Research Paper

Korean domestic and updates and outlook

MLA’s Market Information Service – September 2014 Ryoko Uchida [email protected] Research Paper: Korean domestic cattle and beef updates and outlook September 2014

KOREAN DOMESTIC CATTLE INDUSTRY

Figure 1 cattle farm numbers Farm numbers '000 number of farms 1,200

 The number of cattle farms in Korea has been 1,000

decreasing constantly since the end of March 1986 800

(when the data series started, Statistics Korea). The 600 number of cattle farms as at the end of June 2014 400 was 114,128 – an 88% fall compared to the March 200 quarter in 1986. 0

6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 8 8 8 8 9 9 9 9 9 9 9 9 9 9 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 r- r- r- r- r- r- r- r- r- r- r- r- r- r- r- r- r- r- r- r- r- r- r- r- r- r- r- r- r-  The majority of cattle farms in Korea remain small a a a a a a a a a a a a a a a a a a a a a a a a a a a a a M M M M M M M M M M M M M M M M M M M M M M M M M M M M M producers with less than 20 cattle per farm. In the Source: Statistics Korea June quarter 2014, more than two-thirds (69% or Figure 2 Proportion of cattle per farm size 78,569 farms) were registered as small farms, % share 100% however, the proportion of small farms out of total has been declining steadily since 1986. 80%

 As the number of small cattle farms has declined, 60%

larger farms have been increasing. As at the end of 40% June 2014, farms owning 20 to 50 cattle totalled 20% 20,394, accounting for 18% of total cattle producers. less than 20 cattle 20 - 50 cattle 50 - 100 cattle more than 100 cattle Also, producers who have 50 to 100 cattle and more 0% * 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 8 8 8 8 9 9 9 9 9 9 9 9 9 9 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 9 9 9 9 9 9 9 9 9 9 9 9 9 9 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 than 100 cattle on their properties rose to 9,193 (8% 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 1986-2013: ending number of total farms) and 5,972 farms (5% of total farms), Source: Statistics Korea *2014: as at the end of June respectively. Figure 3 Korea farm numbers by size '000 number of farms  The larger size of the Korean domestic cattle herd in 1,200 less than 20 cattle 20 - 50 cattle 50 - 100 cattle more than 100 cattle recent years is likely to be attributed to an increasing 1,000 number of cattle being raised on bigger farms. 800 Farm operational costs 600 400

 In 2012, farm operation cost per 600kg lwt of Hanwoo 200 1 cattle averaged KRW4,629,796 (A$3,960 ) up 2% year- 0

* 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 on-year (Statistics Korea). 8 8 8 8 9 9 9 9 9 9 9 9 9 9 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 9 9 9 9 9 9 9 9 9 9 9 9 9 9 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 Source: Statistics Korea 1986-2013: ending number  However, the operation cost on small farms with less *2014: as at the end of June than 20 head of cattle during 2012 was down slightly 1 Figure 4 Korea farm operation cost per Hanwoo cattle (1%) year-on-year, at KRW4,525,876 (A$3,875 ). In (600kg lwt)

KRW'000/head 2012, the average cost on small farms was 2% lower 5,000 less than 20 heads more than 100 cattle all-farm average than the average for all farms for the first time since 4,800 1 2007, but it was still 6% (or KRW250,634, A$215 ) 4,600 higher than the five-year average. 4,400 4,200  In contrast, the operation cost on larger farms (which 4,000 include all farms more than 20 head) has steadily 3,800 increased since 2010. 3,600 3,400

6 7 8 9 0 1 2 0 0 0 0 1 1 1  The highest cost in 2012 was registered for farms with 0 0 0 0 0 0 0 2 2 2 2 2 2 2 1 more than 100 cattle, at KRW4,756,755 (A$4,070 ) - Source: Statistics Korea up 4% and 13% compared to 2011 and the five-year average, respectively. It was also 3% above the average for all farms. The difference in operation cost between small farms (less than 20 cattle) and large properties (more than 100 1 1 cattle) widened to KRW230,879 (A$198 ) in 2012, compared to KRW100,382 (A$86 ) five years earlier, in 2007.

1 A$=KRW1,168.31 (2012 annual average, Infoscan.co) MLA Market Information 2 Research Paper: Korean domestic cattle and beef updates and outlook September 2014

Cattle production cost

2  Korea’s per cattle (600 lwt of Hanwoo) production cost averaged KRW5,764,087 (A$4,935 ) in 2012 – up slightly (1%) on 2011.

 While the cost rise has been seen since 2010 across all farm sizes, the cost for bigger properties (farms with 50 to 99 head and more than 100 cattle) has been lower than the all-farm average. Farms with over 100 cattle seemed to be the most cost efficient in terms of total production 2 cost, at KRW5,537,237 (A$4,740 ). Although it Figure 5 Korea cattle production cost per Hanwoo cattle (600kg lwt) increased 1% on 2011, it was still 4% below the all- KRW'000/head 6,400 less than 20 heads more than 100 cattle all-farm average farm average costs. 6,200 6,000  In contrast, production costs on smaller farms have 5,800 5,600 been higher than the all-farm average, with farms 5,400 5,200 having less than 20 cattle having the highest 5,000 production cost. The cost per head on small farms 4,800 4,600 2 during 2012 was at KRW6,108,211 (A$5,230 ) – up 4,400 4,200 1% on 2011 and 6% higher than the all-farm average. 4,000

6 7 8 9 0 1 2 0 0 0 0 1 1 1 0 0 0 0 0 0 0 2 2 2 2 2 2 2 Cattle herd by farm size Source: Statistics Korea

 As the number of small farms declines, the cattle herd raised on such properties has also been falling. As of the end of June 2014, less than one-fifth (17% or 498,236 head) of the total cattle herd (excluding dairy cattle) were grown on small properties – a 38% (or 303,759 head) contraction compared to just five years ago (in 2009) and a substantial (70% or 1.2 million head) decrease on June 1983.

 In contrast, the number of cattle on larger farms (including all sizes of farms with more than 20 cattle) has been rising significantly.

 In the June quarter 2014, the number of cattle on properties with 20 to 50 head accounted for 22% of the total, at 638,094 head. The proportion of cattle on farms of this size has been between 20% and 26% since it first reached 20% at the end of 1995.

 The cattle number on farms with 50 to 100 head was less than 10% of total cattle (excluding dairy cattle) until the end of 1997. However, the number of cattle on these farms gradually increased, with a total 641,290 head (or 22%) registered as at June 2014. Figure 6 Korea cattle number* by farm size  While larger farms owning more than 100 cattle held '000 head 3,500 only 1% (or 22,890 head) of total cattle (excluding dairy less than 20 cattle 20 - 50 cattle 50 - 100 cattle more than 100 cattle 3,000 cattle) in the June quarter 1983, more than one-third 2,500

(or 1.1 million head) were registered on such farms in 2,000

the corresponding quarter 2014. Lower cattle 1,500 production costs on larger farms are considered to 1,000 be a factor assisting the growth, which has also driven 500 the increase in Korea’s cattle herd in recent years. 0 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 ** 8 8 8 8 8 8 8 9 9 9 9 9 9 9 9 9 9 0 0 0 0 0 0 0 0 0 0 1 1 1 1 4 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 2 2 2 2 2 2 0 2 Source: Statistics Korea 1986-2013: ending number *Cattle number = combined number of Hanwoo and **2014: as at the end of June

2 A$=KRW1,168.31 (2012 annual average, Infoscan.co) MLA Market Information 3 Research Paper: Korean domestic cattle and beef updates and outlook September 2014

National cattle herd

 Korea’s national cattle herd and slaughter have had three major cycles since the focus of the herd was transposed from farm work animals to beef production in the 1970s. These cycles have been of around 11-16 years duration (herd peak to peak) with a shorter sharper liquidation phase (3-5 years) and a longer steadier build up phase (6-10 years).

 However, the shift of the herd towards larger operations and alteration in government program responses to periods of over-supply has probably served to dampen the magnitude of these cycles.

 During this latest liquidation phase, the Korean Government has been targeting a herd size of 2.5- 2.6 million head (excluding dairy cattle).

 The ten-year average proportion of combined Hanwoo and beef cattle out of the total cattle herd (including dairy cattle) was 84%. Given the dairy cattle herd has remained relatively steady at around 450,000 head, the Government’s target for the total cattle herd (including dairy cattle) is highly likely to be between 3.0 million and 3.1 million head. Cattle herd and slaughter in 2013

 The Korean national cattle herd including dairy cattle Figure 7 Korean cattle herd and slaughter peaked in 2012, at 3.5 million head (ending stock, '000 head '000 head 4,000 800 cattle herd (*incl dairy; ending stock - LHS) slaughter (incl dairy - RHS) USDA). 3,500  The total cattle herd in 2013 declined 4% from 2012, 3,000 600 2,500 to 3.3 million head (ending stock), underpinned by 2,000 400 higher slaughter levels than 2012, at 1.07 million head 1,500 (up 10% year-on-year). However, the slaughter rate 1,000 200 500 was not as high as the previous liquidation phase in 0 0 * 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 the late 1990s – the proportion of slaughter out of 9 9 9 9 9 9 9 9 9 9 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 9 9 9 9 9 9 9 9 9 9 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 total cattle was 31% in 2013, compared to an average Source: Statistics Korea , USDA, *2014: herd: as of the end of June Korea Animal and Plant Quarantine Agency YtD slaughter: Jan to July 37% in the past liquidation period. Cattle herd and slaughter in 2014

 The cattle herd, as of the end of June 2014, was down 5% on the corresponding period last year, at 3.3 million head (Statistics Korea). The herd was 7% (or 257,605 head) smaller than the highest number on record registered in the September quarter 2012 (at 3.6 million head).

 Korean cattle slaughter (including dairy cattle) during the first seven months of 2014 remained at the same level as last year, at 591,842 head (Korea Animal and Plant Quarantine Agency).

 Increased male cattle slaughter (up 10% year-on-year, to 296,597 head) during the first seven months of 2014 offset lower female cattle slaughter, at 295,245 head (down 8% on the corresponding period in 2013).

Hanwoo and beef cattle

 At the end of June 2014, the combined number of Hanwoo and beef cattle accounted for 87% of the total cattle herd, at 2.9 million head, of which 97% was Hanwoo cattle, at 2.8 million head (down 6% year-on-year).

 The combined number of Hanwoo and beef female cattle during the June quarter fell 6% year-on-year, to 1.7 million head, with male cattle also down 6%, to 1.2 million head.

 Hanwoo cattle slaughter during the first seven months of 2014 was down slightly (1%) year-on-year, at 523,905 head, with a 9% year-on-year decline in Hanwoo female cattle slaughter (at 263,260 head). Male Hanwoo slaughter was 9% above the year-ago level, at 260,645 head.

MLA Market Information 4 Research Paper: Korean domestic cattle and beef updates and outlook September 2014

Figure 8 Korean Hanwoo cattle herd and slaughter Figure 9 Korea Hanwoo female slaughter as % of '000 head '000 head total Hanwoo 3,500 600 cattle herd (ending stock - left axis) slaughter (right axis) % 65 3,000 500 1998 2012 2013 2014 2,500 400 60 2,000 300 1,500 55 200 1,000 50 500 100

0 0 45 * 3 4 5 6 7 8 9 0 1 2 3 4 0 0 0 0 0 0 0 1 1 1 1 1 0 0 0 0 0 0 0 0 0 0 0 0 2 2 2 2 2 2 2 2 2 2 2 2 *2014: herd: as of the end of June 40 Source: Statistics Korea YtD slaughter: Jan to July JFMAMJJASOND Source: Statistics Korea

 The proportion of Hanwoo female cattle slaughtered Figure 10 Korean Hanwoo female monthly slaughter

of total Hanwoo remained over 50% in 2012 (52%) % change year-on-year 200 and 2013 (53%). This was largely influenced by the %change 150 female cattle liquidation program that was run from 100 the start of 2012 to May 2013. 50 The proportion of Hanwoo female cattle slaughtered  0 out of total Hanwoo slaughter during the first seven -50 months 2014 averaged 50% – 5% below the -100 corresponding period last year, but 2% higher than JAJOJAJOJAJOJAJOJAJOJAJOJAJ 2008 2009 2010 2011 2012 2013 2014

1998 (when the record slaughter number was Source: Statistics Korea registered).

 On the back of high Hanwoo female slaughter, the Figure 11 Korea calf numbers* combined number of Hanwoo and beef calves as at '000 head 1,200 the end of June 2014 registered the lowest number calf (ending stock) since March 2008, at 741,850 head. While the female 1,000 calves were down 11% year-on-year, at 341,240 head, 800

male calves were back 13%, at 400,610 head (the 600

lowest since the March quarter in 2006). 400

200

0

0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 ** 9 9 9 9 9 9 9 9 9 9 0 0 0 0 0 0 0 0 0 0 1 1 1 1 4 9 9 9 9 9 9 9 9 9 9 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 2 2 2 2 2 2 0 2 Source: Statistics Korea **2014: as of the end of June *Cattle number = combined number of Hanwoo and beef cattle

Hanwoo cattle and beef prices Figure 12 Hanwoo cattle prices (600kg lwt)  Hanwoo cattle and beef prices have been improving KRW'000/head 6,500 in recent months. The Korean Government has been female male female 5 year ave male 5 year ave 6,000 reportedly making efforts to stabilise prices. 5,500

 The latest prices (July 2014) for 600kg lwt Hanwoo 5,000

female and male cattle improved year-on-year, to 4,500

above the five-year average. Female cattle prices 4,000 3 averaged KRW4.4 million (A$4,590 )/ head), up 38% 3,500

year-on-year, while male cattle was at KRW4.2 million 3,000 3 JAJOJAJOJAJOJAJOJAJOJAJ (A$4,380 )/head. 2009 2010 2011 2012 2013 2014 Source: Nonghyup

3 A$=KRW952.45 (August 2014 monthly average, Infoscan.co) MLA Market Information 5 Research Paper: Korean domestic cattle and beef updates and outlook September 2014

Figure 13 Hanwoo cattle slaughter vs average cattle Figure 14 Hanwoo beef wholesale prices prices (600kg lwt) KRW/kg 20,000 KRW'000/head '000 head 6,500 140 19,000 cattle prices (left axis) slaughter (right axis) 6,000 120 18,000 17,000 5,500 100 16,000 5,000 80 15,000

4,500 60 14,000 13,000 4,000 40 12,000 3,500 20 11,000

3,000 0 10,000 JAJOJAJOJAJOJAJOJAJOJAJ JAJOJAJOJAJOJAJOJAJOJAJA 2009 2010 2011 2012 2013 2014 2009 2010 2011 2012 2013 2014 Source: Nonghyup, Korea Animal and Plant Quarantine Agency Source: HKJM

 Wholesale prices for Hanwoo beef also improved over the past year, with carcase wholesale prices during the first 3 eight months of 2014 averaging KRW14,093/kg (A$14.83 ) – up 17% year-on-year and 12% higher than 2003 (when Korea’s beef production was estimated to be low last time – see Figure 16).

 Both cattle and wholesale carcase prices have probably been assisted by the higher prices for US beef (shifting consumer interest to domestic beef and other imported beef), as well as an improving economy, Hanwoo marketing programs and a decline in slaughter (from the highs in 2013).

OUTLOOK 4

Korean national cattle herd and slaughter

 Korea’s cattle slaughter is expected to remain reasonably high over the next few years, but not as high as during the last liquidation in the late 1990s. Slaughter as a proportion of the total cattle herd is forecast to be at around 30%, compared to 37% during the previous liquidation. This will be supported by the quick removal Figure 15 Korean national cattle herd and slaugher '000 head '000 head of the cow cull program and improving Korean cattle 4,000 1,400 cattle herd (ending stock, left axis) cattle herd forecast (left axis) and Hanwoo beef prices. 3,500 1,200 slaughter (right axis) slaughter forecast (right axis) 1,000  Assuming that slaughter will remain relatively high over 3,000 800 the next few years, Korea’s national cattle herd in 2014 2,500 600 and 2015 is forecast to fall slightly faster than last year, 2,000 400 with the herd expected to fall by between 4% and 5% 1,500 200 year-on-year – the Government target is expected to 1,000 0 f f 0 5 0 5 0 5 0 5 0 5 0 5 0 be achieved within the next few years. 6 6 7 7 8 8 9 9 0 0 1 1 2 9 9 9 9 9 9 9 9 0 0 0 0 0 1 1 1 1 1 1 1 1 2 2 2 2 2 Source: USDA, MLA forecasts f = MLA forcasts  The herd (including dairy cattle) is projected to hit an end-of-year low in 2016, with an estimate of 3 million head. This would still be much higher than the lowest end-of-year number registered during the past liquidation (at 2 million head). Therefore, the current herd liquidation and following build up phases are likely to be more modest.

 In order to maintain a good supply and demand balance and keep cattle and beef prices as steady (and high) as possible, the Korean Government is not expected to implement programs encouraging local producers to sell cattle any time soon. Additionally, Korean local producers’ intention to hold cattle is likely to improve in response to prices.

4 This outlook has been made based on a number of assumptions of a wider range of factors. MLA Market Information 6 Research Paper: Korean domestic cattle and beef updates and outlook September 2014

 Therefore, the proportion of slaughter out of the total cattle herd during the next post-liquidation period is anticipated to be relatively steady or slightly higher than the historical build up phase, at around 29%, compared to an average of 28% in the previous cycle.

 Korean national cattle number is expected to start rising gradually from 2017 onwards. The herd build up is forecast to be slower than the past – between 3% and 3.4%, compared to an average of 5% during the past build up phase.

 The cattle herd in 2020 is forecast to be similar to the peak cattle herd registered in 2012, at 3.4 million head. Slaughter weight and beef production

 Underpinned by the second largest cattle population on record and historically high slaughter levels in the late 1990s, Korea’s domestic beef production was probably the highest on record in 1998, at approximately 264,074 tonnes5. Figure 16 Korea beef production  Korea’s beef production in 2013 was estimated to be '000 tonnes cwt '000 head only slightly (1%) below the record production in 1998. 400 1,400 beef production (left axis) While the Korean Government has reportedly been beef prduction forecast (left axis) 300 1,050 slaughter (right axis) making efforts to improve beef productivity and cattle slaughter forecast (right axis) management, slaughter weight in 2013 was estimated 200 700 to be lighter, primarily due to increased slaughter and higher proportions of female cattle slaughtered. 100 350

However, higher slaughter during 2013 (than 2012) 0 0 f f 0 5 0 5 0 5 0 5 0 5 0 5 0 6 6 7 7 8 8 9 9 0 0 1 1 2 lifted Korea’s total beef production year-on-year, at 9 9 9 9 9 9 9 9 0 0 0 0 0 1 1 1 1 1 1 1 1 2 2 2 2 2 260,606 tonnes5. Source: USDA, MLA estimates/forecasts f = MLA forcasts

 Presuming that slaughter this year will remain as high as last year, average carcase weights are also expected to be lighter – in MLA’s estimates, it could be the lowest since 2006. However, average slaughter weights are anticipated to improve steadily from 2015 onwards.

 On the back of a lighter average carcase weight and less slaughter as the cattle herd falls gradually, Korea’s beef production is projected to reduce over the next three years, with the lowest beef production forecast to be in 2017 – 17% less than an estimated volume for 2014 and 20% lower than the highest production in 1998.

 With expectations of a rise in average carcase weight and a gradual increase in slaughter numbers during the next build up phase, Korea’s domestic beef production from 2018 is anticipated to improve steadily, totalling 252,650 tonnes5 by 2020 (although this is still 3% and 4% lower than 2013 and 1998, respectively). Beef consumption

 Like some other Asian countries, such as Japan, the Figure 17 Korean beef consumption '000 tonnes boneless equivalent '000 tonnes BSE outbreak in the US at the end of 2003 raised 400 600 Korean consumer concerns over beef in general. Consequently, Korea’s beef consumption decreased 300 450 significantly year-on-year in 2004, with an estimated 200 300 16% fall, to 355,000 tonnes5.

100 150  Korea’s beef consumption recovered much more beef production beef production forecast quickly than in Japan, surpassing the previous 2002 consumption consumption forecast 0 0 f f f f record in 2010, and in 2013 was estimated to be 49% 8 0 2 4 6 8 0 2 4 6 8 0 9 0 0 0 0 0 1 1 1 1 1 2 9 0 0 0 0 0 0 0 0 0 0 0 1 2 2 2 2 2 2 2 2 2 2 2 higher than in 2004, at 528,185 tonnes (24% above Source: USDA, MLA estimates/ forecasts f = MLA forcasts the 2002 record5).

5 boneless equivalent, MLA’s estimate only MLA Market Information 7 Research Paper: Korean domestic cattle and beef updates and outlook September 2014

 Over the last decade, domestic beef accounted for an average 44% of total beef consumed in the Korean market. While Korea’s domestic beef supply is expected to contract over the next few years, it is still projected to account for an average 45% of beef consumption in Korea.

 However, Korea’s beef consumption is forecast to fall by between 2% and 5% over the next few years. This is largely caused by anticipated rising beef prices as domestic beef production is expected to be tight, combined with less (and dearer) imported beef from Korea’s major suppliers, Australia and the US, over the next few years.

 However, assisted by anticipated increasing availability of both domestic and imported beef from 2018 onwards, along with Korea’s positive fundamentals and a gradual fall in import tariffs, beef consumption in Korea is forecast to rise by between 3% and 6.5% from 2017 to 2020.

For further information please call toll free 1800 023 100 or 02 9463 9163 www.mla.com.au © Meat & Livestock Australia, 2014. ABN 39 081 678 364.

MLA makes no representations as to the accuracy of any information or advice contained in this publication and excludes all liability, whether in contract, tort (including negligence or breach of statutory duty) or otherwise as a result of reliance by any person on such information or advice. This publication is only intended to provide general information. You should make your own enquiries before making decisions concerning your interests.

MLA Market Information 8