With exports of both U.S. beef and U.S. pork to South Korea being lower than in 2011, some observers may question whether the Korea-U.S. Free Trade Agreement – which took effect in March – is living up to its promises. But as Jihae Yang, Korea director for the U.S. Meat Export Federation explains, meat trade with Korea is actually down this year due to unusual circumstances in the market.
Yang says U.S. beef and pork will realize significant tariff advantages over the next several years, creating important opportunities in Korea. Yang says the gradual phase-out of duties on U.S. chilled beef creates a strong marketing edge over Australia, which currently has no FTA in place with Korea. She also sees very strong opportunities for processed pork products.
A surge in Korea's domestic cattle and beef production has created a difficult business climate in 2012 for all beef-exporting countries serving Korea. For example, Korea's cattle slaughter surged in September (the latest data available) to more than 115,000 head – nearly 75% higher than a year ago. This pushed the year-to-date slaughter total 22% higher than last year, due in part to a government-supported herd culling program.
Domestic beef prices in Korea recently averaged about $5.15 per pound – down only slightly from last year, but 15% lower than in 2010. As a result, Korea's beef imports from all sources (through October) are down 14% to 249,461 metric tons. Import volumes are lower from all three of Korea's main beef suppliers: Australia (125,659 mt, -11%), the United States (91,705 mt, -16%) and New Zealand (28,059 mt, -19%).
On the pork side, Korea's domestic production has recovered quickly from a major foot-and-mouth disease outbreak suffered in late 2010 and early 2011. Korea's pork prices recently averaged $1.23 per pound, 31% lower than a year ago and down 20% from 2010. Year-to-date hog slaughter (through September) is up 44% from last year, and just 7% below the pre-FMD pace of 2010.
Korea's major shortage of pork in 2011 also created some highly unusual trade scenarios. Not only was imported pork in extremely high demand, but the Korean government also waived import duties on a significant volume of pork. Without looking at the historical performance of the market, these circumstances can result in misleading year-over-year comparisons. For example, this year's exports of U.S. pork to Korea (through September) are down 31% in volume (105,736 metric tons) and 23% in value ($303 million) compared to the first three quarters of 2011. But 2012 is still the second-best year in history for U.S. pork exports to Korea, even with an entire quarter of results still to be reported.
Yang explains the tariff relief provided in the Korea-U.S. FTA will help moderate the price of U.S. meat products, allowing them to reach a much wider range of Korean consumers. Current market conditions notwithstanding, the agreement is creating exciting long-term opportunities in the Korean market for a broad range of U.S. beef and pork items.