Voluntary Report - public distribution

**Date:** 8/11/2006

**GAIN Report Number:** KS6088

KS6088

**Korea, Republic of**

**Grain and Feed**

**The Changing Structure of the Korean Rice Market**

**2006**

**Approved by:**

![](media/image1.wmf)Susan Phillips

U.S. Embassy

**Prepared by:**

Betty Yim / FAS Intern

**Report Highlights:**

The Korean rice market has been characterized by protectionist policies
dating back to the period of time following the Korean War. The policies
have resulted in creating a situation today in which the domestic rice
market is completely dependent on government support and unable to
compete in the world market. Despite the pattern of government practices
in the past, both international and domestic pressures are currently
pushing the rice market to liberalize. The inevitable liberalization of
Korea\'s rice market will result in increased opportunities for U.S.
rice exporters.

Includes PSD Changes: No

Includes Trade Matrix: No

Unscheduled Report

Seoul \[KS1\]

\[KS\]

Table of Contents

[I. Executive Summary 3](#i.-executive-summary)

[II. Rice Policies 3](#ii.-rice-policies)

[A. WTO Market Access Agreements 3](#a.-wto-market-access-agreements)

[Table 1: Allocation of the MMA for 2005-2014 (unit: tons, milled rice)
4](#table-1-allocation-of-the-mma-for-2005-2014-unit-tons-milled-rice)

[Total 4](#total)

[B. Domestic Policies: Revisions of the Rice Income Compensation Act and
the Food Grain Management Act
4](#b.-domestic-policies-revisions-of-the-rice-income-compensation-act-and-the-food-grain-management-act)

[III. Production 5](#iii.-production)

[Table 2: Area, Yield and Production of Rice in Korea
6](#table-2-area-yield-and-production-of-rice-in-korea)

[Table 3: Major Rice Varieties Harvested (2003)
6](#table-3-major-rice-varieties-harvested-2003)

[Table 4: Rice Utilization Pattern (1,000 tons)
7](#table-4-rice-utilization-pattern-1000-tons)

[IV. Distribution 7](#iv.-distribution)

[A. Distribution Through RPCs and DSCs
7](#a.-distribution-through-rpcs-and-dscs)

[Table 5: Rice Processing Complexes by Province and Governance
8](#table-5-rice-processing-complexes-by-province-and-governance)

[Relationship Between RPCs, Farmers and Middlemen
8](#relationship-between-rpcs-farmers-and-middlemen)

[Chart 1: NACF's RPC Rice Distribution Channel:
8](#chart-1-nacfs-rpc-rice-distribution-channel)

[Chart 2: Private RPC Rice Distribution Channel
9](#chart-2-private-rpc-rice-distribution-channel)

[B. Distribution of Imported Rice 9](#b.-distribution-of-imported-rice)

[1. Eligibility 9](#eligibility)

[2. The Reference Price 10](#the-reference-price)

[V. Consumption 10](#v.-consumption)

[A. Domestic Rice 10](#a.-domestic-rice)

[1. Trends 10](#trends)

[2. Rice Brands 11](#rice-brands)

[Table 6: Top Three Hypermarket Rice Brands and Sales
12](#table-6-top-three-hypermarket-rice-brands-and-sales)

[B. Imported Rice 13](#b.-imported-rice)

[Table Rice 13](#table-rice)

[Rice for Processing 13](#rice-for-processing)

[Table 7: 2005 Rice Supply for Processing Purposes
13](#table-7-2005-rice-supply-for-processing-purposes)

[Table 8: KRFA Imported Rice Supply for Processing Purposes (unit: tons)
14](#table-8-krfa-imported-rice-supply-for-processing-purposes-unit-tons)

[Market Response 14](#market-response)

[VI. Further Information 15](#vi.-further-information)

# I. Executive Summary

Between 1970 and 1990, export-led industrialization transformed South
Korea into what is today the tenth largest economy in the world.[^1] The
economic transformation of Korea is clearly depicted in the declining
importance of the country's agricultural sector. Agriculture as a share
of GDP fell from 40 percent in the 1960s to less than 5 percent in the
early 2000s.[^2] In the late 1960s, 70 percent of the Korean population
was engaged in rural farming. By 2004, this number had decreased to only
7.1 percent.[^3]

While Korea liberalized many of its markets in the process of
industrialization, the domestic rice market has been characterized by
protectionist policies dating back to the period of time following the
Korean War. While the government's intent was to support rice farmers as
the country rapidly moved towards becoming a modern, industrialized
nation, the resulting protectionism has created a situation today in
which the domestic rice market is completely dependent on government
support and unable to compete in the world market.

Throughout three regimes from 1950 to 1986, the Korean government sought
to enhance farm incomes and ensure food self-sufficiency for the
country.[^4] The government aggressively pursued this goal by
subsidizing the rural sector with high procurement prices for grains
such as rice.[^5] The government also placed limitations on the
household and industrial uses of rice. As a result, rice production rose
sharply during this period, and the average rural household income
approached that of the average urban household's[^6].

Today, Korea produces close to five million tons of milled rice for
consumption annually. Farmers produce more than 170 varieties of short
grain rice, and over 1,900 different rice brands exist in the domestic
rice market. Rice consumption per person rose sharply throughout the
1960s and 1970s, but has fallen in recent years due to changes in eating
habits. Faced with the current problem of declining rice consumption
among its population, the Korean government has tried to revise its
domestic rice policies to support farm incomes while simultaneously
encouraging farmers to reduce the areas where rice is planted.[^7]

Despite the pattern of government practices in the past, both
international and domestic pressures are currently pushing the rice
market to liberalize. In 1994, the WTO set Korea on a 1o-year path in
which Korea was scheduled to gradually increase the level of rice
imports. In turn, the Korean government began changing domestic policies
to prepare the rice market for liberalization by encouraging farmers to
reduce production and plant higher quality varieties. In 2004, Korea
received a 10-year extension to continue the Minimum Market Access
Import Quota for imported rice.

The inevitable liberalization of Korea's rice market will result in
increased opportunities for U.S. rice exporters. In order to
successfully market U.S. rice to Korean consumers, a thorough
understanding of the history, policies, production, distribution, and
consumption trends of Korean rice is necessary in a market that is still
largely unfamiliar with imported rice.

# II. Rice Policies

## 

## A. WTO Market Access Agreements

Until the 1989 GATT meeting when countries challenged Korea's rice
import restrictions, Korea had claimed developing country status, and
had argued for the necessity of restrictions on rice imports to protect
the uniqueness of rice and rice farming in Korea's economy as well as
culture.[^8] During the 1994 Uruguay Round (UR) of WTO negotiations,
this notion was successfully challenged and Korea agreed to establish a
Minimum Market Access (MMA) quota for rice for a 10-year period.[^9] In
addition, Korea agreed to remove all non-tariff barriers, including
import quotas, by January 1, 2005. At a minimum, Korea promised to
increase rice imports from zero to four percent of domestic consumption
to prepare the rice market for liberalization. Under the agreement, no
rice would be sold directly to consumers; rather, imported rice would
only be used for processed foods.[^10]

In December 2004, Korea was granted a 10-year extension for the
tariffication of rice imports. The extension called for Korea to double
its total rice imports over the next 10 years (from 4 percent to about 8
percent of total consumption), increasing the MMA quota from 225,575
tons in 2005 to 408,698 tons by 2014. Along with Country-Specific Quota
(CSQ) commitments to purchase minimum amounts of imports from China,
Thailand, and Australia, Korea also agreed to purchase at least 50,076
tons of U.S. rice each year for the next 10 years (See Table 1). A
separate Most Favored Nation (MFN) quota was established to which all
countries had access, including the CSQ countries. Under the extension
agreement, imported rice would be available for retail sales to Korean
consumers for the first time. The extension was approved by WTO in April
2005 and ratified by the Korean National Assembly in November 2005.

Although the MMA import quota will almost double in size by 2014, there
is no provision for imports above the quota. Tariffs within the quota
will remain at five percent. Korea has the right to terminate the
minimum-access quota and move to the tariff-rate quota at the beginning
of any year between 2005 and 2014.[^11] If the MMA is terminated, the
CSQ volumes will be converted to the global quota on an MFN basis.

#####  Table 1: Allocation of the MMA for 2005-2014 (unit: tons, milled rice)

+---------+-------+-------+-------+------+-------+--------+---------+
| **C     | ##    | **MFN | **Co  |      |       |        |         |
| alendar | Total | Qu    | untry |      |       |        |         |
| Year**  |       | ota** | Spe   |      |       |        |         |
|         |       |       | cific |      |       |        |         |
|         |       |       | Quota |      |       |        |         |
|         |       |       | (CS   |      |       |        |         |
|         |       |       | Qs)** |      |       |        |         |
+---------+-------+-------+-------+------+-------+--------+---------+
|         |       |       | **To  | **U  | **Ch  | **Thai | **Aust  |
|         |       |       | tal** | SA** | ina** | land** | ralia** |
+---------+-------+-------+-------+------+-------+--------+---------+
| 2005    | 22    | 2     | 20    | 50   | 11    | 29,963 | 9,030   |
|         | 5,575 | 0,347 | 5,228 | ,076 | 6,159 |        |         |
+---------+-------+-------+-------+------+-------+--------+---------+
| 2006    | 24    | 4     | 20    | 50   | 11    | 29,963 | 9,030   |
|         | 5,922 | 0,694 | 5,228 | ,076 | 6,159 |        |         |
+---------+-------+-------+-------+------+-------+--------+---------+
| 2007    | 26    | 6     | 20    | 50   | 11    | 29,963 | 9,030   |
|         | 6,269 | 1,041 | 5,228 | ,076 | 6,159 |        |         |
+---------+-------+-------+-------+------+-------+--------+---------+
| 2008    | 28    | 8     | 20    | 50   | 11    | 29,963 | 9,030   |
|         | 6,616 | 1,388 | 5,228 | ,076 | 6,159 |        |         |
+---------+-------+-------+-------+------+-------+--------+---------+
| 2009    | 30    | 10    | 20    | 50   | 11    | 29,963 | 9,030   |
|         | 6,963 | 1,735 | 5,228 | ,076 | 6,159 |        |         |
+---------+-------+-------+-------+------+-------+--------+---------+
| 2010    | 32    | 12    | 20    | 50   | 11    | 29,963 | 9,030   |
|         | 7,310 | 2,082 | 5,228 | ,076 | 6,159 |        |         |
+---------+-------+-------+-------+------+-------+--------+---------+
| 2011    | 34    | 14    | 20    | 50   | 11    | 29,963 | 9,030   |
|         | 7,657 | 2,429 | 5,228 | ,076 | 6,159 |        |         |
+---------+-------+-------+-------+------+-------+--------+---------+
| 2012    | 36    | 16    | 20    | 50   | 11    | 29,963 | 9,030   |
|         | 8,004 | 2,776 | 5,228 | ,076 | 6,159 |        |         |
+---------+-------+-------+-------+------+-------+--------+---------+
| 2013    | 38    | 18    | 20    | 50   | 11    | 29,963 | 9,030   |
|         | 8,351 | 3,123 | 5,228 | ,076 | 6,159 |        |         |
+---------+-------+-------+-------+------+-------+--------+---------+
| 2014    | 40    | 20    | 20    | 50   | 11    | 29,963 | 9,030   |
|         | 8,698 | 3,470 | 5,228 | ,076 | 6,159 |        |         |
+---------+-------+-------+-------+------+-------+--------+---------+

Source: Ministry of Agriculture and Forestry

## B. Domestic Policies: Revisions of the Rice Income Compensation Act and the Food Grain Management Act 

Prior to 2005, the government purchased rice from farmers at favorable
prices, which subsidized farmers and raised rice production levels
across the country.[^12] Mounting external pressures to liberalize the
rice market, coupled with decreases in domestic rice consumption, pushed
the Korean government to revise its rice policies to facilitate the
changes in the rice market. In March 2005, the Korean National Assembly
revised the Rice Income Compensation Act and the Food Grain Management
Act. The revisions were aimed to reduce government price supports under
the WTO domestic support limits while continuing to provide support for
rice farmers.

Revisions to the Rice Income Compensation Act (RICA) in March 2005
established two kinds of payments for rice farmers. Rice farmers became
eligible to receive both types of payments simultaneously.

> 1\. A fixed payment of 600,000 won/hectare (about 625.33USD)[^13]
> annually for rice farmers as compensation for maintaining rice paddies
> to benefit the public.

2.  A flexible price for rice that is paid to farmers. If the price
    falls below the target price (based on the average price for the
    past three years) fixed by the government, the government will pay
    farmers 85 percent of the difference between the target and market
    price for rice purchases made by the government. This payment
    excludes the amount of the fixed direct payment for rice income
    compensation. The target price was 2,126 won per kilogram (2.08USD)
    in 2005, and is applicable for crop years 2005 to 2007.[^14] The
    government will revise the target price every three years through a
    review process by the National Assembly.

The revised RICA also set guidelines for the registration of land area
and beneficiaries, and established a fund for rice income compensation.

Revisions to the Grain Management Act (GMA) in March 2005 replaced the
GMA with the Public Storage System for Emergency (PSSE), which
eliminated the government procurement system that had supported rice
farmers since 1948. The revised plan stated that the government could
purchase rice for the purposes of food security stocks at the market
price during harvest time, and sell older stocks after harvest at market
prices.[^15]

# III. Production 

Korea produces close to five million tons of milled rice annually. Rice
consumption in Korea has dramatically decreased by 3.7 percent per year
on average since 1990, and in recent years, rice production has
progressively declined following the decrease in domestic rice
consumption. Korean per capita consumption of rice is likely to continue
decreasing as patterns in consumers' diets change.

# 

Farmers who once reduced rice planting as participants in the
government's rice area reduction program from 2003 to 2005 are now
indicating an intent to return to original levels of rice cultivation in
2006 in response to the government\'s decision to discontinue the Direct
Payment for Adjustment of Rice Production in 2006. This program had
offered 3 million won (approximately 3,127USD)[^16] to farmers who
refrained from cultivating commercial crops on previously existing rice
acreage from 2003 to 2005.

##### 

#####  

##### Table 2: Area, Yield and Production of Rice in Korea

+-------------+-----------------+-------------------+-----------------+
| **Crop**    | **Area**        | **Yield**         | **Production**  |
|             |                 |                   |                 |
| **Year**    | **(1,00HA)**    | **(KG/10A)**      | **(Milled,      |
|             |                 |                   | 1,000 MT)**     |
+-------------+-----------------+-------------------+-----------------+
| 1965        | 1,228           | 289               | 3,501           |
+-------------+-----------------+-------------------+-----------------+
| 1970        | 1,203           | 330               | 3,939           |
+-------------+-----------------+-------------------+-----------------+
| 1975        | 1,218           | 386               | 4,669           |
+-------------+-----------------+-------------------+-----------------+
| 1980        | 1,233           | 298               | 3,550           |
+-------------+-----------------+-------------------+-----------------+
| 1985        | 1,237           | 456               | 5,626           |
+-------------+-----------------+-------------------+-----------------+
| 1990        | 1,244           | 451               | 5,606           |
+-------------+-----------------+-------------------+-----------------+
| 1995        | 1,056           | 445               | 4,694           |
+-------------+-----------------+-------------------+-----------------+
| 2000        | 1,072           | 497               | 5,291           |
+-------------+-----------------+-------------------+-----------------+
| 2001        | 1,083           | 516               | 5,515           |
+-------------+-----------------+-------------------+-----------------+
| 2002        | 1,053           | 471               | 4,927           |
+-------------+-----------------+-------------------+-----------------+
| 2003        | 1,016           | 441               | 4,451           |
+-------------+-----------------+-------------------+-----------------+
| 2004        | 1,001           | 504               | 5,000           |
+-------------+-----------------+-------------------+-----------------+
| 2005        | 980             | 490               | 4,768           |
+-------------+-----------------+-------------------+-----------------+
| 2006e       | 975             | 487               | 4713            |
+-------------+-----------------+-------------------+-----------------+

Note: e = estimate

#####  Table 3: Major Rice Varieties Harvested (2003)

  --------------- ------------- ----------------- -----------------------
  **Varieties**   **Area (ha)** **Rate (%)**      **Harvest Season**

  Nam-Pyung       170,263       16.76             Oct.-Early Nov.

  Chu-Chung       113,169       11.14             Oct.-Early Nov.

  Il-Mee          111,126       10.94             Oct.-Early Nov.

  Ju-Nam          89,642        8.82              Oct.-Early Nov.

  Il-Poom         81,696        8.04              Oct.-Early Nov.

  Dong-Jin 1      75,494        7.43              Oct.-Early Nov.

  Dona-An         49,522        4.87              Oct.-Early Nov.

  O-Dae           46,566        4.58              Sep.

  New Chu-Chung   40,953        4.03              Oct.-Early Nov.

  Hwa-Young       32,511        3.20              Early Oct.

  Soo-Ra          30,179        2.97              Early Oct.

  Hwa-Sung        22,195        2.18              Early Oct.

  Dae-An          20,793        2.04              Oct.-Early Nov.

  New Dong-Jin    15,791        1.55              Oct.-Early Nov.

  Hwa-Bong        12,238        1.20              Early Oct.

  Joong-Hwa       10,421        1.03              Sep.

  Others^1^       93,471        9.22              Sep.-Early Nov.

  Total           1,016,030                       
  --------------- ------------- ----------------- -----------------------

Note: 1/Composed of 56 cultivars harvested in September, 50 cultivars
harvested in early October and 48 cultivars harvested in October --
early November, respectively.

Source: Ministry of Agriculture and Forestry (MAF)

##### 

##### Table 4: Rice Utilization Pattern (1,000 tons)

  --------------------- ----------- ----------- -------------- --------------
  **Rice Year (Nov.-    **MY        **MY        **MY           **MY
  Oct.)**               2002/03**   2003/04**   2004/05^1^**   2005/06^2^**

  Beginning Stocks      1,447       1,099       1,037          1,001

  Production            4,927       4,451       5,000          4,768

  Import                180         205         226            246

  Total Supply          6,554       5,755       6,263          6,015

  Table Rice            3,987       3,952       3,897          3,850

  Processing            313         335         456            494

  Seed                  44          43          42             42

  Others included loss  711         283         467            467

  Total Demand          5,055       4,613       4,862          4,853

  Export^3^             400         105         400            NA

  Ending Stock          1,099       1,037       1,001          1,162

  Total Distribution    6,554       5,755       6,263          6,015

  Per Capita            84.3        82.2        80.7           79.4
  Consumption (Kg)^4^                                          

  Population (1,000)    47,926      48,082      48,294         48,500

  Self-Sufficient Rate  97.5        96.5        102.8          98.2
  (%)^5^                                                       

  Ending Stocks Rate    21.7        22.5        20.6           24.0
  (%)^6^                                                       
  --------------------- ----------- ----------- -------------- --------------

Note: 1/ MAF's Preliminary. 2/ MAF's forecast. 3/ Food aid to the DPRK
on the long-term credit. 4/ Based on table rice. 5/ Production-Total
Demand rate. 6/ Ending stock-Total Demand rate.

######## Source: Ministry of Agriculture and Forestry

######## 

# IV. Distribution

## 

## A. Distribution Through RPCs and DSCs

From 2001 to 2002, the Korea Rural Economic Institute found that Korean
rice farmers consumed 28 percent of total rice production and sold the
remaining rice to the market through various distribution channels. They
also preferred selling paddy rice to rice processing complexes (RPCs)
rather than dealing with rice distribution agents, traditional milling
companies, or regional rice collectors.

Since 1991, the Korean government began increasing the functions and
roles of RPCs as centers for rice distribution and in response to
increased competition arising from rice imports. From 1991 to 2001, a
total of 328 RPCs were established across the nation. The Korean
government also created a budget to establish drying and storage centers
(DSCs) for the storage of paddy rice. To date, a total of 639 DSCs have
been established since 1995 with plans to establish an additional 619
DSCs by 2010.

Each individual RPC has created multiple brand names under which they
sell rice to consumers. As a result, the retail market for domestic rice
presently consists of more than 1,900 different rice brands.

#####  Table 5: Rice Processing Complexes by Province and Governance

  ----------------------- ------------- ----------------- -------------------
  **Location/Province**   **NACF^1^**   **Private**       **Total**

  Suburbs of City         8             6                 14

  Kangwon                 10            6                 16

  Kyunggi                 29            9                 38

  Kyungnam                15            12                27

  Kyungbuk                17            18                35

  Chunnam                 38            31                69

  Chunbuk                 30            20                50

  Chungnam                36            15                51

  Chungbuk                17            11                28

  Total                   200           128               328
  ----------------------- ------------- ----------------- -------------------

Note: 1/National Agricultural Cooperative Federation, a
quasi-governmental agency

Source: Ministry of Agriculture and Forestry

### Relationship Between RPCs, Farmers and Middlemen

RPCs are either managed by members of a quasi-governmental organization
called the National Agricultural Cooperative Federation (NACF) or by
private owners. In both instances, RPCs sign contracts with rice farmers
between February and April of every year. Both parties agree on the
quality and variety of paddy rice that will be provided to the RPC for
milling purposes. RPCs pay farmers a 2,000 KRW (approximately
2.07USD)[^17] premium per 40 kg of rice based on the stipulations of the
signed contract.

Business is conducted with rice middlemen based on trust. At the time
that middlemen purchase milled rice from RPCs, they offer collateral to
the RPC. The actual payment for the milled rice is made one month after
the initial purchase of the rice.

##### Chart 1: NACF's RPC Rice Distribution Channel:

![](media/image2.wmf)

##### Chart 2: Private RPC Rice Distribution Channel

![](media/image3.wmf)

## B. Distribution of Imported Rice 

### 1. Eligibility

The official sales of imported rice began in April 2006 through a system
of online rice auctions managed by the Korea Agro-Fishery Trade
Corporation. At that time, there were only 90 eligible bidders and out
of that amount, only 45 actually registered to bid. Due to the initially
low sales of U.S. and Thai rice, the government changed the original
rules to allow all grain sellers and specialists to become eligible to
bid, thereby removing the cap that was originally set on total sales
required for eligible bidders. As a result, by July 2006, there was an
estimated 2,700 eligible bidders with 283 actually registered to bid.

Announcements for the auction are placed on the Korea Agro-Fishery Trade
Corporation's website and text messages are sent to bidders one day
prior to the auction. Bidders who plan to bid must submit their bid
bonds one day prior to the auction. Bid bonds must be five percent of
the total amount that the bidder wishes to purchase. Because bidders are
not certain about how much rice they will purchase, they will usually
deposit an amount higher than five percent for the bid bond. The number
of eligible bidders is determined by how many deposits have been made
for bid bonds.

### 2. The Reference Price

The reference price (or auction floor price) exists to prevent collusion
among buyers, and is solely determined by the Korea Agro-Fishery Trade
Corporation on the date of the auction. The reference price is usually
close to the domestic price of rice (75 to 80 percent of the domestic
price)[^18] and is based on the following factors:

1.  Estimated price determination: This is derived by conducting a
    nation-wide survey by showing samples of rice to various grain
    specialists. In determining the estimated price, specialists
    consider the taste and quality (compared to Korean rice) of the
    imported rice. The specialists may or may not be bidders in the
    auction. The estimated price is determined only when necessary and
    does not change with every auction.

2.  Previous tender results

3.  The observed market response from previous sales

The actual bidding process is conducted three times a week through the
Internet from 9 a.m. to 11 a.m. Winners are determined at the end of the
auction or tendering period. Any bidder that bids over the floor price
is considered a winner.

# V. Consumption 

## A. Domestic Rice

### 1. Trends

Due to changes in consumers' dietary habits, rice consumption in Korea
has continued to decrease at an average rate of 0.3 percent in the
1970s, 1 percent in the 1980s, and 3.7 percent in the 1990s. The
decrease in rice consumption is associated with a variety of factors
including: increases in income and the accompanying alternatives to rice
such as meat; increasing adoption of Western foods; and a greater number
of people eating outside of the home[^19]. In 2005 and 2006, per capita
table rice consumption is expected to continue to decrease by 1.6
percent from the 80.7 kg of rice consumed in 2004 and 2005.

In 2006 and 2007, per capita table rice consumption is projected to
decrease by less than 1 percent to 78.7 kg[^20]. The projection is based
on recent government efforts to encourage consumers to consume more rice
as opposed to other products.

Income strongly influences Korean consumers' rice consumption patterns.
A recent study revealed that 45 percent of Korean consumers considered
taste, 27 percent considered price, and 21 percent considered safety as
the most important factor when purchasing rice; but consumers tended to
place greater importance on taste and food safety concerns over price
with increases in incomes[^21].

Greater numbers of Koreans are consuming rice outside of the home than
ever before. According to a survey conducted by the Korea Rural Economic
Institute, consumption of rice at home accounted for 69 percent of total
rice consumption, while consumption of rice outside of the home
accounted for 31 percent in 2001. Of the 31 percent of rice consumed
outside of the home, 19 percent was consumed in restaurants and 12
percent in food institutions such as schools and cafeterias in
corporations.

A different survey found that 62 percent of the households surveyed in
Seoul purchased rice from retail stores while the remainder purchased
rice directly from farms. About 76 percent of households that purchased
rice from retail stores visited the stores directly, while 21 percent
purchased rice by telephone order and one percent purchased rice through
the Internet[^22].

Eighty percent of those surveyed purchased 20 kg packages for 1-1.5
month cycles, followed by 12 percent who regularly purchased 10 kg bags,
and 4 percent who regularly purchased 40 kg bags of rice. Those surveyed
placed more weight on the labeling information found on the packages
above crop location (39.3 percent), variety (19 percent), the appearance
of the rice (9.9 percent), and the crop year (8.1 percent).

### 2. Rice Brands 

With the recent spread of RPCs, the number of domestic rice brands has
significantly increased to approximately 1,900 brands as each RPC may
have up to three to four of their own brands that they sell to retail
markets. Each time an RPC introduces a new variety of rice or a new
technology for rice milling, the resulting rice is usually sold under a
new brand name. The decision to keep a certain brand name is based on
its degree of popularity among consumers. If brand awareness does not
developed for a certain brand, the RPC develops a new rice brand.

Rice brands are chosen by RPCs based on characteristics of the variety,
new technology employed for processing, or regional characteristics of
the rice farm from which the rice originated. RPCs work with design
companies to prepare both the wording and design of the rice brands.

The numerous rice brands in Korea's domestic rice market have caused
inefficiencies in terms of increased costs associated with brand
development and the loss of competitiveness due to the lack of brand
awareness. Because the existence of so many domestic rice brands places
Korean rice at a disadvantage in the face of increased rice imports, the
Korean government has recently encouraged RPCs to develop unified rice
brands on the basis of county or province. RPCs have been regionally
relocating for this purpose.

##### 

Regarding existing research on Korean rice brands, the Korea National
Council of Consumer Organizations conducts a yearly Rice Brand
Evaluation[^23]. The evaluation produces a "Top 12" list of rice brands
based on both expert and consumer tests and surveys. The inconsistency
of rice brands in the Top 12 lists from year to year indicates that
little can be concluded about rice brands other than the fact that vast
numbers of brands exist. Loyalty to a certain rice brand may arise more
out of purchasing convenience (or constraints of distribution) rather
than from personal preference for a particular brand of rice[^24].

To gain a better understanding of the characteristics of today's retail
sales of domestic rice, telephone interviews were conducted with three
hypermarkets that cover more than 70 percent of the market share in
Korea. The following is a compilation of the rice brands sold in each
hypermarket, their brand origination, and prices:

#####  Table 6: Top Three Hypermarket Rice Brands and Sales

+--------+------------------------------+------------+---------------+
| **Hy   | **Rice Brands Sold And       | **Brand    | **Price per   |
| per-Ma | Prices**                     | Ori        | 20kg**        |
| rket** |                              | gination** |               |
|        |                              |            | **unit        |
|        |                              |            | =KRW/USD^1^** |
+--------+------------------------------+------------+---------------+
| **     | Hatssal Hangonggi            | Regional   | 35,000 =      |
| Lotte- |                              | Brand      | 36.54         |
| Mart** | Rice from Nature             |            |               |
|        |                              | Regional   | 35,500 =      |
|        | HamYeol NACF Clean Rice      | Brand      | 37.06         |
|        |                              |            |               |
|        | Beolgyo Nonsan Long Life     | Regional   | 39,800 =      |
|        | Clean Rice                   | Brand      | 41.55         |
|        |                              |            |               |
|        | Saman Dasarang Rice          | Regional   | 39,800 =      |
|        |                              | Brand      | 41.55         |
|        | Nongso NACF Chambit Gowun    |            |               |
|        | Rice                         | Regional   | 39,800 =      |
|        |                              | Brand      | 41.55         |
|        | Hamyeol NACF Lotte Ilpoom    |            |               |
|        | Clean Rice                   | Regional   | 39,800 =      |
|        |                              | Brand      | 41.55         |
|        | Haejae NACF Chilsan Sea      |            |               |
|        | Reclamation Land Rice        | Private    | 49,800 =      |
|        |                              | Brand      | 51.99         |
|        | Galmal NACF Cheolwon Odae    |            |               |
|        | Rice                         | Regional   | 39,800 =      |
|        |                              | Brand      | 41.55         |
|        | Saman Geumssaragi Rice       |            |               |
|        |                              | Regional   | 54,800 =      |
|        | Icheon King Rice             | Brand      | 57.21         |
|        |                              |            |               |
|        | Chuchung Rice                | Regional   | 48,800 =      |
|        |                              | Brand      | 50.95         |
|        | Sagaejulee Sanun Jip rice    |            |               |
|        |                              | Regional   | 54,000 =      |
|        | Pung Gwang Sutoe Rice        | Brand      | 56.38         |
|        |                              |            |               |
|        |                              | Regional   | 45,000 =      |
|        |                              | Brand      | 46.98         |
|        |                              |            |               |
|        |                              | Regional   | 55,000 =      |
|        |                              | Brand      | 57.42         |
|        |                              |            |               |
|        |                              | Regional   | 43,000 =      |
|        |                              | Brand      | 44.89         |
+--------+------------------------------+------------+---------------+
| **E-   | Icheon King Rice             | Regional   | 52,500 =      |
| Mart** |                              | Brand      | 54.81         |
|        | Yeoju Rice                   |            |               |
|        |                              | Regional   | 51,400 =      |
|        | Han Nunae Banhan Rice        | Brand      | 53.66         |
|        |                              |            |               |
|        | Cheolwon Rice                | Regional   | 33,800 =      |
|        |                              | Brand      | 35.29         |
|        | Oori Rice                    |            |               |
|        |                              | Regional   | 42,800 =      |
|        | Chulweon Ohdae Rice          | Brand      | 44.68         |
|        |                              |            |               |
|        | Chut Sarang Rice             | Regional   | 49,800 =      |
|        |                              | Brand      | 51.99         |
|        | Kyunggi Rice                 |            |               |
|        |                              | Regional   | 49,800 =      |
|        | E-plus Woori Rice (10 kg)    | Brand      | 51.99         |
|        |                              |            |               |
|        | Premium E-Plus Woori Gold    | Regional   | 41,500 =      |
|        | Rice                         | Brand      | 43.33         |
|        |                              |            |               |
|        |                              | Regional   | 41,800 =      |
|        |                              | Brand      | 43.64         |
|        |                              |            |               |
|        |                              | Private    | 19,800 =      |
|        |                              | Brand      | 20.67         |
|        |                              |            |               |
|        |                              | Private    | 49,800 =      |
|        |                              | Brand      | 51.99         |
+--------+------------------------------+------------+---------------+
| *      | Homeplus Altul Rice          | Private    | 37,900 =      |
| *Home- |                              | Brand      | 39.57         |
| plus** | Homeplus Cheolwon Rice       |            |               |
|        |                              | Private    | 47,900 =      |
|        | Homeplus Icheon Rice         | Brand      | 50.01         |
|        |                              |            |               |
|        | Wellbeing Plus Chemical Duck | Private    | 52,500 =      |
|        | Rice                         | Brand      | 54.81         |
|        |                              |            |               |
|        | New Gimpo Rice               | N/A        | 65,000 =      |
|        |                              |            | 67.83         |
|        | Anseong Rice                 | Regional   |               |
|        |                              | Brand      | 45,500 =      |
|        | Yeoju Rice                   |            | 47.50         |
|        |                              | Regional   |               |
|        | Boyak Rice                   | Brand      | 46,500 =      |
|        |                              |            | 48.55         |
|        | Stavia Rice                  | Regional   |               |
|        |                              | Brand      | 49,500 =      |
|        | 5dosi Ion Rice               |            | 51.68         |
|        |                              | N/A        |               |
|        |                              |            | 56,500 =      |
|        |                              | N/A        | 58.99         |
|        |                              |            |               |
|        |                              | N/A        | 69,000 =      |
|        |                              |            | 72.83         |
|        |                              |            |               |
|        |                              |            | 56,500 =      |
|        |                              |            | 58.99         |
+--------+------------------------------+------------+---------------+

Note: 1/ Based on exchange rate for 8/9/2006 of 1USD = 957.83KRW

Source: Foreign Agricultural Service, Seoul

All of the hypermarkets surveyed stated that the 20 kg packages of rice
were the best selling size of rice because of the best price per
kilogram of rice offered. Both Lotte-Mart and E-Mart sell packages of
rice ranging from 1 kg to 20 kg to cater to smaller households and
people who travel often. Both Lotte-Mart and E-Mart stated that sales of
10 kg packages of rice were gradually increasing with the growing trend
towards reduced rice consumption and smaller family size.

Similar to the evaluations conducted by the Korea National Council of
Consumer Organizations, little can be concluded from these hypermarkets
about the power of rice brands and rice brand recognition in the Korean
rice market other than the fact that there are a vast number of domestic
rice brands and consumers do not have an obvious reason to maintain
loyalty to any one particular brand of rice.

#### 

## B. Imported Rice

### Table Rice

The Korean government defines table rice as rice that has not undergone
any processing. Rice sold in the retail and HRI sectors would be labeled
as table rice. After the extension of the MMA import quota in 2005,
Korea agreed to the sale of imported rice in table rice form for the
first time. In 2005, 10 percent of imported rice was made available for
table rice sales to consumers. This amount will increase by 4 percent
annually through the year 2009. In 2010, the amount available for table
rice sales will be set at 30 percent until the MMA expires in 2014.

### Rice for Processing

Under the rice procurement program established in 1948, the government
provided domestic rice to the food processing industry at subsidized
prices. When rice imports began after the Uruguay Round negotiations in
1995, the government made both Korean and foreign rice available for the
food processing industry at below market prices. The portion of foreign
rice provided through this mechanism has steadily increased each year
under the provisions of the 1994 Minimum Market Access (MMA) agreement
with the WTO.

All rice imports are purchased through tenders held by The Korea
Agro-Fisheries Trade Corporation. Imported rice is sold to the food
processing industry at prices set by the government for use in the
manufacturing of rice cakes, noodles, liquor and confectionery products.
In recent years, the food processing industry has come to depend on
imported rice for half of its needs. The remainder is supplied by
domestic Korean rice through private market channels.

#####  Table 7: 2005 Rice Supply for Processing Purposes

  ------------------------ ------------------------- ---------------------
  **Item**                 **Quantity (mt)**         **Ratio (%)**

  Cake/Noodle              53,729                    56.0

  Confectionary            7,591                     7.9

  Flour                    9,455                     9.8

  Alcohol                  22,165                    23.0

  Sticky Sweet             2,997                     3.0

  Traditional Food         215                       0.2

  Others                   83                        0.1

  Total                    96,235                    100
  ------------------------ ------------------------- ---------------------

Source: Korea Rice Foodstuffs Association (KRFA)

In 2005, Korea processed 456,000 metric tons of milled rice, of which
233,000 tons were imported rice supplied by the government and 223,000
metric tons were Korean rice supplied through private rice marketing
channels. The Korean government supplied members of the Korea Rice
Foodstuffs Association (KRFA) and the Korea Alcohol & Liquor Industry
Association (KALIA) with 233,000 metric tons of imported, milled rice at
a set price based on the imported price plus handling charges (includes
storage, milling, transportation, and other charges). Annually, KRFA
members have used approximately 100,000 metric tons of milled rice to
produce rice products such as cakes, beverages, flour, snacks, syrup,
and other products. In 2005, KALIA members, who mainly use raw tapioca
to produce spirits, received 135,000 metric tons of imported milled rice
from the government at the set price.

#####  Table 8: KRFA Imported Rice Supply for Processing Purposes (unit: tons)

  --------------- -------------------------- ------------ ------------------
  **Calendar      **Local Rice**             **Imported   **Total**
  Year**                                     Rice**       

  1995            200,160                    0            200,160

  1996            130,632                    3,000        133,632

  1997            30,171                     57,957       88,128

  1998            933                        77,259       78,192

  1999            0                          74,214       74,214

  2000            0                          67,112       67,112

  2001            0                          66,850       66,850

  2002            79                         73,884       73,963

  2003            306                        84,851       85,157

  2004            249                        91,624       91,873

  2005            215                        96,020       96,235
  --------------- -------------------------- ------------ ------------------

Note: Data from KALIA is currently unavailable as the government began
supplying rice to KALIA only recently.

Source: Korea Rice Foodstuffs Association (KRFA)

### Market Response

A survey conducted in 2003 documented consumers' perceptions regarding
imported rice. 54 percent of those surveyed stated that they were
willing to purchase imported rice. Only nine percent were willing to
purchase rice without regard to price if they knew the imported rice was
of high quality. In contrast to individual consumers, meal service
institutions' intentions to buy imported rice were over 60 percent.
Overall, the more income a household had, the more likely that they
would not purchase imported rice[^25].

These findings were recorded before the implementation of the 2005 MMA
import quota for U.S. rice. The actual market reaction of Korean
consumers regarding U.S. rice was more negative than what these survey
results indicated. According to press reports following the
implementation of imported rice sales under the 2005 MMA quota,
retailers had difficulty selling U.S. rice because of both the sensitive
political and cultural nature of the rice market as well as complaints
from consumers regarding rice quality.

MAF has stated that it will consider the market response to the 2005 MMA
quota when planning for the 2006 MMA quota for U.S. rice. The requests
that the U.S. has made to MAF regarding potential changes for the 2006
MMA include: permission to import short-grain rice instead of
medium-grain to better compete with Korea's short grain domestic rice;
and permission to include cooking instructions for consumers on U.S.
rice packages.

While the first year of imported U.S. rice sales in Korea met
difficulties, external pressures will most likely push the Korean
government to continue its efforts to both encourage the sales of
imported rice and reduce domestic rice production. The Samsung Economic
Research Institute has predicted that rice imports will reduce domestic
production of rice by 2 million tons, or 41 percent.[^26] Presently, the
production of rice in Korea nearly approaches domestic demand, the only
grain of its kind in Korea that does so. Upon complete liberalization of
the rice market, Korea will be dependent on imports to meet its food
needs. Gaining a comprehensive understanding of Korea's domestic rice
market will aid rice exporters in successfully tapping into the future
growth of Korea's market for rice imports.

# VI. Further Information

For further information about the Korean agricultural market, please
contact:

Agricultural Affairs Office

U.S. Embassy

82, Sejong-ro, Chongro-ku

Seoul, 110-710, Korea

Tel: 82-2 397-4297

Fax: 82-2 738-7147

E-mail: <agseoul@usda.gov>

[^1]: **References:**

    ? IMF's World Economic Outlook, April 2006.

[^2]: U.S. Department of Agriculture. 2005. Economic Research Service.
    South Korea: Basic Information. Briefing Rooms.

[^3]: Ministry of Agriculture and Forestry, Republic of Korea. 2005.
    Agricultural and Forestry Statistical Yearbook.

[^4]: Diao, Xinshen, John Dyck, David Skully, Agapi Somwaru, and
    Chinkook Lee. 2002. Structural Change and Agricultural Protection:
    Costs of Korean Agricultural Policy, 1975 and 1990. U.S. Department
    of Agriculture. Electronic Report from the Economic Research
    Service. Report Number 809.

[^5]: Diao et al., 2002, p.4.

[^6]: Diao et al., 2002, p.5.

[^7]: U.S. Department of Agriculture. 2006. Economic Research Service.
    South Korea: Policy. Briefing Rooms, p. 6.

[^8]: Kang Hee-Jooh. Rice Farming Policies. Dec. 6, 2004. The Korea
    Times.

[^9]: U.S. Department of Agriculture. 2006. Economic Research Service.
    South Korea: Policy. Briefing Rooms, p. 4.

[^10]: Kang Hee-Jooh. Rice Farming Policies. Dec. 6, 2004. The Korea
    Times.

[^11]: U.S. Department of Agriculture, 2005, p. 5.

[^12]: U.S. Department of Agriculture, 2005, p. 8.

[^13]: Using 8/9/2006 exchange rate 1USD=959.492KRW.

[^14]: According to official Federal Reserve foreign exchange average
    for 2005.

[^15]: U.S. Department of Agriculture, 2006, p. 6.

[^16]: Using 8/9/2006 exchange rate 1USD=959.492KRW.

[^17]: Calculation based on exchange rate of 1USD=966.469KRW on
    8/8/2006.

[^18]: According to discussions at the First Annual Review of the 2004
    Imported Rice. Implementation between the Korean and American
    delegations.

[^19]: Lee, Kyei-Im, and Min-Jong Kim. 2003. Behavior of Rice
    Consumption in Korea. The Korea Rural Economic Institute.

[^20]: According to the Korea Rural Economic Institute.

[^21]: Lee, Kyei-Im, and Min-Jong Kim, 2003.

[^22]: Lee, Kyei-Im, and Min-Jong Kim, 2003.

[^23]: The Korea National Council of Consumer Organizations

[^24]: Lee, Kyei-Im, and Min-Jong Kim, 2003.

[^25]: Lee, Kyei-Im, and Min-Jong Kim, 2003.

[^26]: From Article *Korea Braces for Negotiation on Rice Market,* Blue
    House Briefing, 2004