South Korea’s Abundant Pork Supplies Will Challenge U.S. Pork Sales

Jihae Yang, USMEF director for South Korea

By Jihae Yang, USMEF director for South Korea

After one year of the U.S.-South Korean free trade agreement, the U.S. pork industry is continuing to adapt to challenging market conditions in South Korea – the No. 5 export destination for U.S. pork – working to sidestep the implications of a domestic oversupply of pork and consumers’ economic cautiousness by targeting specific product niches and new distributions channels to reach key audiences.

The entire pork industry, both Korea’s domestic industry as well as exporters, are facing challenges here in the year ahead because of overachievement by the Korea pork industry. After losing one-third of its swine herd (3.3 million head) in the 2010-2011 FMD outbreak, Korean pork producers already have rebuilt the herd to 9.92 million head. Unfortunately, Korean pork industry experts believe the optimal herd size ranges from 8.5 million to 9 million, putting far too much product in the pipeline.

The overflowing pork supply isn’t the only challenge to pork industry profitability. At the same time, Korea’s beef herd exceeds 3 million head (with 2.5 million considered ideal), and the chicken population stands at 76 million – nearly 30 percent over the ideal 54 million level.

This embarrassment of riches has given Korean consumers more affordable protein choices than usual, but the conservative approach taken by consumers has led to reduced pork purchases, at least for the near-term. Unfortunately, with Korea’s FMD history, it is unable to export either fresh beef or pork to alleviate the situation.

The Korean Pork Producers Association (KPPA) recognizes the dilemma and has called for a voluntary reduction 10 percent reduction of the sow herd by the domestic industry by the end of 2013. The Korean government has reinforced that message with its own “mandatory” reduction edict. While this edict has no legal basis, the government can enforce it by cutting subsidies to the industry.

The KPPA also has turned its attention toward imports, calling for tougher inspection standards for imported pork, including on-site audits for quality and food safety at the 1,966 establishments in 23 countries that can export pork to Korea – a daunting task that is unlikely to be approved. KPPA also is seeking more aggressive reporting by Korean media on any violations found in these audits.

U.S. Pork in South Korea

In the meantime, U.S. pork exports to South Korea are once again off to a fast start. According to Korea’s import statistics, U.S. pork imports in January reached 15,363 metric tons valued at $40.9 million, accounting for 44.8 percent of all imports by volume and 41.6 percent by value. The totals are more than triple the volume of December sales to Korea – caused in part by importers’ decision to stall purchases until the 2013 tariff reductions kicked in. For example, the tariff on specific frozen products, including picnics and Boston butts, dropped from 25 percent at the outset to 16 percent last year to 12 percent in 2013 before it phases out completely in 2016.

While the Korean market poses challenges, USMEF-Korea is targeting several specific niches that offer potential for growth.

The first niche is value-added chilled pork. Chilled pork is a point of differentiation for U.S. pork from many international competitors that only can provide frozen pork. It also is more of a direct substitute for domestic chilled pork.

A group of buyers from South Korea’s leading retail chains were hosted in the U.S. recently for a firsthand look at the U.S. pork production system and to showcase the attributes of U.S. chilled pork. Buyers from Lotte Mart, Lotte Super, Seowon Topmart and Homeplus were accompanied by a reporter from the Korean publication Meat Journal, which covered the visit in an eight-page feature article titled, “U.S. chilled pork to start a new era of brand sales.”

The article detailed the U.S. pork industry’s commitment to swine welfare and pork quality assurance programs that are well-known in the Korean meat industry. It also praised the programs for their positive contribution to the safety, quality and consistency of U.S. pork.

The U.S. pork industry is working to keep that image top-of-mind for Korean consumers during the upcoming pork high season (May through August) by supporting chilled pork promotions with participating retailers. USMEF-Korea also has enlisted the services of Shin Hyo-seob, one of Korea’s best-known celebrity chefs, to help showcase U.S. chilled pork.

The second niche being targeted in the coming year is processed pork, ranging from sausages, bacon and pre-cooked spare ribs to ham and corn dogs. USMEF is working aggressively in the social media sector to promote these products to younger consumers who show less loyalty to domestic products. This also is a niche that is benefitting from FTA tariff reductions, with the sausage tariffs phasing out to zero from 18 percent over 5 years.

At the end of 2012, USMEF-Korea kick-started the process by inviting 10 U.S. companies representing 14 processed pork brands to an event in Seoul to showcase their products to more than 200 interested Korean buyers. Many of the suppliers introduced products that were new to the Korean market.

These efforts are all part of the initiative to differentiate U.S. pork from other global competitors along with Korea’s own domestic pork by showcasing its unique attributes and the quality dining experience it delivers. The competition for a place in the Korean consumer’s stomach will be fierce.