Research Reports
An Analysis of the Relation Between Market Opening and Structural Reform in Agriculture
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AuthorKim, Jeongho
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Publication Date2006.10.01
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Original
This study analyzed the relation between market opening and structural adjustment in agriculture. It is an empirical analysis of the impacts of the Uruguay Round Agreement on Agriculture (URAA) and the World Trade Organization (WTO). This study also analyzed several expected impacts of the Doha Development Agenda (DDA) as well as Free Trade Agreements (FTA).
The meaning of agricultural restructuring
"Agricultural Structure" means combinations of inputs as well as agricultural products. In particular, a very important structural combination is one that combines land and labor, the production elements that are fixed in the short run. "Restructuring" or "Structural Adjustment" means the renovation of an industry or a corporation to enhance the efficiency of its structure. In other words, "restructuring" improves competitiveness by downsizing inefficient parts and expanding efficient parts.
The trend of structural change in Korean agriculture
While the share of Korean agriculture in total GDP has sharply declined at an annual average of 6.0% from 1970 to 2005, the number of farm employees has dropped at a relatively slower pace of 5.2% on average during the same period. Therefore, there are more than enough farmers.
The share of aged farmers has been increasing due to the shortage of succeeding farmers. However, it is hard to classify them as farmers. Nonetheless, they have a keen desire to possess farmland. While the number of farm households decreased rapidly, the total area of arable land dropped slowly. As a result, the farmland per household has increased. Since 1990, the arable land has been concentrated on large-scale farms. The proportion of large scale farms has increased greatly in livestock and greenhouse horticulture.
In the mid 1970s, the structure of agricultural production became market-oriented. While the share of grain production remained steady, the production share of vegetables, fruits, and livestock increased.
The outlook for structural change in agriculture by market opening
The URAA has reinforced the decreasing rate of farm households by 0.49%. The ongoing FTA between Korea and the U.S. is expected to accelerate the decreasing rate by 0.23%. The impact of market liberalization on farmlands is relatively small.
However, the agricultural GDP and farm household income are considerably affected by market liberalization. The agricultural GDP is expected to drop by 1.90% due to URAA and decrease at an annual average of 1.47% by the FTA between Korea and the U.S. during 2005~2015. The agricultural revenue during 1985~1995 increased at an annual average of 8.08%, but dropped an annual average of 2.96% from 1995 to 2005. It is predicted to be dropped by 0.59% from 2005 to 2015, and by 0.72% if the FTA between Korea and the U.S. is concluded.
In terms of the change in agricultural labor force by age, the share of farm operators under 50 years of age is expected to be decreased from 39.6% in 2005 to 28.7% in 2015. The share of older farm operators over 70 years of age is expected to increase from 24.3% to 34.6% during the same period.
In the future, agricultural production will increasingly depend on large-scale farms. The share of large-scale farms in the grains sector will increase rapidly and cooperate management in the livestock sector will be expanded.
The direction of the government policy in agricultural structure
The Korean government should draw up a desirable picture of the agricultural structure with mid- and long-term perspectives, and simultaneously implement policies for restructuring the agricultural structure to secure agricultural competitiveness.
Since a decrease in the earnings of low income farmers by market liberalization is larger than that of full-time farmers, the government should not only promote the expansion of farm size but also support managerial stability through income insurance.
The government has to introduce a retirement system in farming. Since it is virtually impossible for elderly farm operators to retire at ease without farmer's pension, the government should introduce social security schemes like direct retirement payment for farmers.
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