New Challenges Facing ------1------Asian Agriculture under Globalisation

Volume II

Edited by Jamalludin Sulaiman Fatimah Mohamed Arshad Mad Nasir Shamsudin 34 Farm Household Debt Problems in Jeonnom Province, Korea: ACose Study

J.K. Park, P.S. Park and K.H. Song

Introduction Farm loans have increased quite rapidly in the recent decades and the farm household debt 1 matter has become a serious socio-economic issue in Korea. In an effort to get around this critical issue, the government would prepare and implement impromptu new debt measures. Yet, the farm-debt ratio over farm income has been increasing very rapidly since the beginning of the WTO in 1995 and the IMF financial crisis of 1997, leading to 88 per cent as that of 2000, mainly due to low agricultural income. During the period of 1994 (the year right before the beginning of the WTO)-2000, farm household income had increased by 13.6 per cent but debt had increased by as much as 156.3 per cent (MAF, 2001 ). That is, farm household debt has been increasing very rapidly since 1995. Yet, the ratio of non-farm income accounted for around 32 per cent of farm income in recent years, which made it more difficult for farmers to repay their loans.

This problem is getting even more complicated because of joint surety among the farmers, which would lead to total bankruptcy of farms including financially sound farms. Recently, more than 7 5 per cent of farm loans were utilised for the purpose of agricultural production. In order to cope with labour shortage problems due to the rural-urban migration of labour force, farmers began to purchase more agricultural machinery, which eventually led to the galloping farm household debts. Together with this trend, the careless financial loan management on the part of financial institutions has made the matter worse, because many farmers could not repay their loans because of their unsound financial conditions from the beginning, thereby creating both agricultural and social crises.

Between the years 1970-2000, debt per farm household increased by 1,263 times at the national level, from 16,000(US$50) to 20.2 million (US$17,873),2 whereas farm income increased by 90.1 times from 256,000 to 23.1 million. This means farm household debt had

1 Farm household debt here includes various liabilities or the unpaid balance such as outstanding loans, purchasing goods and services in credits, and other obligation to mutual loan ctub, etc. 2 316.7 = US$1.00 in 1970, and 1,130.6 = US$1.00 in 2000. Therefore, farm household debt has increased as many as 357 times in terms of US$ during the period. Farm Household Debt Problems in Jeonnom Province, Korea: ACose Study 485 increased at a much faster rate than farm income. During the same period, the ratio of farm household debt over farm income also jumped from 6 per cent to 88 per cent, which created a serious problem in farm economy. During the period of 1995-2000 especially, farm household debts increased by 120.5 per cent whereas farm income by only 7.2 per cent, raising the farm debt ration from 42 per cent to 88 per cent. At the same time, most of these farm loans were obtained from the National Agricultural Cooperative Federation (NACF) in such a way that the ratio of farm loans from the NACF over the total farm loans increased from 31 per cent to 85 per cent in this period. Also, the ratio of non-farm income over total farm income has not been experiencing any significant changes beyond 32-34 per cent in recent years. These are the general phenomena of farm household debts at the national level {Table 34. l ).

Table 34.1: Farm Household Debt Situation of Korea ( 1970-2000)

Year Farm household debt Farm Non-Ag.

Agricultural Debt Used Total Income Income Co-operatives in Farming (A) (B) (C) (D) (E) AIC B/C CID EID

1970 5 8 16 256 62 0.31 0.50 0.06 0.24 1975 10 19 33 873 158 0.30 0.58 0.04 0.18 1980 165 206 339 2,693 938 0.49 0.61 0.13 0.35 1985 1,337 1,306 2,024 5,736 1,060 0.66 0.65 0.35 0.18 1990 3,857 3,146 4,734 11,026 2,841 0.81 0.66 O.B 0.26 1995 7,364 7,331 9,163 21,803 6,931 0.80 0.80 0.42 0.32 1996 8,500 9,136 11,734 28,298 7,487 0.72 0.78 0.41 0.26 1997 9,561 9,781 13,012 23,488 8,677 0.73 0.75 0.55 0.37 1998 13,263 12,958 17,011 20,494 6,975 0.80 0.76 0.83 0.34 1999 14,445 14,054 18,535 22,323 7,034 0.78 0.76 0.83 0.32 2000 17,161 15,159 20,207 23,072 7,433 0.85 0.75 0.88 0.32 00170 3,431 1,895 1,263 90.1 119.9

Source: MAF, 200 I.

The Jeonnam Province is known to be the key agricultural region of the Korean peninsula. Unfortunately, previous studies regarding farm household debts in the Jeonnam Province were unavailable, and the farm debt situation of the Jeonnam Province was unknown in details.

Objectives The objectives of this study are to analyse the current situation of farm household debts in the Jeonnam Province, and to suggest relevant policy measures to mitigate the farm debt problems both regionally and nationally. 486 Park, J. K., P. S. Pork and K.H. Song

In order to analyse this debt issue in the farm sector more realistically, the Jeonnam farm villages were visited in an effort to find out and accomplish the following objectives; first, to understand the financial situation of farms by surveying the farm household debt in the Jeonnam Province, second, to find out where the farmers are using their farm loans, and their repayment plans and ability to repay their farm loans, and finally, to suggest the best alternative policy options in coping with the farm household debt issues for future success of farming.

With the above-mentioned objectives in mind, we decided to carry out this research by dividing the Jeonnam Province into four regions, namely, Mountainous Region, Semi-Plain Region, Plain Region, and Suburban Region. Each Region consisted of two counties, meaning a total of eight counties/cities. Then, we selected two villages from each County/City, and visited a total of 16 villages.3 The survey results from 997 farms were collected, but only 980 questionnaires were used in this analysis, disregarding the meaningless questionnaires.

Findings General Information of Respondents farming Experience: A total of 794 farms, 82.3 per cent of the total respondents, had farming experience of 20 years or more. Only 3 .3 per cent of the respondents turned out to have experience of less than five years. Therefore, most of the farmers seemed to have been farming for life or had enough experience in farming at least.

LT 3 Yrs. (IO Farms)

3-5 Yrs. (22 Farms)

5-IO Yrs. (40 Farms) 4.1%

10-20 Yrs. (99 Fanns) 10.3%

82 3 MT20Yrs. (794 Farms) !------~ - ¾

Figure 34.1: Fanning Experience

3 Plain Region: - Naju City: Dasi Myon - Daegog and Haengsan; Sanpo Myon - Deungjong Jongja. - Haenam County: Hwangsan Myon - Woohwang; Hwasan Myon - Gwandong. Semi-Plain Region: - Gangjin County: Doam Myon - Yongsan; Sungjun Myon - Youngheung. - Bosung County: Hoechon Myon - Junil; Bokrae Myon - Youjung. Mountainous Region: - Goksung County: Jookgok Myon - Bongjung; Osan Myon - Younhwa. - Gurye County: Yongbang Myon - Yonggang; Ganjun Myon - Yangchon. Suburhan Region: - Sunchon City: Haeryong Myon - Sinsung; Byolryang Myon - Gooryong - Muan County: Illo Myon - Hwasan & Yonghodong; Hyongyong Myon - Songjung. Form Household Debt Problems in Jeonnam Province, Korea: ACase Study 487

Age Distribution About 64.2 per cent of the farmers surveyed, 629 farmers, were older than 60, followed by those in their 50s (19.1 %), 40s (11.0%), 30s (5.0%), etc. This age distribution was different from the general distribution of farm population across the nation, since it was 51 per cent at the national level, which means there exist relatively much older farmers in the Jeonnam Province than in the rest ofROK.4 That is, both ratios of old farmers and farm population in Jeonnam were much higher than the ones of national figures, respectively as of 2000. Naturally, the issue of farm household debt has been very important and sensitive in this Province.

20s(7)30s( 48) 40s(109) 1% 5% 11%

50s(190) 19%

Figure 34.2: Age Distribution

Distribution by Education Respondents with educational experience of primary school or less accounted for 65 per cent, followed by middle school 20.4 per cent, high school 11.9 per cent, and university education or higher 2.1 per cent.

These results showed that most of the farmers had relatively low educational experience, which is not unusual in traditional agriculture. The problem is that low educational background could be a serious hindrance for agricultural development or improvement in any country. Thus, considering the small-scale farming in the Jeonnam Province and the rest of Korea alike,5 it would be quite reasonable to expect that agricultural innovation, improvement in productivity, and co-operations in agricultural production and marketing in general, and so on, would be quite difficult to accomplish among the farmers.

4 Besides, the ratio of farm population at the national level was 8.6% whereas it was 31.5% in Jeonna as of 2000(National Statistical Office, 2002). 5 Agricultural area per farm in Jeonnam and ROK were only l .45ha and 1.3 7ha, respectively, as of 2000. 488 Park, J. K., P. S. Park and K.H. Song

Unl\lSl'Sity 2.1%(21)

Figure 34.3: Education of Farmers

Farm Household Debt Situation A total of 728 farms, 74.3 per cent, out of 980 respondents turned out to have household debts of one type or another. And, some of them had overdue debts, causing a serious burden to the majority of the farmers in the Jeonnam Province, just as it does at the national level. Of course, farm debt itself is not something to ignore by all means as long as it could be repayable by remunerative farming activities.

Farm Household Debt by Farming Type The responded farms could be divided into the following types: grain crops (65.8%), vegetables (15.7%), livestock husbandry (7.0%) and fruits (5.5%). As already seen, 74.3 per cent of 980 farms had household debts on the average, ranging from 69.6 per cent of livestock farms to 87.0 per cent of fruit farms, while for grain crop farms it was about 75 per cent. Therefore, livestock farms showed the lowest ratio.

Figure 34.4: Farmers with Debts Farm Household Debt Problems in Jeonnam Province, Korea: ACase Study 489

Table 34.2: Farms with Debt by Farming Type

Farm Type Debt (A) No Debt Sum (B) (%) A/B (%)

Grain Crops 481 164 645 (65.8) 74.6 Vegetables 126 28 154 (15.7) 81.8 Livestock Husbandry 48 21 69 (7.0) 69.6 Fruits 47 7 54 (5.5) 87.0 No Response 26 32 58 (6.0) 44.8 Total 728 252 980 (100.0) 74.3

Size of Debt by Loan Source Surprisingly enough, according to our survey, the average size of loan per farm household turned out to be about 21.6 million. That is, the farm household debt was 0.5 per cent higher than the farm income in the Jeonnam Province.6 It must be a serious level, indeed. Accordingly, farm household debt problem has been more serious in the Jeonnam Province than in the rest of the country. The major reason for this would be obviously the impact of the WTO, which enforces many countries like Korea to implement indiscriminate trade liberalisation of agricultural products, notwithstanding the inhuman sacrifices upon the millions of farmers.

About 88.7 per cent of the farm loans were from the NACF. The rest were borrowed from private sources (4.8%), mutual funds (2.5%), commercial banks (2.2%) and others such as mutual loan clubs. Therefore, NACF has been extremely important for the farmers' loan in Jeonnam and the rest of the country alike. Therefore, rational and efficient management of the NACF must be sought for the improvement of sound agricultural industry.

Total Debt/Farms

Agro Livestock & Fishery Co-op

Mutual Fund

Commercial Bank - 473,000 Private Debt .,.029

Other Debt ■ 400,000

Figure 34.5: Size of Debt by Loan Source (wons/farm)

6 According to the MAFF, farm income of Jeonnam Province was 21.5 million (US$18,993), whereas debt per farm was 19.1 million (US$16,875) as of year 2000, which means the debt ratio was 89%. It was lower than the survey result of this study. 490 Park, J. K., P. S. Park and K.H. Song

Debt by Farming Type For the grain crop producing farms, 45.9 per cent of them had debts of more than W50 million, whereas 57.4 per cent of fruit farms, 50 per cent of vegetable farms, and 13.0 per cent of livestock husbandry farms had debts of more than W50 million per household. Percentage-wise, this phenomenon tends to follow the changes in price indices of agro­ livestock products sold at farm-gates. That is, during the period of 1995-2000, the price index offruits decreased by 19.7 per cent, and that of vegetables by 5.2 per cent, whereas the price index of rice increased by 3 7 .8 per cent and livestock price index by 1.1 per cent only. These figures show that both fruit and vegetable farms were hit out the most, ending up with low farm income and large debts. Therefore, with the beginning of the implementation of WTO, many farmers have been experiencing difficulties in repaying their loans due to the unfavourable changes in their farm products at the very moment of streamlining their farm structure. Only the livestock farms are known to be one step ahead of others in structural adjustment.

Table 34.3: Debt by Farming Type (Unit: W Million)

Farm Type No Debt <10.0 10-50 50-100 >100 No Ans. Total

Grain Crops 173 168 181 35 11 77 645 Vegetables 30 20 57 20 8 19 154 Livestock Husbandry 22 14 13 5 4 11 69 Fruits 9 12 19 4 4 6 54 No Response 18 40 58 Total 252 728 980

Note: <- Less than; > - More than.

Debt by Farmer's Age Among 980 farms, 27 farmers had debts of more than W I 00 million. About 63 per cent of these 27 farmers were young farmers in their 40s or younger, whereas only four farmers out of27 were in their 60s, which means older farmers were not active enough to borrow new funds to invest in agricultural area. About 60 per cent of total respondents answered that they did have debts ofless than W 50 million. Another interesting point was that about 78.2 per cent of farmers over 60 years had no farm household debt whatsoever. Obviously, they were so prudent and cautious that no large-scale investment was made through large loan service.

Debt Size by Educational Experience About 66.1 per cent of total respondents had educational experience of primary school or less. It was observed that the higher the farmer's educational level, the larger the farm household debt size. For example, only 0.9 per cent of farmers with primary education had farm household debt of W 100 million or more, whereas that ratio was 11.8 per cent for farm Household Debt Problems in Jeonnom Pmvince, Korea: ACose Study 491 those with college education or higher. This proves that highly educated farmers tend to be more active in pursuing large-scale farm businesses with loans.

Loan Period Regardless of their types offarming or location, about 99 per cent of the respondents revealed that they had the short-term farm loans of W 50 million or less, which should be paid back within one year. The ratio of medium-term loan over the total loans increases as the amount ofloan increases in general. Yet, the average amount of medium-term loan was mostly less than W 50 million. About 99 .2 per cent of grain crop farmers, 96. 7 per cent of the greenhouse farmers, 98.6 per cent oflivestock farmers and I 00 per cent of fruit farmers used the medium­ term (1-3 years) loans of 50 million or less. The average amount of long-term debt was larger than I 00 million. Also, the farms of livestock husbandry and fruits, which are of relatively longer-term production cycles, would tend to get long-term loans oflarger amount. For example, about one-third of the farmers, who had debts of I 00 million or more, answered that their debts were long-term ones.

Long-term Debt by Farming Area The average amount oflong-term debts (more than 3 years) was different among the farming areas in that, farmers in the semi-plain and mountainous areas had larger and longer-term debts. This might reflect the fact that the farmers in these areas would tend to produce livestock products and/or fruits, whose turnover rates are relatively longer than other grain crops or vegetables that are usually produced in the plains or suburban areas. Specifically, the average amount of short-term debt was about W 6.4 million (33%), medium-cerm debt about W 4.45 million (23%) and long-term one about W 8.6 million (44%) per farm household. About 70.1 per cent of these farmers were able to get the loans by credit only, whereas the rest (29.9%) of them on mortgage.

Figure 34.6: Loans by Credit and/or Mortgage 492 Pork, J. K., P. S. Pork and K.H. Song

Usage of Loans The farmers answered that they used their loans on farm expenses such as wages and purchasing farming materials (38.6%), on capitalistic purchasing expenditures such as farm buildings, farmland, and large farm machinery (20.5%), on repaying debts (3.8%), and on consumption expenses such as medical expenses, educational payments, wedding and/or mortuary expenses, and other miscellaneous expenses (13.1 %), which means about 59.1 per cent of the respondents were using their loans on farming activities. Therefore, almost 40 per cent ofloans were used in non-farming activities. Some farmers turned out to apply for loans to repay their farm debts. This phenomenon is not unusual in a country like Korea, where the traditional agriculture is at a transitional stage, in that management is not separated from ownership yet. That is, household expenses are mixed up with farming expenditures.

No Answer (236 Farms)

Repaying Debts (37 Farms)

Capital Investments (201 Farms)

Consumption Expenses (128 Farms)

Purchasing Farm Materials and Labor (378 Farms 38.6%

Figure 34.7: Usage of Farm Loan

Table 34.4: Purpose of Loans by Types of Farming

Fanning Repayment Capital Consumption Purchasing No Total of Debts Investment Fann Materials Answer

Grain Crops 22 115 96 253 159 645 Vegetables 4 45 9 67 29 154 Livestock 3 19 7 21 19 69 Fruits 5 15 4 21 9 54 No Response 2 12 7 1 36 58 Total 36 206 123 363 252 980

Usage of Loans by Age About 52.6 per cent of the farmers in their 60s, who had debts, used the loans for farming purposes, whereas the ratio was 77 .1 per cent for those in their 30s, 71.3 per cent for those in their 40s and 69 per cent for those in their 50s. This explains the fact that older farmers Farm Household Debt Problems in Jeannam Province, Korea: ACase Study 493 could not make their ends meet by farming only. So, they have to rely on loans to pay the non-farming activities. To make matters worse, aged farmers could not have many opportunities for non-farm income earnings in or around the farm areas, and could not repay their debts.

Overdue Loans: About 56.7 per cent of the respondents had overdue debts. Specifically, 4.6 per cent of them had overdue debts ofW50 million or more. Only 23.9 per cent of them had overdue debts of W IO million or less. Overall, this overdue debt problem is a serious matter to the farmers considering the fact that agricultural import liberalisation has been practised almost completely following the policy line of the WTO since 1995, leading to a sagging down of the agricultural prices compared to their production costs. Besides, farmers do not have enough opportunities to supplement their income from the off-farm jobs either, and as a result, the size of this overdue debt has been snowballing in recent years.

LT 5 Mill Wons (16 Fanns)

LT 10 Mill Wons (19 Fanns)

LT 20 Mill Wons (118 Fanns)

LT 30-50 Mill Wons (98 Fanns)

LT 50-100 Mill Wons(37 Fanns)

MT 100 Mill Wons (8 Fanns)

None (319 Fanns) 32.6%

Figure 34.8: Overdue Debt Ratio

Repaying Ability of Loans Only 21.2 per cent of the respondents answered that they were capable of repaying their debts as long as the current income situation continued. Almost half of them thought they could take care of their debts if interest rates were lowered and loan repayment period were postponed. Unfortunately, 16. l per cent answered that it was just impossible for them to repay their debts, whereas 13. 7 per cent of them said their situation was so serious that they had to sell off their fixed assets in order to repay their debts, which means a decapitalisation in the agricultural sector.

Specifically, the situation of about 9.5 per cent of grain crop farmers was so serious that they just could not repay their debts even if they were to sell off their fixed assets, and that 6.8 per cent of them had to sell off their fixed assets to repay their debts. Of course, this kind of insolvency problem happened to other types of farmers as well, such as greenhouse vegetables (1.2%), livestock husbandry (0.22%), and fruits (0.54%). The situation of grain crop farmers was the most serious. 494 Pork, J. K., P. S. Pork and K.H. Song

No Answer (248 Farms)

Just Impossible by Any Means (120 Farms)

Possible with Sale of Fixed Assets (102 Farms)

Possible with Lowering Rates & Posponement (366 Farms) 49.0"lo

Possible with Current Income Condition (158 Farms)

Figure 34.9: Repayment Ability of Loans

On the other hand, about 16.5 per cent of the farmers in their 50-60s were sure that they could take care of their current debts, whereas 12.8 per cent of the farmers of 40 or younger said so. This difference might have happened due to the fact that the younger farmers had relatively larger loans and that the older farmers would tend to be more conservative and cautious regarding new investments and loan management, ending up with smaller amounts of debt.

The higher the educational experience, the higher was the insolvency. For example, about 17 per cent of farmers with primary education said they could repay the debt under the current income situation, whereas 15.5 per cent with middle school education, 12.8 per cent with high school education and only 4.8 per cent with college education said so. In other words, insolvency ratio increased as educational experiences increased. Once again, this kind of answer might be related to the fact that highly educated farmers were more active and innovative to apply for larger loans in order to invest in the farm sector.

Joint Liability on Guarantee

Number of Joint Sureties About half of the respondents answered that they were joint sureties on neighbour's loans. It turned out that, on the average, one farmer ensured the joint liability on two cases (18%), one case (15%), 3-4 cases (11 %), and even five cases (6%) for theirneighbouring farmer's loans. This indicates that, as discovered earlier, if 16.1 % of the respondents were insolvent in repayment of their loans, many farmers would be in a spiral situation of bankruptcy in a row,7 leading to the loss of entire farming in Korea.

7 In terms of monetary units, about 44% of total loans from the NACF were made through this kind of joint surety as of I 999 at the national level (Park et al. I 999). Form Household Debt Problems in Jeonnam Province, Koreo: ACase Study 495

Amount of Joint Surety The amounts of joint surety were in a range of W5-l 00 million per farmer. About 32.2 per cent of the respondents had joint liabilities of around W20 million or less per person. At the same time, about 6.8 per cent of them had joint liabilities ofW50 million or more. Finally, 73 per cent of the joint sureties were in the range ofW l 0-50 million. Living together in the same village, the neighbouring farmers are easily apt to become cosigners for each other, and it has been that way up until recently. But, since the implementation of import liberalisation of agricultural products with the beginning of the WTO and the IMF-related financial crisis in recent years, this system ofjoint surety has been hitting rural society very hard with a series of spiral impacts upon agriculture at large.

I Case (141 Fanns) 15%

None (473 Fanns) 50% 18% 50%

5 Cases (58 Fanns) 6%

Figure 34.10: Number of Joint Surety on Guarantee

Amounts ofJoint Liability by Age and Education For those categories of joint liability of W 10 million or less, farmers in their 60s or older accounted for the largest share, whereas, if the joint liability was larger than W 10 million, those in their 50s and 40s accounted for 3 7.5 per cent and 25 per cent, respectively. Therefore, the aged farmers tended to have a relatively smaller amount of joint liability overall.

Among the farmers with primary education, 97. 7 per cent of them had the joint surety of less than Wl00 million, meaning only 2.3 per cent of them assured the liability of WlO0 million or more. But this percentage went up to 5.6 per cent with middle school, 12.2 per cent with high school, and 14.3 per cent with college education or more. It means the higher the educational level, the higher the amount of joint surety as well. 496 Pork, J. K., P. S. Pork and K.H. Song

LT 5 Mill. Wons (65 Farms) 16.6%

LT 10 Mill. Wons (21 Farms) I 12.3%

LT 20 Mill. Wons (931 Farms) 113.4%

30-50 Mill. Wons (94 Farms) 19.6%

50-100 Mill. Wons (43 Farms) I 4.4%

MT 100 Mill. Wons (24 Farms) / 2.4%

Figure 34.11: Amount of Joint Liability

Opinions on How to Deal with Unpaid Debts Almost half(48.8%) of the respondents said that jointly assured farmers should repay the pending debt in lieu of the debtor, whereas 31 per cent of them argued that the pending debts should be taken care ofby the government for the farmers or that the assured farmers should not repay anyhow. Around 57 .1 per cent of the farmers in their 20s argued that the cosigners should repay the pending debts in lieu of the debtors, followed by those in their 50s with 53.5 per cent, and 60s with 50.4 per cent. But the ratios were a little bit lower in the case of farmers in their 40s with 38 per cent and 30s with 32.3 per cent, respectively.

Regarding the argument of government repayment, 35.2 per cent of farmers in their 40s and 25 per cent of farmers in their 30s agreed. Almost 15 per cent of the ones in their 30s said that the cosigners would not have to repay the debt in lieu of the original debtor.

Cosignatory Repay (478 Farms) 48.8%

Cosigners Doesen 't have to Repay (106 Farms)

Government should Take Care of the Debt (198 Farms)

No Opinion (120 Farms)

Figure 34.12: Repayment of Pending Debts Form Household Debt Problems in Jeonnom Piovince, Korea: ACose Study 497

Usefulness of Governmental Policies About 35.2 per cent ofthe respondents agreed that the governmental financial policy regarding farm household debts has indeed been useful, whereas 63.6 per cent of them said it had not. Probably, the government's approach for farm household debts was not effective in this area as far as the farmers were concerned. So, something had to be done urgently on governmental policies for farm loans or debts.

Means to Alleviate the Farm Household Debts The respondents said the necessary measures were extension of repayment period with reduction of interest (54%), cut down of debt and interests (27%), and postponement of repayment of debt and interest ( 15%) alike.

About 56.4 per cent of the farmers, who had no overdue debts themselves, argued that the debt repayments should be postponed together with reduction of interest. Also, 85.7 per cent of young farmers in their 20s hoped the government would take the measure of postponement of repayment period with a reduction of interests, followed by 49 .1 per cent to 60.2 per cent of the other age groups. Then, 76.2 per cent of farmers with college education agreed to this measure, followed by 63.3 per cent with high school education, 45 per cent with middle school education, and 44. l per cent with primary education. Therefore, highly educated farmers showed a tendency to agree to both extension of repayment period and reduction of interest as well.

Repayable with Current Income (I 58 Farms)

Repayable with Discounted Rates & 49.9% Posponement of Repayment (366 Farms)

Repayable with Sale of Fixed Assets (102 Farms)

Impossible to Repay by Any Means (120 Farms)

Figure 34.13: Ability to Repay the Cosigned Loans

Writing Off Debts and Interests Regarding the idea of writing off overdue farm household debts, about 42.2 per cent of the farmers, who had already repaid their own debts, responded that the writing off debts by the government was not right, whereas 32.8 per cent ofthetn said the government ought to d0 so. And, only 9.5 per cent of them said that writing off debts by the government would make the farmers disbelieve governmental policy in the future. 498 Pork, J. K., P. S. Pork and K.H. Song

Useless at all Very Useful (300 Fanns) 31% (77 Fanns) 8%

Seldom Useful (327) 33%

Figure 34.14: Usefulness of Governmental Policies

Miscelllaneous Opinions (42 Farms): 4%

Defennent of Princi• pal and Interest Re• payment ( 146 Fanns): 15%

Figure 34.15: Methods to Alleviate the Farm Debts

Public funds must be used even-handedly among all farmers according to 42.6 per cent of the respondents. Then, 33.4 per cent of them argued that more seriously debt-ridden farmers should be supported primarily, and 16 per cent of them agreed for a support of survivable farmers only. Therefore, farmers hoped to see to it that the public fund be utilised even­ handedly among the farmers or for the needful and most survivable farmers with a priority. Mainly, the farmers with relatively lower educational background recommended the even­ handed financial support to all farmers, whereas those with relatively higher education expressed their favour on the idea of supporting the most needful and survivable farmers among others.

No Opinion (145 Fanns)

Disbelief in Governmental Policies in the Future (93 Fanns)

It is Government's Duty (21 Fanns)

No Right (414 Fanns)

42.2%

Figure 34.16: Response to Writing off Overdue Debt Farm Household Debt Problems in Jeonnam Province, Korea: ACase Study 499

Use to improve Competitiveness (70 Farms)

Support o survivable Farms only (157 Farms)

Bupport to More Sariously Debt­ ridden Farms (327 Farms)

Evenhanded Use to All Farmers 42.0% (417 Farms)

Figure 34.17: How to Use Public Funds

Nearly half(50.6%) of the surveyed farmers agreed to the idea of writing off the farmers' overdue interests, but 27.8 per cent of them did not like the idea. The opinion of the latter group might represent the people who would oppose the unconditional writing off the overdue debt and interest, since they were worrying about social justice and moral hazards among the people. On the other hand, there were two extreme opinions on this matter among the farmers who had already repaid their own debts by themselves. That is, 45.1 per cent of them agreed on writing off the overdue debts by the government, whereas 37.6 per cent of them did not agree on the grounds of social principle of equity.

27.8% Against the idea of writing off(272 Farms)

Agree to writing off(495 Farms) 50.6%

Mitigation of debt but no support with -12.8% Public Funds (125 Farms)

No opinions (82 Farms) .8.4%

Figure 34.18: Opinions of Writing off Overdue Interest 500 Pork, J. K., P. S. Pork and K.H. Song

Priority of Public Loan to Debt-free Farms but No more Loans to tbe Overdue Fanns (171 Fanns) No Special Support Necessary (137 Fanns)

Peiority for Public Loan Allowance & Partial Refund oflnterest (250 Fanns)

Reduction of I-rate of Public Funds in the Future 42.2% (408 Fanns)

Figure 34.19: Social Equity and Support with Public Funds

Delferred Repayment by Every 2-yrs (36 Fanns)

10-yr Grace Period & l0-yr Split Repayments with I-rate of 3% (505 Farms) 51.5%

3-yr Grace Period & 7-yr Split Repayments with i­ 28.9% rate of3% (204 Farms)

2-yr Grace Period & 5-yr Split Repayments with i­ rate of 5% (94 Fanns)

Split Repayments over 5-yr Period with i-rate 1 of 5% (61 Farms)

Figure 34.20: Strategies for Public Fund for Agriculture

About 41 per cent of the total respondents answered that, based on the principle of social equity, the rate of interest charged on public loans made to the farmers, who had repaid their loans already all by themselves, should be lowered somewhat for a certain period. Also, 25.2 per cent of them said that they should be treated preferably in supporting various public funds and that even some part of the paid interests should be refunded. This means that about two-thirds of the respondents were eager to see some kind of measures ensuring social equity regarding farm household debts.

Most of the respondents wanted governmental policy on public funds to be implemented in two ways: (a) extension ofrepayment period, and (b) cut-down of interest rate for the loans by public funds. More than half of them wanted to have a ten year grace period and ten-year split repayments in the 3 per cent per year for the loans made by public funds. Besides, about 27.4 per cent of them suggested a three-year grace period and seven-year split redeeming periods with annual interest rate of 3 per cent.

Opinions on Public Funds for Improvement in Farm Management More than half of the farmers (52.6%) responded that interest rate should be lowered to 5 per cent from 6.5 per cent, and three-year split repayments should be allowed with a two­ year grace period. Overall, farmers wanted lower interest rate with larger amount of loans. Besides, about 54 per cent of the farmers with primary education hoped this kind of policy, followed by 53.5 per cent with middle school, 46.2 per cent with high school, and 42.9 per cent with college education. That is, the lower the educational background, the lower the interest rate they wanted to pay. Form Household Debt Problems in Jeonnom Province, Korea: ACose Study 501

Support with i-rate of 8.5% for 2-yr Grace Period & 5-yr Split Repayments I 20.6% (202 Farms)

Support with i-rate of 8.5% for 2-yr Grace 152.6% Period & 3-yr Split Repayments (515 Farms )

Larger Supports are Necessary (158 Farms) 115.9%

Continuous Support as Usual (86 Farms) I 8.8%

Figure 34.21: Opinions on Public Farm for Farm Management

Cosigners Should Make Split Repayment 16.3% at 6.5% (62 Farms) Cosigners Should Make 5 yr Splil Repayments with 2-year Grace Period at 6.5% (66 Farms) (7%

Cosigners Should Make 7-yr Split Repayments 142.9% with a 3-year Grace Period at 6.5% (420Farms)

Cosigners Should Make 3-yr Split Repayments I 22.7% for Principal with Writing off the Whole Interest (222 Fanns) Repayment by Trust Guarantee Fund in I 19.0% Lieu Cosingers ( 186 Fanns)

Figure 34.22: Strategies for Insolvable Farm Debt

In case the farm household debts become insolvable, 42.9 per cent of the farmert, said that the cosigner(s) should be responsible in lieu of the original debtor under the condition of seven-year split repayments after a three-year grace period with interest rate of 3 per cent. And 22.7 per cent of them said the cosigner(s) should repay the ussured loans with three­ year split payments with writing off all interests. All in all, two-thirds of them said cosigners were responsible for the insolvable debts one way or the other.

Regarding this matter of insolvency, farmers with lower educational background preferred a lower interest rate with split repayments by the cosigners, whereas farmers with college education recommended the utilisation of the Trust Guarantee Fund instead of cosigner's responsibility.

All in all, the majority of the farmers suggested the removal of the current system of joint surety (64.7%), followed by the installation of ceiling amount of joint surety per cosigner ( 16.3% ), and active utilisation of current Trust Guarantee Fund ( 14.5%). The overall opinions were either removal or mitigation of cosigner's financial burden regarding the insolvent loan matter in the farm sector.

Improvement Measures Based on previous analysis, in this study, the following suggestions could be made as an aim to alleviate the burden of farm household debts, thereby remunerative farm business should continue with a strong vigour in the future. 502 Pork, J. K., P. S. Park and K.H. Song

Miscellaneous (31 Farms) ~ 0.3%

More Utilisation of Trust Guarantee I 3.2% Funds (142 Farms)

Celling on Joint Liability of IO Million I 14.5% Won/Casigner (180 Fanns)

Removal of Current Joint Surety 164.7% System (834 Fanns)

Figure 34.23: Improvement Strategies for Joint Surety System

First, practical and effective measures to mitigate the financial burden of the farmers should be well coordinated and implemented, because farmers' financial situation has been hitting the bottom in the post-WTO era. For the moment, the majority of the farmers hoped strongly for both extension of repayment period and reduction of debt amount and interest rate at the same time, besides writing off some of the outstanding principal and/or interests. The idea of unconditional writing off the farm household debts, however, was opposed by some of the farmers on the ground of social equity. 8

Second, means to terminate the system ofjoint surety among the farmers should be devised in such a way that farmers could still have access to financial loans for farming. In lieu of the joint liability system, the Agricultural Trust and Guarantee Fund should be utilised more by expanding the limit of loans.

Third, basically, the farm structure needs a strong streamlining in order to strengthen the agricultural competitiveness: it means improving the efficiency in farming, which means enlarging the farm management in production and the cooperative marketing to cut down the costs, or to improve their profitability of farming. Actually, this is the most important and essential factor in improving the farm household debt problems after all. In order to accomplish this goal, among other things, economies of scale should be sought in both production and marketing. • Land consolidation should be implemented to be suited for agricultural mechanisation and cost reduction. • Amalgamation of farmlands should be accelerated to improve operational efficiency of each farm. • Cooperative marketing should be implemented to minimise the marketing margins and to improve the farmers' competitiveness as well.

But there exists a certain limit solving the farm household debt problem through streamlining the small-scale farm conditions only. Therefore, if possible, the WTO Agreement on

8 ROK government has begun to implement the lenient financial policy in that writing off20% of the interest of farm household debt would be made if the farmers repay the principal and interests properly during the period of2001~2003. Form Household Debt Problems in Jeonnom Province, Korea: ACose Study 503

Agriculture should be reconsidered through help from the international society in such a way that at least staple foods should not be included in the Trade Agreement for agricultural products. Otherwise, those countries of small-scale farming might be pushed to the edge of total bankruptcy.

Fourth, cooperative use of agricultural machinery should be pursued to cut down the production costs and improve the agricultural profitability by utilising farm machinery to the maximum limit.

Fifth, both the central and local governments should create more non-farm income opportunities for the farmers, especially in the off-season and rural area.

Sixth, systematic measures are necessary to get access to the loans by utilising agricultural products as loan collateral. This system would give farmers more opportunities for loans and allow the farmers to concentrate their efforts on agricultural production, without relying upon the joint liabilities among them.

Seventh, with a thorough screening system for farm loans by financial institutions including the NACF, farm bankruptcy could be minimised. If careless loans are made to make the farms fall into bankruptcy, heavier penalties should be charged upon the financial institutions. This kind of system would improve the competitiveness of the financial institutions themselves and agricultural industry alike.

References Jeolla, N. (2000). "Statistical Yearbook of Jeonnam 2000", December. MAF (Ministry of Agriculture and Forestry) (2000). "Major Statistics en Agriculture and Forestry, Korea. NSO (National Statistical Office) (2002). "Korean Statistical Information System, Online". Park, S.J., Y.T. Kim, and E.S. Hwang (1999). "Policy Direction for Farm Household Debt", Korea Rural Economic Institute, Korea.