Tariff and non-tariff barriers to ‘Foodpolis’

  • Published : Jun 23, 2010 - 15:33
  • Updated : Jun 23, 2010 - 15:33

Korea’s food cluster development is clearly one of the ambitious plans of President Lee Myun-bak’s government to bring the agricultural and food sector to a global level. The Korea Herald’s article of June 19, “Food cluster plan a big stab at farm entrepreneurship,” provides a promising picture of how this project is going to develop in the Iksan region.

A crucial issue of this development is the willingness of domestic and foreign food-related companies to invest in “Foodpolis,” as the project is referred to.

The various foreign food clusters, which the Korean government uses as benchmarks for the Iksan cluster, are attractive examples of success stories in this area. On first glance those seem to be reasonable models for the Korean food hub. The Danish, Dutch, Italian and American food clusters are all situated in countries with a strong agricultural sector and exports, and are surrounded by large consumer concentrations.

Also, South Korea has a strong agricultural tradition and an enormous market potential of over a billion consumers, which are situated within a relatively small radius.

However, one factor, which is largely overlooked in the discussion about food clusters, is the required openness of the food market. All above foreign examples are located in countries, which are open to food imports and enjoy an almost unobstructed access to food markets of their neighboring countries or states.

The situation in Korea is quite different. Not only does Korea itself have a large arsenal of food market protection tariffs and regulations in place, but also the main target export markets of Japan and China have a long tradition of protecting their own agriculture and food sectors.

When you walk through large department stores and supermarkets in Seoul, and compare them to what you see in similar outlets in other developed economies like the United States, France and the Netherlands, the resulting picture is clear.

In those countries you find an almost unlimited choice of an enormous variety of nationally and internationally available products of the world food market. These products are mostly available at affordable prices.

The Korean situation is quite different. International products are not widely available, locally produced food dominates the shelves, and prices for fresh and healthy products are too high for people with medium incomes.

But, clearly the major food processing industries in Korea suffer from tariff and non-tariff barriers for food and beverages at the Korean borders. Most of them depend for a substantial part on imported raw materials. These are still price-competitive compared to local products, even when subjected to high tariffs. Because of sometimes artificially high-priced local base products, e.g. milk, meat and potato starch, and tariff-burdened imported goods, local industries struggle to produce competitive products for export markets.

The message should be clear. For Korea, in order to develop an internationally competitive food cluster, the protective measures to maintain a non-viable agricultural sector should be abolished at an increased pace. This will no doubt hurt the Korean farm sector in the short term, but it appears to be the only way to make that sector economically viable. If tariff and non-tariff barriers at the Korean border do not quickly disappear, it is unlikely that the present hesitance of private national and foreign food companies to invest in the planned National Food Cluster in Iksan, will dissolve fast enough to make “Foodpolis” a success.

By Jack Damen

Jack Damen is a former agricultural attaché at the Netherlands Embassy in Seoul. -- Ed.