korea’s economy has been growing dramatically and GDP per capita has more than doubled over the last two decades. Korea is a high-income country with per-capita incomes at twice the average of the countries covered by this report. At 35% of the GDP (2021), trade is an important driver of the economy. In contrast, the share of agriculture’s contribution to GDP fell from 4.3% to 2.0%, and its share of national employment declined from 10.6% to 5.3% during the period of 2000-2021. Although the proportion of agricultural commodities in total exports slightly increased, Korea still remains a large importer of agricultural products (Table 19.3).
Crop production accounted for 58% of the total value of agricultural production in 2021 down from 75% in 2000, due to dietary changes and the diversification of production towards livestock and high-value products (Table 19.3).
After the economic downturn caused by the COVID-19 pandemic, Korea’s economy recovered in 2021, but growth slightly slowed to 2.6% in 2022. The unemployment rate fell from 3.7% to 2.9%, but the inflation rate rose significantly from 2.5% to 5.1% (Figure 19.5). Sound health management and supportive policies helped Korea emerge swiftly from the pandemic. Even prior to the war in Ukraine, inflation had risen mainly because of soaring energy prices and pandemic-induced supply bottlenecks. The war in Ukraine pushed up inflation further (OECD, 2022[3]).
Over the past 20 years, both agro-food imports and exports in Korea have shown a steady increase. However, the agro-food import value is more than three times bigger than the agro-food export value. In 2021, agro-food imports exceeded USD 30 billion for the first time. While over 87% of agro-food exports are products for final consumption, about 50% of agro-food imports are used for final consumption. Key imported agricultural commodities include maize, soybeans and wheat for animal feed (Figure 19.6).
At 1.3% per year, total factor productivity (TFP) growth in Korea was slightly higher than the global average over the period of 2011-20. As the declining use of primary factors was only partly offset by higher use of intermediary inputs, agricultural output grew more slowly over the last decade (Figure 19.7).
The average nitrogen and phosphorus surpluses remain well above OECD averages and have not changed significantly over the last two decades. The share of agriculture in water abstractions also remains high compared to the OECD average, due to the high proportion of rice paddy fields in agricultural land areas, and water stress has been increasing and remains very high compared to other OECD countries. The annual GHG emissions from the agricultural sector accounted for 3% of total emissions, well below the OECD average of 10.5% (Table 19.4).
References
[2] Korean Government (2022), The Medium and Long-term Food Security Plan.
[1] Korean Government (2020), The 3rd National Climate Change Adaptation Plan 2021-25.
[3] OECD (2022), OECD Economic Surveys : Korea 2022, OECD Publishing, Paris, https://doi.org/10.1787/20bf3d6e-en.