January 11, 2011

South Korea poised to set up US grain firm

South Korea plans to set up a US-based international grain procurement company as part of an effort to help stabilise food prices, the Korean government said on Monday (Jan 10).

The plan by the finance and farm ministries calls for establishing a joint company with the private sector in Chicago that can diversify the country's grain procurement routes currently controlled by a few multinationals, such as Cargill and ADM.

"Excessive reliance on major dealers has made the country vulnerable to international speculation in the grain market that sometimes can cause spikes in prices," a government official said.

Seoul depends almost entirely on imports to meet its demand for wheat, beans, corn, and barley, with a rise in prices having adverse effects on consumer prices and the overall economy.

To overcome this situation, Seoul is pushing to set up an independent firm that can directly procure grain on the international market for the country, he said.

The government said the envisioned company will be led by the state-run Korea Agro-Fisheries Trade Corp. with private companies that use grain to make food and have know-how in grain trading and shipping joining forces.

On average, the country imports 14 million tonnes of various grain products from abroad each year, with major dealers handling most of the shipments.

The government said that even if a new grain handling company is set up, the goal will be to handle about 20-30% of local demand in the next 10 years. For 2011, the company may be able to import about 50,000 tonnes of grain, with numbers to be increased gradually.

In addition, the farm ministry said policymakers are actively weighing the option of creating a state reserve for such products as corn, beans, and barley in the future to protect the country from international grain price fluctuations.

Seoul already maintains a sizable rice reserve to handle emergency situations, but has not stocked up on other grain products.