Beef

2.1.1. BEEF INDUSTRY SITUATION

The Korean beef flow diagram in Figure 1 describes the underlying structure and price determination process of Korean beef cattle industry. This diagram shows the flow of product through the market channel from the cow-calf producer to the consumer of the beef product.

Beef cattle farms in Korea are specialized by cow-calf producers and cattle feeders. The majority of cow-calf producers are smaller volume farms which have less than 30 head of cattle and calves. Cattle feeders are rather larger volume operations which have over 30 head of cattle. Cow-calf producers having 20-30 head of cattle and calves change their business type to cattle feeder if relative income in feeding cattle is expected to increase.

The number of beef cattle farms has continued to decrease. Between 1990 and 2003, the number of beef cattle farms has decreased from 620 thousand to 188 thousand households (Table 2). The majority of beef cattle farms are still small scale farms having less than 50 heads of cattle but the proportion of large scale farms in the number of beef cattle has continued to grow. In 1990 the beef cattle farms having less than 50 head accounted for 99 percent of total beef cattle farms and the proportion of beef cattle on farms having less than 50 head accounted for 95 percent of total beef cattle. In 2003 the proportion of beef cattle on farms having less than 50 head accounted for only 67 percent of total beef cattle (Table 2).

The number of beef cattle on farms has increased until late 1997. However, the beef cattle industry had undergone severe contraction from late 1997 to early 2001 because of a financial crisis in late 1997. The high imported feed grain prices attributable to high exchange rate by the financial crisis in late 1997 deteriorated the profitability of beef cattle farms and forced them to slaughter breeding cows.

For example, the number of female beef cattle slaughtered rose from 92 thousand heads in second quarter of 1997 to 166.7 thousand heads in third quarter of 1997-81 percent increase from a previous quarter. Increasing number of slaughtered animals decreased farm price of fed steers (i.e. 500 kg male beef cattle) and in turn decreased calf price. Beef cow over 2 years old decreased from 1.2 million heads in second quarter of 1997 to 525 thousand heads in second quarter of 2002. Beef cattle breeding herd slowly expanded since early 2002.

A growing insecurity of beef producers about trade liberalization as a result of the Uruguay Round agricultural agreement, Korean beef production decreased from 264 thousand ton in 1998 to 142 thousand ton in 2003- 46 percent decrease (Table 2). Decreasing domestic production was balanced by increasing imports to

meet sustaining beef consumption. Beef imports increased from 77 thousand ton to 294 thousand ton during the same period- 282 percent increase (table 2). However, a beef imports in 2004 is projected to fall by almost 50 percent from a previous year due to a BSE (Bovine Spongiform Encephalopathy) outbreak in U.S.A. The majority of imported beef is from the U.S.A. and Australia. U.S.A. accounted for 68 percent of total beef imports in 2003 (Jeong, P.14).

Figure1. Korean Beef Flow Diagram¹

1 Huh, Duk. et al., Outlook and Policy for Korean Beef Industry. KREI. 2001. P.25.

Production cost of calf > Calf price = Number of Calves decrease

Production cost of calf < Calf price = Number of Calves increase

Cattle and calves on farm Cow-calf farms

Cattle feeding

farms Calf price Calf supply < calf demand = Price increase

Calf supply > calf demand = Price decrease

Growing cost of feeder cattle

Fed cattle price Cattle on

Fed cattle price > feed Growing cost of feeder cattle = cattle on feed decrease

Fed cattle price <

Growing cost of feeder cattle = cattle on feed decrease

Cattle placed in the market

Cattle and calves on farm

Wholesale price Cattle placed in the market <

Wholesaler demand = wholesale price increase Cattle placed in the market >

Wholesaler demand =

Table 2. Korean Beef Supply and Utilization Source: NACF, Materials on Price, Supply & Demand of livestock Products, 2004.

NAQS, Livestock Statistics, 2004.

Producers

Korean beef cattle are purchased through merchants connected to retailers, local cattle markets, or local livestock cooperatives (Figure 2). A majority of the procured cattle by merchants are slaughtered by private slaughter plants and then directly marketed to retailers. Procured cattle through cooperatives are slaughtered at the wholesale market and the carcass prices are set by auction.

Figure 2. Korean Beef Cattle and Korean Beef Marketing Process Local Cattle Market²

Slaughter Plants

2.1.3. LOCAL CATTLE MARKET

The number of cattle placed in the local cattle market decreased from 1,257 thousand head in 1990 to 515 thousand head in 2001. In the same period, the number of local cattle market reduced from 287 to 106 markets because of mergers and closures of small scale markets (Table 3).

Table 3. Cattle Procurement by Local Cattle Market

1990 2001

Number of local cattle Markets 287 106

Cattle placed (1000 head) 1,251 515

Cattle marketed (1000 head) 951 345

Rate of marketed (%) 76.0 67.1

Source: Jeong, M.K. et al., An Analysis on Beef Marketing and Consumption pattern, KREI, 2002. P.14.

2 Jeong, M.K. et al., An Analysis on Beef Marketing and Consumption pattern, KREI, 2002. P.13.

2.1.4. SLAUGHTER PLANTS

Slaughter plants in Korea are characterized as a small scale operation, low average daily slaughter rate, and low-profitability. The number of slaughter plants reduced from 179 in 1980 to 113 in 2001 and average daily slaughter rates for cattle and hogs in 2001 were, respectively, 23.2 percent and 45.7 percent of physical capacity of slaughter plants (Table 4).

The Government established LPC (Livestock Processing Complex) which slaughters animals, fabricates meats, and sells carcass in one place started in 1994.

In slaughter capacity, LPC accounted for 7 percent of cattle marketed and 13.3 percent of hogs marketed in December 2001. In average daily slaughter rate, LPC accounted for 6.1 percent of cattle marketed and 11 percent of hogs marketed in December 2001.

Table 4. Cattle Slaughter Rate by Slaughter Plants, 2001.12

Slaughter Capacity

Cattle Hogs Cattle Hogs Cattle Hogs

Private

Source: Jeong, M.K. et al., An Analysis on Beef Marketing and Consumption pattern, KREI, 2002. P.15.

2.1.5. RETAILERS

Beef is purchased by local butchers, supermarkets, and restaurants, etc.

Local butchers account for 65.3 percent from total beef retailers. Imported beef has seen a continual increase. Imported beef was only sold at the retailers that

specialized in imported beef until 2001. WTO banned separating Korean beef retailers and imported beef retailers and forced to sell both Korean beef and imported beef together since 2001.