South Korea should diversify sources of grain imports

A new official report said South Korea should diversify its grain import arrangements to become less reliant on multinational agribusinesses that handle the bulk of the country's grain purchases.

State-run think tank Korea Rural Economic Institute (KREI) said the current practice of buying grain through open competitive tendering makes South Korea over-reliant on companies such as Cargill, ADM, Louis Dreyfus LCD and Bunge that control the global market and bidding process.

This process does not ensure that South Korea can buy corn, beans and wheat at the lowest prices, said KREI researcher Lee Dae Seob.

He said South Korea on average buys wheat at prices higher than actual market prices, while Cargill and other companies usually offer corn at competitive prices, but hike them up more sharply than the market when there is a possibility of shortages.

Multinational agribusinesses based in the US, Brazil, Argentina and Australia handle 60% of all corn, wheat and beans that are brought into the country.

The researcher also said South Korea should sign less "cost and freight flat" deals, which link transportation and distribution arrangements with a purchase contract that may not always benefit the buyer.

Lee said change is needed because large companies that currently control the international grain market are moving to expand market dominance using their ability to control supply and the abundance of funds they have at their disposal.

South Korea should consider buying overseas farm production facilities and sign deals that would allow its importers to claim complete ownership of crops harvested abroad, he said. The measures are expected to counter such moves and insulate the country from sudden fluctuations in prices.

The KREI also said the government should do a better job of providing local importers with up-to-date data on prices and supply and demand situations.