Thesis on "Issue of Beef Import Between Korea and USA"

Thesis 12 pages (3557 words) Sources: 1+

[EXCERPT] . . . .

Korea-U.S. Beef Issue

South Korea: Economy

South Korea is the world's 14th largest economy, with a GDP (purchasing power parity) of $1.335 trillion. With $433.5 billion in exports, South Korea is the world's 12th largest exporter. The export industries are focused on technology (semiconductors, telecommunications) and industry (steel, automobiles, computers, petrochemicals) (CIA World Factbook, 2009). South Korea's four-decade rise as an economic power in the wake of the Korea War was based on rapid industrialization, infrastructure and education investment and on the development of trade. The United States, which fought in the war against the Communists, was eager to trade with the South as part of its battle against Communism around the world. Today, the U.S. is South Korea's third-largest trading partner, its second-largest export market, its third-largest source of imports and its second-largest source of foreign direct investment (Cooper & Manyin, 2007).

As a consequence of this rapid industrialization, South Korea has agricultural capacity approaching the relatively low levels of the Western world. At just 3% of GDP, agriculture has been somewhat marginalized in Korea. As a result, the nation is dependent on food imports, in particular for high-intensity commodities like beef. Prior to the ban on U.S. beef, that nation was the third-largest supplier of beef to the Korean market. Korea banned Canadian beef at the same time, as one of the U.S. cows found to have bovine spongiform encephalopathy (BSE) originated in Canada. Korea increased emphasis on Australian and New Zealand beef in order to make up the difference.

Attempts to partially re-open the Korean market for U.S. have been made, but massive protests in South Korea against the move have caused the government to backtrack. These protests have been cited as one of the major reasons why South Korea has stood apart from the world with its beef bans. For example, Canadian beef received approval from international health authorities in 2007 and has re-entered fifty-five markets from which it was banned. The lone outlier in South Korea and the Asian nation is the outlier with its ban on American beef as well.

Introduction: the U.S.-Korea Beef Trade and Protectionism

Beef is a land-intensive agricultural product that requires a massive amount of resources to produce. South Korea's domestic beef production is focused on Hanwoo beef. Hanwoo is viewed by the Korean consumer as being superior to all other forms of beef. As a result, it occupies a premium position in the market and does not compete directly with imported beef at its highest grades (Kim et al., 2009). Hanwoo production twenty years ago was sufficient to meet all of Korea's beef needs, but the market dynamic changes rapidly over the subsequent years.

With Korea's increase in living standard came an increase in the amount of animal protein consumed. Beef suppliers were the main beneficiary of this increased protein consumption, as a result of the popularity of beef in Korea. The nation's signature dish (other than kimchi) is a beef dish -- bulgogi. With rising economic standards, Korea's beef consumption has increased from just over 100 kilotons in the mid 1980s to nearly 400 kilotons today. Today's level is, however, lower than the level of beef consumption prior to the 2003 BSE discovery (Kim et al., 2009).

Contributing to the rapid increase in beef consumption was a series of trade policies that liberalized the beef market. Early steps were tentative, resulting in partial liberalization of beef imports. The introduction of a tariff quota in 1995 set the stage for a rapid increase in beef consumption. In 2001, further liberalization and the introduction of a tariff-only system further increased consumption, which hit 403 kilotons in 2002. Current consumption rates equate to 36 kilograms per person in 2007, up from 2.9 kilograms in 1985 (Kim et al., 2009).

The U.S. And Australia were among the largest beneficiaries of this increase. With the U.S. beef ban, Australia improved its market share in the South Korean beef market to 73% by 2007. In 1985, when consumption was at 2.9 kilograms per person, Korea was at nearly 100% self-sufficiency with respect to beef production, and they hit that level a few years later. With trade increasing the availability of beef in Korea, consumption skyrocketed. One of the consequences of the rapid increase in consumption was the heavy dependence on foreign beef sources. Korea's self-sufficiency in beef production has been below 50% since 2000 (Kim et al., 2009).

It is interesting to note that Korean beef consumption is price inelastic. Basic supply-and-demand theory holds that the rapid increase in quantity of beef in Korea should have been followed by price declines. Empirical evidence shows that wholesale beef prices have remained stable over the past twenty-five years, but that retail prices have actually increased (Kim et al., 2009). That the price has increased despite the increase in supply shows that demand has increased faster than the supply has. That demand has increased faster than supply in the face of increasing prices illustrates that beef consumption in South Korea is relatively price inelastic, and that the limits of this elasticity have not yet been fully tested.

There are several demand drivers for beef in South Korea. The first is the wealth of the nation. As national wealth has increased, so has demand for beef. Historically, beef has been viewed as a luxury product and its consumption is a sign of status. For younger generations, however, beef consumption is more a habit than a sign of status. Another key demand driver for beef in Korea is the quality of beef. Korean Hanwoo beef is often perceived as the best beef and its highest grades own the top end of the beef market. The lower grades of Hanwoo are used in soups and it is at this level that Korean beef competes with imported beef (Kim et al., 2009).

Other key drivers for beef in Korea are marbling, texture, flavor, color and tenderness. Hanwoo beef has a competitive advantage over foreign beef in most metrics. Among imported beef, American beef has a competitive advantage in these metrics over Australian beef. American beef has more marbling that the leaner Australian beef and is preferred by Koreans on the basis of its flavor. Prior to the BSE outbreak, the U.S. held a 67.9% market share, whereas Australia held a 21.8% share. With the ban on U.S. And Canadian beef, Korean consumers were forced to turn three alternate sources of beef. Australia's share of the import market was 72.7%. New Zealand's share had increased from 8.6% in 2003 to 18.9% in 2007. The other main beneficiary of the ban was the domestic beef industry.

The Hanwoo beef industry fell on hard times during the 1997 Asian financial crisis. Prices for Hanwoo cattle fell as a result of a drop in demand. The slaughter of Hanwoo cattle increased as farmers began to liquidate their now-unprofitable herds. The slaughter included a much higher than usual number of female cattle, which is an indicator of breeding intentions, or in this case a lack thereof. The industry was only beginning to rebuild its herds in 2003, when consumption was now past the 400 kiloton mark. It was at this point that the BSE discovery occurred.

In 2003, BSE was discovered in Washington State. The cows in question had originally been sourced from Canada, so beef from both countries was banned around the world. South Korea's ban was not unusual -- many beef importing nations enacted similar bans and international health authorities became involved in the issue. Bovine spongiform encephalopathy is a disease that involves the wasting away of the cow's brain. Consumption of beef infected with BSE has been linked to the development of Creutzfeldt-Jacob's Disease in humans. This disease has similar effects, and is 100% fatal.

Animal feeding practices in the U.S. And Canada have been blamed for the incidence of BSE in cattle from those countries. Cattle are sometimes fed with meal made from deceased cattle, including bone, brains and other tissue from downed cattle. If the cattle was "downed" because of it suffered from BSE, the disease would then be transmitted via the meal made from the downed cattle's remains to other cattle. The widespread nature of this practice, combined with suspicion on the part of international authorities with regards to the strength of regulatory controls on the practice in North America, contributed in large part to the ban.

The Ban: Public Health Concern or Protectionism?

BSE and by extension CJD is a major health concern and it South Korea concern over the disease has politicized the issue of beef imports. CJD is rare, but is a degenerative disease that invariable leads to a horrible death. There are no treatments and there is no cure, which makes it one of the most feared diseases. It is natural that governments would seek to protect their citizens from CJD by minimizing the risk of coming into contact with the BSE antecedent.

In 2007, the Korean market for U.S. was opened. The South Koreans, engaged… READ MORE

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