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Title Analysis of Programs and Policies for Stabilizing the Supply/Demand of Grain

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  • Date
    2021-10-01

Analysis of Programs and Policies for Stabilizing the Supply/Demand of Grain

 

Published on 1 October 2021
Published by Economic Industrial Program Evaluation Division

 

    Due to the recent reduction in grain production by major exporting economies as well as trade restrictive measures driven by the COVID-19 pandemic, the world Food Price Index increased from 91.0 in May 2020 to 127.4 in August 2021, whereas Korea’s grain self-sufficiency rate has been declining from 43.1% in 1990 to 21.0% in 2019. Korea is increasing its grain import volume as the world’s 7th largest grain importer, but lacks awareness regarding the stabilization of supply and demand of grain due to the illusion caused by its high self-sufficiency in rice supplies.
    The government is pursuing projects and policies to stabilize the supply and demand of grain based on the Framework Act on Agriculture, Farms and the Food Industry and related master plans, which can be categorized into: 1) enlarging domestic production, 2) stabilizing imports, 3) maintaining an adequate volume of storage, and 4) establishing a risk management and response system. The budget allocated for relevant fiscal programs has been on the increase from 3.5 trillion won in 2017 to 4.1 trillion won in 2021.
    After analysis of the achievements and challenges of grain supply-and-demand programs and policies mainly on upland food crops such as wheat, beans and corn, in which Korea has low self-sufficiency and heavily relies on imports, the following improvement measures were drawn:
    First, circumstances make it difficult to significantly increase domestic production of upland food crops such as wheat and beans, given the price gap between Korea and overseas, low preference and profitability as well as the lack of a solid production and distribution basis. Therefore, for the sake of efficient fiscal management, comprehensive consideration should be given to the quality of home-grown wheat, consumption increases and the possibility of finding alternatives for imported grain, thereby setting a clear list of heavy consumption items and pursuing policies to increase their production.
    Second, Korea is showing strong reliance on a few grain exporters such as the U.S., Brazil and Australia, and should strengthen international cooperation with these countries in terms of agriculture and trade, while continuing to seek diversification of supplier nations to import from. In case of the program for supporting Korean agri-food companies in their endeavor to enter overseas markets (previously known as “Overseas Agricultural Development”), the effectiveness of importing agricultural resources such as grain should be increased, since the proportion of their import volume is small with insignificant representation compared to domestic consumption figures, given the actual secured volume.
    Third, given that the storage rate of products such as wheat and beans are lower than the rate recommended by the FAO (17~18%) and the majority of them are managed by the private sector mainly for storage purposes, the public sector should implement systematic storage management measures in collaboration with the private sector. Korea has low self-sufficiency in feed grains and is heavily dependent on imports. As there is no criteria for feed grain storage in the country, authorities should consider introducing public storage of feed grain to mitigate price shocks in Korean feed products.
    Fourth, despite the overall good scores received in The Economist Global Food Security Index (GFSI), Korea ranks low among OECD members and its ranking appears to be stagnating or deteriorating. Therefore, weaknesses need to be reinforced, such as by organizing a food security strategy, enhancing accessibility including via public promotion, and establishing a designated team responsible for food security issues. In addition, the current trend regarding the declining food self-sufficiency rate is caused mainly by the reduction in farmland, while Korea has not yet specified the farmland that forms the foundation for its food security. In this respect, the authorities should clarify the appropriate area of farmland when setting a target rate for food self-sufficiency and systematically manage the preservation of prime farmland, such as through designating agricultural promotion regions.

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