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Radiation-free food bolsters Korea’s exports to Japan

South Korean food exports to Japan are climbing at the fastest pace on record after radioactive contamination and supply disruptions prompted consumers to switch to overseas producers.

Sales of watermelons, tuna and noodles led a 38 percent jump in South Korea’s shipments of food to its Asian neighbor to $604 million in the second quarter from a year earlier, according to the Korea International Trade Association, or KITA.

Surging demand for South Korean products has helped buffer exporters against weakness in U.S. and European markets. Lotte Chilsung Beverage Co.’s drink sales to Japan have more than doubled and its shares have risen 58 percent since the March temblor and tsunami that triggered the Fukushima nuclear crisis.

“The sad truth is that Japan’s disaster is a boon for Korean companies from food producers to carmakers,” said Sean Hwang, head of research at Mirae Asset Securities Co. in Seoul. “The big question is whether they will be able to hang on to the export gains in the long term.”

Japan’s March 11 disaster closed factories, caused power shortages and disrupted supply chains. That spurred an increase in imports, resulting in the nation posting trade deficits in April and May. Hwang said power constraints may aid Korean exporters at least through September.

Japan demand

Demand from Japan helped limit a slowdown in South Korea’s export growth in the second quarter. Shipments rose 1.8 percent from the first three months of the year, when they increased 3.3 percent, a central bank report this week showed. Industrial output climbed 6.4 percent in June from a year earlier, the slowest pace in nine months, a government report showed today.

Japan’s imports of food from all countries advanced 17.5 percent in May, the fastest gain since September 2008, and rose 9.4 percent in June, according to the nation’s Finance Ministry.

At Lotte Chilsung, sales of soda and fruit juices to Japan have doubled to about $1 million per month since April due to production disruptions in the neighboring country, said spokesman Seong Gi-seung in Seoul. The Japanese export increase combined with strong domestic sales helped its share price surge, said Yang Il-woo, an analyst at Samsung Securities Co. in Seoul.

Instant noodle maker NongShim Co.’s exports to Japan more than doubled since March compared with a year ago, said Yoon Sung-hak, a manager at the Seoul-based company. It now expects record sales in Japan of about 100 billion won ($95 million) this year compared with 55 billion won last year. NongShim’s share price has climbed 18 percent since the quake, compared with the 10 percent gain in the Kospi stock index during the same period.
Shoppers browse at an Aeon Co. shopping center in Tokyo. (Bloomberg)
Shoppers browse at an Aeon Co. shopping center in Tokyo. (Bloomberg)

Shipment goals

South Korea’s government said it’s confident of securing a 29 percent increase in agricultural, food and fishery shipments to $7.6 billion this year and a similar gain in 2012.

Wider distribution channels and the popularity across Asia of South Korean television dramas and songs that help to promote the nation will assist in achieving those goals, the Ministry for Food, Agriculture, Forestry and Fisheries said in a July 5 statement. “Winter Sonata,” a soap opera, and Girls’ Generation, a pop group, are among the entertainment exports. Japan accounts for about a third of South Korean agricultural, food and fishery exports.

Korean farmers

“Demand for Korean food in Japan is growing too fast for farmers to meet in time,” said Shin Eun-jin, president of Seoul-based Nari Trading Co., a trade broker. “Some Japanese producers are coming to Korea to sign contracts directly with Korean farmers,” said Shin, who has exported farm goods and fish to Japan for 12 years.

Exports of watermelons to Japan increased by more than ten times from a year earlier in May, while shipments of canned tuna fish rose by almost five times and bottled water gained by ten times, according to the KITA data.

“The Japanese market is hard to enter but pretty attractive as consumers are less sensitive to prices, compared with China and other developing countries,” said Samsung Securities’ Yang.

Spinach, mushrooms, bamboo shoots, tea, milk, plums and fish have been found to be contaminated with cesium and iodine as far as 360 kilometers (224 miles) from the stricken Fukushima Dai-Ichi nuclear station operated by Tokyo Electric Power Co.

Radiation testing

Aeon Co., owner of Japan’s biggest supermarket chain, said it began selling beef this week tested for radioactive substances to counter consumers’ concerns.

The March disaster left more than 20,000 people dead or missing. The government estimated that damage totals 16.9 trillion yen. Japan’s economy shrank for the second straight quarter in the three months through March as the disaster depressed output and dragged down consumer spending.

South Korea’s average monthly trade deficit with Japan narrowed to around $2.5 billion this year from $3 billion last year, said Chung Hyuk, head of the Japan business department at the Korea Trade-Investment Promotion Agency in Seoul.

“The recent surge in food exports may be temporary due to the short supply and fears of radiation contamination,” said Chung. “We hope they enjoy our products more.”