Opportunity report: Milk Powder in South Korea

Transcription

1 Opportunity report: Milk Powder in South Korea September, 2015 Hojin Kang, Seoul 1. Introduction The Netherlands is the largest exporter of milk powder into Korea. Especially, Milk Powder Preparation was the 5 th largest commodity, among all kinds of commodities, exported from the Netherlands into Korea in Korea is an interesting market for foreign dairy exporters because the raw milk price in Korea is very expensive: almost double price of the Netherlands. In spite of that, foreign milk/yoghurt products have never entered the market because the market is strongly protected with several barriers such as high customs duty and political opposition by farmers. Milk powder, however, is largely imported as an ingredient for local production of dairy, confectionery and bakery products. Imported milk powder has played an important role in Korea in decreasing the cost for food production. 2. Opportunities for Dutch companiesr - Overall, the import of milk powder into Korea will continue to increase because the local raw milk price is going up. - It is recommended for Dutch exporters to pay more attention to S(W)MP because the collective FTA quota is increasing. - The position of the Netherlands for S(W)MPP and CP is firm thanks to good mixing facilities in the Netherlands. - Whey powder, casein and lactose can be a new market for Dutch exporters because the tariffs will be removed in 1 July 2016, based on the EU-Korea FTA. 3. General information on milk powder Milk powder products imported into Korea varies from Skim Milk Powder (SMP) to Whole Milk Powder (WMP), Skim Milk Powder Preparation (SMPP), Whole Milk Powder Preparation (WMPP), Cocoa Preparation (CP), Whey Powder, Whey Protein, Casein and Lactose. The Netherlands is particularly strong in SMPP, WMPP and CP in the Korean market.

2 Table 1, Definition of Milk Powder products Definition HS code Use SMP Skim Milk Powder Flavored milk, WMP Whole Milk Powder Yoghurt, Ice cream, Infant formula, S(W)MPP1 S(W)MP + Other milk powder (Whey powder or whey protein) SMPP: WMPP: Flavored milk, Yoghurt, Ice cream, S(W)MPP2 S(W)MP + Other SMPP: Ice cream powder (malt, flour and WMPP: starch) CP SMP + Cocoa mass Chocolate, Ice cream Choco snack/biscuit Whey Powder Whey protein <80% Infant formula, Flavored milk, Beverage, Whey Protein Whey protein >80% Yoghurt, Infant formula Casein Casein and Caseinate 3501 Coffee creamer Artificial milk powder Lactose Lactose Dairy products, medicine - Customs duty The tariffs of skim milk powder (SMP) and whole milk powder (WMP) are basically very high in Korea: 176% and 573% respectively. Therefore SMP/WMP has been imported into Korea within inquota quantity of WTO or FTA. Dutch milk powder exporters have historically focused on S(W)MPP rather than S(W)MP because there is no quota limitation in SMPP/WMPP and the Netherlands is advanced in the blending technology for mixed milk powder: S(W)MPP. Table 2, Quota and Tariffs Tariff general (%) WTO EU-Korea FTA Inquota Quota Managed Staging Quota change Managed

3 tariff (%) (ton) by category (yrs) 1 (ton) by SMP KDIA 2-1,000 1,512 WMP KDIA (in 16 years) 3 S(W)MPP S(W)MPP CP at Whey Powder Whey Protein ,233 KDIA - 3,350 4,243 (in 10 years) 5 KDIA Casein 5 or Lactose ,400 KDIA+6as sociations Local situation The import of S(W)MP and S(W)MPP have been fluctuated depending on the situation of the local S(W)MP stock. When the stock went down, the import went up to cover the shortage in the local stock. In 2011 when there was an outbreak of Foot and Mouth Disease in Korea, the local stock was almost exhausted and the import quantity was a historic record high, particularly in S(W)MPP. That was exceptionally possible because the Korean government set a provisional quota for S(W)MP in 2011 to stabilize the domestic market. Some of Dutch S(W)MPP exporters also joined this quota provisionally to have the benefit of the special zero-tariff quota. After FMD was contained in 2012, the domestic dairy industry was turned around, the stock was fully recovered. In the mean time, there were two important changes in the local market. One was the EU-Korea FTA (2012) and the US-Korea FTA (2012). Based on the EU- Korea FTA, FTA quota was set to enable EU exporters to export SMP/WMP into Korea without tariff. This quota is assigned by the Korea Agro-Fisheries Trade Corporation through auction as stipulated in the FTA. Korea is signing FTAs with several other countries including Australia and New Zealand. Therefore the 1 From 1 July 2011(Effectuation date) for the category years, the tariffs will gradually go down to zero tariff 2 Korea Dairy Industries Association 3 After year 16, the inquota quantity will remain the same as the quantity of year 16 4 Korea Agro-Fisheries Trade Corporation 5 After year 10, the inquota quantity will become unlimited.

4 collective quantity of FTA quota is increasing and will stimulate the import of S(W)MP. The other was an introduction of the milk price linkage system in Korea that was laid down in August 2013 by the Korean government. Before this system, the Korean government and dairy farmers had tough negotiations every 2 or 3 years to set an official price of raw milk. But after this milk price linkage system was introduced due to a political pressure by dairy farmers, the price is yearly set on the basis of farmer s cost and the national inflation. This system however is facing a criticism that it doesn t reflect supply and demand in the market; In spite of over-production of milk and the increasing stock of SMP/WMP, the price stays high. For farmers, there is no reason to be innovative for efficient milk production because the price is guaranteed regardless of the situation in the market. This is weakening the price competitiveness of local milk. Aforementioned two changes are causing a big shift in the market. As shown in Fig. 1, in spite of the increasing local stock since 2012, the import of S(W)MP didn t go back to the normal level of import before 2011: between 5,000 and 10,000 ton. The import has stayed more than 20,000 ton and increased even more. As the market size of S(W)MP is getting bigger, it is recommended for Dutch exporters to pay more attention to the S(W)MP market. Fig. 1, Local stock and imports of S(W)MP and S(W)MPP by year 45,000 40,000 35,000 30,000 Ton 25,000 20,000 15,000 10,000 5, Local stock 13,641 7,877 5,674 9,505 4,435 8,761 7,795 4,472 1,050 1,648 7,468 7,328 18,484 Import S(W)MP 5,222 6,212 5,898 7,889 8,632 6,063 6,174 10,795 9,228 38,777 20,368 21,699 23,196 Import S(W)MPP 21,712 12,713 29,611 28,708 26,527 31,723 24,015 22,256 30,416 34,687 26,565 33,858 38,093

5 - Competition Countries in Europe, North America and Australia are competing each other for the Korean milk powder market. The largest exporter of milk powder into Korea is the Netherlands, accounting for 29% (USD 137 million) of the total import (USD 470 million), followed by the US, France, Germany and New Zealand. The Netherlands is strong in S(W)MPP1, CP and Whey Powder, while the US is strong in Whey Protein, Whey Powder and S(W)MP. France, New Zealand and Singapore are leading the markets for S(W)MPP2, Casein and CP respectively. Fig. 2, Value share of milk powder import into Korea in 2014 by country 160, , , ,000 USD 1,000 80,000 60,000 40,000 20,000 0 Holland US France Germany New Zealand Australia Singapor e Denmark Canada Japan Ireland UK Belgium Italy Lactose 3,728 16,847 1,240 5,606 1, , Casein 5, ,647 10,478 25,310 1, ,589 1, , Whey Protein 0 12, ,455 1, , Whey Powder 6,538 15,891 4,890 4, , CPP 18,078 6,864 5, , S(W)MPP ,306 13,859 2,787 1, , , ,648 S(W)MPP1 99,998 2,056 2,932 3,763 1, , S(W)MP 3,066 32,720 15,024 16,317 6,170 24, , Trend All the milk powder products are growing steadily. The largest market is S(W)MPP and the most promising milk powder is S(W)MP. Fig. 3, Import value of milk powder products into Korea per year

6 160, , ,000 USD1, ,000 80,000 60,000 40,000 20, S(W)MP 8,672 10,785 11,895 18,881 20,146 20,654 25,571 26,699 28, ,924 67,174 84, ,194 S(W)MPP1 26,277 12,696 46,067 54,092 48,034 76,870 77,373 52,349 77,764 95,317 65,014 97, ,338 S(W)MPP2 14,887 12,304 17,886 18,565 19,568 26,912 28,891 16,827 12,933 27,984 26,315 28,414 37,774 CP 17,727 13,012 18,971 20,547 22,578 24,691 24,945 20,320 28,156 41,329 37,966 38,808 50,652 Whey powder 23,237 25,035 26,334 32,786 50,449 67,083 38,306 28,888 40,661 42,969 66,687 60,835 57,833 Whey protein 7,074 5,375 6,813 8,176 10,263 12,758 13,914 12,240 15,555 19,183 24,680 31,699 25,157 Casein 26,595 23,977 34,411 44,641 45,947 58,236 86,286 43,467 47,456 64,906 57,344 65,614 68,131 Lactose 9,265 9,287 9,678 9,759 12,156 31,008 19,125 9,528 15,647 26,747 34,900 29,412 30, Specific information by milk powder product - S(W)MP (Skim/whole milk powder) Since the general tariff for S(W)MP is very high (176%), S(W)MP should be imported through WTO or FTA quota system. FTAs that Korea signed are contributing the increase of FTA quota and the import of S(W)MP. There is another way to import S(W)MP at zero tariff: importing on the condition that the imported SMP / WMP will be used as ingredient for certain food products to be totally exported. The total import in 2014 was USD 101 million, and the US (32% 6 ), Australia (25%), Germany (16%) and France (15%) led the market. - S(W)MPP (Skim/Whole Milk Powder Preparation) Some years ago, Dutch milk power exporters came up with an idea to mix skim milk powder and other kind of powder to decrease the tariff; the tariff of S(W)MPP becomes 36% when mixed; HS code or S(W)MPP1 classified as HS code is composed of generally 85 6 Herein after all value share for country share

7 88 % of S(W)MP and % of other milk powder such as whey powder and whey protein. Presently the most well-known formula of S(W)MPP1, HS code , is 85 % of SMP and 15 % of demineralized 7 whey permeate. This is largely used by milk and yoghurt makers. Another popular formula, especially to ice cream makers, is 88 % of SMP, 6 % of whey protein and 6 % of demineralized whey powder/permeate. S(W)MPP2 classified as HS code is composed of generally % of S(W)MP and % of other powder such as sucrose, malto dextrin, fiber and coconut oil. Most of them are used for ice cream. The quality of milk powder becomes a bit lowered when mixed. But the cost benefit is enormous. Korean dairy sector welcomed this compound milk powder which can contribute to the cost reduction for their dairy products. The tariff of S(W)MPP became even lower thanks to the EU-Korea FTA: 22.9 % as of July 2014, and will be zero in The total import of S(W)MP1 and S(W)MP2 in 2014 were USD 120 million and USD 36 million respectively. The Netherlands was the largest exporter of S(W)MPP, accounting for 64% of the total import. Only for S(W)MPP1, the share was more than 83%. As the Netherlands has better mixing facilities for milk powder compared to other countries, the position of the Netherlands will continuously be strong in the market. - CP (Cocoa Preparation) CP is generally composed of 85 % of skim milk powder and 15 % of cocoa. Since only 8 % of tariff is imposed on CP in spite of approx. 85 % of high percentage of milk powder, most of chocolate, chocolate ice cream and chocolate milk produced in Korea are made of imported CP. The tariff will completely be removed on 1 July There are two kinds of CPs: HS code (SMP + cocoa mass) and (SMP + Cocoa powder). From 2011, HS code is no longer imported into Korea because Korean consumers prefer to high quality 7 Not completely demineralized, usually 40 % demineralized

8 chocolate products made from cocoa mass (HS code ). The total import in 2014 was USD 51 million. The Netherlands (36%) and Singapore (39%) are sharing the market. 4) Whey Powder The general tariff for S(W)MP is also high (49.5%). Therefore most of whey powder is imported into Korea through WTO or FTA quota system. Conventional whey powder is mainly used for flavored milk and beverage while Demineralized Whey Powder (DWP) is used for infant formula. DWP accounts for around 33% of the total whey powder import in volume. Whey Protein Concentrate (WPC) containing less than 80% whey protein (HS code and ) is also regarded as whey powder according to HS classification. There is only one local producer of whey powder, producing around 2,000~3,000 ton per year. This can satisfy only 5~7% of the domestic demand. The rest is covered by imported whey powder. The total import in 2014 was USD 39 million, and the US was the largest exporter, accounting for 41%. The Netherlands was the 2 nd largest exporter (17%). 5) Whey Protein WPC containing more than 80% of whey protein is classified as Milk Albumin (HS code ) and the tariff rate is 8%. Thus traders like to import WPC as Milk Albumin (HS code ) rather than whey powder (HS code and ). Conventional WPC is mainly used for infant formula while hydrolyzed/modified WPC is used for yoghurt as a gelling agent. The import in 2014 was USD 25 million, and the US (49%) and Canada (31%) were the largest exporters. 6) Casein The tariff rate of Casein and Caseinate is 8%. Casein or Caseinate is mainly used for artificial milk powder and coffee creamer. The tariff will completely be removed on 1 July The import in 2014 was USD 66 million. New Zealand was the largest exporter (38%), followed by France and Germany.

9 7) Lactose Due to the high tariff rate for lactose: 49.5%, lactose has been imported into Korea through WTO quota system. But this quota will be no longer needed from 1 July 2016 because the tariff will completely be lifted. Lactose is largely imported for medicine, feed and infant formula. There is no local production of lactose in Korea. All of lactose needed should be imported. 54% of the import is from Australia. 4. Websites - Korea Dairy Committee Korea Dairy Industries Association Tradefairs - Seoul Food Show it is held every year in May and the show in 2016 is from 10 to 13 May * Website: 6. More information Hojin Kang, Mr. Agricultural policy officer, Embassy of the Kingdom of the Netherlands, Seoul Tel: , (dir.) Fax: Mobile: agrinet@live.com, hojin.kang@minbuza.nl Website: