The purpose of this study is to analyze what effect the labeling of origin of beef in restaurants and the cattle tracking system had on domestic Korean beef market. In Korea, Hanwoo, the traditional Korean beef, has a large price premium over domestically produced beef made from dairy cattle and beef imported from countries like the USA and Canada. A great temptation exists for sellers to deceive the origin of beef to capture the price premium.
The problem is that consumers do not have correct information about the origin of beef they consume. As a result, they have low confidence in the origin of beef in the market. To correct this low credibility problem caused by lack of information, the Korean government enacted two laws regarding the labeling of origin of beef at restaurants and cattle tracking.
The Food Safety Law was introduced to let consumers have correct information about the origin of beef they consume. To prevent intentional mislabeling of the food origin, the beef origin labeling in restaurants was enforced on January 1st, 2007. From July 8th 2008, all restaurants and shops selling beef are mandated to clearly show the origin of the beef.
A cattle tracking system was introduced on June 22, 2009. Together with the labeling of beef origin at restaurants, the beef tracking system provides consumers with information about the origin of beef as well as the marketing channels through which beef is traded from farmers to consumers.
After the introduction of the beef tracking system, the price and demand for Korean beef increased substantially. A comparative statics analysis showed that the labeling of beef origin had the net effect of increasing the demand for Korean beef by 16.8% and the supply by 13.2%. When both the labeling of origin of beef and the cattle tracking system are taken into account as a whole, the demand for Korean beef increased by 21.5%, whereas the supply increased at a negligible rate of 0.6%. The implementation of the beef origin labeling and the cattle tracking system have increased consumer surplus and producer surplus. The consumer surplus increased by 492.1 billion won and producer surplus by 544.4 billion won. The overall social surplus increased by 1,036.5 billion won. In the meantime, a simulation analysis showed that the value of breeding herd inventory depends on how long the positive effect on the demand for Korean beef is sustained.