As agricultural environments are expected to change rapidly in the short and long term, several complementary policies are adopted for the Korea-US FTA. One of the policies is to establish a direct payment for upland crops. The goal of this study is to estimate the production inducement effects of a direct payment for upland crops that will be implemented beginning in 2012.
The direct payment is limited to farm households that produce 19 specific upland crops. Therefore, it is expected that the cultivation area of the 19 crops will expand and the supply and demand will be unbalanced. If the level of production of specific crops increases, the price is expected to decrease, which might result in having smaller income effects. To review and estimate these effects of the policy, we analyze the production inducement effects of the direct payment for 19 upland crops.
In chapter 2, we review the current status of upland farming and introduce the direct payment for upland crops. In chapter 3, we examine how the new policy would affect production. We use data from KOSIS 1990-2011 on farming areas of each region, prices of crops, and input prices.
In the first step, we estimate the relationship between farming areas and prices. In the second step, we examine how the increased income by the direct payment would be converted to higher prices. Using the results in the first step, it is calculated that the direct payment would amount to 400 thousand won. The result also shows that the farming area of 18 upland crops will increase by 2,800 hectares, which is 1.4% of the total cultivation area of the 18 crops in 2011.

Researchers: Dong-Gyu Park, Tae-hun Kim, Mee-bok Kim, Chang-ho Kim
Research period: 2012. 5. - 2012. 7.
E-mail address: dkpark@krei.re.kr