Korea Fishery Products Annual Report 2007

Report Highlights

Korean seafood imports from all origins increased to $2.77 billion in 2006, up 16 percent from $2.38 billion in 2005. In 2006, Korea was the third largest market for U.S. fishery products. In 2007, total imports of seafood are expected to increase by about 10 percent to $3 billion. The Korea-U.S. Free Trade Agreement concluded in April 2007 is expected to create more opportunities for U.S. seafood exporters. It must be ratified by the National Assembly of Korea and the U.S. Congress before it is implemented.

SECTION I: SITUATION AND OUTLOOK

Korea was the world’s 11^th largest economy in 2006¹ with a GDP of $1.196 trillion on a purchasing power parity (PPP) basis. Per capita GDP (PPP) in Korea was $24,500 in 2006. South Korea’s central bank forecast 2007 economic growth at 4.5 percent. GDP growth in 2008 is projected at 5 percent.

Seafood imports from all origins increased to $2.77 billion in 2006, up 16 percent from $2.38 billion 2005. In 2006, Korea was the third largest market for U.S. fishery products. Imports from the United States amounted to $151 million (63,000 MT) in 2006, providing the United States with a 5.4 percent market share. In 2007, total imports of seafood are expected to increase by about 10 percent to $3 billion.

Korea exported $1.09 billion in seafood in 2006. Until only six years ago, Korea exported more seafood than it imported. However, growing domestic demand and reduced supplies have reversed the situation. Korea currently imports $1.7 billion more seafood than it exports. Imports are expected to continue to outpace exports ensuring that Korea will remain an important market for U.S. seafood suppliers.

U.S. seafood is generally considered high quality, but higher in price compared to competitors. Surimi, monkfish, fish roes, cod, hagfish, flat fish, skate, ray, Atka mackerel, rock fish and Alaska pollack are some of the major species that are imported in larger quantities than other species to Korea from the United States.

Korean seafood production increased to 3.03 million metric tons in 2006, up 12 percent from 2.71 million metric tons in 2005 mainly thanks to advances in shallow-sea aquaculture. Production of shallow-sea aquaculture increased to 1,259,000 tons in 2006 from 1,041,000 tons in 2005, accounting for the majority of the growth. Seaweed and shell fish accounted for 92 percent, fishes accounted for 7 percent and crustaceans and others accounted for one percent of production within the shallow-sea aquaculture sector. In 2006, Korean fish production slightly decreased to 1,261,000 tons from 1,265,000 tons.

It is expected that Korean domestic fish production will not increase in the future due to reductions in fish resources in adjacent waters and the enforcement of Exclusive Economic Zones by Korea's neighboring countries. The number of fishing vessels has decreased continuously over the past 5 years reflecting the reduction in fish resources. To cope with this situation, the Korean government has accelerated the downsizing of the Korean fishing fleet and plans to reduce it further over the next several years. Recognizing the potential economic impact of this step and the reduction in fishery agreements, the Korean government is undertaking an in-depth study of aquaculture and researching how to secure higher fish catch quotas in foreign waters.

The Korea-U.S. Free Trade Agreement (KORUS FTA) concluded in early April 2007 is expected to deepen the longstanding alliance between the United States and Korea. With respect to seafood, the KORUS FTA is expected to create more opportunities for U.S. exporters. The KORUS FTA is currently pending in the National Assembly of Korea and the U.S. Congress; it must be ratified by both before it is implemented.

SECTION III: NARRATIVE ON SUPPLY AND DEMAND & MARKETING

Production

Korean seafood production was 3.03 million metric tons in 2006, a 12 percent increase from the previous year. This includes 1.1 million tons from adjacent waters fisheries, 1.3 million tons from shallow sea aquaculture, 639,000 tons from deep-sea fishing and 25,000 tons from fresh water fishing.

It is expected that Korean domestic fish production will not increase in the future due to reductions in fish resources in adjacent waters. The number of fishing vessels has decreased continuously over the past 5 years reflecting the reduction in fish resources. A growing number of Korean fishermen want to sell their boats and leave the sea as rising fuel prices and a chronic fish shortage squeeze their businesses. The Korean government plans to spend more than $400 million by 2010 in a buy-out program for more than 1,000 fishing boats, about 30 percent of the local fleet operating in coastal seas, in order to curb overfishing and keep the number of boats at manageable levels.

Production of aquaculture in the adjacent waters contributed strongly to an increase in total production in 2006 over 2005. This result is ascribed to the Korean government's strong policy to focus on aquaculture in shallow sea areas to cope with the shortage of fishery resources in the adjacent water and restrictions in neighboring countries’ waters. Shallow sea aquaculture is expected to continue to increase in the future due to tighter restrictions on fresh water aquaculture and expectations of continuing reductions in the wild catches in the future.

To insulate select domestic seafood producers from imported product (mainly from China), the Korean government has set higher “adjustment tariffs” ranging from 22 to 57 percent for nine fish species which are not subject to tariff bindings under WTO agreements. Prior to implementation of the adjustment tariffs, imports of these nine species were subject to tariffs ranging from 10 to 20 percent. To further support the domestic industry, the Korea government is focusing on aquaculture in shallow waters to secure a stable supply of fish and working hard to purchase fish quotas from other countries, including Russia.

Korea and China reached an agreement on the fishing quota for 2007, which allows Korean vessels to catch 68,000 tons, the same as last year, inside China's EEZ and in return, Chinese vessels can catch 71,930 tons in the Korean zone. The Ministry of Maritime Affairs and Fisheries (MOMAF) established 381,930 tons as the Total Allowable Catch (TAC) for 2007 for the ten species. There are further restrictions such as limited catch seasons for some species as well as restrictions on the number of fishing boats and fishing methods.

The total catch quota for all types of fish purchased by the Korean government from the Russian government in 2007 was 34,115 tons. The 2007 catch quotas with Russia include 20,500 tons for Alaska pollack, 2,650 tons for cod, 2,500 tons for saury, 7,000 tons for squid, 800 tons for sting ray, 250 tons for herring, 115 tons for blow fish and 300 tons for plaice. The fish caught under the catch quotas are considered to be domestic product and are not subject to import tariffs since they are caught by Korean fishing boats.

Constraints built into bilateral and multilateral fishing accords will further impact total harvest. The harvest from adjacent waters fisheries consists primarily of squid, mackerel, corvina, hair tail and anchovy. Government efforts to boost aquaculture production in the shallow sea areas clearly indicate the importance of this sector as a future seafood resource.

Consumption

The "Monthly Statistics of Korea" (July 2007 Issue) shows that the average monthly household expenditure in urban areas on fishery products was $36 in 2006. The Korean Food Year Book 2007 reported that annual per capita seafood consumption in Korea was 48.1 Kg (fishery products and shellfish; 38.5 kg and seaweed; 9.6 kg) in 2005. The major fish species that Koreans consumed are Alaska Pollack, squid, mackerel, hair tail and yellow corvina. The success of Korean industry efforts to change consumer perception of fish (as a healthy alternative to red meat), to diversify fish products, to improve quality, and to develop processing technology will be key in expanding domestic demand.

Seafood family restaurants are getting popular in Korea thanks to increased income and improved standards of living. They are expanding their business due to good business environment. Todai, Seafood Ocean, Bono-Bono, Ocean Star and Muscus are some of the seafood family restaurants doing good business in Korea. These restaurants are using imported seafood as well as locally produced seafood.

Koreans prefer fish in this order: live fish, fresh fish and lastly, frozen fish. Some live fish is consumed raw (Hoi, or sashimi), and commands a price premium. Korean consumers assume fresh fish tastes better than frozen fish after cooking. Accordingly, the price for fresh fish is almost always substantially higher than for frozen fish.

As more and more women are working outside the home, the demand for convenience food has increased. Korean consumers are increasingly attracted to precooked, prepared and preserved food at supermarkets. Hotels generally use high quality seafood for which they charge a higher price. However, the institutional food service industry generally uses cheap raw materials to reduce cost as much as possible to cope with the fierce competition in this sector.

The importance of food safety is magnified by the Korean media’s propensity to sensationalize food-related news. Detection of disease in fishery products and/or chemical residues in aqua-cultured seafood is widely reported and generally results in a temporary drop in local seafood consumption. For example, reports that Malachite Green had been found in domestically produced fish in 2005 seriously reduced consumption of aqua-cultured Israel carp and trout in Korea.

Trade

The Korea-U.S. Free Trade Agreement (KORUS FTA) concluded in early April 2007 is expected to deepen the longstanding alliance between the United States and Korea. With respect to seafood, the KORUS FTA is expected to create more opportunities for U.S. seafood exporters. The KORUS FTA is currently pending in the National Assembly of Korea and the U.S. Congress; it must be ratified by both before it is implemented. Customs duties for fishery products to be imported from the United States will be zero immediately or over the course of 3 to 10 years depending on the results of the FTA negotiations. For instance, the Customs duty for frozen Sockeye salmon will be zero immediately. In contrast, Customs duties for U.S. trout and sea bass will be reduced to zero in 3 and 10 years respectively. The Customs duty deduction schedule with time period will be prorated equally over each time period.

There will be three fish species which will be subject to Tariff Rate Quotas (TRQ) when the FTA is implemented. For instance, the Customs duty will be free for imports of 4,000 metric tons of frozen flatfish in the first year when the FTA is implemented. The quantities shall enter on a first-come, first-served basis. The duty free quantities will become larger as the year passes by as shown on the table below.

Post believes the KORUS FTA will provide good opportunities for U.S. fishery products when it is implemented. For more detailed information about the results of the KORUS FTA including the tariff schedule for Korea, go to:
http://www.ustr.gov/Trade_Agreements/Bilateral/Republicof_Korea_FTA/Final_Text/Secion_Index.html

The industry forecasts that Korean consumers will take advantage of lower prices resulting from elimination of import duties to demand more Pollack surimi/frozen, lobsters/live, Pollack/frozen, monkfish/frozen, cod/frozen, Pollack roes/frozen, skate/frozen, flatfish/frozen, sea cucumber/prepared and croakers/frozen.

Price, quality and timeliness are the most important factors affecting U.S. trade. U.S. fish are generally considered to be high quality with, in turn, an expectation of higher prices. Fortunately, the major species imported from the United States are the species that Koreans enjoy and other suppliers do not supply in large quantities. Table 22 below shows the major species imported to Korea from the United States and the world. The imports of these 24 fish species accounted for about 90 percent of the total imports of fishery products from the United States in 2006.

Total imports of seafood into Korea in 2006 amounted to 1.38 million tons valued at $2.8 billion, the largest import value in history. The largest seafood supplying country in 2006 was China at $1,034 million, followed by Russia at $347 million, Japan at $224 million, Vietnam at $206 million, USA at $151 million, Thailand at $144 million, Taiwan at $86 million and Chile at $84 million. These eight countries accounted for 82 percent of Korea’s total seafood imports in 2006.

Korea also exports a large volume of fish products. In 2006, 367,498 metric tons valued at $1.09 billion were exported, the smallest export volume in the historical database. The major species exported to other countries in 2006 were tuna ($228 million), seaweed ($62 million), oysters ($56 million), flat fish ($52 million), squid ($47 million), and caviar 9$44 million). The largest seafood export market for Korea in 2006 was Japan at $660 million, followed by USA at $96 million, China at $75 million, Thailand at $62 million, New Zealand at $39 million, Spain at $28 million, Taiwan at $18 million and Hong Kong at $13 million. These eight countries accounted for 91 percent of Korea's total seafood exports in 2006.

Seafood is imported into Korea from about 100 different countries. Major suppliers of fishery products to Korea include China, Russia, Japan, Vietnam, the United States, Thailand, Taiwan and Chile. In 2006, the eight supplying countries on Table 25 below accounted for over 82 percent of total Korean seafood imports on a value basis. China continued to be the largest seafood supplier to Korea, followed by Russia and Japan as shown on the table below.

Chile has emerged as one of the major competitors. Thanks to the implementation of the Korean/Chilean Free Trade Agreement (FTA) in 2004, seafood imports from Chile increased by 46 percent to $84 million in 2006 as shown on the table below. Korea only imported $32 million of seafood from Chile in 2003 before the FTA with Chile. Seafood importers are paying more attention to Chilean seafood because of lower tariffs compared to other countries. The effects of the FTA will be realized more over the long term when the Customs duties decline further or become zero. As a result of the FTA, import tariffs were reduced to zero immediately for 277 seafood products imported from Chile effective April 1, 2004.

About twenty supplying countries including China, Russia, Japan, France, Thailand, New Zealand, Chile, Canada, Norway, Indonesia, India, Philippines, U.K. Malaysia, Mexico, etc. participate in the Busan International Seafood & Fisheries Expo annually. These competitors exhibit a wide variety of seafood products targeting importers, wholesalers, distributors, retailers, hotels, restaurants and food processors.

Marketing

Imports of seafood are relatively easy compared to other food and agricultural products, as no special certificates are required in most cases. Importers import fishery products, and generally sell to hotels and food service industry directly, and to distributors who sell to traditional markets and restaurants. When the volume is large, importers generally sell to retailers such as supermarkets, discount stores and department stores directly. When the volume is small, importers sell to distributors who sell to these retailers. Accordingly, U.S. suppliers should contact seafood importers to sell their fishery products to Korea.

Consumers like to purchase the species that they are accustomed to, and importers tend to import the species consumers are demanding. As mentioned earlier, imports of only about 20 species in Korea account for about 90 percent of total seafood imports from the United States in 2006. This means that U.S. exporters should supply the species consumers prefer, and at the same time should also try to invest in building demand for other species with which consumers currently lack familiarity.

Although there is no market for some species at present, history shows that demand can develop rapidly for new products in Korea. For example, many years ago, no demand existed for Jerk filefish. Accordingly, fisherman threw away Jerk filefish caught along with other fish. Now, imaginative processors have developed a prepared, preserved, flat, dried snack product based on Jerk filefish. Consumption of the product has reached the point that imports are required to augment domestic supplies. Imports of prepared, preserved Jerk filefish were about $35 million (10,125 tons) in 2006, mostly from Vietnam. Although there is currently no market for U.S. croakers, there may be good potential in the future if the tariff barrier is lifted and the species is processed according to Korean tastes.

When considering the Korean market, exporters should conduct preliminary research to determine if the market is appropriate. Possible sources of market information include Korean importers, U.S. state departments of agriculture, the USATO website (www.atoseoul.com) and the U.S. Department of Commerce. Lists of Korean importers, by species, can be obtained from the U.S. Agricultural Trade Office, or through the Foreign Agricultural Service in Washington, D.C.

One way of finding potential importers while also assessing market potential is to participate in local food shows to showcase your products to a larger audience. Many Korean importers attending these shows are looking to establish reliable long-term trading relationships. Show participation enhances initial contacts with importers, agents, wholesalers, distributors, retailers and others in the food and beverage industry.

The Busan International Seafood & Fisheries Expo (BIFSE) 2008 will be held in Busan at the BEXCO convention center, November 2008. It presents an excellent opportunity to explore possible market opportunities in Korea. This show is held in November every year and targets importers, wholesalers, distributors, retailers, hotels, restaurants, food processors, media, etc. It is currently the only USDA-supported seafood show in Korea. Check the BISFE website (www.bisfe.com) for future show dates.

Further Reading

- You can view the full report, including tables, by clicking here.