Specialty & Processed Product Markets
South Korea's production of fruits, vegetables, and nuts is large, the harvest coincides with peak U.S. production, and import barriers are high. Nevertheless, U.S. fruits and nuts are finding increasing markets in South Korea because of their quality, relatively low cost, and variety.
U.S. exports of fresh fruits, vegetables, and nuts to South Korea rose by 3.5 percent in 2013, from $650 million in 2012 to $675 million in 2013. Oranges are the largest item in this trade, followed by almonds. Growth is likely to continue over the next decade, but significant trade will be largely confined to several commodities, rather than all fruits and vegetables. This is because South Korea produces an abundance of vegetables and many fruits (apples, pears, persimmons, and peaches). Production is relatively profitable compared to other parts of South Korean agriculture. The fruit and vegetable share of the country's total agricultural output value is almost one-third. The U.S. season for many fruits and vegetables is the same as South Korea's, implying head-to-head competition. South Korea's tariff-rate quota barriers are quite high in this sector. However, citrus fruits, nuts, and certain noncitrus fruits and vegetables have very favorable import prospects.
The United States exports oranges, grapefruit, lemons, grapes, sweet cherries, and kiwifruit to South Korea. Raisins lead in dried fruit exports. Tariffs range from 30 percent for raisins to 50 percent for oranges, and there is a tariff-rate quota on orange imports. The ban on grape imports ended January 1, 1996, and the absolute quota on oranges July 1, 1997, allowing South Korea's imports to grow more quickly.
Under the orange tariff-rate quota that began in 1997, tariffs of 50 percent apply within the quota. The size of the quota increased each year until 2004. The tariff on imports over the quota amounts declined from 84.3 percent in 1997 to 50 percent in 2004. Thus, the quota was effectively removed in 2004 because tariffs are the same for imports within and above it. South Korea produces few true oranges but harvests a large crop of tangerines, almost all from the southern island of Cheju. Imported navel oranges are extremely popular. Government-mandated markups of 50 percent or more at both the wholesale and retail levels, in addition to the 50-percent tariff, were typical during the period of the absolute quota. Compared to those levies, the current tariffs represent lower barriers. Imports of grapefruit and lemons were aided by tariff reductions, from 44 percent in 1997 to 30 percent in 2004, and raisin tariffs fell from 30 percent to 21 percent
The Korea-U.S. Free Trade Agreement (FTA) improves access for U.S. horticultural products. Implementation began on March 15, 2012, including immediate elimination of tariffs on fresh cherries, raisins, almonds, pistachios, and certain other products. Other horticultural products are now part of a multi-year phase-out of tariffs. U.S. exports of fresh potatoes and oranges will gain new opportunities for trade with reduced tariffs, but not full elimination of tariffs on all shipments. Details are available from the U.S. Agricultural Trade Office in Seoul.
Almonds constitute over half of U.S. nut shipments to South Korea. South Korea produces virtually no almonds, and they are popular with consumers. The tariff on shelled almonds fell to 21 percent in 2004, and for U.S. exports, to zero in 2012 under the Korea-U.S. FTA (see above). Walnuts are the second most important U.S. nut export. Unlike almonds, they are produced in South Korea. The tariff on shelled walnuts dropped to 30 percent in 2004, and for U.S. exports, to zero in 2012 under the Korea-U.S. FTA (see above). Walnuts are the second most important U.S. nut export. Unlike almonds, they are produced in South Korea. The tariff on shelled walnuts dropped to 30 percent in 2004; under the Korea-U.S. FTA, tariffs on U.S. exports will be reduced to zero over 6 years. U.S. exports of pistachios and pecans should have good prospects. U.S. exports of mixtures of nuts and mixtures of nuts and fruits faced high tariffs—45 percent since 2004—which dropped to zero in 2012.
South Koreans have always eaten large amounts of vegetables, and vegetable consumption is expected to remain high. While the labor force in agriculture in South Korea is declining, it is also shifting away from work on rice production and into vegetable production. For the next decade, it is likely that South Korea's farmers, with financial assistance in infrastructure, buildings, and equipment from the government, will continue to become more efficient vegetable growers. Extensive use of vinyl greenhouses extends the vegetable season and boosts yield and quality above that in open-field operations, although at a cost.
In general, South Korean tariffs on fresh vegetables have been 27 percent since 2004. Exceptions are onions, garlic, peppers, and potatoes (50-percent tariffs under a tariff-rate quota), sweet potatoes (20 percent, under a tariff-rate quota) and lettuce (45 percent). In years of normal weather, tariff-rate quotas on the five major vegetables (potatoes, sweet potatoes, onions, garlic, and peppers) constrain trade, with extremely high tariffs prohibiting imports above the quotas. However, in the case of a weather-caused production shortfall, South Korea is likely to import large quantities at the in-quota rate. The Korea-U.S. FTA immediately reduced to zero the tariff on U.S. shallots, leeks, cabbage, turnips, wasabi and horseradish, cucumbers, eggplants, spinach, and some other vegetables (see above).
The main source of South Korea's fresh vegetable imports is China, which dominates most subcategories of the trade and supplies over two-thirds of the total value of vegetable imports each year. U.S. exports of fresh vegetables are usually relatively small. However, in some years, South Korea imports significant amounts of U.S. onions to make up for production shortfalls.
Opportunities for sustained growth in U.S. exports are best for vegetables that grow better, or in different varieties, in the United States than in South Korea. Examples include fresh beans, carrots, asparagus, lettuce, broccoli, and cauliflower.
USDA's Foreign Agriculture Service (FAS) product brief on Fresh Produce (June 2007) includes a list of phytosanitary barriers that affect access to the South Korea market. Other recent market briefs have focused on nuts, fresh potatoes, organic foods, avocados, carrots, dried/prepared/preserved fruits, asparagus, and sweet corn, all accessible from the FAS Attaché Reports web page.
Increasing affluence and changing lifestyles have fostered greater consumption of processed foods and beverages in South Korea. Since domestic producers cannot fully satisfy this growing appetite and some trade barriers have fallen, South Korea has dramatically increased its imports of processed agricultural products. U.S. exports more than tripled between 1990 and 1996 (to $320 million). The economic turmoil of 1998 hurt U.S. processed-food exports badly. They rebounded in 1999 and have exceeded $400 million since 2005. Leading U.S. exports are prepared foods and sauces, chocolate products, juices, pet food, frozen french fries, and canned sweet corn.
Demand is increasing for both intermediate products and consumer-ready foods and beverages. Women have less time to prepare meals from scratch, but they can afford semi-prepared items that they heat at home. Changes in tastes to a more international diet also influence imports. Although some eating habits are markedly different from U.S. eating patterns, snack and breakfast items are penetrating the market successfully. Despite limited trade liberalization, the inability of domestic producers to meet the burgeoning demand for variety means prospects for processed-product imports are bright over the medium term.
The nonalcoholic beverage market in South Korea has been boosted by growing consumer incomes, increased health consciousness, and changes in taste. Soft drinks and juice beverages dominate the market, but traditional beverages, as well as sports drinks and health drinks, have gained ground in recent years. Juice imports exceed $100 million per year. Orange juice is the most common and popular juice drink in South Korea, but grape and apple juices are gaining favor. South Koreans' purchases of 100-percent natural juice increased to 67 percent of total fruit beverage sales in 1996 from 25 percent in 1991. Domestic tangerines are generally eaten fresh, and not processed, leaving the market for citrus juices available to foreign suppliers. Although Brazil supplies most of the orange juice, U.S. suppliers dominate all other juice markets, garnering a one-third share of total juice imports. Vegetable juice, including tomato juice, accounts for less than 3 percent of total juice imports. The orange juice quota ended on July 1, 1997. A tariff rate of 58.2 percent replaced it, which fell to 54 percent in 2004. The tariff on frozen orange juice from the United States was dropped to zero on March 15, 2012, with the implementation of the Korea-U.S. FTA (see above).
The frozen french fries and canned sweet corn markets are among the most important for U.S. exporters. U.S. exports of frozen potatoes rose to over $85 million in 2013, as tariffs dropped to zero under the U.S.-Korea Free Trade Agreement.
South Korean spending on pet food is growing. The U.S. pet food industry, provided a large share of the $125 million in pet food imports in 2013. Increased competition from China and local suppliers is anticipated, but the United States is likely to share in the growth of this market, which continues to expand as incomes and the number of pets increases.
Although most processed fruits and vegetables and their juices are no longer subject to quantitative restrictions, high tariff levels remain to discourage imports. These tariff levels often exceed 50 percent even after implementation of Uruguay Round Agreement on Agriculture commitments. The Korea-U.S. FTA (see above) will phase out these tariffs on U.S. products over varying periods of time. Additionally, South Korean importers have complained at times that domestic food safety and import classification agencies have delayed import clearance or increased uncertainty about clearance and tariff status for processed foods.
Recent Attaché Reports by USDA's Foreign Agricultural Service include market briefs on distilled spirits, functional foods, wine, beer, pet food, honey, coffee, and other products, as well as periodic reports on food processing ingredients.