As the world’s 14th-largest economy with around 50 million consumers, the Korean market represents an important opportunity for Australian food and beverage exporters.
Korea is already Australia’s third-largest export market and fourth-largest overall trading partner and it is a larger market for Australia than the United States, Indonesia or India. Korean consumers have a favourable image of Australian products as premium, fresh and safe.
South Korea imports around 60 to 70 per cent of its food and agricultural needs. This proportion has increased in recent years as local producers struggle to keep pace with changing patterns of demand.
Korea’s impressive economic growth and increasing income per capita are leading to substantial shifts in consumption. Traditional Korean food staples such as rice, for example, are losing ground to high-quality meat, fruit, vegetables and dairy products.
Korean consumers are also becoming more conscious of food safety. The discovery of BSE-infected cattle in the US and melamine contamination in Chinese processed foods has led to an increase in demand for food sourced from “clean” environments.
Australia is particularly well regarded in this respect and Korean consumers are already familiar with many of our products, including beef, which has been highly successful in the market. With around 200,000 Koreans and Korean-Australians living, working and travelling in Australia at any one time, many Koreans are also increasingly exposed to the brands and tastes of Australian products.
What Kafta brings to the table
The recently signed Korea-Australia Free Trade Agreement (KAFTA) will immediately generate new opportunities for Australian food and beverage producers.
On entry into force, 84 per cent of Australia’s exports to Korea by value will enter duty free. After full implementation, the agreement will eliminate tariffs on 99.8 per cent of Australian exports.
This will help to create a level playing field for Australian exporters competing with firms from the US, the European Union and Chile, all of which are currently enjoying trade benefits from FTAs with Korea.
KAFTA is therefore a game changer for Australia’s primary producers and farmers in the Korean market. It will eliminate prohibitive tariffs greater than 550 per cent in some cases, with gains across beef, sugar, dairy, wheat, wine, fresh produce and seafood.
Austrade is ready to assist new-to-market exporters who need assistance in finding capable, established and knowledgeable local distributors and partners. Austrade can also assist in Korea through the provision of tailored market insight, as well as in expanding local market presence for players already established.
Opportunities uncorked
Under KAFTA, Korea is also set to become an increasingly important export market for Australian wine producers.
The Korean wine market is still in a relatively early stage of growth, with beer and soju (traditional Korean hard liquor) continuing to dominate.
Ongoing diversification of Korean consumer demand coupled with the tariff reductions under KAFTA, however, is likely to provide Australian wine with new opportunities in Korea.
Australian wine already has a stake in the Korean market with nearly $10 million worth exported to Korea in 2012/13, despite a 15 per cent tariff. Upon entry into force of the new arrangements, Australian wine will enter Korea duty free, putting it on the same footing as wine from the US, EU and Chile.
Exports to bear fruit
KAFTA will deliver tariff elimination on most of Australia’s horticulture exports to Korea, including the removal of a 24 per cent tariff on cherries; eight per cent on almonds and 21 per cent on dried grapes.
This is good news for Australian fruit and nut producers such as Reid Fruits, a cherry producer from the Derwent Valley in southern Tasmania.
Reid Fruits specialises in growing and exporting premium quality dark cherries to consumers in over 20 countries across Europe, Asia, Middle East and it is one of the largest cherry producers in Australia.
Reid Fruits, which has 100 hectares of cherries under production this year, has been exporting cherries to Korea for over five years now.
The company says it has found doing business there to be tough going due to high tariffs and competition from suppliers in other countries that already enjoy improved market access under their own FTAs.
“KAFTA will help us increase our sales to Korea,” Lucy Gregg, business development manager at Reid Fruits, says.
“It will make our cherries more competitive and more appealing to Korean consumers.”
About the author
Brett Cooper is Austrade’s Senior Trade Commissioner at the Australian Embassy in Korea. Austrade’s office in Seoul is responsible for advancing Australia’s international trade, investment and education interests in Korea. He can be contacted at Brett.Cooper@austrade.gov.au.
KAFTA kicks off
Australia’s Minister for Trade and Investment, Andrew Robb, and his South Korean counterpart, Yoon Sang-jick, formally signed the Korea-Australia Free Trade Agreement (KAFTA) in Seoul in April.
South Korea is Australia’s fourth-largest trading partner, with bilateral trade worth $32 billion in 2012. According to independent modelling commissioned by the Australian government, the KAFTA will add $650 million to the Australian economy.
Agricultural exports to South Korea are expected to be 73 per cent higher after 15 years and overall exports to South Korea will be 25 per cent higher.
“The government’s swift conclusion of these historic agreements sends a strong signal that Australia is indeed open for business,” Robb said at the signing.
“With one in five Australian jobs linked to trade, these agreements are good for the economy, good for growth and good for job creation.
“Building stronger trading relationships in Asia is critical to Australia’s economic future. Signing KAFTA today takes us closer to realising our goal of finalising FTAs with our major north Asian partners – China, Japan and South Korea – which together account for 37 per cent of Australia’s overall trade and two-thirds of our total goods exports.”
The KAFTA is expected to be in force by the end of the year.
