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USDA GAIN: Dairy and Products


13 November 2013

USDA GAIN: South Korea Dairy and Products Annual 2013USDA GAIN: South Korea Dairy and Products Annual 2013

In 2012, retail sales of cheese reached a recorded to $404.7 million, which was an 11 percent increase from 2011. The United States was the largest dairy exporting country with 31 percent market share, followed by New Zealand with 18 percent, the EU with 14 percent and Australia with 10 percent. In milk, consumers tend to purchase premium products like organic milk for their children more than they do for themselves. With concerns over foot-and-mouth disease, local consumers tended to purchase premium drinking milk products for their babies and children. Adult milk continues to contribute bigger sales with 87% value share posted in 2012 as the majority of milk is for general consumption. Whey protein demands are supported by body builder, extreme athletes, everyday active consumers and weight watchers. Whey/dairy proteins are considered as a key ingredient for satiety-promoting products. In 2012, current value sales of fluid, spoonable yoghurt and sour milk product increased by 9% to reach $2.3 Billion. There should be more opportunities for imported products due to price competitiveness between local produced and imported NFDM. Free Trade Agreements are expected to expand market share for cheese and non fat dry milk for the US and EU.
USDA Gain Report - Dairy and Products

Commodities:

Dairy, Milk, Fluid

Production:

  • In 2012, Korean raw milk production was 2.11 million metric tons (MMT), increased by 11.7 percent compared to a previous year. Also, the number of milking cows increased by 12 percent. Since November 2010 however, dairy products in Korea, including fluid milk products, have suffered as a result of FMD that occurred amongst cows, pigs, and ox. Milk produced within 3km of farms where evidence of the disease appeared was disposed of. In 2012, even though the milk production was increased, manufacturers of fluid milk products had still had to increase their unit prices. This occurred due to production costs increasing during a slow economy along with an increase in labor and feed costs combined with a decrease in raw materials. As a result, value sales of fluid milk products increased by 8 percent in 2011. As manufacturers are increasing their unit prices again, sales values have risen again in 2012.

  • Fluid milk consumption was 75 percent of total raw milk production while the remaining 25 percent was marketed for processing.

Consumption:

  • Fluid milk products posted a 5% increase in current value sales to reach over $3.8 billion in 2012 despite a scare from foot-and-mouth disease in 2011. Since November 2010, dairy products have suffered as a result of foot-and-mouth disease The Korean government expanded importation of powder milk from foreign counties to supply the demand for milk. As manufacturers are increasing their unit price again, value sales have risen again in 2012. Cow’s milk products also recorded 4% current value growth due to unit price increases, and mainly led by premium products such as organic milk for their babies and children. In milk, adult milk continues to contribute bigger sales with 87% value share set to be posted in 2012 as the majority of milk is for general consumption. Local consumers have a more positive view of domestic farm products in Korea. Thus, market players also frequently emphasis the origin of their raw milk to show they got it from domestic cows and used domestic beans for soy milk products.

  • In a situation in which the milk supply was insufficient, manufacturers tended to promote more flavoured milk drinks that require less quality and quantity of milk than white milk. Coffee-flavoured milk drinks highly led the flavoured milk market in 2011, based on industry sources. In Korea, consumers enjoy drinking coffee and coffee flavours of food and beverages have shown fast growth in recent years. When comparing flavoured milk drinks and milk, the former is showing higher current value growth than milk products and is recorded a growth of 6% in 2012.

  • In milk, adult milk continues to contribute bigger sales with 87% value share set to be posted in 2012 as the majority of milk is for general consumption. Also, value-added products for pregnant women were also growing quickly. Consumers tend to purchase premium products like organic milk for their children more than they do for themselves. With concerns over foot-and-mouth disease, local consumers tended to purchase premium fluid milk products for their babies and children. Nonetheless, the value share of children’s fluid milk grew in the coming years in Korea. Due to higher unit prices of such products, children’s fluid milk portion of value sales is expected to increase by one percentage point to 13% in 2012.

  • The chilled flavoured is set to account for 97% of volume sales in 2012, with a slight increase in volume share compared to 2011. Chilled flavoured milk drinks still have higher volume share than ambient flavoured milk drinks in Korea.

  • Drinking yoghurt attracts consumers looking for an alternative to fluid milk products due to highly increased unit prices seen during the foot-and-mouth disease period. To cater to the demand, manufacturers also introduced new drinking yoghurt in 2011. As such, fluid milk products is expected to face higher competition with other dairy products between 2012 and 2017Fluid milk products is likely to compete with drinking yoghurt in local market over the coming years. Moreover, benefits of drinking yoghurt – including promoting health of the digestive system – also make consumers consider switching from fluid milk products.

  • Soy milk products achieved high growth as one of alternatives to cow’s milk products and recorded the fastest growth in 2012. Although the supply of cow’s milk later returned to normal, demand for soy milk products is following the wellbeing trend and resulting in double-digit growth of 10% in 2012. The main reason was shifting consumption from cow’s milk products since foot-and-mouth disease occurred at the end of 2010.

  • Due to that trend, long-life/UHT milk products are mostly consumed in the foodservice sector and by relatively few more consumers in retail. Although market players tried to promote the long-lasting benefit of such products, local consumers still preferred fresh/pasteurized milk. They were very familiar with chilled milk products and did not value the longevity of what they viewed as a product used daily. In milk, long-life/UHT milk declined by 3% in 2012.

Marketing:

  • In the coming years overall, categories in fluid milk products will show positive growth, largely led by premium products. However, long-life/UHT milk is expected to see ecline, posting a 6% decline in sales due to limited demand for this type of fluid milk in Korea. The sales value of fluid milk products are expected to increase at about 3% over the coming years.

  • Binggrae’s Banana Flavored Milk has been loved by consumers due to its unique flavor and packaging. In flavored milk drinks, Binggrae still showed the greatest performance with a 29% value share in 2012. Seoul Dairy Cooperative ranked first with a 37% value share in 2011 and recorded a slightly lower sales value share of 36% in 2012. The company will especially show a strong presence in milk sales with a 47% value share in 2012. Maeil Dairies ranks third in fluid milk products, having increased its sales value share to 16% in 2011 and expected to slightly increase its value share again in 2012. The company focuses on premium milk products, especially on organic milk.

  • The unit price of organic milk by Maeil Dairies ranges from $5.50 to $7.20 (Won5,867 to Won7,467) per litre. Although the sales of premium brands is increasing, standard brands still have the highest share in the market. Economy brands including private label brands, however, did not have significant shares in Korea, as consumers are still hesitant to purchase economy brands for products that should be fresh. The unit price in the market for cow’s milk is less than $3 (Won3,000)per litre based on industry surveyed data in 2012.

Commodities:

Dairy, Cheese
Select

Production:

  • In 2012, Korea produced 22,420 MT of cheese, decrease of 9 percent from 2011. Fresh cheese was produced 4,420 increase of 23 percent and processed cheese accounted for the remaining 18,000 MT, decrease of 15 percent. Import was increased to 71,500 MT by 2 percent and made 17 percent lower consumption than a previous year. U.S. market share was 41 percent for 31,877 MT out of total imports. In 2012, the production cost of dairy products jumped up by the increase of raw milk price, slow economy, increase the labor cost which led to decrease the production of domestic raw cheese products and domestic consumption. 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:

  • Local consumers became familiar with various types of cheeses as more people experienced foreign foods. The driving cheese product is mozzarella, which is frequently used in European full-service restaurants and pizza fast food outlets. Unprocessed cheese will drive the market with 17% current value growth in 2012, although unprocessed cheese accounts for only 32% of total cheese value sales. Especially the foodservice volume of unprocessed soft cheese again showed good performance, up by 10% in 2012 after 12% current value growth in 2010 and 11% growth in 2011. Current value sales of cheese increased by 11% to reach $404.7 million in 2012. Unprocessed soft cheese including mozzarella as a representative showed strong appeal for adult consumers as a snack or dessert in Korea.

  • Korean processed cheese mainly targets children as a healthy snack. Manufacturers emphasize their fortified ingredients when advertising processed cheese for children. It still has potential to grow due to premiumisation in cheese products for children, the market is recorded to see positive growth of 8% in 2012. Mozzarella will continue to be the most popular type in unprocessed cheese with a 60% value share in 2012, followed by Cheddar with a 23% value share in Korea. Mozzarella is considered easy to try, even for beginners who do not much enjoy cheese due to not liking a strong taste. Meanwhile, the popularity of other cheese including Cheddar and Camembert continues increasing in Korea. Also, mozzarella is more easily used for cooking dishes than other cheese The slices cheese is the most common type of processed in Korea.

  • Premiumisation has been more highlighted in cheese products for children. With additional calcium and DHA, such products are sold at a much higher price than other cheese products. The average unit price is also seeing positive growth. It rose by 6% in 2011 and is posted a 4% increase in 2012. Major players have tried to boost their value sales by introducing new products at higher unit prices. Even in adult cheese, the unit price is increasing, driven by organic cheese and imported cheese.

Marketing:

  • The leading players, Seoul Dairy Cooperative, Maeil Dairies, Namyang Dairy Products, and Dongwon Dairy Food, dominate the market and will account for an 88% value share in 2012. Seoul Dairy Cooperative maintained its first position in cheese market with a 41% value share in 2012. Maeil Dairies will rank second with a 22% value share in cheese, and its brand Sangha is expected to record the highest value share gain, increasing to 21% in 2012. The international company Kraft has a presence in the market, but its value share at 3% is much smaller than that of the domestic players. The top four companies in cheese are domestic players in Korea.

  • Constant value sales of cheese are expected to grow at an average annual growth of 5% in near coming years. Cheese consumption is increasing due to changes in food consumption with more Koreans having experienced foreign culture and wanting to enjoy different kinds of international cuisine. Expected growth of wine consumption will also support a positive prospect for cheese consumption in the near future.

  • Though processed cheese is considered to be stagnated, market players are likely to boost its value sales by promoting premium products. While constant value sales of unprocessed cheese will see the fastest growth at about 10% in the near future, processed cheese is also expected to do perform well with a constant value of 3% during the same period. Processed cheese products for children are predicted to continually become premium as local consumers are willing to pay more for children’s snacks. Thus, the average constant unit price is projected to be increasing over the coming years. New product development is expected to be active in cheese products for cooking. To cater to the demand, manufacturers are predicted to expand the product positioning of cheese from being a snack to being a cooking ingredient in the coming years. As Western dishes become familiar in Korea, consumers will start to get interested in using cheese for dishes.

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 continue to be introduced to the market. Whey protein demands are supported by body builders, 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.

Other Dairy Products

1. Yoghurt Products

  • Drinking yoghurt accounts for 70% of total yoghurt sales value , primarily becauseof traditional belief in Korea for digestive health properties. In 2012, the sales of yoghurt and sour milk products are expected rise by 9% to reach $2.3 billion as both drinking yoghurt and spoonable yoghurt are seen as healthy desserts in Korea. With its popular brands, Yakult Korea is expected to maintain lead with a 49% value share in 2012.

  • Both fruit-added spoonable yoghurt and plain spoonable yoghurt will see value growth of 5%. Drinking yoghurt is set to drive the market with 11% current value growth in 2012. Spoonable yoghurt also will see solid, 4% current value growth in 2012. Local consumers tend to prefer fruit-added spoonable yoghurt with pieces of fruits that they have enjoyed for a long time. Meanwhile, flavored spoonable yoghurt continues seeing a decline and is expected to post nearly a 2% drop in sales in 2011 with the trend that consumers are shifting to fruit added or plain spoonable yoghurt.

    Red Mango is a yoghurt foodservice chain, in Korea since 2002 has subsequently gained more of a presence in the country, increasing its number of outlets and several new yoghurt bar concepts have been launched such as the opening of the first Yo Café in 2008. Yo Café offers a wide variety of food and drinks made from yoghurt, including ice cream, cakes and smoothies. Both drinking yoghurt and spoonable yoghurt are expected to see unit price increases in 2012, with drinking yoghurt prices rising by 5% and spoonable yoghurt rising by 3%. While fluid milk suffered from foot-and-mouth disease concerns in 2011, manufacturers focused on developing new products in yoghurt. New product development also focused on value-added products.

2. Coffee whiteners and Condensed/Evaporated milk

  • Controversy continued to surround coffee whiteners (creamers) after Namyang Dairy Products released an advertisement that implied that existing coffee whiteners were harmful to consumers. Current value sales of other dairy coffee whiteners and condensed/evaporated milk continue declining with limited demand by 5% to $22 million in 2011.

  • While coffee whiteners are predicted to have the biggest drop in current value in 2012, only cream has positive current value growth, set to rise by 3% in 2012. The demand of cream is for pasta and also successfully its increasing penetration rate in espresso machines for whipped. In condensed/evaporated milk, Seoul Dairy Cooperative continues dominating the market with a 78% value share expected in 2012. As demand for condensed/evaporated milk is limited and the market size shows signs of stagnation, there has been no news of new product launches in the retail market.

  • As local consumers do not often use cream for cooking, long-life/UHT whipped cream is preferred over chilled creams. In Korea, long-life/UHT whipped cream is the most popular cream type and expected to hold a 54% value share, followed by chilled/fresh half/single cream with a 24% value share in 2012. Manufacturers increase the unit price of other dairy products to recoup sales revenue in the face of decreasing volume. Seoul Dairy Cooperative set to hold the highest value share of 48% in other dairy products in 2012.

Commodities:

Dairy, Milk, Nonfat Dry

Production:

In 2012, local NFDM production amounted to 14,200 MT; a 256% increase from the previous year. Due to an outbreak of FMD in 2011, milk production was up and down until the middle of 2012. In March of 2012, there was surplus of raw milk which made resulted inan increase of NFDM production in 2012.

Consumption:

In 2012, Inventory of NFDM and amount of duty free NFDM imports did not impact the markets in 2012. There should be more opportunities for imported products due to price competitiveness of imported NFDM versus between locally produced NFDM. In 2012, NFDM consumption amounted to 27,120 MT, a decrease of 28 percent compared to the year 2011. 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.

In 2012, NFDM import decreased by 45 percent to 18,840 MT compared to 2011. Due to the FMD outbreak in November 2010, imports increased to 34,000 MT, jumping by 320 percent over 2010. On March 2011, the Ministry of Strategy and Finance (MOSF) announced temporary a zero 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 September in 2013, Korea imported 13,850 MT, about same amount as the same period during 2012. Australia has 33 percent market share at 4,500 MT, followed by U.S. with 31 percent at 4,230 MT, Germany with 14 percent share at 1,950 MT and, France with 9 percent share at 1,290 MT. The U.S. exports to Korea increased from 1,940 MT in 2012 to 4,230 MT as second largest supplier to Korea during January – September 2013. It is estimated that total imports will be 18,500 MT during 2013.

Marketing:

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. 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 2012, most imported NFDM was used for bakery ingredients and infant formula.

November 2013

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