Problems and Prospects for the Korean Dairy Industry

The dairy industry in Korea has achieved remarkable growth over the past three decades, mainly supported by the rapid expansion of fluid milk consumption. However, at the Uruguay Round, Korea failed to build proper tariff barriers for formulated butter and mixed milk powder, which have strong competitiveness, fungibles for butter and milk powder. Therefore, both have only single-rate tariffs of 8 percent for formulated butter and 36 percent for mixed milk powder. Consequently, following the enactment of WTO agreement in 1995, domestically manufactured dairy products lost markets due to the increased imports of formulated butter and mixed milk powder. And the dairy industry in Korea has suffered from raw milk in excess of fluid milk use. Drastic policy changes including a two-tier price system have been introduced as the stock of milk powder reached unprecedented high levels in June 2002. Also, a committee consisting of producers, processors, university professors, cooperatives and government officials was formed to discuss dairy reforms. The committee reached a consensus on the introduction of a marketing quota. However, the details of the quota system are still to be settled, since producers and processors failed to bridge the gap regarding the methods of moving to realizing the quota. Nevertheless, the Korean dairy industry needs an early settlement of dairy reforms based on the marketing quota, to secure stabilization of dairy markets. For this, producers and processors need to negotiate a new system under which both can be represented on an equal footing. Also, the government has to play a more active role in suggesting arbitration acceptable by both parties. In addition, dairy farming in the future is required to maintain environmentally friendly management by establishing an area-wide mixed farming system and providing consumers with safe and fresh dairy products at reasonable prices