Boston, MA -- (SBWIRE) -- 08/22/2012 -- BMI View: On the heels of the recently implemented Korea-US (KORUS) free trade agreement (FTA) is an announcement between the government of South Korea, together with its two East Asian neighbours, China and Japan, that they aim to seal a trilateral FTA within the next two years. Given that South Koreans are the most subsidised population in the world (63% of revenues are derived from government subsidies), this is likely to receive strong protests from the agriculture sector. However, if the government's steely response to the previous signing of the KORUS agreement is anything to go by, BMI believes that industry consolidation will only grow and gather pace in the foreseeable future.

Key Forecasts

- Corn consumption to 2016: 24.1% to 10.2mn tonnes. Approximately 75% of this demand will be accounted for by the livestock sector. Another important driver of corn demand over the medium term will be the increase in consumption of high fructose corn syrup, which is becoming more popular than sugar in the country's expanding soft drinks sector.
- Milk production to 2015/16: 2.8% to 2.2mn tonnes. This growth is likely to be supported by improved yields per cow and favourable pricing structures for farmers based on a new agreement to raise the average price of raw milk.
- Pork production to 2015/16: 30.0% to 1.1mn tonnes. Like beef and poultry, South Korea will remain a net pork importer over the medium term. Like beef and poultry, South Korea will remain a net pork importer over the medium term.
- Real GDP growth: 1.9% year-on-year (y-o-y) in 2012 (down from 3.7% y-o-y in 2011 and set to average 4.0% out to 2016)
- Consumer price index: 2.7% y-o-y in 2012 (down from 4.2 y-o-y in 2011 and set to average 3.0% from 2011 to 2016).

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Industry Developments

Despite the declining overall domestic consumption of rice, we highlight that there is a growing trend of increased demand for rice processing for the export-oriented food processing industry. According to government data, rice demand for processing has almost doubled in recent years, from 366,000 tonnes demanded in 2008/09 to 650,000 tonnes in 2011/12. Consumption from the food processing (39% of total demand) and liquor processing industries (20% of total demand) are expected to grow strongly in the near term as the government continues its efforts to globalise Korean cuisine, which includes rice cakes and other rice based snacks. China and US rice exporters will benefit the most out of this trend, given that they contributed to 46% and 29% of 2011 total rice imports respectively.

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