Recent Changes in Korean Agricultural Policy
4. Phase 2 Agricultural Policy: Comprehensive Measures for Agriculture and Rural Areas
4.1. Background
In 2003 although the phase 2 investment plan for agriculture and forestry was close to conclusion, the agricultural and rural conditions did not show much improvement. Instead, in relation to DDA, Korea-Chile FTA signing, FTA expansion plan with more countries, and the rice negotiations to be concluded by 2004, the marketing opening was expected to be much greater, and the anxiety of farmers grew further. The sentiment was widespread that the existing agricultural policy is unable to bring about stable growth and vitalization of the rural community in the face of such changes (MAF,2004).
The Participatory Government, which was inaugurated in February 2003, announced in November of the same year that the level of support to the agricultural and rural sector will be drastically expanded for ten years (2004 ~ 2013) in order to respond the scheduled market opening and overcome the current crisis. In February 2004, the government continued to disclose the Comprehensive Measures for Agriculture and Rural Areas and the investment plan worth KRW 119 trillion. It desired to close the phase 2 investment plan of KRW 45 trillion one year ahead and launch a new scheme.
The Comprehensive Measures for Agriculture and Rural Areas had been prepared long before (MAF, 2004). To effectively respond to DDA, which is the next round of negotiations after UR, the Special Committee for Agriculture, Fisheries, and Rural/Fishing Areas was organized under the direct control of the president in 2002. This was aimed to discuss the measures for agriculture and rural areas at the level of producers, consumers, and the entire government. Policy research organizations such as the KREI, the Ministry of Agriculture and Forestry, academia, and related organizations pursued for relevant studies. The Comprehensive Measures for Agriculture and Rural Areas are the fruit of such efforts.
4.2. Contents and Features of Comprehensive Measures for Agriculture and Rural Areas The Comprehensive Measures for Agriculture and Rural Areas put forth sustainable agriculture (agricultural policy), wealthy farmers (income policy) and the rural areas everyone wants to live (rural policy) as the policy visions to achieve balanced development between urban and rural areas (MAF, 2004).
The agricultural policy’s goals include the full-time farm household-based agricultural structure reform, the fostering of environment-friendly and high-quality agriculture, and the fostering of sustainable bio-industry by securing new growth engines. The government planned to give intensive support to promising farm households for further growth and strengthen welfare policies for aged and small-scale farmers. In other words, the government desired to magnify the policy effects according to the principle of choice and focus.
For the most important commodity rice, the government ended the rice purchase system by the government and changed it to the public rice reserve for emergency system. Under the system, the rice price is determined based on the market’s supply and demand. As a supplementary measure, the government decided to implement the direct payment system for rice income preservation in parallel for the case where the rice price drops significantly due to the market disturbance.
The arable land bank system and the rehabilitation support system were introduced. Under the arable land bank system, the land securitization could be accelerated to concentrate resources on the competitive farm households. Under the rehabilitation support system, the farmers could recover from farm management failure due to severe market competition-driven temporary factors. In addition, the government decided to reduce the farm management risk by expanding the crop disaster insurance.
However, the industrial policy is insufficient to properly adjust to the market opening environment. Therefore, the government decided to strengthen the direct income support for income stabilization of farm households, which is a pending issue. It also plans to expand the social safety network by supporting the premium payment for social guarantee insurances such as national pension and health insurance to help farmers live a stable life after retirement.
Fig. 3. Comprehensive Measures for Agriculture and Rural Areas
Compared with previous policies, the Comprehensive Measures for Agriculture and Rural Areas have three distinctive features: First, the government budget is mainly allocated to income support, social welfare, and regional development instead of production and distribution.
In 2003 before the comprehensive measures were implemented, among the investment budget for agriculture and forestry, 32.6 percent was injected to the improvement of the production infrastructure. But by 2013 when the comprehensive measures are completed, the budget allocation for production infrastructure improvement will be reduced to 8.9 percent, while 30.0 percent, up from present 20.6 percent, will be allocated to farm household income preservation and management stabilization, and 17.2 percent, up from current 8.6 percent, will be allocated to the rural welfare and regional development. Such policy design was made based on the belief that the hardware investment such as production infrastructure and distribution system was completed to some degree while undergoing the two phases of agricultural structure reform and investment projects.
Second, the policy direction toward rice has been changed. After the UR negotiations, the policy direction was set to reduce the rice price. Nevertheless, due to the impact on farm household income and the political pressure, the government was unable to take a decisive measure to reform the structure of the rice industry. Presently, however, the protection of the rice industry is hard to be maintained, and therefore the rice industry policy was shifted to adopt the market-oriented policy where the supply and demand is determined by the market.
- Reform arable land and rice purchase system - Take complementary measures for structural
reform
- Disseminate the environment-friendly agriculture - Strengthen the food safety management - Revolutionize the agricultural products distribution - Develop new technologies
- Promote the consumption of export-oriented agricultural products
- Foster and computerize the food industry - Implement various direct payment programs
- Facilitate the rural travel - Foster the regional industries
- Strengthen the insurance system for natural disaster damage to agricultural crops - Support the individual rehabilitation - Expand the pension support for farmers - Health insurance, insurance premium
exemption for the injured - Improve the educational environment - Expand the medical service
- Better welfare programs for babies, children, women and elderly people
- Attract external funds for rural development - Carry out the comprehensive rural
development
- Develop specialized crops of the region - Take special measures
- Create the regional agricultural cluster - Conduct the organizational reform of the
Ministry of Agriculture and Forestry - Conduct the organizational reform of the
concerned agencies
- Enhance the efficiency of investment and loan programs
- Improve the related laws and regulations Balanced Society for All
O Comprehensive Measures for Agriculture and Rural Areas O Actions by Commodity
O Resources - KRW 119 trillion of
investments and loans (Extend the collection of the special tax for agriculture for ten years)
Sustainable Agriculture (Industrial Policy)
Better-off Farmers (Income Policy)
Desirable Place to Live (Rural Policy)
Reform of Agricultural Policy Implementation System
Market-oriented Structural Reform
Environment Friendly, High-quality Agriculture Securing of New Growth Engines
Expansion of Direct Payment Program Increase of Non-farm Income
Strengthening of Management Stability
Stronger Social Safety Net
Expansion of Welfare Infrastructure
Rural Development
Regional Agriculture Development Plan
Reform of Agricultural Policy Organization Legal Improvement on Budget
Third, the direct payment of the government becomes inevitable to stabilize farm household incomes. Since the mid-1990s, the farm household income has actually dropped due to the influence of the market opening and the additional opening should be conducted down the road.
In other words, to maintain the multi-functionality of rural areas, the government started implementing the direct payment system to preserve farm income after withdrawing from the past price support policy.
Table 3. Investment Allocation Plan
Unit: KRW 10 Bil, % Category 2003 (%) 2008 (%) 2013 (%) Strengthening of agricultural industry, enhancement
of agricultural competitiveness 191 24.8 311 28.5 479 32.2 Farm household income and management
stabilization 159 20.6 285 26.1 447 30.0
* Direct payment system 72 9.3 247 22.6 341 22.9 Rural welfare and regional development 66 8.6 157 14.4 256 17.2 Distributional revolution of agricultural products 52 6.7 102 9.3 95 6.4 Fostering of forestry resources 50 6.5 66 6.0 81 5.4 Improvement of agricultural production
infrastructure 251 32.6 171 15.7 132 8.9
Total 771 100.0 1092 100.0 1489 100.0
Source: Ministry of Agriculture and Forestry, 「Detailed Action Plan for Agricultural and Rural Development」, December 2004.
5. Summary and Conclusion
Before the UR negotiations began, until the 1980s, Korea had implemented the agricultural policy based on the border protection and price support. Small-scale and poor farmers were the target of the agricultural policies, and the priority was given to equality than efficiency.
However, the arrival of the UR, which represents the transformation to the free trade system, fundamentally changed the agricultural policy of Korea. From the end of 1980s, the agricultural policy focused on providing intensive support to elite farmers to make them strengthen the international competitiveness of the Korean agriculture and conducting the structural reform of the agricultural industry. In the UR, Korea was granted the developing country status and as a result the ten-year grace period was allowed for the preparation of market opening. During the period, the two times of structural reforms were conducted. In Phase 1, the measures to develop rural and fishing areas were conducted from 1992 to 1998. In Phase 2, the plan to develop agriculture and rural areas was implemented from 1999 to 2003.
The two measures were slightly different in terms of policy direction and major projects, but they are same in nature as the both focused on the hardware investment such as the expansion of distribution infrastructure and the facility modernization.
The expansion of the investment and loan program for agriculture and rural areas have brought about substantial outcome. For instance, the stable production, the enhancement of
agricultural product quality and safety, and the enhanced efficiency in distribution were achieved. Most of all, the agricultural product prices dropped, benefiting consumers and enhancing the Korean agriculture’s international competitiveness. On the other hand, however, the producer income growth became stagnant. Under the debts, the farm households’ financial status was unsound, and the rural area’s aging and the giving up of farming have been accelerated.
The incumbent Participatory Government’s Comprehensive Measures for Agriculture and Rural Areas is the phase 3 structural reform program. To resolve the problems mentioned above and effectively respond to the inevitable market opening, the comprehensive measures focused on drastic expansion of the investment program and their policy direction gives a heavy weight to income growth, welfare expansion, and regional development. Since the destabilized income was an issue, the government expanded the income support measure by adopting the direct payment system. Furthermore, the market-oriented agricultural policy was introduced and the government’s rice purchase program in order to support rice price was discontinued. On top of these, the government is reviewing the introduction of customized agricultural policies to enhance policy effectiveness by applying the differentiated policy program in consideration of farm household’s resources, management capability, and its choices.
References
Park Seong-jae, et al. (2006), An Analysis of Agricultural Investment Policy and Rural Financial Markets in Korea, KREI (in Korean)
Kim, Jeong-Ho, et al. (2003), The White Paper of Agricultural Policy of the People’s Government: Changes and Countermeasures of Agriculture and Rural, Ministry of Agriculture and Forestry and KREI (in Korean)
Kim, Jeong-Ho (2000), “Prospect of Korean Agricultural Policy,” Journal of Rural Development 23 (Summer 2000): 83~103, KREI (in English)
Lee, Jung-Hwan (2004), “Text of the Road Ahead: Korean Agriculture and the WTO”, KCESRI-OECD Seminar on Korean Economic Issues, 4~5 February, 2004 at OECD, Paris, Korea Council of Economic and Social Research Institutes (in English)
______________ (1998), Transformation of Agricultural Structure: From Beginning to End, Research Monograph No. 21, Seoul: Korea Rural Economic Institute (in Korean)
Ministry of Agriculture and Forestry (MAF) (2004), Detailed Action Plan for Agricultural and Rural Development, December 2004 (in Korean).