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Research Reports

KREI publishes reports through medium- and long-term research related to agricultural and rural policies, and through studies in various fields to promptly respond to current issues.

A Study on Korean Distribution System of Imported Fruits and Vegetables

2008.11.01 56574
  • Author
    Lee, Yongsun
  • Publication Date
    2008.11.01
  • Original

This study has a purpose of understanding the local distribution system of imported vegetables and fruits whose volume is increasing after the establishment of WTO. It deals with the features and causes of the increase in vegetable and fruit import, the features of imported vegetable and fruit distribution and associated problems, and the matters for improvement to resolve such problems. A total of 36 importers and 47 intermediary wholesalers were interviewed for this study.
The analytical results of the features of vegetable and fruit import and distribution are as follows:
(1) Fruits are mostly imported as fresh fruits. Fruits whose unit price is high or which have higher quality tend to be imported more frequently. In vegetables, frozen or half-processed (1st processing) spicy vegetables and Kimchi are imported from China in a significantly increasing volume.
(2) Importers play an important role in importation and local distribution of vegetables and fruits. Fruit importers are smaller in terms of number than vegetable importers. But in terms of import volume, fruit importers are 3-5 times larger than vegetable importers. The volume imported by fruit and vegetable importers shows the growing trend on average. However, most of them are small-sized except for a few. Likewise, importers are polarized by scale.
(3) Imported fruits are consumed at most home in the form of fresh fruit so that they are mainly distributed through importers, wholesalers and retailers in order. In the meantime, imported vegetables are used as food materials at restaurants and facilities for providing meals or for processing purpose by food processing companies. Therefore, the distribution routes of imported vegetables include wholesale markets, traditional open markets, processing factories, food suppliers and facilities for providing meals. 30% to 40% of imported fruits and vegetables are distributed through wholesale markets. The profit margin from imported vegetables and fruits are higher on the release stage than on the wholesale stage in general.
(4) Intermediary wholesalers of imported fruits trade a variety of imported fruits only for profit gaining purpose, while the intermediary wholesalers of imported vegetables handle one or two items of local produce as well as imported vegetables which are not locally produced at a certain time. Intermediary wholesalers prefer imported vegetables and fruits because of low and stable price, specifications, processing and follow-up measures (after problem occurs).
(5) Large-scale distributors import imported fruits from importers by 40% or above and recently they are presumed to import through their own importing division or an affiliate by some 20%. Quasi-wholesale markets and traditional open markets are presumed to account for 26% of the distribution of imported vegetables and fruits and to account for 30% of that of imported vegetables. Since traditional open markets have small-scale processing facilities such as mill, processing of frozen hot peppers, etc. is taking place there.
The problems faced when distributing imported vegetables and fruits include small and unstable importation structure, excessive competition within the market, inefficient quarantine and inspection, wholesale market structure and illegal distribution.
(1) According to the analysis of the Korea Customs Service's clearance data, the years in business of importers are 2 years or below on average and the importers which have been in business for 5 consecutive years or above account for 4.7% only. The imported vegetable and fruit volume handed by importers and intermediary wholesalers is small and they are in fierce competition. The measuring of intensity factors such as CR4 and HUI shows that competition is the most fierce in vegetables including frozen hot pepper, frozen garlic, carrot, onion and green onion.
(2) Many issues were raised regarding inefficiency and long time taken in the quarantine and inspection process of imported vegetables and fruits, which results in lowering product values. Inefficiency is also found in the distribution of imported vegetables and fruits at wholesale markets. It was criticized that a wholesale corporation performs the settlement function only; some intermediary wholesalers conduct illegal trading outside the exchange; and fees such as unloading fees are added at wholesale markets. Spicy vegetables are mainly used by restaurants and facilities for providing meals so that they are imported in the frozen form applied with lower tariff rates and distributed in Korea after reprocessing processes such as dry and grinding. When it comes to spicy vegetables, many cases of illegal distribution related to labeling of origin place are found.
(3) Spicy vegetables including hot pepper, garlic and onion are tariff rate quota items so that their importation is managed by the government. For the three items, the government's import takes up 15-30% of the total import volume. They are sold in the form of public auction, listing and direct distribution. The agricultural products imported through the government trading do not meet the quality expectation of general consumers, so that they are mainly purchased by restaurants and processing factories. Since the tariff is very low to quasi and alternative processed foods, the importation of spicy vegetables is dramatically increasing. This indicates the limit in protecting producers through TRQ management.
(4) The issues found related to the clearance and quarantine/inspection are as follows: The reporting of low prices, illegal smuggling and other illegal distributional cases are found. The document-based inspection process is less trustworthy. The departments in charge are multiple and they don't share information much. The importer management system is not existent. The registration-based importing system can accelerate the pop-up of small-scale importers. The lack of professional staff and high-tack gears for inspection and quarantine and the low technical standards puts a block to the thorough inspection and quarantine process.
(5) The country of origin labeling has several issues as follows: The false labeling of country of origin is differently punished by diverse related laws and controlled by two organizations. When it comes to traditional markets and small-scale stores such as street vendors, malpractice related to country of origin labeling is difficult to be regulated. The reporting of false country of origin is still insufficient.
To improve distribution of imported vegetables and fruits, the following issues should be addressed:
(1) To improve the customs clearance process, it is necessary to improve the statistical model that detects reporting of low prices and to collect basic information. The monitoring system should be strengthened to prevent illegal smuggling.
(2) To enhance the inspection and quarantine process, paper examination should take place less but instead in-depth examination and random sampling-based examination should take place more. It is necessary to designate one organization solely responsible for inspection and quarantine and to align the local laws and regulations with the international standards to improve the negative system or introduce a positive system like advanced countries.
(3) As a method of import management, the specifications for imported vegetables and fruits should be prepared in more details, and the market-oriented TQA method including the public auction of importation right should be expanded gradually.
(4) The roles of importers are critical in distributing imported vegetables and fruits. The database on importers should be established and the system of evaluating and disclosing credit rating of importer should be sought. Wholesale market is a distributional organization that plays a key role in distributing imported vegetables and fruits. Trading imported vegetables and fruits at stable prices is essential and the method of reducing subsidiary expenses should be pursued. To this end, it is necessary to seek electronic trading through fixed price and private sales.
(5) The inconsistent penalties by different organizations for country of origin labeling should be uniformed or the organization in charge should be designated as one. The guidance and management of country of origin should be continuously provided and conducted toward the non-regulated markets or small-scale companies. Processing companies should be mandated to manage the records on imported vegetables and fruits. The obligation of labeling country of origin at restaurants should be expanded on a gradual basis.
Researchers: Lee Yong-Sun, Kim Dong-Hoon, Choi Yoon-Young
E-mail Address: yslee@krei.re.kr

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