March 9, 2010

South Korea to cushion blow to dairy sector

Seoul will maintain two million tonnes of milk production annually to help the local dairy sector deal with an influx of imports once a free trade agreement with the EU goes into effect.

If the FTA with the EU is ratified around April as anticipated, there may be a surge in imports that can hurt local producers.

The support plan will require KRW30 billion (US$26.2 million) so that the government can buy milk from dairy farmers to sustain prices.

The local dairy industry produced 2.11 million tonnes of fresh milk last year, and annual domestic consumption totals 1.6 million tonnes. The fresh milk need cannot be met by the EU due to milk's short shelf life.

A further 400,000 tonnes of milk are needed to produce other dairy products that are less affected by the higher price of domestic milk. Therefore, the support plan is aimed at alleviating concerns of local dairy farmers who fear they will be pushed aside by the FTA, said a ministry official.

The amount of fund support is within the World Trade Organisation's permitted subsidy level. Local dairy production stands at KRW1.6 trillion (US$1.41 billion), so South Korea is allowed to give KRW80 billion (US$70.5 million) worth of subsidies or 5% of total production to dairy farmers.

The official also said a separate budget of KRW12.6 billion (US$11.1 million) will be used annually to help upgrade production facilities at dairy farms.

The plan to maintain two million tonnes of production base will be implemented this year, while a centralised organisation will be created soon to permit production quota-setting nationwide.

Regional dairy cooperatives have recommended a production quota for members to stabilise dairy prices.

The agriculture ministry will also encourage up to 370,000 hectares of farmland to be used to raise feed crops for cattle. Local feed crop production can help cut costs for dairy farmers who rely heavily on imported feed products.