Recently world grain prices have rapidly soared. This brought about significant influences on global economy causing 'agflation' phenomenon which describes inflation led by rises in agricultural commodity prices. One of reason for the agflation was the increase of grain demand for bio-fuel . World grain market is also unstabilized by uncertain changes in weather and productions. The instability is possibly intensified by speculative grain majors which is multinational grain traders. The grain majors such as Cargill, Bunge, ADM are dealing with 80% of the global grain trade. Because of high dependency on grain import, Korea is directly exposed to the uncertainty in the world grain market. Korea is the forth largest food import country with 14 million tons of grains a year. Thereby Korea has low grain self-sufficiency rate(only 27%).
The objective of this study is to suggest implications to Korean food security policy through developing a new food security index and recognizing threatening elements in world food supply and importance of overseas agricultural development.
The new food security index is composed of three sectors such as global, domestic and household sectors considering comprehensive concept of recent food security. Each sector has 2 sub-categories and each category has also several indicators with total 21 indicators. The result of calculating the new total food security index shows that the level of Korean food security in 2009 is 53.3 out of 100. This is relatively low due to low self sufficiency, low stock rate, continually decreased arable land, and relatively less effective overseas agricultural development despite its growing magnitude. A low food security at a household level was also one of reason to the low food security level. In addition, the new food security index's trend of past 10 years also well represents food crises of 2007-2008.
An international organizations such as USDA, FAPRI, OECD-FAO forecast that grains prices will be increased. Due to the policies of expanding ethanol use global ethanol production is projected to increase by more than 110% by 2019 and to reach some 159 bnl. Because of increasing mandates and consumption incentives, global biodiesel production is also expected to increase to almost 41 bnl by 2019 far above the average 2007~09 level. Thereby instability of the international crop prices and the imbalance between supply and demand are highly expected.
Grain majors such as Cargill, Bunge, ADM are significantly influential on Korean grain import. Almost 60% of Korean grain import is covered by the grain majors. However, when the international grain prices are highly increased, dependency on Japanese companies was also increased. Thereby it is expected that the competition between grain majors and Japanese companies in Korea's grain market will be intensified as world price rises changing Korea's grains market structure into more oligopolized.
Meanwhile, Korea's grain import-to-distribution structure is vulnerable to negative effects caused by instability of world grain market. One of reasons is that Korea's grain import countries are very limited to a few countries such as US, Canada, Brazil, China, Australia. Moreover, because the export-infrastructure of some countries which can export their overproduced grains is not well established, the diversification strategy for grain import is not effective that much. Korea's principal grain import strategy, C&F Flat transaction, is also very weak to uncertainty. It is a simple way of buying crops, choosing lowest price in a public open tender. Because the price is accepted as granted and only lowest price is chosen, it is not effective in managing risk from world market. In addition, the capability of managing grain stock through grain storage facilities at Korean major harbors is still questioned. A strategic stock management to mitigate the impact of food crises and emergency is not well developed.
Considering situations related with Korea's food security some implications for policy making are suggested as follows; 1) make full use of basis transactions in the global market, 2) develop professionals and experts in the field of futures trading, 3) establish domestic grain import-to -distribution strategy against food crises and emergency, 4) improve economic profitability of overseas agricultural development, 5) build up information system for the overseas agricultural development and 6) share useful informations and data about the overseas agricultural development between the participating companies and government.


Researchers: Byeong-Ryul Kim, Ik-su Jun and Jong-Yeol Yoon
E-mail address: brkim@krei.re.kr