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SummarySouth Korea is a major international economic power. It is the 12th largest economy in the world and the third largest in Asia, behind only China and Japan. South Korea is a developed country, with high incomes. This is a result of being one of the world’s fastest growing economies from the early 1960s through to the late 1990s.

At a glance

» Australia and South Korea are strongeconomic, political and strategicpartners. South Korea is Australia’sfourth largest two-way trading partner.

» South Korea is a stable and reliablemarket for Australian wheat.Australia’s average wheat (milling andfeed) exports to South Korea from2011-15 was 1.4mt, valued at A$430m,making it Australia’s third largestwheat market over this period.

» Between 2011 and 2015, SouthKorea’s total annual milling wheatimports averaged 2.3mt with the US,Australia and Canada being the largestsuppliers, accounting for 49 per cent,43 per cent and 8 per cent of marketshare, respectively.

» South Korea is Australia’s largest marketfor malt and is an important market forAustralian malting barley. Australia’smalting barley accounts for 95 per centof South Korea’s total imports.

South KoreaA focus for Australianwheat and barley exports

FACT SHEET AEGIC GLOBAL GRAIN REPORT

During 2015, the South Korean population was estimated at 50.6 million people and is expected to grow to 51.7 million by 2020.

As one of Australia’s strongest economic, political and strategic partners, South Korea is Australia’s third largest export market — ahead of India and the US.

Australia is the fourth largest supplier of agricultural products to South Korea accounting for approximately 10 per cent of the country’s total agricultural imports. In addition to grains, South Korea is a major market for Australian beef, offal and sugar.

South Korean Free Trade Agreement (FTA)

Since the FTA Roadmap was established in in 2003, South Korea has actively pursued FTAs with key trading partners. So far, South Korea has signed and implemented 11 agreements with 49 countries, including Australia.

The Korea-Australia Free Trade Agreement (KAFTA) was signed in Seoul on 8 April 2014 and entered into effect on 12 December 2014. Under the KAFTA, customs duties on most agricultural commodities from Australia are

The full version of this report is available to AEGIC stakeholders in Australia: admin@aegic.org.au

to be progressively reduced to zero during a maximum 20-year period. Tariffs on some products were eliminated immediately, including tariffs on wine and wheat (excluding seed).

Local production of grains

In South Korea, local production of wheat and barley is small. Local grains production has also been impacted by the liberalisation of the Korean market, which was opened to overseas competition. The country’s current average grain production is 35,000t per year of wheat (2015) and 90,000 tonnes of barley (2013) (Source: Statistics Korea).

South Korea is, therefore, highly dependent on imports of wheat, barley and malt. Food security and price stabilisation of primary agricultural products for human consumption are very important and the Korean government, through its agencies, plays a significant role best illustrated by its10 year plan for overseas agricultural development. This plan provides financial support to Korean companies for agriculture research as well as support for overseas investment to ensure Korea’s food security.

Wheat

South Korea is a stable and reliable market for Australian wheat. It is the third largest export market (between 2011-2015) for Australia’s wheat industry in both volume and value.

South Korea typically sources between 750,000t and 900,000t per annum of Australian Standard White (ASW) noodle blend wheat [special bend with 30 per cent Australian Noodle (ANW) and 70 per cent Australian Premium White (APW)] from Western Australia. This wheat blend accounts for more than 80 per cent of Australia’s milling wheat exports to South Korea.

Per capita wheat consumption in South Korea has remained flat, within the range of 31–35kg per capita per annum for almost 20 years.

South Korea’s wheat market is deregulated. However, Korea Flour Mills Industrial Association (KOFMIA) members collectively buy imported wheat. The KOFMIA membership comprises eight flour milling companies who operate 11 flour mills throughout the country.

Imported feed wheat is used in compound feed for livestock production. The volume imported varies as South Korean purchasers have the flexibility to switch feed ingredients between corn and wheat depending upon price and nutritional value. The price of corn (which is four times higher than wheat, in terms of tonnage) relative to other commodities is a primary driver in this decision process. Ukraine has been a major supplier of feed-grade wheat, followed by EU countries such as France, Denmark and Bulgaria.

Structure of South Korean wheat industry

About 60–70 per cent of flour is used for noodles, with instant noodles accounting for 60–75 per cent of all noodles consumed in South Korea. Baked goods account for 30–35 per cent of the flour market. The baked goods sector can be further roughly divided into: 20 per cent bread, 10 per cent cake and 5 per cent pastries.

Consumers are cooking less at home because of busier lifestyles and, consequently, are shifting from dried to instant noodles, as well as chilled noodles to reduce cooking time. With regards to baked goods, the small bakery chains supplying premium products have the greatest growth prospects. The overall bakery market is not expected to change significantly, rather the market share of each type of bakery (franchise versus boutique) will shift.

South Korean feed grain market

South Korea imports approximately 10mt of feed grain, dominated by corn and feed wheat. Feed wheat is primarily imported from Ukraine and the EU. Imports from Ukraine accounted for approximately half of total feed wheat imports which totalled 1.6 million tonnes in 2015.

Key organisations in the feed grain market in South Korea include the Korea Feed Association (KFA), Nonghyup Feed Inc. (NOFI) and the National Agricultural Cooperative Federation (NACF).

Barley and malts

South Korea is a reliable buyer of Australian malts and is Australia’s biggest customer (a 5-year average from 2011 to 2015) in volume and value.

Malt imports are expected to grow steadily as the South Korean beer market is still growing with consumer demand for 100 per cent malt beer increasing. But, it is recommended to pay attention to how much the growth of imported beer and health trends among consumers will influence domestic beer production.

Australian malting barley accounts for up to 95% of the market’s requirements and is our third largest market (a 5-year average from 2011 to 2015) in volume and value.

In July 2014, the South Korean government announced that the origin of ingredients had to be shown on beer labels. As a result, one leading beer company had stopped using Chinese malts for domestic beer and had increased their import of malts from EU in 2016 due in part to price relativities. They have also reported that container freight from EU to South Korea had been competitive.

Beer market in South Korea

Beer sales in South Korea totalled 2.1 million kilolitres in 2015. Beer remains the most consumed alcoholic beverage in the country, accounting for 50 per cent of overall alcohol beverage sales by value (or 54 per cent by volume) in 2015. Due to a forecast of further slowdown in beer sales, total beer consumption is expected to grow marginally by 8 per cent (1.6 per cent per annum) in volume from 2015 to 2020. Dark beer and imported premium lager are expected to grow during this period, with consumers set to continue to try new flavours and brands.

The market for beer is expected to become more diversified as tastes and incomes change, with increased consumption of craft beer.

Australian Export Grains Innovation CentrePERTH: 3 Baron-Hay Court, South Perth, Western Australia 6151 P: +61 (08) 6168 9900 E: admin@aegic.org.au

SYDNEY: 1 Rivett Road, Riverside Corporate Park, North Ryde, New South Wales 2113 P: +61 (02) 8025 3200

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For more information contact:

Mr Matt YamamotoProgram Leader - Japan, Korea, China P: +61 (08) 6168 9900 E: matt.yamamoto@aegic.org.au

AEGIC is an initiative of the Western Australian State Government and Australia’s Grains Research and Development Corporation

Table 1. South Korean wheat imports for milling (‘000 tonnes)

Country 2011 2012 2013 2014 2015

United States 1253 1171 1090 1068 1106Australia 990 1027 952 1019 1042Canada 197 178 169 166 201Turkey 0 0 0 2 3France 0 0 0 1 3Total 2439 2376 2212 2256 2355

Source: Korean Customs

Table 2. South Korean malt (not roasted) imports (‘000 tonnes)

Country 2011 2012 2013 2014 2015

Australia 140 134 128 158 159Canada 30 37 28 42 29UK 9 8 7 12 14Belgium 0 0 0 0 10Denmark 0 0 0 4 9France 0 0 0 1 4China 15 13 14 12 3Germany 1 1 1 2 2Total 196 200 181 245 234

Source: Korean CustomsNOVEMBER 2016