Perhaps no country has industrialized and modernized as rapidly as South Korea did in the second half of the 20th century. In 1960, per capita GDP was U.S.$200, but today South Korea has the world’s 10th largest economy measured in nominal GDP.

In the process, the country has gone from being a closed, largely agricultural society to a major exporter of manufactured goods, both consumer and industrial.

Just 6% of the population is left in farming. Mostly they grow rice, the one major grain still protected against import competition. This policy is a point of contention in the on-going negotiations of a Free Trade Agreement with the U.S.

Rice notwithstanding, South Korea has become one of the most important grain-importing nations. In a typical year, South Korea buys more than 12.5 million tonnes of maize, wheat and other grains. Average annual maize imports of 8.5 million tonnes for feed and industrial use place the country in a close race with Mexico for second place worldwide. Feed wheat imports typically exceed 1 million tonnes.

WTO rules are forcing the country to open up to direct imports of finished meat products, which are likely to capture most of the continuing increase in per capita meat consumption. In 2003, South Korea banned all beef imports from the U.S. after the discovery of a few isolated cases of mad cow disease. The sudden elimination of U.S.$850 million in annual meat imports may have been a temporary boon to the South Korean feed industry, but an agreement has already been reached to remove the ban.

Mixed feed production in excess of 15 million tonnes is divided among 65 companies operating about 90 plants. Agribrands Purina/Cargill, the result of a merger four years ago, has about an 8% share at its five feed fa- cilities. About two-thirds of the plants and capacity are grouped together under the Korea Feed Association (KFA).

A major responsibility of KFA is handling the purchase and importation of maize for most of its members. Shiploads are brought into the ports of Pusan and Ulsan by the KFA’s southern branch and into Inchon in the northwest by the Seoul branch.

However, the KFA does not have a monopoly on feed ingredient imports. The six largest feed millers have formed their own purchasing consortium, and the National Ag Cooperative Federation, whose mills are not part of the KFA, buys separately as well.

South Korea has become a battlefield of sorts for the two major maize exporting nations. There have been huge swings in supply share in just this decade. In 2004 and 2006, U.S. maize accounted for nearly two-thirds of feed use imports. But in 2003 and 2005, Chinese maize took 96% and 65% of its neighbor’s market.

Actually, South Korean purchasers have no direct control over the origin of their maize, since they give the major grain trading companies the option to choose the source. However, Chinese maize is discounted by U.S.$5 to U.S.$10 per tonne compared with maize of U.S. origin.

With industrial use of maize for ethanol increasing rapidly in both China and the U.S., it is uncertain which country will be the main source in the future. The only sure thing is that farmers will supply it, but at a higher price than in the past, and that a newly prominent by-product of ethanol will displace some of the maize imports.

It is remarkable that to date all imports of DDGS to South Korea have been in 40-foot (12-meter) ocean containers. While container rates are low, due to the imbalance in trade between the U.S. and Asia, inland handling of these containers in South Korea from the port to the feed mills is very expensive.

As volumes increase, the next step will be bulk shipments of DDGS. However, there are a number of technical obstacles. One is that the U.S. ethanol industry still lacks the supply logistics to fill whole vessels or even single vessel holds with 8,000 tonnes of homogeneous product.

Since in South Korea, as in other Asian markets, DDGS is being introduced for poultry and swine, consistent high quality and good digestibility is important. The USGC sponsored a South Korean feed milling delegation on a DDGS study tour to the U.S. in October. Min observes that the 100 ethanol plants in the U.S. have four different types of construction, process, and management, causing variability of DDGS among them, and making it difficult to achieve consistent quality on a bulk vessel shipment consolidating product from multiple plants.

Another problem is the poor flowability of DDGS, meaning bulk shipments cannot be stored in traditional grain silos at South Korean ports. But as Min points out, there is also little room to build flat storage (for more on DDGS, see article on page 65).

Soybean meal imports rose to 1.6 million tonnes in 2006, mainly from Brazil and India. Together with edible oil from Southeast Asia and Argentina, they have kept margins low and prevented fullcapacity operations at domestic crushers. The leveling of feed output has also put a cap on the oilseed industry.

Despite the absence of local raw materials, South Korea has jumped on the biofuels bandwagon. A law that went into effect in July 2006 mandates 0.5% vegetable oil in diesel fuel. Imported palm oil is being used for this purpose.

The U.S. (53% share in 2005) and Australia (41% share) compete head to head for business from South Korea’s eight milling companies. Canada supplies the balance (6%). Supply from the U.S. consists of three classes: Soft White from the Pacific Northwest, Hard Red Winter and Hard Red Spring. Australia has gained market share for noodle production with its Australian Standard White wheat in recent years.

Wheat supply to these mills is controlled by major Japanese trading houses like Mitsui and Marubeni, in addition to Cargill.

The four largest milling companies are Daehan Flour Mills, CJ Corporation, Dongah and Korean Flour Mills. These companies account for roughly 75% of the country’s flour production. CJ Corporation is a major player in oilseed crushing and feed milling as well.

Per capita consumption of bread and noodles rose rapidly, while rice consumption declined up to the time of the Asia Economic Crisis of 1998, which hit South Korea especially hard. Since its economic recovery, South Korea’s rice consumption has continued to fall, while sales of wheat flour-based products have been stable and meat consumption has resumed its growth. Indeed, the rate of decline in per capita rice consumption has been accelerating for three decades and has reached 4% annually. Today, the average South Korean consumes 78 kg of rice in a year, compared to over 130 kg in 1970. WG

David McKee is a grain industry consultant providing market research and other services to companies seeking to initiate business in new markets. He can be reached by e-mail at