Animal Numbers, Cattle

Production:

Total Korean beef cattle inventory continues to drop gradually as many farmers with small-sized operations, consisting mostly of breeding farms, give up raising cattle. The total number of farm households dropped 16.4 percent (20,381 households) in 2014, due to retirement from old age and the government's direct payment to marginal income farmers who stop farming. Tighter livestock farming permit requirements that call for installation of ventilation and fumigation facilities for disease control and prevention will also accelerate the abandonment of farming for those who cannot finance the cost. Such downward trend in total cattle inventory is projected to last for the next 2-3 years and then climb upwards. Hanwoo semen sales have picked up since August 2014 and the percentage of cow slaughter has dropped from 52.8 percent in 2013 to 48.9 percent in 2014, reflecting the fact that farmers are holding onto their cow herd to replenish their stocks as live cattle prices have begun to increase. Despite increased semen sales, calf production will increase modestly, given the low beef cow beginning stock and the 10 month time lag for increased semen sales to be reflected in calf production numbers. As a result, ending inventory for cattle will drop slightly in 2015 compared to the 2014 level.

As the highest level of inventory drop in 2014 came from the 1-2 year old cattle group that would be put up for slaughter in 2015, coupled with farmers intention to hold onto their cow stock, the 2015 slaughter numbers are projected to drop by over 5 percent. Cattle inventory for animals under 1 year old dropped 17,000 head (2.1 percent) in December 2014 over the same period in 2013. During the same period, cattle over 2 years old dropped by 14,000 head (1.2 percent) whereas the inventory for cattle in the 1-2 year old group dropped by 128,000 head (14.1 percent). The Korea Rural Economic Institute is estimating that 200,000 head of cows were slaughtered from early 2012 to May 2013 under the "Cow reduction program," that was enforced to increase the live cattle price. An additional 30,000 – 40,000 head were slaughtered as a result of the government support program to provide direct payment to farmers who stopped raising cattle in 2014.

According to data released by the Korea Institute of Animal Products Quality Evaluation, farmers made profit on over 92 percent of all cattle slaughtered in 2014. This trend is expected to continue in 2015 due to lower slaughter numbers, but as the cattle supply rises in 2-3 years, farmers producing lower grade (Grade 2 and lower) are at risk of losing money again. The major factors attributed to such higher profit rate are higher live cattle price and increased consumer demand for leaner cuts. The wholesale price for grade 2 and 3 have increased 20-30 percent in 2014 over the 2013 level as consumer purchases of lower priced beef went up due to the overall poor economic situation.

Production, Supply and Demand Data Statistics:

Animal Numbers, Cattle Korea, Republic of

2013

2014

2015

Market Year Begin: Jan 2013

Market Year Begin: Jan 2014

Market Year Begin: Jan 2015

USDA Official

New Post

USDA Official

New Post

USDA Official

New Post

Total Cattle Beg. Stks

3,479

3,479

3,342

3,342

3,190

Dairy Cows Beg. Stocks

299

299

304

304

305

Beef Cows Beg. Stocks

1,232

1,232

1,166

1,166

1,123

Production (Calf Crop)

944

944

875

900

910

Total Imports

0

0

0

0

0

Total Supply

4,423

4,423

4,217

4,242

4,100

Total Exports

0

0

0

0

0

Cow Slaughter

565

565

510

509

446

Calf Slaughter

0

0

0

0

0

Other Slaughter

506

506

527

533

544

Total Slaughter

1,071

1,071

1,037

1,042

990

Loss

10

10

10

10

10

Ending Inventories

3,342

3,342

3,170

3,190

3,100

Total Distribution

4,423

4,423

4,217

4,242

4,100

Meat, Beef and Veal

Production:

Lower cattle inventory led to a lower slaughter number resulting in a drop in beef production in 2014. Although, farmers have begun to inseminate more cows to increase their inventory since August 2014 and have begun to hold onto their cow stock, it will take 2-3 years for this to have an impact on total herd size, given gestation time and the time it takes to raise the calves for slaughter. Consequently, beef production is expected to continue to drop in 2015. The number of cattle under 1 year old in December 2014 was 784,000 head, compared to 801,000 head in December 2013. The decrease in the number of cattle in this age group will result in fewer number to be put up for slaughter in 2015.

Consumption:

High domestic Hanwoo beef prices in 2014 coupled with less market promotion has resulted in reduced consumption of domestic beef. Increased beef imports made up for the shortage in domestic beef supply. Several factors prevented beef consumption from further increase in 2014: 1) increased concern over the safety of beef due to livestock diseases, 2) lower meat consumption due to health concerns, 3) false labeling of country-of-origin, 4) a sluggish economy and changes in the income tax code leaving consumers with less disposable income

The following table shows promotional activities for Hanwoo beef conducted by various marketing entities. As can be seen from the following table, roughly 5 percent of Hanwoo beef is sold through promotion. In addition to such promotional activities, livestock cooperatives have continued to increase butcher shop style beef restaurants to provide consumers with less expensive beef. Consumers at this type of restaurant purchase beef at retail price and are exempt from the 10 percent value added tax. They pay a service charge for cooking the beef at the restaurant located in the same facility, but are able to enjoy beef at a lower price than if they went to a regular restaurant.

Consumption of U.S. beef continues to gradually but steadily increase as consumers' confidence level in U.S. beef rises. According to a survey conducted by Gallup Korea in December, 2014, 44.7 percent of consumers replied that U.S. beef is safe, compared to 38.0 percent in 2012. Also, the percent of consumers that believe that U.S. beef is unsafe has dropped from 49.9 percent in 2012 to 42.9 percent in 2014. As over 60 percent of U.S. beef is consumed in hotel, restaurant and institutional use, the overall recovery of the Korean economy will be one of the main factors affecting U.S. beef consumption in 2015.

Another factor keeping U.S. beef consumption low is the fact that price competitiveness of U.S. beef over Korean beef has diminished as U.S. beef prices continued to increase in 2014, whereas local beef prices remained stable due to oversupply. The price ratio of number 1 grade chilled domestic Hanwoo beef over chilled U.S. beef has dropped from 1.33 in 2013 to 1.27 in 2014. The price competitiveness of U.S. chilled beef over Australian chilled beef has also dropped from 0.82 to 0.80 during the same period. In addition, the price of lower quality Hanwoo beef (Grade 3) was lower than U.S. frozen beef prices. As consumers generally prefer local beef if the price is affordable, U.S. beef will face stiff price competition in the frozen beef market and will need to enhance its marketing efforts in the chilled beef sector to increase its market share.

Trade:

As consumers' confidence level in U.S. beef rises, the market share of U.S. beef has also increased from 34.4 percent in 2013 to 36.4 percent in 2014. The labor strike at the U.S. west coast ports has somewhat provided time for Korean importers to sell off their inventory that they had purchased at higher prices than the current export price. As Korea increases its imports in 2015 to make up for the drop in domestic beef production, U.S. beef imports are expected to rebound. However, it will have to overcome competition coming from Australia that is enjoying a lower duty coming from its FTA with Korea. Canada also has a FTA with Korea, but due to the BSE case found on February 13, 2015, imports have been suspended. The following table provides an analysis of the price comparison between U.S. and Australia imported beef prices.

Category

Country

Unit

2014

2015

2016

2019

2024

Exchange rate

Won / US dollar

1,053

1,095

1,033

1,035

1,038

Import price

U.S.A.

U.S. dollar / Kg.

6.61

7.07

7.33

7.48

7.91

Australia

5.36

5.74

5.94

6.06

6.41

Import duty

U.S.A.

Percent

32.0

29.3

26.7

18.7

5.3

Australia

37.3

34.7

32.0

24.0

10.7

Purchase price by wholesaler

U.S.A.

Won / Kg.

9,889

10,786

10,344

9,958

9,464

Australia

8,471

9,082

8,715

8,410

8,030

Source: KREI

Korea: Beef Imports (Thousand dollars and metric tons)

Country

Annual 2012

Annual 2013

Annual 2014

Value

Volume

Value

Volume

Value

Volume

Australia

676,040

137,948

758,386

147,198

847,850

152,427

United States

471,734

95,082

529,351

92,158

706,371

101,774

New Zealand

100,095

27,541

96,010

25,343

102,705

22,100

Mexico

7,315

2,476

669

232

515

198

Canada

6,111

1,371

9,748

2,147

13,140

2,302

Others

350

109

2,566

660

4,885

1,109

Total

1,261,645

264,527

1,396,730

267,738

1,675,466

279,910

Source: KITA

Product equivalent basis

Includes HS 0201 (fresh/chilled), HS 0202 (frozen), HS 021020 and 160250 (processed beef products)

Commodity

KORUS FTA

Korea – Australia FTA

Korea – Canada FTA

Beef

Content of Free Trade Agreement

Duty phased out in 15 years plus Agricultural Safeguard (Already in 4th year of phase out)

Duty phased out in 15 years plus Agricultural Safeguard (Already in 2nd year of phase out)

Duty phased out in 15 years plus Agricultural Safeguard (In its 1st year of phase out)

Base duty

40%

40%

40%

Applied duty in 2015

29.3%

34.7%

37.3%

Note: Beef imports from Canada have been suspended due to the finding of a BSE case on February 13, 2015.

Production, Supply and Demand Data Statistics:

Meat, Beef and Veal Korea, Republic of

2013

2014

2015

Market Year Begin: Jan 2013

Market Year Begin: Jan 2014

Market Year Begin: Jan 2015

USDA Official

New Post

USDA Official

New Post

USDA Official

New Post

Slaughter (Reference)

1,071

1,071

1,037

1,042

990

Beginning Stocks

78

78

80

80

59

Production

344

344

335

335

320

Total Imports

375

375

360

392

410

Total Supply

797

797

775

807

789

Total Exports

4

4

5

3

3

Human Dom. Consumption

713

713

715

745

740

Other Use, Losses

0

0

0

0

0

Total Dom. Consumption

713

713

715

745

740

Ending Stocks

80

80

55

59

46

Total Distribution

797

797

775

807

789