Recent developments in the Korean beef market

Imports of beef have been increasingly important in meeting the Republic of Korea’s growing demand for beef. The two major foreign suppliers of beef to the Republic of Korea have been the United States and Australia. However, the discovery of BSE (bovine spongiform encephalopathy or ‘mad cow’ disease) in 2003 in the United States significantly affected beef imports and consumption in the Republic of Korea. Since then, beef imports have been significantly lower than the pre-2003 level and domestic demand for beef has been weak. However, the demand for beef has been recovering gradually over the past couple of years, as consumer confidence in beef has improved.

Despite a recovery in demand for beef and reduced imports, the supply of domestic beef in the Republic of Korea has not increased significantly. This has led to consumer prices of beef remaining relatively high.

While the Republic of Korea’s total imports of beef fell sharply between 2004 and 2007, Australia increased its exports significantly, partially filling the gap left by the exclusion of US beef. This provided Australian exporters with opportunities to increase their supply of grain-fed beef and the specific cuts of beef preferred by Korean consumers.

The unavailability of more preferred US beef cuts, and the increased import demand for a greater range of beef cuts, contributed to a significant rise in the volume and prices of beef cuts from Australia.

The reopening of the Korean market to US beef exporters, under the new beef import protocol agreed between the Republic of Korea and the United States in June 2008, is expected to result in a significant boost to exports of US beef to the Republic of Korea.

Short-term effect of the re-entry of US beef into the
Korean market

The return of US beef to the Korean market is likely to have limited effect on the sale of premium quality domestic (Hanwoo) beef as Korean consumers perceive top quality Hanwoo beef as a highly differentiated product from any imported beef. This suggests imported US beef is likely to compete with lower grade domestic beef. Furthermore, lower priced US beef may allow Korean consumers to purchase more frequently and thus increase their overall beef consumption.

Substitution between consumption of imported beef and domestic pork in the Republic of Korea has been much greater than that between the consumption of imported beef and domestic beef. This indicates that imports of lower priced US beef are likely to cause greater downward pressure on domestic pork consumption than on the consumption of domestically produced beef. As a result, a substantial reduction in the sale of high quality Hanwoo beef is unlikely.

Despite the Korean market reopening to US beef imports, the negative effect on Australia’s beef exports to the Republic of Korea is not likely to be significant in the short term. Negative consumer sentiment and a lack of confidence in US beef are likely to limit imports of US beef cuts in the near term. The prevailing food safety concerns and enforcement of enhanced ‘source of origin’ labelling practices in the Republic of Korea are also likely to be advantageous to Australian beef because of its clean and safe image.

A recent consumer survey indicated that Korean consumers’ willingness to pay for Australian beef is higher than for US beef. This is reinforced by the fact that current market prices for Australian beef are higher than prices of imported US beef. This suggests that any reduction in demand for Australian beef is not likely to be significant in the short term.

However, the demand for Australian beef in the Republic of Korea is expected to ease as Korean consumer confidence in US beef increases gradually. Prices of Australian beef cuts are also expected to decline to compete with increased imports over time. In particular, US grain-fed beef and the more preferred US rib cuts are likely to displace some of the same products from Australia. Also, Australia’s limited capacity to meet the increasing demand for specific beef cuts preferred by Korean consumers is likely to limit Australia’s exports to the Republic of Korea.

Longer term prospects for Korea’s beef trade

The Republic of Korea’s total demand for imported beef from both the United States and Australia is likely to increase over the longer term. Australia’s export volume of beef is expected to decline in the short to medium term, as US beef regains some of the market share it enjoyed prior to its ban in 2003. However in the longer term, Australia’s export volume is likely to increase with the Republic of Korea’s rising incomes and growing consumption of beef.

Combined with the resolution of the new beef import protocol issue, implementation of the Republic of Korea-United States Free Trade Agreement (FTA), if ratified, would further enhance the competitiveness of US beef over Australian beef in the Korean market in the longer term. However, the governments of Australia and the Republic of Korea have agreed to launch negotiations for a bilateral FTA, with the first round held in Australia in May 2009. An Australia-Republic of Korea FTA will provide an opportunity to discuss tariff concessions for Australian beef exporters.

With the prospect of higher US beef exports to the Republic of Korea, Australia needs to continue to pursue marketing strategies which are aligned with consumer preferences and the positive image of clean and safe Australian beef if it is to compete effectively with US beef in the Korean market. It will also be important for Australia to develop production and export strategies for supplying large quantities of specific beef cuts preferred by Korean consumers. In addition, production of medium and low priced beef with a greater variety, targeting Korean consumers, would help Australia increase its beef exports to the Republic of Korea in the future.