Doing Business in Korea October 22, 2008 Ken Nye, Commodity Specialist Michigan Farm Bureau

Why trade is important to agriculture? American agriculture is very trade dependent We sell one-quarter of our production overseas. Agricultural productivity is increasing nearly twice as fast as domestic demand. Most of our new opportunities are with the 96% of consumers who live beyond our borders.

Source: USDA/FAS Foreign Population Gains 2.0% 9.0% 36.0% 53.0% 0.2%

Consider These: The Chinese fast food sector will grow from $52 bil. in 2007 to $66 bil. in Per capita consumption of dairy products in the U.S. continues to decline, but they are jumping in China and India; up 50 bil. pounds since China’s middle class is currently 250 million strong and projected to hit 400 million in 2010.

Why trade is important to agriculture? Agriculture receives far more than its’ share of recognition in trade discussions. Food is unique & politically sensitive Everyone eats, Many countries desire to be self sufficient, What about the poor subsistent farmer? Even in the U.S. some farm products are sensitive.

Why trade is important to agriculture? The benefits of expanding trade opportunities in agricultural products tend to flow to all domestic producers and handlers, irrespective of their actual involvement in any international sales. “The rising tide of trade tends to lift all ships.” Examples: Corn is corn regardless where it is grown or used for, Intra-commodity impact, Inter-commodity impact. In spite of the importance of trade there are anti-trade sentiments within agricultural circles.

Current U.S. Agricultural Trade Agricultural exports in 2008 are projected to reached a record high of $114 billion, up form $62.4 billion in Much of the increase is in high value products. Agricultural imports will also set a record in 2008, expected to be $79 billion, up from $57.7 billion in Includes both competitive and complementary products.

Major U.S. Export Markets 2008 Billion $ Canada16.1 Mexico15.2 China & Hong Kong14.0 EU South Korea 5.6 Taiwan 3.6 Egypt 2.2

A Look at Korea Major economic power; an Asian Tiger; Slightly larger than Indiana, but with 48 mil. people; GDP: 75 % services, 17% industry and 7.5% agriculture Relatively large importer of agricultural products; Cereals, root crops, sugar and sweeteners, vegetable oils, meat products; Not much of an agricultural export player; Korea’s agricultural sector is still important; Attitudes regarding international trade are highly charged and carried out for public display.

What do we sell to Korea? Jan-Aug 2008 (Mil.$) Coarse Grains1,788 Wheat 404 Red Meat 255 Hides & Skins 217 Feed & Fodder 204 Fish & Seafood 195 Soybeans 143 Fresh Fruit 131 Cotton 95

Korea – US Free Trade Agreement Eliminates and phases out tariffs and quotas; 2/3 of our agricultural exports will enter duty free at beginning of agreement; Restrictions on many other products phased out in first 10 years; Primary opportunities for Michigan are: Dairy, feed grains, soybeans, beef, vegetables and dry beans; Some concerns with Korean restrictions on beef.

A Few Policy Considerations How will today’s financial problems affect worldwide supply and demand for agricultural products? Will we have a successful conclusion to the Doha Round, and will changes be require in U.S. domestic farm programs as a result of Doha? Will other countries continue to attack our current farm programs through the WTO? Will the new administration in D.C. continue to pursue bi-lateral trade agreements and will they receive support in the new Congress?