Free-trade agreement will support U.S. beef recovery in South Korea

by Dan Halstrom, Senior Vice President of Global Marketing & Communications – U.S. Meat Export Federation

Introduction

Eight years ago, South Korea was a rapidly growing market for U.S. beef exports, ranking only behind Japan and Mexico among the top international destinations. Today, South Korea again is one of the fastest-growing markets for U.S. beef products. While the discovery of BSE (bovine spongiform encephalopathy) in the United States in 2003 created a serious setback, the resurgence in Korean consumer confidence – as well as the recent approval of the Korea-U.S. Free Trade Agreement (FTA) – suggest that solid export growth to this key trading partner should continue.

Discussion

In the early 2000s, U.S. beef exports to South Korea were on the fast track. Between 2001 and 2003, exports to South Korea grew a substantial 65 percent in volume and 109 percent in value, reaching the hefty totals of 246,595 metric tons (543.6 million pounds) valued at $815 million. As a point of comparison, in 2010, only Mexico (narrowly) exceeded those totals, purchasing 247,614 metric tons of U.S. beef valued at $819 million.

The discovery of BSE in the United States changed that growth trajectory significantly. After dipping to a low of 233 metric tons valued at $610,000 in 2006, U.S. beef did not have a sustained import initiative in Korea until it was reintroduced in mid-2008. At that time, Australia controlled more than 75 percent of the imported beef market in Korea while New Zealand owned about 20 percent. The reentry of U.S. beef to the Korean market in the summer of 2008 was a rocky one as negative and inaccurate reporting in Korean media created a backlash based on unfounded food safety fears. The global recession that significantly sapped the buying power of Korean consumers also played a major role.

Launched in December 2009, the first phase of the U.S. Meat Export Federation (USMEF) “To Trust” imaging campaign marked the beginning of the rebound of U.S. beef fortunes in Korea. In the year preceding that, the backlash from street protests caused mainstream media to refuse taking USMEF advertising dollars to promote U.S. beef.

The campaign was designed around three American women: a rancher, a scientist and a food safety inspector. The women were depicted in their work setting as well as with their children – sending the clear message to the Korean buyers of beef, primarily mothers and homemakers, that these women are both professionals as well as mothers who work to guarantee the safety of the beef they feed to their own families and the beef shipped to Korean consumers.

The second phase of the campaign, released in December 2010, built on the “To Trust” theme, but focused on Korean consumers and their confidence that U.S. beef will deliver a delicious and satisfying meal to their families.

All the while, the confidence of Korean consumers in U.S. beef was rebuilding. By late 2010, when the second phase of the “Trust” campaign debuted, the United States’ share of Korean beef imports topped 30 percent while Australia’s share was just more than 50 percent and New Zealand’s share continued to decline.

The campaign to rebuild the Korean market for U.S. beef continues on many fronts. As U.S. beef reentered the market in 2008, USMEF focused on some high-visibility outlets that would send a message of confidence to consumers, including big box retailers, high-end steakhouses and hotels. As the climate in Korea became more receptive, efforts turned to popular mid-size barbecue restaurants, rib/soup restaurants and franchised establishments.

Now that the penetration of U.S. beef is approaching that of Australian beef (37.5 percent to 49.1 percent in the latest surveys), USMEF is turning its attention to the multitude of independent neighborhood barbecue restaurants as well as the catering trade.

To support this initiative, USMEF is unveiling the third phase of its “To Trust” imaging campaign focused on the theme of “World Class Beef.” The campaign will focus on the quality of U.S. beef which has helped it earn a place on the plates of consumers around the world. It is expected to help sustain the momentum that U.S. exports have enjoyed through the first nine months of 2011, reaching 110,017 metric tons (242.5 million pounds) valued at $485.6 million.

The opportunity to increase U.S. beef exports to South Korea became even greater recently when the governments of Korea and the United States approved a much-debated free-trade agreement, which will provide benefits to consumers in both countries. While many products will be covered by the FTA, the impact on U.S. beef, specifically, will be dramatic. Duties on beef muscle cuts, which now stand at 40 percent, will be reduced to zero over 15 years. Similarly, 18 percent duties on variety meat will drop to zero over the same time span.

The elimination of the duties should make U.S. beef available at a much more attractive price for Korean consumers who have endured some of the highest food inflation in the world. Those cost savings are expected to help double U.S. beef exports over the coming 15 years from $518 million last year to more than $1 billion per year.

Conclusions

While U.S. beef exports to South Korea continue to grow (up 49 percent in volume and 41 percent in value this year over 2010 levels), there remains untapped demand, as evidenced by the dominant market share among imported products that U.S. beef held there in 2003 (pre-BSE). The successful campaign to rebuild Korean consumer confidence in U.S. beef is yielding positive results, and the opportunities to sustain that growth will be helped by the recent passage of the Korea-U.S. Free Trade Agreement.