February 21, 2011

South Korea seeks to build global grain firm

South Korea is looking forward to set up a global grain procurement company that can ensure a steady supply of the staple product, the head of a state-run farm trading corporation said Friday (Feb 18).

Ha Young-je, the president of Korea Agro-Fisheries Trade Corp., told reporters that a joint company will be set up in Chicago next month that can directly procure grain from overseas farmers so it can be brought back to the country.

"The grain market is a huge process industry that requires procurement of expensive silos and cargo handling facilities as well as signing deals with large-scale agricultural producers," the executive said.

He said because the market as a whole is dominated by a handful companies, such as Cargill and ADM, South Korea's goal is to work with these companies.

"There is no way a company can be set up that can compete with major grain handlers, so a strategic partnership is being sought," he said.

South Korea on average needs 20 million tonnes of grain such as rice, wheat, corn and beans per year. It produces around 4-5 million tonnes of rice, which is sufficient to meet local demand, but must import most other products.

The new grain procurement firm will be made up of the farm trading corporation, Samsung C&T Corp., CJ, Hanjin Shipping Co. and STX.

A total of KRW200 billion (US$179 million) is expected to be spent on the firm up until 2020, with around 10,000 tonnes of non-genetically modified beans imported by year's end on a trial basis.

The ultimate goal will be to handle about 20-30% of grain imports in the next decade in order to better insulate the country from a sudden shortage of supply. Supply shortages can lead to high prices and inflationary pressure.

The corporation, meanwhile, said depending on the growth of the company, it will seek to buy products outside the US, and in the long-run, handle products that can make headway in markets such as China.