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USDA GAIN: Dairy and Products


12 October 2012

USDA GAIN: South Korea Dairy and Products Annual 2012USDA GAIN: South Korea Dairy and Products Annual 2012

In 2011, retail sales of cheese reached a recorded to $333 million, which was a 15 percent increase from 2010. The United States was the largest dairy exporting country with 43 percent market share, followed by New Zealand with 27 percent and the , EU with 14 percent. FTAs are expected to expand market share for cheese and non-fat dry milk for the United States and the EU at the expense of New Zealand and Australia. A wellbeing trend is supporting a new and growing market segment of ‘super premium’ milk including organic milk, milk from grass fed cows, and milk with added nutritional supplements, and commands prices 3 times higher than regular milk. Despite a shortage of fluid milk resulting a FMD outbreak, Korea’s per capita consumption of dairy products grew by 1.4 percent to 73.2 kg, in 2011.
USDA Gain Report - Dairy and Products

Dairy, Milk, Fluid

Production:

In 2011, Korean raw milk production was 1.89 million metric tons (MMT), decreased by 9 percent compared to a previous year. From November 2010, FMD among cows, pigs and ox was prevalent in over 200 districts within South Korea. FMD forced the slaughter of 34,000 dairy cows (8 % of 430,000 national herds) which resulted in a shortage of fluid milk. The Korean government set a policy where when one animal was found to have FMD, destroyed. This led to a shortage of raw milk which badly affected the production of drinking milk products. Drinking milk use was 86 percent of total raw milk production while remaining 14 percent is marketed for processing.

Consumption:

In 2011, retail value sales of drinking milk are decreased by 1% to reach $3.4 billion which was strongly affected by shortages of raw milk from foot-and-mouth disease. Flavored milk drinks with fruit juice reached the highest retail value growth by 10% and unit prices rose in all types of drinking milk products due to a higher raw milk prices.

Fresh/pasteurized milk decreased by 5% in 2011.Sales of drinking milk products are marginally decreased due to incidents of FMD in cattle. This led to a shortage of raw milk which badly affected the production of drinking milk products. On the other hand, many consumers and restaurants replaced milk with soy milk, enabling soy milk with a healthy growth rate in 2011.

In May 2009, regulations regarding flavored milk drinks changed so that products including real fruit juice could feature brand names such as real fruit juice included flavored milk drink. As such, products without real fruit juice could be called ‘fruit name syrup milk drink’ instead of ‘flavored’. Manufacturers started to add real fruit juice to most fruit flavored milk drinks to maintain the brand name as ‘fruit name flavored milk drink’. Flavored milk drinks increased by 4% in 2011 due to changes in most dairy only flavored milk drinks to flavored milk drinks with fruit juice. This is because ‘fruit name syrup milk drink’ could convey a negative image of being low quality among consumers. In 2011, only coffee flavored, grain and bean flavored milk drinks remained under the dairy only flavored milk drinks, and all fruit flavored milk drinks move under the flavored milk drinks with fruit juice category.

Seoul Dairy maintained the leading position with a 38% value share in 2010 followed by Maeil Dairy at 15% market share with organic milk brand, Sangha Farm. Since the recent outbreaks of FMD, consumers became concerned about drinking fresh milk. As a result, sales of soy milk increased as opposed to fresh milk. Sangha Farm is now a leader in organic milk. Vegemil by Dr. Chung’s Food maintained the leading position to a 39% value share in soy milk.

Korea Raw Milk Supply & Demand
Unit: 1,000 Metric Ton
2006 2007 2008 2009 2010 2011
Supply Inventory from a year before 116 53 107 96 55 13
Production 2,176 2,188 2,139 2,110 2,073 1,888
Import 882 968 885 959 1,135 1,620
Total 3,174 3,209 3,131 3,166 3,263 3,521
Demand Consumption 3,121 3,101 3,035 3,111 3,249 3,485
Inventory 53 107 96 55 13 36
Total 3,175 3,209 3,131 3,166 3,263 3,521
Per Capita Consumption (Kilo Gram) 63.6 63.0 61.3 62.3 62.8 69.4
Source: Ministry of Food & Agriculture Fishery Forestry (MIFAFF)/
2012 Agriculture Outlook by Korea Rural Economy Institute (KREI)

Domestic Raw Milk Usage
Unit: 1,000 MT
Milk 2006 2007 2008 2009 2010 2011
Drinking Use 1,555 1,582 1,583 1,569 1,541 736
Processed Use 621 606 556 540 532 206
Total 2,176 2,188 2,139 2,110 2,073 942
Source: Ministry of Food & Agriculture Fisher Forestry (MIFAFF)/
2012 Agriculture Outlook by Korea Rural Economy Institute (KREI)

The Korean consumers’ priorities of milk selection are freshness (30%), brand name (20%), safety (19%), function (8%) and price (22%) by agriculture outlook center survey during January 2012.

Korea’s Key Dairy Product Imports
Unit: Metric Tons
Products (HS Code) 2008 2009 2010 2011
U.S. Total U.S. Total U.S. Total U.S. Total
Cheese (0406) 11,300 47,400 9,100 49,000 18,500 61,000 32,400 76,200
NFDM (0402.10) 41 4,900 100 9,600 650 7,900 900 33,500
Whole Fat DM (0402.21) 0 1,300 0 1,200 0 1,400 0 5,300
Mixed Milk (0404.90 & 1901.90.2000) 1,468 25,900 910 26,000 440 31,600 1,300 36,000
Butter (0405.10) 56 1,900 80 2,100 66 3,000 900 4,800
Whey Powder (0404.10) 14,009 32,000 15,800 32,200 16,000 37,600 12,900 30,400
Ice Cream (2105) 356 2,000 520 2,010 632 2,600 840 3,600
TOTAL 39,700 (24%) 165,000 36,300 (21%) 176,200 54,700 (26%) 207,000 72,800 (26%) 280,500
Source: 2012 Korea Customs Office
Notes: In 2011, imports of dairy products increased, such as cheese imports increased by 25% up to 76,200 MT, mixed milk decreased by 11% up to 28,000 MT, butter increased by 60% up to 4,800 MT but NFDM increased by 320% up to 33,500 MT compared to 2010.

Dairy Products Imports by Country
Unit: Metric Tons
U.S. New Zealand Netherlands Australia Germany Total
2007 42,100 (23%) 28,600 21,500 25,900 5,600 183,700
2008 39,700 (24%) 31,100 23,100 21,600 5,700 164,700
2009 36,300 (21%) 34,500 20,100 31,300 6,900 176,200
2010 54,700 (26%) 39,400 28,600 28,600 5,800 207,000
2011 72,800 (26%) 53,000 (19%) 32,400 (12%) 32,400 (12%) 20,500 (7%) 280,500 (100%)
Source: 2012 Korea Customs Office
In 2011, average unit price of imported dairy products was $4 per kilogram which was increased by 21%. Jumping the international animal feed price and decreased raw milk production of Australia and New Zealand made the price higher.

In 2011, average unit price of imported dairy products was $4 per kilogram which was increased by 21%. Jumping the international animal feed price and decreased raw milk production of Australia and New Zealand made the price higher.

Marketing:

The effects of the new regulation concerning flavored milk drinks will include the disappearance of dairy only fruit flavored milk drinks in the future. The overall category will shrink alongside the reduction in the variety of products available. Currently, the price of individual flavored milk drinks is about Won1,000 (about $1) at convenience stores, although there are also many bundle promotions of flavored milk drinks that also sell for Won1,000 in hypermarkets. Thanks to the wellbeing trend, diverse recipes will begin to emerge involving baking bread and biscuits with fresh milk instead of powder and UHT milk. As such, consumption of powder and UHT milk will grow slow. Furthermore, the organic milk trend will be sustained, although organic milk will also be segmented further into low fat or baby milk. On the other hand, zero fat and low fat fresh/pasteurized milk will increase faster than full fat milk thanks to the consumer base of young females who will not drink milk because of its fat content.

Maeil Dairy and Namyang Dairy will continue to develop new products in order to gain more category share. Seoul Dairy’s products already carry lower prices than its competitors in milk; therefore the other two main companies will focus on premium brands, even if they are more expensive. These players will expand demand for premium milk in the future and will be among the first players to develop organic milk in South Korea for the first time.

Expanding the wellbeing trend, premium milk brands in each drinking milk category are popular. The Maeil Dairy Industry is present with organic milk brand, Sangha Farm, the milk of which is derived from good quality cows reared using environmentally friendly methods without artificial feed. According to Maeil, organic milk is suitable for consumers of all ages, particularly babies, children and pregnant women. The unit price of organic milk is almost double that of normal milk, but has expanded its market share rapidly. As the brand increased faster than expected since 2009, other competitors such as Namyang Dairy Products, Pasteur Milk and province milk brands have since also introduced organic milk brands. Babies’ milk contains more DHA and Omega3 than other milk products and its ingredients most closely resemble breast milk. Milk targeting special consumers was also introduced in 2010. Maeil segmented milk products under babies’ milk, children’s milk and zero fat milk. Children’s milk also offers more nutrition than normal milk and zero fat milk targets young women.

Powder milk and long-life/UHT milk continued to decrease both in value and volume terms. The retail volume of powder milk recorded 2 million liters and long-life/UHT 16 million liters respectively. These volume sales are marginal compared to those of fresh/pasteurized milk, as most consumers are not familiar with in Korea.

Unit prices were seen to increase in 2011, due to premium products and a shortage of raw milk from 2010. However, the current unit price of normal full-fat fresh/pasteurized milk decreased due to diverse promotions and also decreased more relative to other premium products. The current unit price of flavored milk drinks also increased to reflect the fact that most products now include real fruit juice.

Dairy, Cheese

Production:

In 2011, South Korea produced 24,700 MT of cheese, decrease of 10 percent from 2010. Fresh cheese was produced 3,600, decrease of 55 percent and processed cheese accounted for the remaining 21,100 MT, increase of 9 percent. Import was increased to 76,200 MT by 25 percent and made 12 percent higher consumption than a previous year. U.S. market share was 43 percent for 32,400 MT out of total imports. Outbreak of local FMD in November 2010, forced the slaughter of 34,000 dairy cows (8 % of 430,000 national herds), resulted in a shortage of raw milk and led to decrease the production of domestic raw cheese products. Most major cheese manufacturers produce several unprocessed soft cheeses to have as a dessert along with wine. Manufacturers are trying to introduce new format soft cheese slice format that is convenient for children and which has a squeezable format to use in cooking or as a salad dressing.

Consumption:

In 2011 retail value sales of cheese are increased by 15 percent to reach $333 million with 100,000 MT of volume. Cheese shows a marginal unit price increase as well as other dairy products. Korean consumers became familiar with unprocessed cheese through experience of overseas cultures. Unprocessed cheese recorded a healthy growth rate and leads the entire cheese market. Soft cheese is projected to record strong value growth of 15 percent with new products of unprocessed cheese. Unprocessed soft cheese Mozzarella was the leading type of cheese for pizza. Camembert cheese and Feta cheese is producing as dessert cheeses to have with wine. Due to the much higher price than processed cheese, the current unit price of cheese marginally increased in 2011. Many consumers demand unprocessed soft cheese in wine bars to have with wine and also enjoy cheese and wine at home. Premium cheese was made with high quality ingredients and led to an increase in the current unit price of processed cheese. Processed cheese is producing target children as a nutritional food, but unprocessed cheese increasingly targets adults. To recover from stagnation, processed cheese now also features organic or baby cheese.

Trade:

In 2011 Korea was the United States’ second largest market for cheese and curd with exports of around $140 million. Mozzarella, processed, and ripened cheeses are all significant categories. The U.S. market share in Korea for all cheeses is 39 percent, followed by New Zealand with 26 percent, the EU with 18 percent and Australia with 9 percent. Korea’s per capita consumption of dairy products is expected to grow about 15 percent over the next decade reflecting the growing economy, Korean’s exposure to a western diet, a rise in fast food outlets, and a growing appetite for pizza and pasta. Most domestic processed cheese is manufactured from imported fresh cheese.

The KOR-US FTA creates a zero-duty tariff-rate quota for cheeses covered under tariff lines 0406101000, 0406200000, 0406300000 and 0406900000. In the first year the in-quota amount is 7,000 MT and rises to 10,280 MT in year 2014. All U.S. cheeses will enter duty free by 2026.

In 2011, Korean cheese import reached to 76,200 MT by 25 percent increase and made 12 percent higher consumption than a previous year. U.S. market share was 43 percent for 32,400 MT out of total imports.

Korea was the United States’ second largest market for cheese and curd with exports of around $140 million in 2011. March 2011, the Ministry of Strategy and Finance (MOSF) announced temporary no import duty on 23,000 MT of mozzarella cheese (HS 0406.10) and cheddar cheese (HS 0406.90) through the end of 2011 due to the outbreak of FMD. The Mozzarella, processed, and ripened cheeses are all significant categories.

By the Korea-U.S. FTA implementation since March 2012, Korean consumers are expected to have more varieties of cheese from U.S. at lower prices to choose from once the import tax of 36% is removed, as specified under the terms of the agreement. Korea’s per capita consumption of dairy products is expected to grow about 15 percent over the next decade reflecting the growing economy, Korean’s exposure to a western diet, a rise in fast food outlets, and a growing appetite for pizza and pasta. Most domestic processed cheese is manufactured from imported fresh cheese.

In 2012, from January through August, Korea imported 49,000 MT cheese, U.S. exported 20,250 MT with 41 percent market as the largest exporter into Korea followed by New Zealand with 15,000 MT, Australia 4,700 MT as 3rd largest exporter.

Marketing:

Implementation of the U.S.-Korea FTA, Korean consumers are expected to have more varieties of cheese from U.S. at lower prices to choose from once the import tax of 35% is removed, as specified under the terms of the agreement. With the FTA benefit, more premium cheeses are expected to come into Korea and it will result in strong growth in margins despite the declining import tax in the future. Hard cheese will develop among consumers who have experienced a hard cheese culture while travelling overseas. Premium cheese products, such as baby cheese, are expected to develop the market. Additionally, consumers will seek more high quality products without artificial additives, and organic alternatives are expected by continuing concern of health consciousness. While production volumes will increase, the unit price of unprocessed cheese will drop.

Whey protein demands are extended by body builder, extreme athletes, everyday active consumers and weight watchers. Whey/dairy proteins are considered as a key ingredient for satiety promoting products and aid to reduce risk for many adult diseases such as bone health, obesity, diabetes and heart diseases as the health benefits.

Whey is co-product of cheese and contains lactose, protein, vitamins and minerals which are 50% of the nutrient of the original milk. Diverse whey protein usage across categories such as sports & energy bar, cereals, desserts & ice cream, baby food, bakery, and soft drinks are introduced to the market.

Dairy, Milk, Nonfat Dry

Production:

In 2011, local NFDM production amounted to 4,000 MT; a 58% decrease from the previous year. Due to the FMD outbreak in November 2010, import was increased to 34,000 MT, jumping up by 320 percent than a year of 2010 which was made by the government TRQ application.

Consumption:

In 2011, NFDM consumption amounted to 38,000 MT increased by 93 percent compare to a year of 2010. NFDM is used primarily for bakeries, infant formula and as an ingredient in other dairy products. Since NFDM production is largely a result of marketing quota policies, consumption is expected to continue to track closely with production.

Trade:

Due to the FMD outbreak in November 2010, import was increased to 34,000 MT, jumping up by 320 percent than a year of 2010. On March 2011, the Ministry of Strategy and Finance (MOSF) announced temporary no import duty on 30,000 MT of powdered skim & whole milk powder through the end of 2011 in order to stabilize food prices amid growing inflationary pressures. From January to August in 2012, Korea imported 13,500 MT, decreased by 60% compared to same period of 2011. Australia has 32 percent market share, followed by Germany 31 percent, France 14 percent and U.S. 7 percent with 950 MT during January through August in 2012.

Marketing:

Local food processors import NFDM for the purpose of processing into infant formula, bakery use and re-exporting to other countries, including China. However, in 2011, the most imported NFDM was used for bakery ingredients and infant formula. The Korea Customs Service reimburses the high out-of-quota tariff of 176% to importers when they have re-exported processed dairy-based products made from the imported NFDM. Korean dairy manufacturing companies are looking forward to expanding the market opportunities for exporting to China.

October 2012

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