The Effect of Direct Payments to Rice Farming Households in Korea

1) Background Rice farming is a very important agricultural policy issue for the Korean government not only because rice is a staple food for the Korean population but because rice production is also an important source of income for those involved in rice farming. The importance of rice production to the agricultural sector of Korea is indicated by the fact that 49% of Korea’s agricultural land is devoted to rice production. Therefore, Korean agricultural policy has focused on rice production issues as well as the income of farmers involved in rice production. To support rice farming income, the Korean government has been implementing a direct payment program for rice paddies which gives subsidies to rice farmers since 2003. However, it is unclear whether rice farming income has increased since this program started because the amount of the payment is calculated not by income level but by the price of rice and given to the land owners whether they actually farm the paddies or not. 2) Analysis To discover whether rice farming income has increased since the direct payment program was implemented, a comparison of rice farming income data between 1993-2002 and 2003-2012 was undertaken. Data show that rice farming income has not increased since the direct payment program was implemented. In fact, rice farming household income has decreased by 10.3% from 2003 to 2012 after increasing by 34.2% from 1993 to 2002. Considering that agricultural income as a whole increased by 15.5% and average national household income increased by 52.9% from 2003 to 2012, rice farming income has been in decline. The reason why rice farming income has not increased can be explained by some conditions during that period. Direct payments are calculated based on the gap between the target price and the realized price. The target price of rice has been fixed since 2003 even though other economic factors such as GDP per capita, average income per household and CPI(Consumer Price Index) have significantly increased. In addition, rice consumption per capita in Korea went down from 83.2kg in 2003 to 69.8kg in 2012. Furthermore, rice farming area per household declined from 22,146m2 in 2003 to 20,030m2 in 2012, and the number of individuals per rice farming household also declined from 2.96 in 2003 to 2.55 in 2012. 3) Recommendations Considering that GDP per capita in Korea increased by 60% during the period, it is necessary to adjust the target price for direct payment calculation to some degree. Because the subsidy is determined by the gap between the target price and the realized price, adjusting the target price will increase amount of payment to rice farmers and it can make rice farming income also increase. Furthermore, it should be noted that the rice production subsidy has to be given to the real farmers who actually grow the rice crops. And for the income support to be appropriate, the calculation of direct payment has to take into account the income level of rice farming households