In recognition of the need for structural reform in agriculture in line with Korea’s economic growth, this study documents the current research on methods for the improvement and reform of the rural household income structure in Korea.
The Korea Development Institute (KDI) has gathered researchers from internal KDI teams and external research institutions, including university faculties, to perform research on rural household income structure reforms. The collection of the research findings has been organized into two volumes.
In his “Suggested Changes for the Double Grain Price System and the Grain Management System,” Mun Pal-yong (Konkuk University) acknowledges the necessity of the grain management policy measures in Korea, but also reviews the double grain price system and forecasts its future. He identifies some of the issues of the current system and proposes alternatives for overcoming chronic deficits in grain production. As for the problems in the current structure of distribution and government management of grain in Korea, his suggested solutions include the elimination of the reverse price differences, a guarantee of producer prices, and the continuation of the double barley price system.
The current policy of regulating rice prices offers a greater benefit (i.e., securing income for farmers) than cost (i.e., burden on consumer households). Therefore, the reverse price difference should be eliminated by raising the government purchase price, and determining government release prices by adding intermediary expenses to the purchase price. In the meantime, the government should continue to guarantee producer prices on grains, because abandoning this guarantee would deleteriously effect rural households, and accelerate the migration of rural population to cities. Such migration would serve to sustain falling wages in rural areas, declining profitability of agricultural produce, and further population migration. As for barley, given its low demand and high production cost, abandoning the double price system would effectively stop almost all barley production in Korea. As long as shortages of domestic grains persist on the Korean market, the government will need to continue to purchase barley and guarantee the double price system, until alternative varieties of grains are developed and distributed, guaranteeing stable income for rural households.
In the “Policy Study on Fertilizer Prices (1),” Ban Seong-hwan (Seoul National University) estimates the area of arable land and the amount of fertilizer used per unit of land, with the goal of estimating future demand for fertilizer. In doing so, he analyzes the impact of fertilizer on the rural economy.
This study employs four different methods to estimate the amount of fertilizer likely to be in demand from 1986 to 1990. In terms total demand, the third method yielded the highest demand, followed by the first, fourth, and second methods. The third method predicted that the demand for fertilizer would amount to 1.324 million metric tons and 1.804 million metric tons by 1986 and 1990, respectively— 1.6 times and twice the amount of fertilizer (0.852 million metric tons) in demand in 1979 (an average of the amounts used from 1978 to 1980). Ban also estimated the demand for different types of fertilizers. For nitrogen-based fertilizers, all the four methods predict that demand will increase. As for phosphorous-based fertilizers, the third method again yielded the highest estimates, at 0.314 million metric tons and 0.388 million metric tons by 1986 and 1990, respectively. The second-highest estimates came from the first method (0.29 million and 0.342 million metric tons in 1986 and 1990, respectively). As for the potassium-based fertilizers, the third method again yielded the highest estimates at 0.355 million and 0.517 million metric tons for 1986 and 1990, respectively; increases of almost double and triple the amount of the potassium-based fertilizer used in 1979. Of the three types of fertilizers, potassium-based fertilizers are likely to see the fastest-growing demand, while the demand for the phosphorous fertilizers will be the slowest to grow.
In the “Policy Study on Fertilizer Prices (3),” Ban analyzes how an increase in the fertilizer price would affect agricultural production and economy. He conducts a quantitative analysis of the decline in fertilizer demand in response to the increase in price, then estimates to what degree an increase in price would decrease output.
A 50-percent increase in the relative fertilizer price would cause the following changes: First, the total fertilizer consumption in rice farming would fall by 23,000 tons in terms of the amounts of active ingredients used. More specifically, the demand for nitrogen-based fertilizers will fall by 10,300 tons, phosphorous-based fertilizers by 98,000 tons, and potassium-based fertilizers by 2,800 tons. Assuming that a fertilizer price increase would similarly affect the production of other crops as well, a 50-percent increase in the fertilizer price will bring total fertilizer demand down by at least 40,000 tons. Second, assuming that equal numbers of farming households grow the Unification rice varietal as well as conventional rice and that the farming technology remains the same, a 50-percent increase in the fertilizer price would decrease the amount of these varieties of rice produced by 1.46 million seok (about 180.39 liter). Moreover, the output of other crops, including wheat, various non-rice grains, vegetables and fruits would also significantly decrease. Third, a 50-percent increase in the fertilizer price will raise the cost of farming by seven percent, an increase of the cash cost of farming management of 9.5 percent. An increase in fertilizer price will impose significant financial burdens on farming households, reducing their output, raising management costs, and decreasing household income and cash flow.
In the “Policy Study on Fertilizer Prices (2),” Lim Seon-uk (Seoul National University) outlines the results of fertilizer testing in Korea, and identifies the level of fertility of the Korean soil. He also provides an overview of the production and consumption of chemical fertilizers in Korea, estimates future demand for fertilizers, and discusses the optimal amount of fertilizers to be used in rice and wheat farming.
The ideal use of fertilizer in farming involves determining the type of fertilizer to be used based on crop, climate, soil, and economic conditions. Deciding factors also include the ideal mix or ratio of fertilizers, when to apply fertilizer, and how to improve the effect of fertilizers used. Because the effect of using fertilizers cannot be encapsulated by a single equation, it is necessary to determine the appropriate amount of fertilizer to be used by taking into account how fertilizers affect the quantity and quality the grown crop. Deciding on the right fertilizers and developing and producing new fertilizers for specific crops are central topics of interest, not only for farmers, but for arming management, agricultural policymaking, and even the chemical industry. The technology necessary and required conditions for producing and distributing fertilizers differ from region to region, era to era, and country to country, because the production and use of fertilizers is subject to a wide variety of factors, including the availability of required resources, the presence of the necessary technology, and the condition of the soil.
Kim Dong-hee (Dankook University) analyzes the comparative advantages of Korea’s agriculture and livestock industry in “A Study on the Comparative Advantages of Soybean, Beef, Pork, and Milk Production in Korea.” He also estimates how the composition of their comparative advantages will change in the future. Although this study employs the DRC coefficients as its main tools of analysis, the inherent limits of the method and the inadequacy of available statistics limit the validity and reliability of some of his findings. Nevertheless, Kim attempts to estimate the current status of the comparative advantages of these Korean industries, and analyzes their capacity for future improvements, based on the currently available technical and economic information.
First, because a DRC coefficient is only a partial and static tool for quantitative analysis the comparative advantage of an industry, and is significantly affected by the inherent reliability (or lack thereof) of the underlying hypotheses, policymakers should not overestimate its validity or applicability. A DRC coefficient may rise above one (1), but policymakers must still to consider how reliable the underlying assumptions of the international or domestic factor prices are. Second, the Korean government needs to advance local markets for trading domestic and imported beef cattle, as well as milk cattle, so as to enhance the stability and reliability of the distribution structure. The government should also encourage the creation of breeding grounds as part of its other projects regarding prairie development, breed improvement, and allocation of imported calves. The price of domestically produced beef should be left entirely up to the market functions in cities. Third, the government should discourage pork farms from unchecked expansion, while encouraging existing large-scale pork farms to focus on exportation. The government also needs to introduce thorough environmental and tax regulations, akin to those in Europe and other economically advanced countries, to keep the pork farms in Korea an appropriate size. These policy measures will be helpful for ensuring a fairer distribution of income in the agricultural sector, and also a more efficient use of farming resources. Fourth, dairy farming in Korea has yet to achieve the desired level of efficiency, trapped as it is in being a suburban source of concentrated fodder. The Korean government can help the dairy industry grow by adopting a new policy on milk prices and providing greater support for dairy farming in general.
In “A Study on the Reform of the Agricultural and Livestock Product Import System,” Kim Seong-hun (Chungang University) explores methods to centralize and reform the currently decentralized agricultural and livestock import system in Korea, in the interest of ensuring national food security. He identifies changes likely to take place in the international food economy, and suggests strategy for managing such changes proactively. To this end, he surveys the current Korean food policy and the presence of foreign grain companies in the Korean market. He then examines the agricultural and livestock product import systems of Japan and Taiwan. Afterward, he identifies and reviews the problems with the current Korean system, and makes specific suggestions for its reform.
Kim emphasizes that the Korean government needs to revisit its food policy thoroughly, and find new measures in order to secure enough food supplies and security for the nation amid the anticipated changes in the international food economy. Food imports carry the risk of agricultural disruption, with a growing dependency on imported food leading to the Westernization of consumption patterns, and ultimately to the collapse of the domestic agricultural framework. It is crucial for the Korean government to avoid this by making an effort to enhance food self-sufficiency, expand production, and establish consumption patterns suited to Korean agriculture. The Korean government needs to find more systematic and efficient ways to import food supplies during times of high demand. It should organize a new agency that can serve as a leader in ensuring stability in food supply, efficiency in food purchases, and judiciousness in food supply management.
농가소득구조개편 연구자료(Collection of studies on the reform of the rural household income structure: part 1)
|Series Title; No||정책연구시리즈|
|Subject Country||South Korea(Asia and Pacific)|
|Subject||Economy < General
Industry and Technology < Agriculture
|Holding||KDI; KDI School|