Highlights

The Korean government is expected to continue drawing down rice stocks in MY 2017/18 to 1.3 million metric tons (MMT) from 1.7 MMT in the current marketing year, as stocks remain above U.N. Food and Agriculture Organization (FAO) recommended levels. The government aims to decrease rice production and use some of the older stocks for feed. Post forecasts rice production will decrease to 3.9 MMT in MY 2017/18, down from 4.2 MMT in the current marketing year. For corn, production in MY 2017/18 will remain minimal, at 80,000 MT. Post increased the MY 2016/17 projection for corn imports from the United States to 5.0 MMT due to strong trade numbers from increased price competitiveness, and forecasts another 4.0MMT in U.S. imports in MY 2017/18. Wheat production will decrease slightly in MY 2017/18 to 34,000MT. Wheat imports are also forecast to increase slightly.

in MY 2017/18, at 4.6MMT, due to expected continued price competitiveness with corn for feed use.

Commodities:

Wheat

Production

MY 2017/18 wheat production is forecast to decrease to 34,000 tons, down three percent from the current marketing year’s estimate, based on a five-year average yield and acreage. The estimate for MY 2016/17 wheat production remains unchanged, as the Korean government is not expected to release official numbers until the end of June 2017.

Consumption

MY 2017/18 wheat consumption is forecast at 4.43 million metric tons (MMT), an increase of 50,000 metric tons (MT) from the estimated consumption in the current marketing year. Flour wheat consumption is projected to increase by this margin, while feed wheat consumption will remain stable at 2.0 MMT

In MY 2016/17, wheat consumption is expected to reach 4.39 MMT, up six percent from the previous year, due mainly to greater demand for imported feed-grade wheat, which had benefited from competitive prices against corn during the first half of the marketing year. Milling wheat consumption is expected to be almost unchanged from the previous year at 2.39 MMT, a number that factors in net trade in pasta and flour.

Trade

MY 2017/18 wheat imports are forecast at 4.6 MMT, of which 2.6 MMT are expected to be used for milling (including flour and pasta imports on a wheat equivalent basis) and 2.0 MMT are expected to be used for feed. This import estimate hinges to a large extent on the continued availability of competitively-price feed wheat, with demand for milling wheat remaining steady. MY 2016/17 wheat imports are expected to reach 4.56 MMT. During the first seven months of the current marketing year, imports for feed wheat were 46 percent higher than the previous year, although pending feed-grade wheat contracts for the remaining five months are lower than last year. In the first seven months of MY 2016/17, Ukraine is the largest supplier of feed-grade wheat, followed by EU countries (such as France, Bulgaria, and Romania), and then Argentina and Russia. However, milling wheat imports are expected to be slightly lower than in the previous year, based on projections incorporating the lower imports of milling wheat during the first seven months of this year.Imports of U.S. wheat in MY 2016/17 are expected to stay around 1.1 MMT, not including wheat products such as flour and pasta.

Tariffs

In late December 2016, the Ministry of Strategy and Finance (MOSF) released its adjusted tariffs and tariff rate quotas (TRQs) for CY 2017. At that time, MOSF excluded milling wheat from the CY 2017 list of autonomous TRQs, leaving all milling wheat to be charged the out-of-quota duty rate that remains fixed at 1.8 percent. By comparison, the feed wheat TRQ and its corresponding duty were eliminated in 2007. However, the import duty on all U.S. wheat (including milling and feed wheat) is zero under the KORUS FTA.

In CY 2017, the general tariff rate on flour is 4.2 percent. However, under the KORUS FTA, import tariffs for U.S. wheat flour (H.S. 1101.00.1000) were phased out over a 5-year period, reaching zero in 2016. Meanwhile, tariffs for meslin flour (H.S. 1101.00.2000), a mixture of rye and wheat flour, immediately fell to zero in 2012.

Flour Trade

MY 2016/17 flour imports are expected to decrease to 35,000 MT (wheat equivalent) to meet demand from small-sized restaurants and noodle manufacturers, loyal users of cheaply priced flour. Pasta imports are expected to be more than 150,000 MT (wheat equivalent) based on strong imports for the first eight months of the marketing year. Annual flour exports are approximately 60,000 MT (wheat equivalent), while pasta exports might sharply increase to more than 200,000 MT (wheat equivalent) on year-round based on flour trade for the first eight months. The situation is unlikely to change in MY 2017/18.

Production, Supply and Demand Data Statistics

Wheat

2015/2016

2016/2017

2017/2018

Market Begin

Jul 2015

Jul 2016

Jul 2017

Korea, Republic of

USDA

New

USDA

New

USDA

New


Official

Post

Official

Post

Official

Post

Area Harvested

10

10

11

10

0

11

Beginning Stocks

1400

1400

1535

1505

0

1505

Production

26

26

36

35

0

34

MY Imports

4420

4426

4500

4560

0

4600

TY Imports

4420

1212

4500

4560

0

4600

TY Imp. from US

1120

1124

0

1100

0

1200

Total Supply

5846

5852

6071

6100

0

6139

MY Exports

177

213

200

210

0

210

TY Exports

177

213

200

210

0

210

Feed and Residual

1728

1728

2000

2000

0

2000

FSI Consumption

2406

8.06

2395

2385

0

2430

Total Consumption

4134

4134

4395

4385

0

4430

Ending Stocks

1535

1505

1476

1505

0

1499

Total Distribution

5846

5852

6071

6100

0

6139

Corn

Production

Corn production is negligible and accounts for less than one percent of total consumption. Planted area for MY 2017/18 is expected to remain steady at around 16,000 hectares, while production is forecast at 80,000 MT based on the preceding five-year average yield. Statistics Korea (KOSTAT) recently released data on CY 2016, listing planting area at 15,183 hectares, down one percent from the previous year. Post estimates Korean corn production at about 76,000 MT based on the preceding five-year average yield. The government will release the 2016 official production figures in April 2017.

Consumption

MY 2017/18 corn consumption is forecast to increase to 10.3 MMT, up about four percent from the estimated consumption in the current marketing year. This number is composed of 8.0 MMT for feed purposes and 2.3 MMT for food, seed and industrial (FSI) purposes. Feed corn consumption is forecast to increase up 400,000 MT from the estimated current marketing year level, in large part due to an anticipated increase in demand for corn in the compound feed production for swine and poultry. However, food, seed and industrial (FSI) corn consumption is expected to stay around 2.3 MMT to meet a stable demand for high fructose corn syrup (HFCS) and other corn products from Korean food industries.

Corn consumption for MY 2016/17 remains unchanged from the previous forecast of 9.9 MMT, consisting of 7.6 MMT for feed and 2.3 MMT for food, seed and industrial (FSI) purposes. The demand for corn used for compound feed production remains unchanged at 7.6 MMT.

Feed

Compound feed production is forecast to reach around 19.5 MMT for MY 2017/18. This record volume is based on strong growth in swine inventories, partly offsetting the anticipated reduction in cattle inventories. Poultry numbers are also expected to be strong as they return to the levels existing prior to the Highly Pathogenic Avian Influenza (HPAI) outbreak in late 2016. Feed corn is expected to be the major ingredient used in compound feed, accounting for more than 41 percent of total ingredients in the marketing year with feed wheat remaining at 2 MMT. MY 2016/17 compound feed production forecast remains unchanged at 19 MMT due to a sharp reduction of poultry inventories hit by recurrence of HPAI.

Food

Corn processors use GM corn, non-biotech IP corn, and conventional corn to produce corn starch, HFCS and corn flour. GM corn imported from the United States, South American countries, and Ukraine is used for starch and HFCS. Non-biotech IP corn imported from the United States and Brazil, and traditional corn imported from Russia, Hungary, Serbia, Romania and Australia have been used for corn starch and corn flour. The perceived public concern about biotech continues to exert pressure on imported processing corn, especially corn that is used to manufacture cooking oil and HFCS. Many food processing companies have been reluctant to use ingredients sourced from biotech corn. Some food processing companies utilizing corn starch products are sourcing ingredients imported from China, since these items are reportedly derived from non-biotech corn.

Trade

With expected increases in swine and poultry inventories, MY 2017/18 total corn imports are forecast to increase to 10.2 MMT, up 400,000 MT from the estimated current marketing year, consisting of 8 MMT of feed corn for compound feed, and 2.2 MMT of processing corn for food processing. Based on the average corn U.S. market share in Korea over the previous five years, MY 2017/18 imports of U.S. corn are forecast to stay around 4.0 MMT, or about 39 percent of total Korean corn imports. This number is down from the estimated 51 percent of total Korean corn imports for the current marketing year.

Total corn imports for MY 2016/17 are expected to remain unchanged - at 9.8 MMT, with U.S. market share improving to more than 50 percent of total corn imports, based on more than 63 percent share of U.S. corn in total corn imports for the first five months of the year. Local traders expect the U.S. corn market share to be more than 50 percent of total corn supply due to price competitiveness. As of early March 2017, importers had contracted about 6 MMT of corn for October 2016 through June 2017 deliveries, and they were continuing to make contracts for arrival in June 2017 onward. Most corn contracts for feed are optional origin at seller’s option from South American countries, Eastern Europe/Black Sea, or the United States with a price range of USD 178-226 per metric ton CNF. Conventional corn for processing is contracted from Eastern Europe with a price range of USD 192-226 per metric ton, CNF. Most recent buying contracts stabilized in the range of USD 188-195 per ton for feed corn and USD 196-204 for processing corn, CNF.

Tariffs

In late December 2016, the Ministry of Strategy and Finance (MOSF) released its adjusted tariffs and tariff rate quotas (TRQs) for CY 2017. The autonomous TRQs cover a variety of agricultural products, including feed corn. The TRQ for feed corn was set at 10 MMT with zero duty for CY 2017. However, the government excluded processing corn from the list of TRQs in 2017. The out-of-quota duty for both feed and processing corn remained fixed at 328 percent.

Of the annual autonomous TRQs for feed corn, 10 MMT has been allocated to feed millers who are members of the Korea Feed Association (KFA) and the national farmer’s cooperative, Nonghyup Feed Inc. (NOFI). Meanwhile, the Korea Corn Processing Industry Association (KOCPIA) manages about 2.0 MMT of processing corn, imported at a three percent duty. Under the KORUS FTA, the duty on U.S. feed corn immediately fell to zero. If imports of U.S. corn claim the KORUS preferential duty, those imports do not count against the global autonomous TRQ of 10 MMT. Additionally, the duty-free volumes for corn for food processing will grow each year, with tariffs being completely phased out by 2019.

Corn

Corn

2015/2016

2016/2017

2017/2018

Market Begin

Oct 2015

Oct 2016

Oct 2017

Korea, Republic of

USDA

Official

New

Post


USDA

Official

New Post

USDA

Official

New Post

Area Harvested

15

15

15

15

0

16

Beginning Stocks

1860

1860

1936

1905

0

1880

Production

78

78

75

75

0

80

MY Imports

10121

10121

9800

9800

0

10200

TY Imports

10121

10121

9800

9800

0

10200

TY Imports From US

3882

2908

0

5000

0

4000

Total Supply

12059

12059

11811

11780

0

12160

MY Exports

0

0

0

0

0

TY Exports

0

0

0

0

0

Feed and Residual

7800

7841

7600

7600

0

8000

FSI Consumption

2323

2313

2300

2300

0

2300

Total Consumption

10123

10154

9900

9900

0

10300

Ending Stocks

1936

1905

1911

1880

0

1860

Total Distribution

12059

12059

11811

11780

0

12160

Rice, Milled

Production:

MY 2017/18 rice production is forecast to decline to 3.9 million metric tons (MMT) – down seven percent from 4.19 MMT in 2016/17 – based on the five-year average yield and the Korean government’s efforts to reduce rice paddy area. According to a Korea Rural Economic Institute (KREI) survey of rice farmers’ planting intentions from December 28, 2015 - January 4, 2016, planted area is expected to decline to 762,000 HA, down about 2.1 percent from last year. To influence farmers’ intentions to further reduce rice paddy area to 744,000 HA, the government plans to encourage rice farmers to participate in rice reduction programs.

Yield

Rice farmers prefer planting high-yield varieties to maximize returns under the current rice direct payment program. Consequently, higher yields are expected to partially offset the effects of declining paddy land in the 2017 crop. FAS/Seoul forecasts rice average yields at 5,223 Kg/HA based on previous five-year Olympic average yield. (An Olympic average yield is the average yield during a 5-year period, dropping the highest and lowest values.)

Production Policy

Rice farmers receive two types of income support payments under the Rice Income Compensation Act (RICA): an area payment and a deficiency payment. In CY 2016, combined support payments of 2,328 billion Korean Won (USD 2.01 billion) were received from both direct payment systems. It was a record level of combined support payment since the programs were implemented in 2005.

An explanation of how these payments are calculated follows:

Area Payment: This payment is made on a ‘per hectare’ basis and is calculated using the average area of rice production during the base period 1998-2000. The average 2016 area payment was 1,001,010 won (USD 864) per hectare. Paddy area covered under this support program decreased to 837,426 hectares in 2016, down 0.7 percent from the previous year.Deficiency Payment: The deficiency payment is 85 percent of the difference between the national-average market price during the 2016 harvest season (2016 Oct.-2017 Jan.) and the 2016 target price set by the government, less the area payment.

In CY 2016, the total deficiency payment amounted to 1,490 billion Korean Won (USD 1,287 million). This payment was the difference between the average harvest price of 1,621 Won (USD 1.40) per kilogram (milled) and the target price of 2,350 Won (USD 2.08) per kilogram (milled). The weighted average area payment of 1,001,010 Won per hectare is converted to a kilogram equivalent (198.6 Won/Kg) by dividing it by the 1999-2003 Olympic average yield, which increased to 5,040 Kg per hectare from the previous 4,880 Kg in CY 2012.

Due to lower farm gate prices during the harvest season, farmers received deficiency payments in CY 2016.However, the Korean government couldn’t pay rice farmers the calculated 420.7 Won per Kg because this value was greater than Korea’s total allowable WTO Aggregate Measure of Support (AMS) of 1,490 billion Won. Therefore, the government paid only 418.7 Won per Kg to farmers.

Government Rice Purchase Program under the Public Food Grain Stockholding Program (PFSP)

The government purchases rice to ensure food security and price stability. Under the Public Food Grain Stockholding Program (PFSP), the Korean government procures domestic paddy rice during the harvest season (October-December) at the average market price, and later sells it during the non-harvest periods at the prevailing domestic market price. For October - December 2016, the Korean government purchased 659,000 MT (milled basis) of paddy rice. The year’s purchase included an additional quantity of 299,000 MT, or 16 percent of the 2016 rice production under PFSP, in order to stabilize pressure on prices caused by another bumper crop .

Additionally, the government purchased 30,000 tons for the APTERR (ASEAN Plus Three Emergency Rice Reserve), which was established to provide member countries with rice in the event of natural disasters. The total amount of rice agreed upon in July 2013 by the 13 member countries, and stored in reserve, was 787,000 MT, including 150,000 MT promised by Korea. Korea has purchased 90,000 MT of rice (milled basis) under the APTERR program since 2014.

Rice Millers Purchase

Korean rice millers, known as Rice Processing Complexes (RPC), purchased 2.2 MMT (milled basis) of paddy rice at a free loan rate under the National Agricultural Cooperative Federation (NACF) loan program during the 2016 harvest season. NACF member RPCs purchased 1.8 MMT, and independent RPCs bought 0.4 MMT. The Korean government also supported rice millers in the purchase of paddy rice under an incentive loan program at a loan rate ranging from zero to two percent according to an evaluation of RPCs based on government guidelines. The total value of loan programs was 2.9 trillion Korean won (USD 2.5 billion), consisting of 1.3 trillion Korean Won from NACF and 1.6 trillion Korean Won from government support.

Consumption

MY 2017/18 rice consumption is forecast at 4.6 MMT, down slightly from estimates for the current marketing year based on lower demand. Imported rice constitutes about nine percent of total consumption.

Korean consumers prefer short-grain table rice. 74 percent of domestic production (all short-grain) was consumed as table rice in MY 2015/16. Per capita table rice consumption continues to decline, as eating habits change due to rising incomes and the growing popularity of Western foods. Annual per capita table rice consumption reached its peak at 136.4 Kg in 1970, and has gradually declined to 61.4 Kg in MY 2015/16 according to preliminary government statistics. FAS/Seoul forecasts per capita table rice consumption at 60.1 Kg in MY 2016/17 based on declining consumption trends for table rice, decreasing further to 59.0 Kg in MY 2017/18. In MY 2015/16, the percentage of processed rice consumption increased to 17 percent of total rice domestic consumption from 13 percent in the previous year. Rice was allowed to be used as feed for the first time, as rice consumption used in food processing has maintained constant growth in the past few years. In MY 2016/17, heavy stocks will lead the share of rice used in processing to increase further to 25 percent, due mainly to a sharp increase of rice used in animal feed. The Korean government is expected to allow rice consumption as animal feed in MY 2017/18

Feed

In order to reduce high ending stocks, the Korean government released rice to be used as feed for the first time in MY 2015/16. This occurred when the Korean government released 101,000 MT of brown rice (91,000 MT on a milled basis) from the 2012 crop for feed use in February 2016. The released price was 200 Korean Won per Kg (USD 0.18/Kg), a tenth of the purchasing price in the harvest season under the government purchasing program. In MY 2016/17, yet another instance of overproduction led the Korean government to allow the use of 520,000 MT of old crop brown rice for feed purposes (470,000 MT on milled basis), consisting of 250,000 MT of the 2013 crop and 270,000 MT of the 2014 crop. Most of the stocks-for-feed rice is domestic production, with 82,000 MT (73,800 MT, milled basis) imported mainly from China under the 2014 Minimum Market Access agreement (MMA) (2013 crop). The selling price was set at 208 Korean Won per Kg (USD 0.18/kg) based on the value of feed corn imported in CY 2016. Post expects Korea to use rice for feed again in MY 2017/18 in order to further reduce ending stocks. However, there are no indications yet from MAFRA on their intention to release rice imports for feed in MY 2017/18.

Trade

On September 30, 2014, the Korean government submitted a draft containing modifications and rectifications to “Schedule LX - Republic of Korea” to the WTO, which allowed Korea to change its regime to ordinary customs duties (without an MMA component) on rice beginning on January 1, 2015. However, five countries, including the United States, reserved their positions with respect to the proposed rectification and modification of the Republic of Korea’s tariff schedule concerning rice market access. Rice tariffication remains a priority for Korea, and the government continues to engage in bilateral discussions with the concerned countries for settlement of the issue. The United States is working closely with Korea to urge it to ensure that the new arrangement takes appropriate account of the strong U.S. trade in this commodity.

As agreed in the special treatment clause, Korea continued to import the mandatory import volume of 408,700 MT from Most Favored Nation (MFN) countries at the current duty level of five percent. Korea deleted provisions about usage requirements, such as the ratio of table rice (30 percent) and a country specific quota that guaranteed access to the domestic market. Tariffs outside the quota remain prohibitively high.

Imports

MY 2017/18 rice imports are forecast at about 410,000 MT (milled basis). Korea is expected to continue purchasing 408,700 tons (milled basis) of rice under the CY 2018 TRQ. In MY 2016/17, rice imports are expected to remain unchanged at 410,000 MT, while actual delivery of some portion of the TRQ will roll over into the following year. U.S. rice exports are expected to stay around 140,000 MT (milled basis).

In MY 2015/16, Korea’s rice imports were 312,280 MT, consisting of 161,663 MT imported under the 2015 TRQ quota, and 150,617 MT imported under the 2016 TRQ. In CY 2016, U.S. exports to Korea amounted to 111,698 MT, composed of 48,425 MT imported under the 2015 TRQ and 63,273 MT imported under the 2016 TRQ.

2017 TRQ Tendering Process

Under the 2017 Tariff Rate Quota (TRQ) purchasing plan, Korea will purchase 408,700 MT of rice (milled basis) under the rice tariffication system that has been in effect since 2015. Under the 2017 TRQ thus far, Korea has filled 22 percent of the total 2017 TRQ through purchases of 100,000 MT of USDA No. 3 grade brown rice (90,000 MT, milled) for processing purposes. This quantity consists of 60,000 MT of medium-grain brown rice (54,000 MT on a milled basis) from the United States, 30,000 MT of short-grain brown rice (27,000 on a milled basis) from Vietnam, and 10,000 MT of long-grain brown rice (9,000 MT on a milled basis) from Thailand.

2016 TRQ Tendering Results

The Korea Agro-Fisheries and Food Trade Corporation (aT) completed the tendering process for the 2016 TRQ commitments for rice on December 29, 2016. Korea purchased a total of 408,700 MT of rice (milled basis) from the United States, China, Thailand, Australia, India, and Vietnam. The U.S. share was a record 40.6 percent, up about 2.2 percentage points from the previous year, due to more competitive pricing than other countries, combined with greater demand for the medium-grain variety. Contracts totaled 165,865 MT (milled), worth USD 112.7 million. U.S. contracts of 139,849 MT were for brown rice (equivalent to 125,865 MT on a milled basis) for food processing purposes, while the remaining 40,000 MT was milled rice for table use.

Auctions for Imported Table Rice

At sells table rice shipments to consumers through a public auction system. Meanwhile, the Ministry of Agriculture, Food and Rural Affairs (MAFRA) distributes processing rice to end-users, such as food processors and alcoholic beverage producers, at a set price throughout the year.

The current pace of auctions for imported rice for table use has been very slow, effectively reducing the volume of auctioned rice due to heavy stocks of domestic rice caused by consistent crop overproduction since 2013. As large rice stocks have led to low domestic prices, farmers’ groups have strongly requested the government to quit auctions for imported rice for table use. As a result, the government decided to stop auctions for table rice imported under the 2014 MMA early October 2016, due to a problem from the deterioration of the imported rice as it awaited government auctions. The unsold rice for table use was diverted to liquor processing. AT has resumed rice auctions for tenders of table rice imported under 2015 TRQ since February 1, 2017, after a four month temporary break, which led to an even slower sales pace than normal.

Thai long-grain rice imported under the 2016 TRQ has been auctioned off more quickly in order to meet market demand for long-grain rice, and also because it does not compete with domestic markets for short-grain rice

Exports

Korea’s rice exports were 2,313 MT in CY 2016, up 16 percent from the previous year, with U.S. imports of Korean rice higher than the previous year. Korean rice exports to China increased due to new SPS requirements agreed upon in early 2016.

Stocks

MY 2017/18 ending stocks (at the end of October 2018) are forecast to decrease to 1.36 MMT, or 29 percent of total consumption. The government continues its efforts to reduce heavy rice stocks, but stocks are still higher than FAO recommended level of 800,000 MT. MY 2016/17 stocks (at the end of October 2017) are forecast to decline to 1.7 million tons, or 36 percent of total domestic consumption, due to a government policy to increase rice consumption for animal feed in CY 2017. MY 2015/16 ending stocks (through the end of October 2016) are estimated at 1.8 MMT, or 43 percent of total domestic consumption. Rice production in the past four consecutive years has been greater than actual demand, amid declining per capita table rice consumption caused by rising incomes.

Production, Supply and Demand Data Statistics:

Rice, Milled

2015/2016

2016/2017

2017/2018

Market Begin Year

Nov 2015

Nov 2016

Nov 2017

Korea, Republic of

USDA




Official

New

Post

USDA

Official

New

Post

USDA

Official

New

Post

Area Harvested

03.02

799

779

779

0

744

Beginning Stocks

1406

1406

1831

1831

0

1692

Milled Production

4327

4327

4197

4197

0

3900

Rough Production

5771

5771

5625

5625

0

5235

Milling Rate (.9999)

7498

7498

7461

7461

0

7450

MY Imports

312

312

410

410

0

410

TY Imports

313

313

410

410

0

410

TY Imp. from U.S.

112

111

0

140

0

140

Total Supply

6045

6045

6438

6438

0

6002

MY Exports

2

2

2

2

0

3

TY Exports

2

2

2

2

0

3

Consumption and Residual

4212

4212

4700

4744

0

4643

Ending Stocks

1831

1831

1736

1692

0

1356

Total Distribution

6045

6045

6438

6438

0

6002