Farm subsidies in the United States have some impact on exports, especially for cotton, but the quantitative impact overall is relatively small because more products have not benefited from significant farm subsidies and many of the subsidy programs have relatively little net effect on production. Korea exports few agricultural goods and the Korean agricultural trade incurs a large trade deficit— an amount almost equal to the country’s total trade surplus . U.S. agricultural exports to Korea exceeded $3 billion in the late 1990s, fell to $1.7 billion in 1998 during Korea’s financial crisis, and then began to recover slowly in subsequent years . U.S. agricultural exports to Korea began to decline again in 2004 after the discovery of a slaughter cow with bovine spongiform encephalopathy in the United States in December 2003. That event caused a collapse in beef exports to Korea and, as a result, agricultural exports fell in 2004 and 2005 . After 2005, which marked the lowest level of U.S. exports since the financial crisis in 1998, U.S. exports bounced back, reaching $3.5 billion in 2007. The United States remains the largest agricultural exporter to Korea and is the chief supplier of many agricultural commodities traded in Korea. Korea is the destination of 4–5% of U.S. agricultural exports but those products constitute a significant share of Korean agricultural imports—23–38% during 2000–2007 . The trend in the past few years, though, is a decline in the U.S. market share,vertical farm mainly due to the emergence of new competitors in the Korean market such as China, Australia, and Chile.
Table 1.e lists shares of total U.S. agricultural exports to Korea for 2003 and 2007 by commodity. Distinct changes in export share during that period are the drop in meat exports and rise in coarse grain exports. With the collapse of meat exports in December 2003, meats’ share of total U.S. exports to Korea plummeted from 33% to 11% in 2007 and the share of coarse grains rose from 1% to 24%. The category that includes fruits, nuts, and vegetables changed little, remaining at 11–12%.Table 2.a on the following page presents University of California Agricultural Issues Center estimates of recent California agricultural exports to Korea.4 After growing by more than $100 million or about 75% from 1999 to 2003, exports declined in 2004 and in 2005 rose only back to the level reached in 2001. In 2006, California agricultural exports to Korea rose back to the record of $312 million reached in 2003. Oranges continue to be the number one export product. In recent years, fresh oranges have replaced cotton and beef as the leading export from California to the Korean market. Beef exports collapsed in 2004 with the discovery of BSE in the United States. Along with declining cotton production in California, the Korean textile processing industry has been shrinking for several years as Korean wages have grown too high relative to those in China and other textile processing countries of Asia. Korean imports of cotton reached a high of about $100 million in 2001, fell to less than $40 million, and then collapsed to less than $10 million in 2006. Tree nuts, especially almonds and walnuts, are also major exports to Korea. Hay, hides and skins, processed tomato products, wine, grapefruit, and rice round out the top exports to Korea in value. Dairy products declined substantially starting in 2003 but remain a major export category.
California is a major provider of U.S. exports for many of the commodities listed in Table 2.a. Table 2.b arranges the California export data to indicate the importance of the Korean market to California agricultural export products. The ranks in Table 2.b are not evaluated by the magnitude of value but by the size of export share shipped to Korea within the given industry. In 2006, Korea was the top export market for California grapefruit with an export share of 14%. For some commodities, export markets are spread among many countries. With a 2–5% export share, Korea is the second most important market for California grape juice, hay, and hides and skins. For California walnuts, Korea ranked eighth in 2006 with a 10% export share. Korea slipped from the top export market for oranges in 2005 to number four in 2006. Before the collapse of exports in 2004, Korea was the number two export market for California beef, accounting for 34% of California beef exports in 2003. In the more recent years shown in Table 2.b, Korea holds double-digit shares of California exports of almonds, grapefruit, oranges, rice, and walnuts. For many of the export commodities listed in Table 2.b, Korea is a top-ten export market and accounts for a significant share of California’s exports.To evaluate California’s relative position and the export potential in the Korean market, we investigate the size and scope of Korean imports. Before we consider individual commodities, let us first review Korean imports of fruits, tree nuts, and vegetables at an aggregate level. There are many individual fruit and vegetable export products. Thus, aggregation of import items and the World Customs Organization’s harmonized sy.
An item can be classified with an HS code of up to ten digits with longer codes representing more refined classifications of aggregation. For example, the first two digits of HS code 0706 represent vegetables while the last two digits narrow the category to root-type edible vegetables . HS codes 0703 through 0709 cover fresh/chilled vegetables and codes 0710 through 0712 cover vegetables in non-fresh form, which includes frozen, provisionally preserved , and dried products. Table 2.c presents Korean imports of selected fruits at the aggregation level expressed by four-digit HS codes. Fruits are first differentiated into fresh and non-fresh. In the table, processed items such as fruit juices are excluded because there are so many individual processed items and the HS codes cannot be conveniently aggregated. Table 2.c indicates that Korean imports of fruit products are mainly in fresh form with imports of non-fresh fruit accounting for, at most, 10% of import value. The value of fresh fruit imports was close to $500 million in 2007 with bananas and citrus being the top two fresh fruit import categories. California does not produce bananas but citrus is an important export item for the state. Korea also imports significant amounts of table grapes and cherries. Imports of these two items have grown rapidly and California has been an important supplier. Tree nut imports are presented in Table 2.d. The major items in tree nut imports are almonds and walnuts, which comprise almost 90% of Korea’s tree nut import value. Besides almonds and walnuts, other tree nuts imported include pistachios, pine nuts, and gingko nuts. Among these minor nuts, we report only pistachios, for which California is a major exporter. Table 2.d also reports U.S. tree nut exports to Korea for the last five years. Over this period, California has been supplying about 90% of Korean imports. For almonds, the United States was the only supplier in 2007. Tree nuts are a very important export category for the United States and California in terms of value and market share. Korea is not a major importer of vegetables. While it is a major importer of agricultural products, the country’s vegetable consumption is mostly supplied from domestic sources. Of the total imports of agricultural products worth more than $10 billion in 2007, nft vertical farming vegetables account for less than 5% . Table 2.e presents selected vegetable imports aggregated at the four-digit HS code level. The table omits vegetable categories that show few imports or little relevance to California. Unlike fruits, non-fresh items dominate Korean vegetable imports, accounting for about 60%. The table also shows China’s import share in the Korean market for the last three years. China dominates Korea’s vegetable import market with shares exceeding 90% for all categories except lettuce and other vegetables . Even in the lettuce market China’s share has been steadily growing, accounting for about half of the market in 2007.We now turn our attention to more disaggregated figures. Table 2.f presents the value of Korean imports for the three most recent years of individual commodities that are of potential importance to California. Among the products listed, the product with the highest value is beef with imports that exceed $1 billion. Product categories with more than $100 million in import value include fresh oranges, hides and skins, rice, wine, cotton, hay, cheese, and mixed milk powder. Categories that are greater than $10 million but less than $100 million include orange juice, lemons, table grapes, grape juice, cherries, processed tomatoes, olives, kiwis, garlic, almonds, walnuts, flowers, and many dairy products .
Imports of many of these products more than doubled during these years. Most notably, imports of table grapes, cherries, kiwis, walnuts, prunes, lettuce, butter, and mixed milk powder increased more than three times.Table 2.g lists the United State’s share of major Korean import products and the major competitors for each of these products. This table shows that the United States commands a major share of exports to Korea for a number of commodities, including oranges, lemons, grape juice, processed tomato products, raisins, grapefruit, lettuce, almonds, walnuts, pistachios, hides and skins, whey, cotton, hay, and flowers. The major competitors for orange juice include Brazil . Chile is the major competitor for table grapes and wine . China is the major competitor for many fresh products, including strawberries, lettuce, garlic, red peppers, rice, flowers, and processed tomato products. Spain is the main competitor for grape juice and olives. New Zealand is a major competitor for kiwis, beef, and dairy products and Australia is the major competitor for beef, dairy products, and cotton. Finally, Iran is the major competitor for pistachios and Vietnam for walnuts. An FTA would allow California suppliers either to have a price advantage relative to other suppliers or to keep up with suppliers that have or may soon have FTAs with Korea. Among the competitors we have listed, Chile is the first country with which Korea has established a bilateral trade agreement. The Korea-Chile FTA was signed in 2002 and came into force on April 1, 2004. Since the FTA was completed, Chile has had an advantage over other competitors and some exports from California compete with Chilean exports in Korean markets. Table 2.h uses Korean import data to examine the relative positions of the United States and Chile as import suppliers to Korea. Among the products of some importance to California, we consider only the markets in which Chile represents some positive market shares in Korea. The table includes data for 2003 as a representation of the pre-FTA period. This table shows that the United States commands a major share of exports to Korea for a number of commodities. Chile also is the main export supplier of table grapes to Korea and a significant supplier of kiwis and wine. Further, our data indicate that, after the FTA, Chilean imports grew substantially for kiwis, grape juice, lemons, processed tomatoes, wine, and whey. Imports also compete with domestic production. Table 2.i shows import quantities relative to Korean production for each commodity. The blank cells in the table indicate that either data are not available or production is almost zero. For many items, such as olives, pineapples, and bananas, there is no domestic production. Despite having no domestic industry to protect from directly competitive imports, Korea continues to maintain high tariffs, often more than 30%. These tariffs apply to lemons, grape juice, cherries, processed tomato products, raisins, pineapple, bananas, kiwis, grapefruit, almonds, walnuts, pistachios, and wine. Import tariffs for other products are also high, about 45% in most cases. Given the sizable domestic production, import quantities remain very small relative to domestic supplies. This is the case for table grapes, strawberries, apples, lettuce, and rice. Only a few products, such as oranges, beef, some dairy products, and hay, have significant imports when large quantities of domestic production are also available. In those cases, imports are able to compete with domestic supplies despite sizable tariffs because costs of production in the domestic industry are high. Finally, fresh peaches and pears deserve attention. Table 2.i indicates that Korea has a sizable fresh peach and pear market but almost no imports enter the country. Note that the Korea-Chile FTA excludes fresh pears from preferential tariffs.Korea maintains high tariffs on agricultural goods.